<PAGE>
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM N-4
REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933 [ ]
Pre-Effective Amendment No. 1 [X]
Post-Effective Amendment No. [ ]
and/or
REGISTRATION STATEMENT UNDER THE INVESTMENT COMPANY ACT OF 1940
Amendment No. 2 (File No. 811-7195) [X]
---------
(Check appropriate box or boxes)
AMERICAN ENTERPRISE VARIABLE ANNUITY ACCOUNT
- - - --------------------------------------------------------------------------------
(Exact Name of Registrant)
American Enterprise Life Insurance Company
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(Name of Depositor)
80 South 8th Street, P.O. Box 534, Minneapolis, MN 55440-0534
- - - --------------------------------------------------------------------------------
(Address of Depositor's Principal Executive Offices) (Zip Code)
Depositor's Telephone Number, including Area Code (612) 671-3678
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Mary Ellyn Minenko, IDS Tower 10, Minneapolis, MN 55440-0010
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(Name and Address of Agent for Service)
It is proposed that this filing will become effective: September 21, 1999 or as
soon as possible
<PAGE>
Prospectus
, 1999
American Express Pinnacle Variable AnnuitySM
Individual flexible premium deferred combination fixed/variable annuity
American Enterprise Variable Annuity Account
Issued by: American Enterprise Life Insurance Company (American Enterprise Life)
80 South Eighth Street, P.O. Box 534,
Minneapolis, MN 55440-0534
Telephone: 800-333-3437
This prospectus contains information that you should know before investing. You
also will receive the prospectuses for:
o AIM Variable Insurance Funds, Inc.
o American Express(R) Variable Portfolio Funds
o Fidelity Variable Insurance Products - Service Class
o Franklin Templeton Variable Insurance Products Trust (FTVIP) - Class 2
o Templeton Variable Products Series Fund (TVP) - Class 2
o MFS(R) Variable Insurance TrustSM
o Putnam Variable Trust
Please read the prospectuses carefully and keep them for future reference. This
contract is available for nonqualified annuities, IRAs (including Roth IRAs) and
Simplified Employee Pension (SEP) plans.
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..............................................................
The Contract in Brief..................................................
Expense Summary........................................................
Condensed Financial Information (Unaudited)............................
Financial Statements...................................................
Performance Information................................................
The Variable Account and the Funds.....................................
The Fixed Account......................................................
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............................................
Year 2000..............................................................
Table of Contents of the Statement of Additional Information...........
<PAGE>
Key Terms
These terms can help you understand details about your contract.
Accumulation unit - A measure of the value of each variable 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 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 account - An account to which you may allocate purchase payments. Amounts
you allocate to this account earn interest at rates that we declare
periodically.
Funds - Investment options under your contract. You may allocate your purchase
payments into subaccounts investing in shares of any or all of these funds.
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 for one of the following
retirement plans that is subject to applicable federal law and any rules of the
plan itself:
o Individual Retirement Annuities (IRAs), including Roth IRAs
o Simplified Employee Pension (SEP) plans
All other contracts are 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 subaccount invests in shares of one fund. The value of
your investment in each subaccount changes with the performance of the 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 investments (purchase payments)
that may earn returns that increase the value of the contract. The contract
provides lifetime or other forms of payouts beginning at a specified date (the
retirement date). 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.
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:
o the variable 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 variable subaccounts. (p. )
o the fixed account, which earns interest at a rate 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. Some states have time limitations for making additional payments.
o Minimum initial purchase payment - $2,000
o Minimum additional purchase payment - $100 ($50 for Systematic Investment
Plan payments)
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) (p. )
Transfers: Subject to certain restrictions you currently may redistribute your
money among accounts without charge at any time until annuity payouts begin, and
once per contract year among the subaccounts after annuity payouts begin. You
may establish automated transfers among the fixed account and subaccounts. 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. )
<PAGE>
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 fixed account.
(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:
o $30 annual contract administrative charge;
o 0.15% variable account administrative charge;
o 1.00% mortality and expense risk fee if death benefit Option A applies; or
1.10% mortality and expense risk fee if death benefit Option B applies;
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.
Expense Summary
The purpose of this table 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
you bear directly or indirectly for the subaccounts and funds below. Some
expenses may vary as we explain under "Charges." Please see the fund's
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)
Years from purchase Withdrawal charge
payment receipt percentage
1 8%
2 8
3 7
4 6
5 5
6 4
7 2
Thereafter 0
Annual contract administrative charge $30*
* We will waive this charge when your contract value is $50,000 or more on
the current contract anniversary.
<PAGE>
<TABLE>
<CAPTION>
Annual variable account expenses
(as a percentage of average subaccount value and will vary depending on death option that applies)
<S> <C> <C>
Option A Option B
Variable account administrative charge 0.15% 0.15%
Mortality and expense risk fee 1.00% 1.10%
Total annual variable account expenses 1.15% 1.25%
</TABLE>
<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
AIM V.I. Capital Appreciation Fund .62% -- .05 .67%1
AIM V.I. Value Fund .61% -- .05 .66%1
AXPSM Variable Portfolio - Blue Chip Advantage Fund .56% .13 .39 1.08%2
AXPSM Variable Portfolio - Bond Fund .60% .13 .07 .80%3
AXPSM Variable Portfolio - Cash Management Fund .50% .13 .06 .69%3
AXPSM Variable Portfolio - Diversified Equity Income Fund .56% .13 .39 1.08%2
AXPSM Variable Portfolio - Extra Income Fund .62% .13 .09 .84%3
AXPSM Variable Portfolio - Managed Fund .59% .13 .04 .76%3
AXPSM Variable Portfolio - New Dimensions Fund .61% .13 .06 .80%3
AXPSM Variable Portfolio - Small Cap Advantage Fund .79% .13 .44 1.35%2
Fidelity VIP Balanced Portfolio (Service Class) .44% .10 .15 .69%1,4
Fidelity VIP Growth Portfolio (Service Class) .59% .10 .06 .75%1,4
Fidelity VIP Growth & Income Portfolio (Service Class) .49% .10 .11 .70%1,5
Fidelity VIP Mid Cap Portfolio (Service Class) .59% .10 .41 1.10%3
FT VIP Mutual Shares Securities Fund - Class 2 .74% .25 .03 1.02%6,7
FT VIP Value Securities Fund - Class 2 .75% .25 ~ 1.08%6,7,8
FT VIP Small Cap Fund - Class 2 .75% .25 .02 1.02%6,7
TVP Templeton International Fund - Class 2 .69% .25 .17 1.11%
MFS(R)- Growth with Income Series9 .75% -- .13 .88%
MFS(R)- New Discovery Series9 .90% -- .27 1.17%10
MFS(R)- Total Return Series9 .75% -- .16 .91%
MFS(R)- Utilities Series9 .75% -- .26 1.01%
Putnam VT Growth and Income Fund - Class IB Shares .46% .15 .04 .65%2
Putnam VT Income Fund - Class IB Shares+ .65% .15 .07 .87%2
Putnam VT International Growth Fund - Class IB Shares .80% .15 .27 1.22%2
Putnam VT Vista Fund - Class IB Shares .65% .15 .12 .92%2
</TABLE>
1Figures in "Management Fees," "Other Expenses" and "Total" are based on actual
expenses for the fiscal year ended Dec. 31, 1998.
2 Based on estimated expenses for the first fiscal year.
3Annualized operating expenses of funds at Dec. 31, 1998.
4A portion of the brokerage commissions that certain funds pay was used to
reduce fund expenses. In addition, certain funds, or FMR on behalf of certain
funds, have entered into arrangements with their custodian whereby credits
realized as a result of uninvested cash balances were used to reduce custodian
expenses. Including these reductions, the total annual operating expenses,
before reimbursement for Balanced Portfolio and Growth Portfolio would have been
0.70% and 0.80% respectively.
5Fidelity Management & Research Company agreed to reimburse a portion of the
class' expenses during the period. Without this reimbursement, the Management
fee, 12b-1 fee, Other Expenses and Total Operating Expenses as a percentage of
their respective average net assets would have been 0.49%, 0.10%, 0.12% and
0.71%.
<PAGE>
+ Prior to April 9, 1999 was known as Putnam VT U.S. Government and High Quality
Bond Fund
6Because no Class 2 shares were issued as of Dec. 31, 1998, figures (other than
Rule 12b-1 fees) are based on the Portfolio's Class 1 actual expenses for the
fiscal year ended Dec. 31, 1998 plus Class 2's annual Rule 12b-1 fee of 0.25%.
(While the maximum amount payable under each Portfolio's Class 2 Rule 12b-1 plan
is 0.35% per year of the Portfolio's average daily net assets, the Board of
Trustees of Franklin Templeton Variable Insurance Products Trust has set the
current rate at 0.25% per year).
7The figure shown under Management Fees, combines both the Management and
Portfolio Administration Fees. The Portfolio Administration Fee is a direct
expense for the Mutual Shares Securities Fund and Value Securities Fund. The
Small Cap Fund pays for similar services indirectly through the Management Fee.
8The Value Securities Fund commenced operations May 1, 1998, therefore,
Management Fees and Rule 12b-1 Fees are annualized and Other Expenses are
estimated for 1999.
9Each 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. Expenses do not take into account these
expense reductions, and are therefore higher than the actual expenses of the
series.
10Fees 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 MFS New Discovery Series would have been
(0.90%, 4.32% and 5.22%).
<PAGE>
Example:*
<TABLE>
<CAPTION>
You would pay the following expenses on a $1,000 investment in an annuity with a
1.00% mortality and expense risk fee, assuming 5% annual return and:
no withdrawal or selection
a full withdrawal at of an annuity payout plan
the end of each time period at the end of each time period
<S> <C> <C> <C> <C>
1 year 3 years 1 year 3 years
AIM V.I. Capital Appreciation Fund 99.34 129.82 19.34 59.82
AIM V.I. Value Fund 99.24 129.51 19.24 59.51
AXPSM Variable Portfolio - Blue Chip Advantage Fund 103.49 142.36 23.49 72.36
AXPSM Variable Portfolio - Bond Fund 100.62 133.70 20.62 63.70
AXPSM Variable Portfolio - Cash Management Fund 99.50 130.29 19.50 60.29
AXPSM Variable Portfolio - Diversified Equity Income 103.49 142.36 23.49 72.36
Fund
AXPSM Variable Portfolio - Extra Income Fund 101.03 134.94 21.03 64.94
AXPSM Variable Portfolio - Managed Fund 100.21 132.46 20.21 62.46
AXPSM Variable Portfolio - New Dimensions Fund 100.62 133.70 20.62 63.70
AXPSM Variable Portfolio - Small Cap Advantage Fund 106.31 150.82 26.31 80.82
Fidelity VIP Balanced Portfolio (Service Class) 99.55 130.44 19.55 60.44
Fidelity VIP Growth Portfolio (Service Class) 100.16 132.31 20.16 62.31
Fidelity VIP Growth & Income Portfolio (Service Class) 99.65 130.75 19.65 60.75
Fidelity VIP Mid Cap Portfolio (Service Class) 103.75 143.13 23.75 73.13
FT VIP Mutual Shares Securities Fund - Class 2 102.93 140.67 22.93 70.67
FT VIP Value Securities Fund - Class 2 103.54 142.52 23.54 72.52
FT VIP Small Cap Fund - Class 2 102.93 140.67 22.93 70.67
TVP Templeton International Fund - Class 2 103.85 143.44 23.85 73.44
MFS(R)- Growth with Income Series 101.49 136.34 21.49 66.34
MFS(R)- New Discovery Series 104.47 145.29 24.47 75.29
MFS(R)- Total Return Series 101.80 137.27 21.80 67.27
MFS(R)- Utilities Series 102.83 140.36 22.83 70.36
Putnam VT Growth and Income Fund - Class IB Shares 99.14 129.20 19.14 59.20
Putnam VT Income Fund - Class IB Shares 101.39 136.03 21.39 66.03
Putnam VT International Growth Fund - Class IB Shares 104.98 146.83 24.98 76.83
Putnam VT Vista Fund - Class IB Shares 101.90 137.58 21.90 67.58
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
You would pay the following expenses on a $1,000 investment in an annuity with a
1.10% mortality and expense risk fee, assuming a 5% annual return and:
no withdrawal or selection
a full withdrawal at of an annuity payout plan
the end of each time period at the end of each time period
<S> <C> <C> <C> <C>
1 year 3 years 1 year 3 years
AIM V.I. Capital Appreciation Fund 100.37 132.93 20.37 62.93
AIM V.I. Value Fund 100.26 132.62 20.26 62.62
AXPSM Variable Portfolio - Blue Chip Advantage Fund 104.52 145.44 24.52 75.44
AXPSM Variable Portfolio - Bond Fund 101.65 136.80 21.65 66.80
AXPSM Variable Portfolio - Cash Management Fund 100.52 133.39 20.52 63.39
AXPSM Variable Portfolio - Diversified Equity Income 104.52 145.44 24.52 75.44
Fund
AXPSM Variable Portfolio - Extra Income Fund 102.06 138.04 22.06 68.04
AXPSM Variable Portfolio - Managed Fund 101.24 135.56 21.24 65.56
AXPSM Variable Portfolio - New Dimensions Fund 101.65 136.80 21.65 66.80
AXPSM Variable Portfolio - Small Cap Advantage Fund 107.34 153.88 27.34 83.88
Fidelity VIP Balanced Portfolio (Service Class) 100.57 133.55 20.57 63.55
Fidelity VIP Growth Portfolio (Service Class) 101.19 135.41 21.19 65.41
Fidelity VIP Growth & Income Portfolio (Service Class) 100.67 133.86 20.67 63.86
Fidelity VIP Mid Cap Portfolio (Service Class) 104.77 146.21 24.77 76.21
FT VIP Mutual Shares Securities Fund - Class 2 103.95 143.75 23.95 73.75
FT VIP Value Securities Fund - Class 2 104.57 145.60 24.57 75.60
FT VIP Small Cap Fund - Class 2 103.95 143.75 23.95 73.75
TVP Templeton International Fund - Class 2 104.88 146.52 24.88 76.52
MFS(R)- Growth with Income Series 102.52 139.43 22.52 69.43
MFS(R)- New Discovery Series 105.49 148.36 25.49 78.36
MFS(R)- Total Return Series 102.83 140.36 22.83 70.36
MFS(R)- Utilities Series 103.85 143.44 23.85 73.44
Putnam VT Growth and Income Fund - Class IB Shares 100.16 132.31 20.16 62.31
Putnam VT Income Fund - Class IB Shares 102.42 139.12 22.42 69.12
Putnam VT International Growth Fund - Class IB Shares 106.00 149.90 26.00 79.90
Putnam VT Vista Fund - Class IB Shares 102.93 140.67 22.93 70.67
</TABLE>
* In these examples, the $30 annual contract administrative charge is
approximated as a 0.067% charge based on the average estimated 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 to be a representation of past or future
expenses. Actual expenses may be more or less than those shown.
<PAGE>
Condensed Financial Information (Unaudited)
We have not provided this information for the subaccounts because they are new
and do not have any history.
Financial Statements
You can find our audited financial statements in the SAI. The SAI does not
include the audited financial statements of the subaccounts because they are new
and do not have any performance.
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. Currently, we do not provide any performance information for the
subaccounts, because they are new and have not had any activity to date.
However, we show performance from the commencement date of the funds as if the
contract existed at that time which, it did not. Although we base performance
figures on historical earnings, past performance does not guarantee future
results.
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 the deduction of all applicable charges (except
premium taxes) including:
o contract administrative charge;
o mortality and expense risk fee;
o variable account administrative charge; and
o withdrawal charge (assuming a withdrawal at the end of the
illustrated period)
We also show optional total return quotations that do not reflect a withdrawal
charge deduction (assuming no withdrawal). 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 the 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.
<PAGE>
You should consider performance information in light of the investment
objectives and policies, characteristics and quality of the fund in which the
subaccount invests and the market conditions during the given time period.
Advertised yields and total return figures include charges that reduce the
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, contact us at
the address or telephone number on the first page of this prospectus.
The Variable Account and the Funds
You may allocate purchase payments to any or all of the subaccounts of the
variable account that invest in shares of the following funds (Subaccounts
depend on the mortality and expense risk fee that applies to your contract):
<TABLE>
<CAPTION>
<S> <C> <C> <C>
- - - ------------------------------------------------------------------------------------------------------------------------------
Subaccount Investing in Investment Objectives and Policies: Investment Advisor or
Manager
- - - ------------------------------------------------------------------------------------------------------------------------------
- - - ------------------------------------------------------------------------------------------------------------------------------
PCAP 1 AIM V.I. Capital Objective: growth of capital. Invests primarily in A I M Advisors, Inc.
PCAP 2 Appreciation Fund common stocks, with emphasis on medium- and
small-sized growth companies.
- - - ------------------------------------------------------------------------------------------------------------------------------
- - - ------------------------------------------------------------------------------------------------------------------------------
PVAL 1 AIM V.I. Value Fund Objective: long-term growth of capital with income A I M Advisors, Inc.
PVAL 2 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.
- - - ------------------------------------------------------------------------------------------------------------------------------
- - - ------------------------------------------------------------------------------------------------------------------------------
PBCA 1 AXPSM Variable Portfolio - Objective: long-term total return exceeding that of IDS Life Insurance Company
PBCA 2 Blue Chip Advantage Fund the U.S. stock market. Invests primarily in common (IDS Life), investment
stocks of companies that are included in the manager; American Express
unmanaged S&P 500 Index. Financial Corporation
(AEFC) investment advisor.
- - - ------------------------------------------------------------------------------------------------------------------------------
- - - ------------------------------------------------------------------------------------------------------------------------------
PBND 1 AXPSM Variable Portfolio - Objective: high level of current income while IDS Life, investment
PBND 2 Bond Fund conserving the value of the investment for the manager; AEFC, investment
longest time period. Invests primarily in advisor.
investment-grade bonds.
- - - ------------------------------------------------------------------------------------------------------------------------------
- - - ------------------------------------------------------------------------------------------------------------------------------
PCMG 1 AXPSM Variable Portfolio - Objective: maximum current income consistent with IDS Life, investment
PCMG 2 Cash Management Fund liquidity and conservation of capital. Invests in manager; AEFC, investment
money market securities. advisor.
- - - ------------------------------------------------------------------------------------------------------------------------------
- - - ------------------------------------------------------------------------------------------------------------------------------
PDEI 1 AXPSM Variable Portfolio - Objective: high level of current income and, as a IDS Life, investment
PDEI 2 Diversified Equity Income secondary goal, steady growth of capital. Invests manager; AEFC, investment
Fund primarily in equity securities. advisor.
- - - ------------------------------------------------------------------------------------------------------------------------------
- - - ------------------------------------------------------------------------------------------------------------------------------
PEXI 1 AXPSM Variable Portfolio - Objective: high current income, with capital growth IDS Life, investment
PEXI 2 Extra Income Fund as a secondary objective. Invests primarily in manager; AEFC, investment
long-term, high-yielding, high-risk debt securities advisor.
below investment grade issued by U.S. and foreign
corporations.
- - - ------------------------------------------------------------------------------------------------------------------------------
- - - ------------------------------------------------------------------------------------------------------------------------------
PMGD 1 AXPSM Variable Portfolio - Objective: maximum total investment return through IDS Life, investment
PMGD 2 Managed Fund a combination of capital growth and current income. manager; AEFC, investment
Invests primarily in stocks, convertible advisor.
securities, bonds and money market instruments.
- - - ------------------------------------------------------------------------------------------------------------------------------
- - - ------------------------------------------------------------------------------------------------------------------------------
PNDM 1 AXPSM Variable Portfolio - Objective: long-term growth of capital. Invests IDS Life, investment
PNDM 2 New Dimensions Fund primarily in common stocks of U.S. and foreign manager; AEFC, investment
companies showing potential for significant growth. advisor.
- - - ------------------------------------------------------------------------------------------------------------------------------
- - - ------------------------------------------------------------------------------------------------------------------------------
PSCA 1 AXPSM Variable Portfolio - Objective: long-term capital growth. Invests IDS Life, investment
PSCA 2 Small Cap Advantage Fund primarily in equity securities of small companies manager; AEFC, investment
that are often included in the S&P SmallCap 600 advisor; Kenwood Capital
Index or the Russell 2000 Index. Management LLC,
sub-investment advisor.
- - - ------------------------------------------------------------------------------------------------------------------------------
- - - ------------------------------------------------------------------------------------------------------------------------------
PBAL 1 Fidelity VIP Balanced Objective: income and growth of capital. Invests Fidelity Management &
PBAL 2 Portfolio (Service Class) primarily in a diversified portfolio of equity and Research Company (FMR),
fixed-income securities with income, growth of investment manager; FMR
income, and capital appreciation potential. U.K., FMR Far East and
Fidelity Investments Money
Market Management Inc.
(FIMM), sub-investment
advisors.
- - - ------------------------------------------------------------------------------------------------------------------------------
- - - ------------------------------------------------------------------------------------------------------------------------------
PGRO 1 Fidelity VIP Growth Objective: capital appreciation. Invests primarily FMR, investment manager;
PGRO 2 Portfolio (Service Class) in common stocks of the companies that the manager FMR U.K., FMR Far East and
believes have above-average growth potential. FIMM, sub-investment
advisors,
- - - ------------------------------------------------------------------------------------------------------------------------------
- - - ------------------------------------------------------------------------------------------------------------------------------
PGRI 1 Fidelity VIP Growth & Objective: high total return through a combination FMR, investment manager;
PGRI 2 Income Portfolio (Service of current income and capital appreciation. Invests FMR U.K. and FMR Far East,
Class) primarily in common stocks with a focus on those sub-investment advisors
that pay current dividends and show potential for
capital appreciation.
- - - ------------------------------------------------------------------------------------------------------------------------------
- - - ------------------------------------------------------------------------------------------------------------------------------
PMDC 1 Fidelity VIP Mid Cap Objective: long-term growth of capital. Invests FMR, investment manager;
PMDC 2 Portfolio (Service Class) primarily in medium market capitalization common FMR U.K. and FMR Far East,
stocks. sub-investment advisors.
- - - ------------------------------------------------------------------------------------------------------------------------------
- - - ------------------------------------------------------------------------------------------------------------------------------
PINT 1 Templeton International Objective: long-term capital growth. Invests Templeton Investment
PINT 2 Fund primarily in equity securities of non-U.S. Counsel, Inc.
(Class 2) companies.
- - - ------------------------------------------------------------------------------------------------------------------------------
- - - ------------------------------------------------------------------------------------------------------------------------------
PMSS 1 Franklin Templeton VIP Objective: capital appreciation with income as a Franklin Mutual Advisers,
PMSS 2 Mutual Shares Securities secondary goal. Invests primarily in equity LLC
Fund - Class 2 securities of companies that the manager believes
are available at market prices less than their
actual value based on certain recognized or
objective criteria (intrinsic value).
- - - ------------------------------------------------------------------------------------------------------------------------------
- - - ------------------------------------------------------------------------------------------------------------------------------
PSMC 1 Franklin Templeton VIP Objective: long-term capital growth. Invests Franklin Advisers, Inc.
PSMC 2 Small Cap Fund - Class 2 primarily in equity securities of U.S. small
capitalization (small cap) growth companies.
- - - ------------------------------------------------------------------------------------------------------------------------------
- - - ------------------------------------------------------------------------------------------------------------------------------
PVAS 1 Franklin Templeton VIP Objective: long-term total return. Invests Franklin Advisory Services,
PVAS 2 Value Securities Fund - primarily in common stocks of companies the manager LLC
Class 2 believes are significantly undervalued.
- - - ------------------------------------------------------------------------------------------------------------------------------
- - - ------------------------------------------------------------------------------------------------------------------------------
PGIS 1 MFS(R) Growth with Income Objective: current income and long-term growth of MFS Investment
PGIS 2 Series capital and income. Invests primarily in common Management(R)
stocks and related securities, such as preferred
stocks, convertible securities and depository
receipts for those securities.
- - - ------------------------------------------------------------------------------------------------------------------------------
- - - ------------------------------------------------------------------------------------------------------------------------------
PNDS 1 MFS(R) New Discovery Series Objective: capital appreciation. Invests primarily MFS Investment
PNDS 2 in equity securities of emerging growth companies. Management(R)
- - - ------------------------------------------------------------------------------------------------------------------------------
- - - ------------------------------------------------------------------------------------------------------------------------------
PTRS 1 MFS(R) Total Return Series Objective: above-average income consistent with the MFS Investment
PTRS 2 prudent employment of capital, with growth of Management(R)
capital and income as a secondary objective.
Invests primarily in a combination
of equity and fixed income
securities.
- - - ------------------------------------------------------------------------------------------------------------------------------
- - - ------------------------------------------------------------------------------------------------------------------------------
PUTS 1 MFS(R) Utilities Series Objective: capital growth and current income. MFS Investment
PUTS 2 Invests primarily in equity and debt securities of Management(R)
domestic and foreign companies in the utilities
industry.
- - - ------------------------------------------------------------------------------------------------------------------------------
- - - ------------------------------------------------------------------------------------------------------------------------------
PGIN 1 Putnam VT Growth and Objective: capital growth and current income. Putnam Investment
PGIN 2 Income Fund - Class IB Invests primarily in common stocks that offer Management, Inc.
Shares potential for capital growth,
current income or both.
- - - ------------------------------------------------------------------------------------------------------------------------------
- - - ------------------------------------------------------------------------------------------------------------------------------
PINC 1 Putnam VT Income Fund - Objective: high current income consistent with what Putnam Investment
PINC 2 Class IB Shares Putnam Management believes to be prudent risk. The Management, Inc.
fund will normally invest mostly in bonds and other
debt securities, and, to a lesser degree, in
preferred stocks.
- - - ------------------------------------------------------------------------------------------------------------------------------
- - - ------------------------------------------------------------------------------------------------------------------------------
PIGR 1 Putnam VT International Objective: capital appreciation. Invests primarily Putnam Investment
PIGR 2 Growth Fund -- Class IB in equity securities of companies located in a Management, Inc.
Shares country other than the United States.
- - - ------------------------------------------------------------------------------------------------------------------------------
- - - ------------------------------------------------------------------------------------------------------------------------------
PVIS 1 Putnam VT Vista Fund - Objective: capital appreciation. Invests primarily Putnam Investment
PVIS 2 Class IB Shares in a diversified portfolio of common stocks which Management, Inc.
Putnam Management believes have the
potential for above-average capital
appreciation.
- - - ------------------------------------------------------------------------------------------------------------------------------
</TABLE>
There is no current limit on the maximum number of subaccounts to which you can
allocate purchase payments or contract value. However, we reserve the right to
limit the maximum number of subaccounts at any time.
The variable account also includes other subaccounts that are available under
contracts not described in this prospectus. 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 U.S. Treasury and the Internal Revenue Service (IRS) said that they may
provide additional guidance on investment control. This concerns how many
subaccounts an insurance company may offer and how many exchanges among
subaccounts it may allow before the 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 contract 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 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 Fixed Account
You also may allocate purchase payments to the fixed account. We back the
principal and interest guarantees relating to the fixed account. The value of
the fixed account increases as we credit interest to the account. Purchase
payments and transfers to the fixed account become part of the general account
of American Enterprise Life, the company's main portfolio of investments. We
credit and compound interest daily to produce an effective annual interest rate.
We will change the interest rate from time to time at our discretion.
Interests in the fixed account are not required to be registered with the SEC.
The SEC staff does not review the disclosures in this prospectus on the fixed
account. Disclosures regarding the fixed account, however, may be subject to
certain general 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 fixed account).
Buying Your Contract
Your sales representative will help you prepare and submit your 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 be the annuitant if you are 90 or younger. (In Pennsylvania,
the annuitant must be age 80 or younger.)
When you apply, you may select:
o the fixed account and/or subaccounts in which you want to invest;
o how you want to make purchase payments;
o the date you want to start receiving annuity payouts (the retirement date);
o a death benefit option; and o a beneficiary.
The contract provides for allocation of purchase payments to the subaccounts
and/or to the fixed account in even 1% increments.
If your application is complete, we will process it and apply your purchase
payment to the fixed account 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 the application and return your payment. We will credit
the 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 $2,000. 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. In Maryland and Washington, you
may make additional purchase payments to nonqualified annuities until the later
of the annuitant's 63rd birthday or the third contract anniversary, and you may
make additional purchase payments to qualified annuities until the annuitant's
63rd birthday. In Massachusetts, you may make additional purchase payments for
ten years only.
<PAGE>
The retirement date
Annuity payouts are scheduled 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:
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 10th contract anniversary,
if later).
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 are taking the minimum IRA 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 10th contract anniversary, if later. (In Pennsylvania, annuity
payouts must start no later than annuitant's 82nd birthday or the eighth
contract anniversary.)
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 (includes SIPs): $2,000
Minimum additional purchase payments:
$100 for regular purchase payments
$ 50 for SIPs
Maximum total purchase payments:
$1,000,000 (for issue ages up to 85 without prior approval) $100,000
(for issue ages 86 to 90 without prior approval)
How to make purchase payments
By letter
Send your check along with your name and contract number to:
Regular mail:
American Enterprise Life Insurance Company
80 South Eighth Street
P.O. Box 534
Minneapolis, MN 55440-0534
<PAGE>
Express mail:
American Enterprise Life Insurance Company
Attention: Unit 829
733 Marquette Avenue
Minneapolis, MN 55402
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 account in the
same proportion your interest in each account bears to your total contract
value. We will waive this charge when the contract value is $50,000 or more on
the current contract anniversary. If you take a full withdrawal from your
contract, we will deduct the $30 annual 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 either 1.00% or 1.10% of their average daily net
assets on an annual basis depending on the death benefit option that applies to
your contract. If death benefit Option A applies, the mortality and expense risk
fee is 1.00%. If death Option B applies, the mortality and expense risk fee is
1.10%. 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 account.
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 and variable account administrative charge and these charges may not
cover our expenses. We would have to make up any deficit from our general
assets.
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.
<PAGE>
Withdrawal charge
If you withdraw part or all of your contract, you may be subject to a withdrawal
charge. We calculate the withdrawal charge by drawing from your total contract
value in the following order:
o After the first contract year, we withdraw up to 10% of your prior
anniversary contract value that you have not yet withdrawn during that
contract year. We do not assess a withdrawal charge on this amount.
o During the first contract year, we withdraw contract earnings, if any.
After the first contract year, we withdraw those contract earnings that are
greater than any applicable 10% free withdrawal amount described above.
Contract earnings are contract value minus all purchase payments received
and not previously withdrawn. We determine contract earnings by looking at
the entire contract value, not the earnings of any particular subaccount or
the fixed account. We do not assess a withdrawal charge on this amount.
o Next, we withdraw purchase payments we received eight or more years before
the withdrawal and not previously withdrawn. We do not assess a withdrawal
charge on these purchase payments.
o Finally, if necessary, we withdraw purchase payments received in the seven
years before the withdrawal on a "first-in, first-out" (FIFO) basis. There
is 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 withdrawn.
Years from purchase Withdrawal charge
payment receipt percentage
1 8%
2 8
3 7
4 6
5 5
6 4
7 2
Thereafter 0
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 July 1, 1999 with a contract year of July 1 through
June 30 and with an anniversary date of July 1 each year; and
o We received these payments:
- $10,000 July 1, 1999;
- $8,000 Dec. 31, 2004;
- $6,000 Feb. 20, 2007; and
o The owner withdraws the contract for its total withdrawal value of $38,101
on Aug. 5, 2009 and had not made any other withdrawals during that contract
year; and
o The prior anniversary July 1, 2008 contract value was $38,488.
<PAGE>
<TABLE>
<CAPTION>
<S> <C> <C> <C>
Withdrawal charge Explanation
$ 0 $3,848.80 is 10% of the prior anniversary contract value withdrawn
without withdrawal charge; and
$10,252.20 is contract earnings in excess of the 10% free withdrawal
amount withdrawn without withdrawal charge; and
$10,000 July 1, 1999 payment was received
eight or more years before withdrawal and
is withdrawn without withdrawal charge;
and
400 $8,000 Dec. 31, 2004 payment is in its fifth year from receipt,
withdrawn with a 5% withdrawal charge; and
420 $6,000 Feb. 20, 2007 payment is in its third year from receipt
withdrawn with a 7% withdrawal charge.
- - - -------------------------------------
$820
</TABLE>
For a partial withdrawal that is subject to a withdrawal charge, the amount we
actually withdraw from your contract value will be the amount you request plus
any applicable withdrawal charge. We apply the withdrawal charge to this total
amount. We pay you the amount you requested. If you take a full withdrawal from
your contract, we also will deduct the $30 contract administrative charge.
Waiver of withdrawal charge We do not assess withdrawal charges for:
o withdrawals of any contract earnings during the first contract year;
o withdrawals during each contract year after the first totaling the greater
of 10% of your prior contract anniversary contract value or 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 death benefits;
o 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 normally are
assessed 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
o 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.
<PAGE>
Premium taxes
Certain state and local governments impose premium taxes (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 you make a full
withdrawal from your contract or when annuity payouts begin, but we reserve the
right to deduct this tax at other times such as when you make purchase payments.
Valuing Your Investment
We value your fixed account and subaccounts as follows:
Fixed account: We value the amounts you allocated to the fixed account directly
in dollars. The fixed account value equals: o the sum of your purchase payments
and transfer amounts allocated to the fixed account; o plus interest credited; o
minus the sum of amounts withdrawn (including any applicable withdrawal charges)
and amounts transferred out; and o minus any prorated contract administrative
charge.
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, 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, after deduction of any premium taxes, by the current
accumulation unit value.
Accumulation unit value
The current accumulation unit value for each variable subaccount equals the last
value times the subaccount's current net investment factor.
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 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. Here are the
factors that influence those changes:
<PAGE>
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; and/or
o prorated portions of the contract administrative charge.
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;
o mortality and expense risk fees; and/or
o variable account administrative charges.
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 fixed account to one or
more subaccounts. 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 underlying 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>
Amount Accumulation Number of units
Month invested unit value purchased
By investing an Jan $100 $20 5.00
equal number of
dollars each Feb 100 18 5.56
month...
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 Sept 100 21 4.76
when the per unit
market price is high Oct 100 20 5.00
</TABLE>
You have paid an average price of only $17.91 per unit over the 10 months, while
the average market price actually was $18.10.
<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. Some
restrictions may apply.
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 account.
There is no charge for asset rebalancing.
You can change your percentage allocations or your rebalancing period at any
time by contacting us in writing. We will restart the rebalancing period you
selected as of the date we record your change. You also can ask us in writing to
stop rebalancing your 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 account, to another
subaccount before annuity payouts begin. (Certain restrictions apply to
transfers involving the 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.
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. (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 account at any time.
However, if you made a transfer from the fixed account to the subaccounts,
you may not make a transfer from any subaccount back to the fixed account
for six months following that transfer.
o You may transfer contract values from the fixed account to the subaccounts
on or within 30 days before or after the contract anniversary (except for
automated transfers, which can be set up for certain transfer periods
subject to certain minimums). The transfer from the fixed account to the
subaccounts will be effective on the valuation date we receive it.
o We will not accept requests for transfers from the fixed account at any
other time.
o Once annuity payouts begin, you may not make transfers to or from the 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.
<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:
Regular mail:
American Enterprise Life Insurance Company
80 South Eighth Street
P.O. Box 534
Minneapolis, MN 55440-0534
Express mail:
American Enterprise Life Insurance Company
Attention: Unit 829
733 Marquette Avenue
Minneapolis, MN 55402
Minimum amount
Transfers or withdrawals: $500 or entire subaccount or fixed account balance
Maximum amount
Transfers or withdrawals: Contract value or the entire variable subaccount or
fixed account balance
2 By automated transfers and automated partial withdrawals
Your sales representative can help you set up automated transfers among your
subaccounts or fixed account or partial withdrawals from the 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 currently
are in place.
o Automated transfers may not exceed an amount that, if continued, would
deplete the fixed account or subaccounts from which you are transferring
within 12 months unless we agree otherwise.
o Automated transfers and automated partial withdrawals are subject to all of
the contract provisions and terms, including transfer of contract values
between accounts.
o Automated withdrawals may be restricted by applicable law under some
contracts.
o Automated partial withdrawals may result in IRS taxes and penalties on all
or part of the amount withdrawn.
Minimum amount
Automated transfers or withdrawals: $100 monthly/$250 quarterly,
semiannually or annually
Maximum amount
Automated transfers or withdrawals: Contract value (except for automated
transfers from the fixed account)
<PAGE>
3 By phone
Call between 8 a.m. and 6 p.m. Central time:
1-800-333-3437 or
(612) 671-7700 (Minneapolis/St. Paul area)
Minimum amount
For transfers or withdrawals: $500 or entire subaccount or fixed account balance
Maximum amount
For transfers: Contract value or the entire subaccount or fixed account balance
For 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 surrender within 30 days of an 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.
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 withdrawal charges (see "Charges - Withdrawal charge") and
IRS taxes and penalties (see "Taxes"). You cannot make withdrawals after annuity
payouts begin.
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
account in the same proportion as your value in each account correlates to your
total contract value, unless you request otherwise.
Receiving payment when you request a withdrawal By regular or express mail:
o payable to you.
o mailed to address of record.
NOTE: We will charge you a fee if you request express mail delivery.
<PAGE>
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 similar copacity, ownership of a contract may be transferred
to the annuitant.
Benefits in Case of Death
There are two death benefit options under this contract. If you or the annuitant
are age 79 or older on the contract date, Option A will apply. If you and the
annuitant are under age 79 on the contract date, you can elect either Option A
or Option B on your application. Once you elect an option, you cannot change it.
We show the option that applies in your contract. The death benefit option that
applies determines the mortality and expense risk fee that is assessed against
the subaccounts. (See "Charges - Mortality and Expense Risk Fee").
Under either option, 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").
Option A
We will pay the beneficiary the greater of:
1. the contract value; or
2. the total purchase payment paid less "adjustments for partial withdrawals."
Option B
We will pay the beneficiary the greatest of:
1. the contract value; or
2. the total purchase payments paid less "adjustments for partial
withdrawals;" or
3. the highest contract value on any prior contract anniversary before either
you or the annuitant's 81st birthday, plus any purchase payments you made
since that contract anniversary and less any "adjustments for partial
withdrawals" since that contract anniversary. After either you or the
annuitant's 81st birthday, this value will only change due to additional
payments or "adjustments for partial withdrawals."
<PAGE>
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:
o The contract is purchased for $25,000 on January 1, 2000.
o On January 1, 2001 (the first contract anniversary), the contract value has
grown to $29,000.
o On March 1, 2001, the contract value has fallen to $22,000, at which point
the owner takes a $1,500 partial withdrawal, leaving a contract value of
$20,500.
<TABLE>
<CAPTION>
The death benefit for Option A on March 1, 2001 is calculated as follows:
<S> <C> <C>
The purchase payment $25,000.00
minus any "adjusted partial withdrawal"
calculated as $1,500 x $25,000
$22,000 - 1,704.54
------------
for a death benefit of $ 23,295.45
The death benefit for Option B on March 1, 2001 is calculated as follows:
The "maximum anniversary value" (the greatest of the anniversary values which $29,000.00
was the contract value on Jan. 1, 2001)
plus any purchase payments paid since that anniversary 0
minus any "adjusted partial withdrawals" taken since that anniversary,
calculated as $1,500 x $29,000
$22,000 - 1,977.27
------------
for a death benefit of $ 27,022.72
</TABLE>
If your spouse is sole beneficiary under a nonqualified annuity 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.
Under a qualified annuity, if the annuitant dies before the Code requires
distributions to begin, and the spouse is the only beneficiary, the spouse may
keep the contract as owner until the date on which the annuitant would have
reached age 70 1/2 or any other date permitted by the Code. To do this, the
spouse must give us written instructions within 60 days after we receive proof
of death.
<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 will 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 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 amount 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
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.
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 underlying 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 are rising 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 to be 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 have made only one monthly payout, we will not make
any more payouts.
o Plan B - Life annuity with five, 10 or 15 years certain: We make monthly
payouts for a guaranteed payout period of five, 10 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 10 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 separately for each variable subaccount from which you
are currently scheduled to receive payouts. The present value for each
subaccount is equal to the discounted value of the remaining annuity
payouts which are assumed to remain level. The discount rate we use in the
calculation will vary between 5.05% and 7.15% depending on the applicable
assumed investment rate and the fund management fees. A 10% IRS penalty tax
could apply under this payout plan. (See "Taxes").
Restrictions for some qualified 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 have allocated to the fixed account will provide fixed
dollar payouts and contract values that you have 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 the owner in a lump sum or to change
the frequency of the payouts.
<PAGE>
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, any increase in your contract value 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.
Qualified annuities: We designed this contract for use with qualified retirement
plans. 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 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.
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 qualified 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.
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 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.
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; divided by
o 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 these
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 the 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 the funds currently listed in this prospectus for other funds.
We may also:
o add new subaccounts;
o combine any two or more subaccounts;
o make additional 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 IDS Tower 10,
Minneapolis, MN 55440. 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.
American Enterprise Life will 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 American Enterprise Life pays 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 7.0% of purchase payments).
In addition, American Enterprise Life may pay certain sellers additional
compensation for selling and distribution activities under certain
circumstances. From time to time, American Enterprise Life will pay or permit
other promotional incentives, in cash or credit or other compensation.
Issuer
American Enterprise Life issues the contracts. 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 80 South Eighth Street, Minneapolis, MN 55402. Its statutory address is 100
Capitol Center South, 201 North Illinois Street, Indianapolis, IN 46204.
American Enterprise Life conducts a conventional life insurance business.
Legal Proceedings
A number of lawsuits have been filed against life and health insurers in
jurisdictions in which American Enterprise Life and AEFC do business involving
insurers' sales practices, alleged agent misconduct, failure to properly
supervise agents and other matters. American Enterprise Life and AEFC, like
other life and health insurers, from time to time are involved in such
litigation. On October 13, 1998, an action entitled Richard 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 was commenced in Minnesota State Court. The action was
brought by individuals who purchased an annuity in a qualified plan. They allege
that the sale of annuities in tax-deferred contributory retirement investment
plans (e.g., IRAs) is never appropriate. The plaintiffs purport to represent a
class consisting of all persons who made similar purchases. The plaintiffs seek
damages in an unspecified amount. American Enterprise Life also is a defendant
in various other lawsuits. In American Enterprise Life's opinion, none of these
lawsuits will have a material adverse effect on our financial condition.
<PAGE>
Year 2000
The Year 2000 issue is the result of computer programs having been written using
two digits rather than four to define a year. Any programs that have
time-sensitive software may recognize a date using "00" as the year 1900 rather
than 2000. This could result in the failure of major systems or miscalculations,
which could have a material impact on the operations of American Enterprise Life
and the Variable Account. All of the major systems used by American Enterprise
Life and by 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 has
been conducted to identify the major systems that could be affected by the Year
2000 issue. Steps have been taken to resolve any potential problems including
modification to existing software and the purchase of new software. AEFC's
target date for substantially completing its program of corrective measures on
internal business critical systems was December 31, 1998. As of June 30, 1999,
AEFC completed its program of corrective measures on its internal systems and
applications, including Year 2000 compliance testing. The Year 2000 readiness of
unaffiliated investment managers and other third parties whose system failures
could have and impact on the American Enterprise Life's and Variable Account's
operations continues to be evaluated. The failure of external parties to resolve
their own year 2000 issues in a timely manner could result in a material
financial risk to AEFC, American Enterprise Life or the Variable Account.
AEFC's Year 2000 project includes establishing Year 2000 contingency plans for
all key business units. Business continuation plans, which address business
continuation in the event of a system disruption, are in place for all key
business units. These plans are being amended to include specific Year 2000
considerations and will continue to be refined throughout 1999 as additional
information related to potential Year 2000 exposure is gathered.
<PAGE>
Table of contents of the Statement of Additional Information
Performance Information................................................
Calculating Annuity Payouts............................................
Rating Agencies........................................................
Principal Underwriter..................................................
Independent Auditors...................................................
Financial Statements...................................................
- - - -------------------------------------------------------------------------------
Please check the appropriate box to receive a copy of the Statement of
Additional Information for:
American Express Pinnacle Variable Annuitysm
AIM Variable Insurance Funds, Inc.
American Express Variable Portfolio Funds
Fidelity Variable Insurance Products - Service Class
Franklin Templeton Variable Insurance Products Trust
Templeton Variable Products Series Fund
MSF(R) Variable Insurance TrustSM
Putnam Variable Trust
Mail your request to:
American Enterprise Life Insurance Company
80 South Eighth Street
P.O. Box 534
Minneapolis, MN 55440-0534
800-333-3437
We will mail your request to:
Your name
Address
City State Zip
<PAGE>
STATEMENT OF ADDITIONAL INFORMATION
for
AMERICAN EXPRESS PINNACLE VARIABLE ANNUITYsm
AMERICAN ENTERPRISE VARIABLE ANNUITY ACCOUNT
, 1999
American Enterprise Variable Annuity Account is a separate account established
and maintained by American Enterprise Life Insurance Company (American
Enterprise Life).
This Statement of Additional Information (SAI) is not a prospectus. It should be
read together with the prospectus dated the same date as this SAI which you can
obtain from your sales representative or by writing or calling us at the address
or telephone number below. The prospectus is incorporated into this SAI by
reference.
American Enterprise Life Insurance Company
80 South Eighth Street
P.O. Box 534
Minneapolis, MN 55440-0534
800-333-3437
<PAGE>
American Express Pinnacle Variable Annuitysm
TABLE OF CONTENTS
Performance Information......................................................
Calculating Annuity Payouts..................................................
Rating Agencies..............................................................
Principal Underwriter........................................................
Independent Auditors.........................................................
Financial Statements
<PAGE>
PERFORMANCE INFORMATION
The subaccounts may quote various performance figures to illustrate past
performance. We base total return and current yield quotations (if applicable)
on standardized methods of computing performance as required by the Securities
and Exchange Commission (SEC). An explanation of the methods used to compute
performance follows below.
Average Annual Total Return
We will express quotations of average annual total return for the subaccounts in
terms of the average annual compounded rate of return of a hypothetical
investment in the contract over a period of one, five and ten years (or, if
less, up to the life of the subaccounts), calculated according to the following
formula:
P(1+T)n = ERV
where: P = a hypothetical initial payment of $1,000
T = average annual total return
n = number of years
ERV = Ending Redeemable Value of a hypothetical $1,000
payment made at the beginning of the period, at the
end of the period (or fractional portion thereof)
We calculated the following performance figures on the basis of historical
performance of each fund. Currently, we do not provide any performance
information for the subaccounts because they are new and have not had any
activity to date. However, we show performance from the commencement date of the
funds as if the contract existed at that time, which it did not. Although we
base performance figures on historical earnings, past performance does not
guarantee future results.
<PAGE>
<TABLE>
<CAPTION>
Average Annual Total Return For Periods Ending Dec. 31, 1998
Average Annual Total Return without Withdrawal for annuities with 1.00%
mortality and expense risk fee
Performance Since
Commencement of the Fund**
<S> <C> <C> <C> <C> <C>
Since
Subaccount Investing In: 1 Year 5 Years 10 Years Commencement
AIM VARIABLE INSURANCE FUNDS, INC.
- - - --------------
PCAP 2 AIM V.I. Capital Appreciation Fund (5/93)* 17.89% 15.82% --% 17.33%
- - - --------------
PVAL 2 AIM V.I. Value Fund (5/93)* 30.79 20.24 -- 20.42
- - - --------------
AXPSM VARIABLE PORTFOLIO
- - - --------------
PBCA 2 Blue Chip Advantage Fund (9/99)+ -- -- -- --
- - - --------------
PBND 2 Bond Fund (10/81) 0.43 5.66 7.79 10.10
- - - --------------
PCMG 2 Cash Management Fund (10/81) 4.02 3.82 4.22 5.58
- - - --------------
PDEI 2 Diversified Equity Income Fund (9/99)+ -- -- -- --
- - - --------------
PEXI 2 Extra Income Fund (5/96) -5.43 -- -- 1.65
- - - --------------
PMGD 2 Managed Fund (4/86) 14.57 12.74 13.36 11.55
- - - --------------
PNDM 2 New Dimensions Fund (5/96) 27.30 -- -- 21.13
- - - --------------
PSCA 2 Small Cap Advantage Fund (9/99)+ -- -- -- --
- - - --------------
FIDELITY VIP
- - - --------------
PBAL 2 Balanced Portfolio (Service Class) (11/97) 15.87 -- -- 14.41
- - - --------------
PGRO 2 Growth Portfolio (Service Class) (11/97) 37.75 20.27 17.98 15.95
- - - --------------
PGRI 2 Growth & Income Portfolio (Service Class) 27.73 -- -- 27.49
(11/97)
- - - --------------
PMDC 2 Mid Cap Portfolio (Service Class) (12/98) -- -- -- 3.02
- - - --------------
FRANKLIN TEMPLETON VIP
- - - --------------
PINT 2 Mutual Shares Securities Fund - Class 2 -1.15 -- -- 8.28
(11/96)1
- - - --------------
PMSS 2 Value Securities Fund - Class 2 (5/98)2 -- -- -- -22.78
- - - --------------
PSMC 2 Small Cap Fund - Class 2 (11/95)1 -2.8 -- -- 14.64
- - - --------------
TEMPLETON VARIABLE PRODUCTS SERIES FUND
- - - --------------
PVAS 2 Templeton International Fund - Class 2 (5/92)3 7.76 14.07 -- 12.73
- - - --------------
MFS INVESTMENT MANAGEMENT(R)
- - - --------------
PGIS 2 Growth with Income Series (10/95) 20.86 -- -- 24.43
- - - --------------
PNDS 2 New Discovery Series (4/98) -- -- -- 1.34
- - - --------------
PTRS 2 Total Return Series (1/95) 10.98 -- -- 17.29
- - - --------------
PUTS 2 Utilities Series (1/95) 16.66 -- -- 23.90
- - - --------------
PUTNAM VARIABLE TRUST
- - - --------------
PGIN 2 Putnam VT Growth and Income Fund - Class IB 14.04 18.22 15.18 15.36
(2/88) ***
- - - --------------
PINC 2 Putnam VT Income Fund - Class IB (5/92)++ *** 6.87 5.56 7.74 7.22
- - - --------------
PIGR 2 Putnam VT International Growth Fund - Class 17.05 -- -- 15.88
IB (1/97)***
- - - --------------
PVIS 2 Putnam VT Vista Fund - Class IB (1/97)*** 18.06 -- -- -0.71
</TABLE>
* (Commencement date of the funds)
** Current applicable charges deducted from fund performance include a $30
contract administrative charge, a 1.00% mortality and expense risk fee, and
a 0.15% variable account administrative charge. Premium taxes are not
reflected.
*** Performance information for Class IB shares is based on information for
Class IA shares adjusted to reflect payments made under the Class IB
distribution plan.
+ Fund had not commenced operations as of Dec. 31, 1998.
++ Prior to April 9, 1999, was known as Putnam VT U.S. Government and High
Quality Bond Fund.
1 Standardized performance for Class 2 shares reflects a "blended" figure,
combining: (a) for periods prior to Class 2's inception on 1/6/99,
historical results of Class 1 shares, and (b) for periods after 1/6/99,
Class 2's results reflecting an additional 12b-1 fee expense which also
affects all future performance. [Blended figures assume reinvestment of
dividends and capital gains.]
2 Because the fund started May 1, 1998, performance for a full calendar year
is not available.
3 Standardized performance for Class 2 shares reflect a "blended" figure,
combining: (a) for periods prior to Class 2's inception on 5/1/97,
historical results of Class 1 shares, and (b) for periods after 5/1/97,
Class 2's results reflecting an additional 12b-1 fee expense which also
affects all future performance.
<PAGE>
<TABLE>
<CAPTION>
Average Annual Total Return with Withdrawal for annuities with a 1.00% mortality
and expense risk fee
Performance Since
Commencement of the Fund**
<S> <C> <C> <C> <C> <C>
Since
Subaccount Investing In: 1 Year 5 Years 10 Years Commencement
AIM VARIABLE INSURANCE FUNDS, INC.
- - - --------------
PCAP 2 AIM V.I. Capital Appreciation Fund (5/93)* 9.89% 15.26% --% 16.99%
- - - --------------
PVAL 2 AIM V.I. Value Fund (5/93)* 22.79 19.76 -- 20.13
- - - --------------
AXPSM VARIABLE PORTFOLIO
- - - --------------
PBCA 2 Blue Chip Advantage Fund (9/99)+ -- -- -- --
- - - --------------
PBND 2 Bond Fund (10/81) -7.57 4.84 7.79 10.10
- - - --------------
PCMG 2 Cash Management Fund (10/81) -3.98 2.95 4.22 5.58
- - - --------------
PDEI 2 Diversified Equity Income Fund (9/99)+ -- -- -- --
- - - --------------
PEXI 2 Extra Income Fund (5/96) -13.43 -- -- 1.65
- - - --------------
PMGD 2 Managed Fund (4/86) 6.57 12.11 13.36 11.55
- - - --------------
PNDM 2 New Dimensions Fund (5/96) 19.30 -- -- 21.13
- - - --------------
PSCA 2 Small Cap Advantage Fund (9/99)+ -- -- -- --
- - - --------------
FIDELITY VIP
- - - --------------
PBAL 2 Balanced Portfolio (Service Class) (11/97) 7.87 -- -- 13.39
- - - --------------
PGRO 2 Growth Portfolio (Service Class) (11/97) 29.75 19.78 17.98 15.95
- - - --------------
PGRI 2 Growth & Income Portfolio (Service Class) 19.73 -- -- 24.31
(11/97)
- - - --------------
PMDC 2 Mid Cap Portfolio (Service Class) (12/98) -- -- -- -4.39
- - - --------------
FRANKLIN TEMPLETON VIP
- - - --------------
PINT 2 Mutual Shares Securities Fund - Class 2 -8.26 -- -- 5.28
(11/96)1
- - - --------------
PMSS 2 Value Securities Fund - Class 2 (5/98)2 -- -- -- -28.18
- - - --------------
PSMC 2 Small Cap Fund - Class 2 (11/95)1 -9.21 -- -- 13.16
- - - --------------
TEMPLETON VARIABLE PRODUCTS SERIES FUND
- - - --------------
PVAS 2 Templeton International Fund - Class 2 (5/92)3 -0.06 9.72 -- 12.58
- - - --------------
MFS INVESTMENT MANAGEMENT(R)
- - - --------------
PGIS 2 Growth with Income Series (10/95) 12.86 -- -- 23.27
- - - --------------
PNDS 2 New Discovery Series (4/98) -- -- -- -5.97
- - - --------------
PTRS 2 Total Return Series (1/95) 2.98 -- -- 16.35
- - - --------------
PUTS 2 Utilities Series (1/95) 8.66 -- -- 23.10
- - - --------------
PUTNAM VARIABLE TRUST
- - - --------------
PGIN 2 Putnam VT Growth and Income Fund - Class IB 6.04 17.70 15.18 15.36
(2/88)***
- - - --------------
PINC 2 Putnam VT Income Fund - Class IB (5/92)++*** -0.88 4.74 7.74 12.36
- - - --------------
PIGR 2 Putnam VT International Growth Fund - Class 9.05 -- -- 7.22
IB (1/97)***
- - - --------------
PVIS 2 Putnam VT Vista Fund - Class IB (1/97)*** 10.06 -- -- -4.43
</TABLE>
* (Commencement date of the funds)
** Current applicable charges deducted from fund performance include a $30
contract administrative charge, a 1.00% mortality and expense risk fee, a
0.15% variable account administrative charge and applicable withdrawal
charges. Premium taxes are not reflected.
*** Performance information for Class IB shares is based on information for
Class IA shares adjusted to reflect payments made under the Class IB
distribution plan.
+ Fund had not commenced operations as of Dec. 31, 1998.
++ Prior to April 9, 1999, was known as Putnam VT U.S. Government and High
Quality Bond Fund.
1 Standardized performance for Class 2 shares reflects a "blended" figure,
combining: (a) for periods prior to Class 2's inception on 1/6/99,
historical results of Class 1 shares, and (b) for periods after 1/6/99,
Class 2's results reflecting an additional 12b-1 fee expense which also
affects all future performance. [Blended figures assume reinvestment of
dividends and capital gains.]
2 Because the fund started May 1, 1998, performance for a full calendar year
is not available.
3 Standardized performance for Class 2 shares reflect a "blended" figure,
combining: (a) for periods prior to Class 2's inception on 5/1/97,
historical results of Class 1 shares, and (b) for periods after 5/1/97,
Class 2's results reflecting an additional 12b-1 fee expense which also
affects all future performance.
<PAGE>
<TABLE>
<CAPTION>
Average Annual Total Return without Withdrawal for annuities with 1.10%
mortality and expense risk fee
Performance Since
Commencement of the Fund**
<S> <C> <C> <C> <C> <C>
Since
Subaccount Investing In: 1 Year 5 Years 10 Years Commencement
AIM VARIABLE INSURANCE FUNDS, INC.
- - - --------------
PCAP 2 AIM V.I. Capital Appreciation Fund (5/93)* 17.77% 15.71% --% 17.21%
- - - --------------
PVAL 2 AIM V.I. Value Fund (5/93)* 30.66 20.12 -- 20.30
- - - --------------
AXPSM VARIABLE PORTFOLIO
- - - --------------
PBCA 2 Blue Chip Advantage Fund (9/99)+ -- -- -- --
- - - --------------
PBND 2 Bond Fund (10/81) 0.33 5.55 7.68 9.99
- - - --------------
PCMG 2 Cash Management Fund (10/81) 3.92 3.37 4.11 5.47
- - - --------------
PDEI 2 Diversified Equity Income Fund (9/99)+ -- -- -- --
- - - --------------
PEXI 2 Extra Income Fund (5/96) -5.52 -- -- 4.03
- - - --------------
PMGD 2 Managed Fund (4/86) 14.46 12.62 13.25 11.44
- - - --------------
PNDM 2 New Dimensions Fund (5/96) 27.17 -- -- 22.89
- - - --------------
PSCA 2 Small Cap Advantage Fund (9/99)+ -- -- -- --
- - - --------------
FIDELITY VIP
- - - --------------
PBAL 2 Balanced Portfolio (Service Class) (11/97) 15.76 -- -- 14.29
- - - --------------
PGRO 2 Growth Portfolio (Service Class) (11/97) 37.62 20.15 17.86 15.83
- - - --------------
PGRI 2 Growth & Income Portfolio (Service Class) 27.60 -- -- 27.36
(11/97)
- - - --------------
PMDC 2 Mid Cap Portfolio (Service Class) (12/98) -- -- -- 3.02
- - - --------------
FRANKLIN TEMPLETON VIP
- - - --------------
PINT 2 Mutual Shares Securities Fund - Class 2 -1.25 -- -- 8.17
(11/96)1
- - - --------------
PMSS 2 Value Securities Fund - Class 2 (5/98)2 -- -- -- -22.84
- - - --------------
PSMC 2 Small Cap Fund - Class 2 (11/95)1 -2.28 -- -- 14.52
- - - --------------
TEMPLETON VARIABLE PRODUCTS SERIES FUND
- - - --------------
PVAS 2 Templeton International Fund - Class 2 (5/92)3 7.66 10.29 -- 12.62
- - - --------------
MFS INVESTMENT MANAGEMENT(R)
- - - --------------
PGIS 2 Growth with Income Series (10/95) 20.74 -- -- 24.30
- - - --------------
PNDS 2 New Discovery Series (4/98) -- -- -- 1.27
- - - --------------
PTRS 2 Total Return Series (1/95) 10.87 -- -- 17.17
- - - --------------
PUTS 2 Utilities Series (1/95) 16.54 -- -- 23.77
- - - --------------
PUTNAM VARIABLE TRUST
- - - --------------
PGIN 2 Putnam VT Growth and Income Fund - Class IB 13.93 18.10 15.07 15.25
(2/88)***
- - - --------------
PINC 2 Putnam VT Income Fund - Class IB (5/92)++ *** 6.77 5.46 7.63 7.11
- - - --------------
PIGR 2 Putnam VT International Growth Fund - Class 16.93 -- -- 15.76
IB (1/97) ***
- - - --------------
PVIS 2 Putnam VT Vista Fund - Class IB (1/97) *** 17.94 -- -- -0.81
</TABLE>
* (Commencement date of the funds)
** Current applicable charges deducted from fund performance include a $30
contract administrative charge, a 1.10% mortality and expense risk fee, and
a 0.15% variable account administrative charge. Premium taxes are not
reflected.
*** Performance information for Class IB shares are based on Class IA shares
adjusted to reflect payments made under the Class IB distribution plan.
+ Fund had not commenced operations as of Dec. 31, 1998.
++ Prior to April 9, 1999, was known as Putnam VT U.S. Government and High
Quality Bond Fund.
1 Standardized performance for Class 2 shares reflects a "blended" figure,
combining: (a) for periods prior to Class 2's inception on 1/6/99,
historical results of Class 1 shares, and (b) for periods after 1/6/99,
Class 2's results reflecting an additional 12b-1 fee expense which also
affects all future performance. [Blended figures assume reinvestment of
dividends and capital gains.]
2 Because the fund started May 1, 1998, performance for a full calendar year
is not available.
3 Standardized performance for Class 2 shares reflect a "blended" figure,
combining: (a) for periods prior to Class 2's inception on 5/1/97,
historical results of Class 1 shares, and (b) for periods after 5/1/97,
Class 2's results reflecting an additional 12b-1 fee expense which also
affects all future performance.
<PAGE>
<TABLE>
<CAPTION>
Average Annual Total Return with Withdrawal for annuities with a 1.10% mortality
and expense risk fee
Performance Since
Commencement of the Fund**
<S> <C> <C> <C> <C> <C>
Since
Subaccount Investing In: 1 Year 5 Years 10 Years Commencement
AIM VARIABLE INSURANCE FUNDS, INC.
- - - --------------
PCAP 2 AIM V.I. Capital Appreciation Fund (5/93)* 9.77% 15.14% --% 16.87%
- - - --------------
PVAL 2 AIM V.I. Value Fund (5/93)* 22.66 19.64 -- 20.00
- - - --------------
AXPSM VARIABLE PORTFOLIO
- - - --------------
PBCA 2 Blue Chip Advantage Fund (9/99)+ -- -- -- --
- - - --------------
PBND 2 Bond Fund (10/81) -7.67 4.76 7.68 9.99
- - - --------------
PCMG 2 Cash Management Fund (10/81) -4.08 2.84 4.11 5.47
- - - --------------
PDEI 2 Diversified Equity Income Fund (9/99)+ -- -- -- --
- - - --------------
PEXI 2 Extra Income Fund (5/96) -13.52 -- -- 1.55
- - - --------------
PMGD 2 Managed Fund (4/86) 6.46 11.99 13.25 11.44
- - - --------------
PNDM 2 New Dimensions Fund (5/96) 19.17 -- -- 21.00
- - - --------------
PSCA 2 Small Cap Advantage Fund (9/99)+ -- -- -- --
- - - --------------
FIDELITY VIP
- - - --------------
PBAL 2 Balanced Portfolio (Service Class) (11/97) 7.76 -- -- 13.27
- - - --------------
PGRO 2 Growth Portfolio (Service Class) (11/97) 29.62 19.67 17.86 15.83
- - - --------------
PGRI 2 Growth & Income Portfolio (Service Class) 19.60 -- -- 24.18
(11/97)
- - - --------------
PMDC 2 Mid Cap Portfolio (Service Class) (12/98) -- -- -- -4.39
- - - --------------
FRANKLIN TEMPLETON VIP
- - - --------------
PINT 2 Mutual Shares Securities Fund - Class 2 -8.35 -- -- 5.17
(11/96)1
- - - --------------
PMSS 2 Value Securities Fund - Class 2 (5/98)2 -- -- -- -28.23
- - - --------------
PSMC 2 Small Cap Fund - Class 2 (11/95)1 -9.30 -- -- 13.04
- - - --------------
TEMPLETON VARIABLE PRODUCTS SERIES FUND
- - - --------------
PVAS 2 Templeton International Fund - Class 2 (5/92)3 -0.16 -- -- 12.46
- - - --------------
MFS INVESTMENT MANAGEMENT(R)
- - - --------------
PGIS 2 Growth with Income Series (10/95) 12.74 -- -- 23.15
- - - --------------
PNDS 2 New Discovery Series (4/98) -- -- -- -6.03
- - - --------------
PTRS 2 Total Return Series (1/95) 2.87 -- -- 16.23
- - - --------------
PUTS 2 Utilities Series (1/95) 8.54 -- -- 22.97
- - - --------------
PUTNAM VARIABLE TRUST
- - - --------------
PGIN 2 Putnam VT Growth and Income Fund - Class IB 5.93 17.58 15.07 15.25
(2/88) ***
- - - --------------
PINC 2 Putnam VT Income Fund - Class IB (5/92)++ *** -0.97 4.64 7.63 7.11
- - - --------------
PIGR 2 Putnam VT International Growth Fund - Class 8.93 -- -- 12.24
IB (1/97) ***
- - - --------------
PVIS 2 Putnam VT Vista Fund - Class IB (1/97) *** 9.94 -- -- -4.53
</TABLE>
* (Commencement date of the funds)
** Current applicable charges deducted from fund performance include a $30
contract administrative charge, a 1.10% mortality and expense risk fee, a
0.15% variable account administrative charge and applicable withdrawal
charges. Premium taxes are not reflected.
*** Performance information for Class IB shares are based on Class IA shares
adjusted to reflect payments made under the Class IB distribution plan.
+ Fund had not commenced operations as of Dec. 31, 1998.
++ Prior to April 9, 1999, was known as Putnam VT U.S. Government and High
Quality Bond Fund.
1 Standardized performance for Class 2 shares reflects a "blended" figure,
combining: (a) for periods prior to Class 2's inception on 1/6/99,
historical results of Class 1 shares, and (b) for periods after 1/6/99,
Class 2's results reflecting an additional 12b-1 fee expense which also
affects all future performance. [Blended figures assume reinvestment of
dividends and capital gains.]
2 Because the fund started May 1, 1998, performance for a full calendar year
is not available.
3 Standardized performance for Class 2 shares reflect a "blended" figure,
combining: (a) for periods prior to Class 2's inception on 5/1/97,
historical results of Class 1 shares, and (b) for periods after 5/1/97,
Class 2's results reflecting an additional 12b-1 fee expense which also
affects all future performance.
<PAGE>
Cumulative Total Return
Cumulative total return represents the cumulative change in value of an
investment for a given period (reflecting change in a subaccount's accumulation
unit value). We compute aggregate total return using the following formula:
ERV - P
P
where: P = a hypothetical initial payment of $1,000
ERV = Ending Redeemable Value of a hypothetical $1,000 payment
made at the beginning of the one-, five-, or 10- year (or
other) period at the end of the one-, five-, or 10- year (or
other) period (or fractional portion thereof)
Total return figures reflect the deduction of the withdrawal charge which
assumes you withdraw the entire contract value at the end of the one-, five- and
10- year periods (or, if less, up to the life of the variable subaccount). We
also may show performance figures without the deduction of a withdrawal charge.
In addition, all total return figures reflect the deduction of all other
applicable charges (except premium taxes) including the contract administrative
charge, the variable account administrative charge and the mortality and expense
risk fee.
Calculation of Yield for Variable Subaccounts Investing in Money Market Funds
Annualized Simple Yield
For subaccounts investing in money market funds, we base quotations of simple
yield on:
(a) the change in the value of a hypothetical subaccount
(exclusive of capital changes and income other than investment
income) at the beginning of a particular seven-day period:
(b) less, a pro rata share of the subaccount expenses accrued over
the period;
(c) dividing the difference by the value of the subaccount at the
beginning of the period to obtain the base period return; and
(d) multiplying the base period return by 365/7.
The subaccount's value includes:
o any declared dividends;
o the value of any shares purchased with dividends paid during the period; and
o any dividends declared for such shares.
It does not include:
o the effect of any applicable withdrawal charge; or
o any realized or unrealized gains or losses.
Annualized Compound Yield
We calculate compound yield using the base period return described above, which
we then compound according to the following formula:
Compound Yield = [(Base Period Return + 1)365/7] - 1
<PAGE>
Annualized Yield for Subaccounts Investing in Income Funds
For the variable subaccounts investing in income funds, we base quotations of
yield on all investment income earned during a particular 30-day period, less
expenses accrued during the period (net investment income) and compute it by
dividing net investment income per accumulation unit by the value of an
accumulation unit on the last day of the period according to the following
formula:
YIELD = 2[a-b + 1)6 - 1]
cd
where: a = dividends and investment income earned during the period
b = expenses accrued for the period (net of reimbursements)
c = the average daily number of accumulation units
outstanding during the period that were entitled to
receive dividends
d = the maximum offering price per accumulation unit on
the last day of the period
The subaccount earns yield from the increase in the net asset value of shares of
the fund in which it invests and from dividends declared and paid by the fund,
which are automatically invested in shares of the fund in which the variable
subaccount invests.
CALCULATING ANNUITY PAYOUTS
The Variable Account
We do the following calculations separately for each of the subaccounts of the
variable account. The separate monthly payouts, added together, make up your
total variable annuity payout.
Initial Payout: To compute your first monthly payment, we:
o determine the dollar value of your annuity as of the valuation date that
falls on (or the closest valuation date that falls before) the seventh
calendar day before the retirement date and then deduct any applicable
premium tax; then
o apply the result to the annuity table contained in the contract or
another table at least as favorable.
The annuity table shows the amount of the first monthly payment for each $1,000
of value which depends on factors built into the table, as described below.
Annuity Units: We then convert the value of your subaccount to annuity units. To
compute the number of units credited to you, we divide the first monthly payment
by the annuity unit value (see below) on the valuation date that falls on (or
the closest valuation date that falls before) the seventh calendar day before
the retirement date. The number of units in your subaccount is fixed. The value
of the units fluctuates with the performance of the underlying fund.
Subsequent Payouts: To compute later payouts, we multiply:
o the annuity unit value on the valuation date that falls on (or the closest
valuation date that falls before) the seventh calendar day before the
payout is due; by
o the fixed number of annuity units credited to you.
<PAGE>
Annuity Unit Values: We originally set this value at $1 for each subaccount. To
calculate later value we multiply the last annuity value by the product of:
o the net investment factor; and
o the neutralizing factor.
The purpose of the neutralizing factor is to offset the effect of the assumed
investment rate built into the annuity table. With an assumed investment rate of
5%, the neutralizing factor is 0.999866 for a one day valuation period.
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 and the variable account administrative charge from the result.
Because the net asset value of the fund may fluctuate, the net investment factor
may be greater or less than one, and the annuity unit value may increase or
decrease. You bear this investment risk in a subaccount.
The Fixed Account
We guarantee your fixed annuity payout amounts. Once calculated, your payout
will remain the same and never change. To calculate your annuity payouts we:
o take the value of your fixed account at the retirement date or the date
you have selected to begin receiving your annuity payouts; then
o using an annuity table, we apply the value according to the annuity payout
plan you select.
The annuity payout table we use will be the one in effect at the time you choose
to begin your annuity payouts. The values in the table will be equal to or
greater than the table in your contract.
RATING AGENCIES
The following chart reflects the ratings given to us by independent rating
agencies. These agencies evaluate the financial soundness and claims-paying
ability of insurance companies based on a number of different factors. This
information does not relate to the management or performance of the variable
subaccounts of the annuity. This information relates only to the fixed account
and reflects our ability to make annuity payouts and to pay death benefits and
other distributions from the annuities.
Rating agency Rating
A.M. Best A+
(Superior)
Duff & Phelps AAA
Moody's Aa2
<PAGE>
PRINCIPAL UNDERWRITER
The principal underwriter for the contract is American Express Financial
Advisors Inc. which offers the contract on a continuous basis.
The contract is new and, therefore, we have not received any withdrawal charges
or paid any commissions.
INDEPENDENT AUDITORS
The financial statements appearing in this SAI have been audited by Ernst &
Young LLP (1400 Pillsbury Center, 200 South Sixth Street, Minneapolis, MN
55402) independent auditors, as stated in their report appearing herein.
FINANCIAL STATEMENTS
Report of Independent Auditors
The Board of Directors
American Enterprise Life Insurance Company
We have audited the accompanying balance sheets of American Enterprise Life
Insurance Company (a wholly owned subsidiary of IDS Life Insurance Company) as
of December 31, 1998 and 1997, and the related statements of income,
stockholder's equity and cash flows for each of the three years in the period
ended December 31, 1998. These financial statements are the responsibility of
the Company's management. Our responsibility is to express an opinion on these
financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the financial position of American Enterprise Life
Insurance Company at December 31, 1998 and 1997, and the results of its
operations and its cash flows for each of the three years in the period ended
December 31, 1998, in conformity with generally accepted accounting principles.
/s/ Ernst & Young LLP
Ernst & Young LLP
February 4, 1999
Minneapolis, Minnesota
<PAGE>
<TABLE>
<CAPTION>
AMERICAN ENTERPRISE LIFE INSURANCE COMPANY
BALANCE SHEETS
December 31,
($ thousands, except share amounts)
ASSETS 1998 1997
- - - ------ - ----------- - -------
Investments:
Fixed maturities:
Held to maturity, at amortized cost (fair value:
<S> <C> <C>
1998, $1,126,732 ; 1997, $1,223,108) $1,081,193 $1,186,682
Available for sale, at fair value (amortized cost:
1998, $2,526,712; 1997, $2,609,621) 2,594,858 2,685,799
----------- -----------
3,676,051 3,872,481
Mortgage loans on real estate 815,806 738,052
Other investments 12,103 16,024
------------- -------------
Total investments 4,503,960 4,626,557
Accounts receivable 214 563
Accrued investment income 61,740 59,588
Deferred policy acquisition costs 196,479 224,501
Other assets 43 117
Separate account assets 123,185 62,087
------------ -------------
Total assets $4,885,621 $4,973,413
========== ==========
LIABILITIES AND STOCKHOLDER'S EQUITY
Liabilities:
Future policy benefits for fixed annuities $4,166,852 $4,343,213
Policy claims and other policyholders' funds 7,389 11,328
Deferred income taxes 23,199 35,601
Amounts due to brokers 54,347 34,935
Other liabilities 24,500 16,905
Separate account liabilities 123,185 62,087
----------- ------------
Total liabilities 4,399,472 4,504,069
Stockholder's equity:
Capital stock, $100 par value per share;
100,000 shares authorized,
20,000 shares issued and outstanding 2,000 2,000
Additional paid-in capital 282,872 282,872
Accumulated other comprehensive income:
Net unrealized securities gains 44,295 49,516
Retained earnings 156,982 134,956
------------ ------------
Total stockholder's equity 486,149 469,344
------------ ------------
Total liabilities and stockholder's equity $4,885,621 $4,973,413
========== ==========
See accompanying notes.
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
AMERICAN ENTERPRISE LIFE INSURANCE COMPANY
STATEMENTS OF INCOME
Years ended December 31,
($ thousands)
1998 1997 1996
--- ------ --- ------ --- ----
Revenues:
<S> <C> <C> <C>
Net investment income $340,219 $332,268 $271,719
Contractholder charges 6,387 5,688 5,450
Mortality and expense risk fees 1,275 641 303
Net realized loss on investments (4,788) (509) (5,258)
---------- ---------- -----------
Total revenues 343,093 338,088 272,214
--------- --------- ----------
Benefits and expenses:
Interest credited on investment contracts 228,533 231,437 191,672
Amortization of deferred policy acquisition costs 53,663 36,803 30,674
Other operating expenses 24,476 24,890 14,133
---------- ---------- --------
Total benefits and expenses 306,672 293,130 236,479
--------- --------- -------
Income before income taxes 36,421 44,958 35,735
Income taxes 14,395 16,645 12,912
---------- ---------- ---------
Net income $ 22,026 $ 28,313 $ 22,823
========= ========= ========
See accompanying notes.
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
AMERICAN ENTERPRISE LIFE INSURANCE COMPANY
STATEMENTS OF STOCKHOLDER'S EQUITY
Three years ended December 31, 1998
($ thousands)
Accumulated Other
Comprehensive
Total Additional
Stockholder's Capital Paid-In Income, Retained
Equity Stock Capital Net of Tax Earnings
<S> <C> <C> <C> <C> <C>
Balance, December 31, 1995 $296,816 $2,000 $177,872 $ 33,124 $83,820
Comprehensive income:
Net income 22,823 -- -- -- 22,823
Unrealized holding losses arising
during the year, net of taxes of
$12,282 (22,810) -- -- (22,810) --
Reclassification adjustment for losses
included in net income, net of tax
of $(1,093) 2,029 -- -- 2,029 --
-------------------
-----------------
Other comprehensive loss (20,781) -- -- (20,781) --
-----------------
Comprehensive income 2,042
Capital contribution from parent 65,000 -- 65,000 -- --
---------------------------------------------------------------------------
Balance, December 31, 1996 363,858 2,000 242,872 12,343 106,643
Comprehensive income:
Net income 28,313 -- -- -- 28,313
Unrealized holding gains arising
during the year, net of taxes of
$(19,891) 36,940 -- -- 36,940 --
Reclassification adjustment for losses
included in net income, net of tax
of $(126) 233 -- -- 233 --
-------------------
-----------------
Other comprehensive income 37,173 -- -- 37,173 --
-----------------
Comprehensive income 65,486
Capital contribution from parent 40,000 40,000
---------------------------------------------------------------------------
Balance, December 31, 1997 469,344 2,000 282,872 49,516 134,956
Comprehensive income:
Net income 22,026 -- -- -- 22,026
Unrealized holding losses arising
during the year, net of taxes of $3,400 (6,314) -- -- (6,314) --
Reclassification adjustment for losses
included in net income, net of tax 1,093
of $(588) -- -- 1,093 --
----------------- -------------------
-------------------
Other comprehensive loss (5,221) -- -- (5,221) --
-----------------
-----------------
Comprehensive income 16,805
---------------------------------------------------------------------------
Balance, December 31, 1998 $486,149 $2,000 $282,872 $44,295 $156,982
===========================================================================
See accompanying notes.
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
AMERICAN ENTERPRISE LIFE INSURANCE COMPANY
STATEMENTS OF CASH FLOWS
Years ended December 31,
($ thousands)
1998 1997 1996__
- -------- - -------- --------
Cash flows from operating activities:
<S> <C> <C> <C>
Net income $ 22,026 $ 28,313 $ 22,823
Adjustments to reconcile net income to net cash
provided by (used in) operating activities:
Change in accrued investment income (2,152) (8,017) (9,692)
Change in accounts receivable 349 9,304 --
Change in deferred policy acquisition costs, net 28,022 (21,276) (32,651)
Change in other assets 74 4,840 (10,007)
Change in policy claims and other policyholders' funds (3,939) (16,099) 15,786
Deferred income tax (benefit) provision (9,591) (2,485) 5,084
Change in other liabilities 7,595 1,255 8,621
Amortization of premium (accretion of discount), net 122 (2,316) (2,091)
Net realized loss on investments 4,788 509 5,258
Other, net 2,544 959 (129)
------------- --------- ----------
Net cash provided by (used in) operating activities 49,838 (5,013) 3,002
Cash flows from investing activities: Fixed maturities held to maturity:
Purchases -- (1,996) (16,967)
Maturities 73,601 41,221 26,190
Sales 31,117 30,601 27,944
Fixed maturities available for sale:
Purchases (298,885) (688,050) (921,914)
Maturities 335,357 231,419 212,212
Sales 48,492 73,366 47,542
Other investments:
Purchases (161,252) (199,593) (212,182)
Sales 78,681 29,139 19,850
Change in amounts due to brokers 19,412 (53,796) 88,568
---------- ----------- ----------
Net cash provided by (used in) investing activities 126,523 (537,689) (728,757)
Cash flows from financing activities: Activity related to investment contracts:
Considerations received 302,158 783,339 846,378
Surrenders and other benefits (707,052) (552,903) (312,362)
Interest credited to account balances 228,533 231,437 191,672
Change in securities sold under repurchase agreements -- -- (67,000)
Capital contribution from parent -- 40,000 65,000
--------------- ---------- ---------
Net cash (used in) provided by financing activities (176,361) 501,873 723,688
----------- --------- --------
Net decrease in cash and cash equivalents -- (40,829) (2,067)
Cash and cash equivalents at beginning of year -- 40,829 42,896
--------------- ---------- ---------
Cash and cash equivalents at end of year $ -- $ -- $ 40,829
============== ============== ==========
See accompanying notes.
</TABLE>
1. Summary of significant accounting policies
Nature of business
American Enterprise Life Insurance Company (the Company) is a stock life
insurance company that is domiciled in Indiana and is licensed to transact
insurance business in 48 states. The Company's principal product is
deferred annuities, which are issued primarily to individuals. It offers
single premium and annual premium deferred annuities on both a fixed and
variable dollar basis.
Immediate annuities are offered as well.
Basis of presentation
The Company is a wholly owned subsidiary of IDS Life Insurance Company (IDS
Life), which is a wholly owned subsidiary of American Express Financial
Corporation (AEFC). AEFC is a wholly owned subsidiary of American Express
Company. The accompanying financial statements have been prepared in
conformity with generally accepted accounting principles which vary in
certain respects from reporting practices prescribed or permitted by the
Indiana Department of Insurance (see Note 4).
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the
financial statements and the reported amounts of revenues and expenses
during the reporting period. Actual results could differ from those
estimates.
Investments
Fixed maturities that the Company has both the positive intent and the
ability to hold to maturity are classified as held to maturity and carried
at amortized cost. All other fixed maturities are classified as available
for sale and carried at fair value. Unrealized gains and losses on
securities classified as available for sale are reported as a separate
component of accumulated other comprehensive income, net of deferred income
taxes.
Realized investment gain or loss is determined on an identified cost basis.
Prepayments are anticipated on certain investments in mortgage-backed
securities in determining the constant effective yield used to recognize
interest income. Prepayment estimates are based on information received
from brokers who deal in mortgage-backed securities.
Mortgage loans on real estate are carried at amortized cost less an
allowance for mortgage loan losses. The estimated fair value of the
mortgage loans is determined by a discounted cash flow analysis using
mortgage interest rates currently offered for mortgages of similar
maturities.
<PAGE>
1. Summary of significant accounting policies (continued)
Impairment of mortgage loans is measured as the excess of the loan's
recorded investment over its present value of expected principal and
interest payments discounted at the loan's effective interest rate, or the
fair value of collateral. The amount of the impairment is recorded in an
allowance for mortgage loan losses. The allowance for mortgage loan losses
is maintained at a level that management believes is adequate to absorb
estimated losses in the portfolio. The level of the allowance account is
determined based on several factors, including historical experience,
expected future principal and interest payments, estimated collateral
values, and current and anticipated economic and political conditions.
Management regularly evaluates the adequacy of the allowance for mortgage
loan losses.
The Company generally stops accruing interest on mortgage loans for which
interest payments are delinquent more than three months. Based on
management's judgment as to the ultimate collectibility of principal,
interest payments received are either recognized as income or applied to
the recorded investment in the loan.
The cost of interest rate caps and floors is amortized to investment income
over the life of the contracts and payments received as a result of these
agreements are recorded as investment income when realized. The amortized
cost of interest rate caps and floors is included in other investments.
When evidence indicates a decline, which is other than temporary, in the
underlying value or earning power of individual investments, such
investments are written down to the fair value by a charge to income.
Statements of cash flows
The Company considers investments with a maturity at the date of their
acquisition of three months or less to be cash equivalents. These
securities are carried principally at amortized cost which approximates
fair value.
Supplementary information to the statements of cash flows for the years
ended December 31, is summarized as follows:
1998 1997 1996
---- ----- ----
Cash paid during the year for:
Income taxes $19,035 $19,456 $10,317
Interest on borrowings 5,437 1,832 998
Contractholder charges
Contractholder charges include surrender charges and fees collected
regarding the issue and administration of annuity contracts.
<PAGE>
1. Summary of significant accounting policies (continued)
Deferred policy acquisition costs
The costs of acquiring new business, principally sales compensation, policy
issue costs, and certain sales expenses, have been deferred on annuity
contracts. These costs are amortized using primarily the interest method.
Liabilities for future policy benefits
Liabilities for deferred annuities are accumulation values. Liabilities for
fixed annuities in a benefit status are based on the established industry
mortality tables with various interest rates ranging from 5.5 percent to
8.75 percent, depending on year of issue.
Federal income taxes
The Company's taxable income is included in the consolidated federal income
tax return of American Express Company. The Company provides for income
taxes on a separate return basis, except that, under an agreement between
AEFC and American Express Company, tax benefit is recognized for losses to
the extent they can be used on the consolidated tax return. It is the
policy of AEFC and its subsidiaries that AEFC will reimburse subsidiaries
for all tax benefits.
Included in other liabilities at December 31, 1998 and 1997 are $3,504
payable to and $1,289, receivable from , respectively, IDS Life for federal
income taxes.
Separate account business
The separate account assets and liabilities represent funds held for the
exclusive benefit of the variable annuity contract owners. The Company
receives mortality and expense risk fees from the variable annuity separate
accounts.
The Company makes contractual mortality assurances to the variable annuity
contract owners that the net assets of the separate accounts will not be
affected by future variations in the actual life expectancy experience of
the annuitants and beneficiaries from the mortality assumptions implicit in
the annuity contracts. The Company makes periodic fund transfers to, or
withdrawals from, the separate account assets for such actuarial
adjustments for variable annuities that are in the benefit payment period.
The Company also guarantees that the rates at which administrative fees are
deducted from contract funds will not exceed contractual maximums.
Accounting Changes
Effective January 1, 1998, the Company adopted Statement of Financial
Accounting Standards (SFAS) No. 130, "Reporting Comprehensive Income." SFAS
No. 130 requires the reporting and display of comprehensive income and its
components. Comprehensive income is defined as the aggregate change in
stockholder's equity excluding changes in ownership interests. For the
Company, it is net income and the unrealized gains or losses on
available-for-sale securities net of taxes and reclassification adjustment.
<PAGE>
1. Summary of significant accounting policies (continued)
In March 1998, the American Institute of Certified Public Accountants
(AICPA) issued Statement of Position (SOP) 98-1, "Accounting for Costs of
Computer Software Developed or obtained for Internal Use." The SOP, which
is effective January 1, 1999, requires the capitalization of certain costs
incurred after the date of adoption to develop or obtain software for
internal use. Software utilized by the Company is owned by AEFC and will be
capitalized on AEFC's financial statements. As a result, the new rule will
not have a material impact on the Company's results of operations or
financial condition.
In December 1997, the AICPA issued SOP 97-3, "Accounting by Insurance and
Other Enterprises for Insurance-Related Assessments", providing guidance
for the timing of recognition of liabilities related to guaranty fund
assessments. The Company will adopt the SOP on January 1, 1999. The Company
has historically carried a balance in other liabilities on the balance
sheet for potential guaranty fund assessment exposure. Adoption of the SOP
will not have a material impact on the Company's results of operations or
financial condition
In June 1998, the Financial Accounting Standards Board issued SFAS No. 133,
"Accounting for Derivative Instruments and Hedging Activities," which is
effective January 1, 2000. This Statement establishes accounting and
reporting standards for derivative instruments, including certain
derivative instruments embedded in other contracts, and for hedging
activities. It requires that an entity recognize all derivatives as either
assets or liabilities in the balance sheet and measure those instruments at
fair value. The accounting for changes in the fair value of a derivative
depends on the intended use of the derivative and the resulting
designation. Earlier application of all of the provisions of this Statement
is encouraged, but it is permitted only as of the beginning of any fiscal
quarter that begins after issuance of the Statement. This Statement cannot
be applied retroactively. The ultimate financial impact of the new rule
will be measured based on the derivatives in place at adoption and cannot
be estimated at this time.
Reclassification
Certain 1997 and 1996 amounts have been reclassified to conform to the 1998
presentation.
<PAGE>
2. Investments
Fair values of investments in fixed maturities represent quoted market
prices and estimated values when quoted prices are not available. Estimated
values are determined by established procedures involving, among other
things, review of market indices, price levels of current offerings of
comparable issues, price estimates and market data from independent brokers
and financial files.
The amortized cost, gross unrealized gains and losses and fair value of
investments in fixed maturities at December 31, 1998 are as follows:
<TABLE>
<CAPTION>
Gross Gross
Amortized Unrealized Unrealized Fair
Held to maturity Cost Gains Losses Value
---------------- -------------- ---- ------- ------ ---- -----
<S> <C> <C> <C> <C>
U.S. Government agency obligations $ 8,652 $ 423 $ -- $ 9,075
State and municipal obligations 3,003 149 -- 3,152
Corporate bonds and obligations 877,140 48,822 6,670 919,292
Mortgage-backed securities 192,398 2,844 29 195,213
------------ ---------- ---------- -----------
$1,081,193 $ 52,238 $ 6,699 $1,126,732
========== ======== ======= ==========
Available for sale
U.S. Government agency obligations $ 2,062 $ 116 $ -- $ 2,178
Corporate bonds and obligations 1,472,814 69,990 34,103 1,508,701
Mortgage-backed securities 1,051,836 32,232 89 1,083,979
----------- ---------- ----------- ---------
$2,526,712 $102,338 $34,192 $2,594,858
========== ======== ======= ==========
The amortized cost, gross unrealized gains and losses and fair value of
investments in fixed maturities at December 31, 1997 are as follows:
Gross Gross
Amortized Unrealized Unrealized Fair
Held to maturity Cost Gains Losses Value
---------------- -------------- ---- ------- -- ------ ---- -----
U.S. Government agency obligations $ 11,120 $ 710 $ -- $ 11,830
State and municipal obligations 3,003 173 -- 3,176
Corporate bonds and obligations 970,498 38,176 2,763 1,005,911
Mortgage-backed securities 202,061 1,497 1,367 202,191
------------ --------- ------- -----------
$1,186,682 $40,556 $4,130 $1,223,108
========== ======= ====== ==========
Available for sale
U.S. Government agency obligations $ 2,077 $ 13 $ -- $ 2,090
Corporate bonds and obligations 1,273,217 52,207 8,020 1,317,404
Mortgage-backed securities 1,334,327 33,017 1,039 1,366,305
----------- -------- ------- ----------
$2,609,621 $85,237 $9,059 $2,685,799
========== ======= ====== ==========
</TABLE>
<PAGE>
2. Investments (continued)
The amortized cost and fair value of investments in fixed maturities at
December 31, 1998 by contractual maturity are shown below. Expected
maturities will differ from contractual maturities because borrowers may
have the right to call or prepay obligations with or without call or
prepayment penalties.
Amortized Fair
Held to maturity Cost Value
Due in one year or less $ 33,208 $ 33,499
Due from one to five years 215,010 227,139
Due from five to ten years 539,917 562,708
Due in more than ten years 100,660 108,173
Mortgage-backed securities 192,398 195,213
------------ ------------
$1,081,193 $1,126,732
Amortized Fair
Available for sale Cost Value
Due in one year or less $ 350 $ 358
Due from one to five years 96,412 101,441
Due from five to ten years 981,556 1,021,961
Due in more than ten years 396,558 387,119
Mortgage-backed securities 1,051,836 1,083,979
--------- ---------
$2,526,712 $2,594,858
During the years ended December 31, 1998, 1997 and 1996, fixed maturities
classified as held to maturity were sold with amortized cost of $31,117,
$29,561 and $27,969, respectively. Net gains and losses on these sales were
not significant. The sales of these fixed maturities were due to
significant deterioration in the issuers' creditworthiness.
In addition, fixed maturities available for sale were sold during 1998 with
proceeds of $48,492 and gross realized gains and losses of $2,835 and
$4,516, respectively. Fixed maturities available for sale were sold during
1997 with proceeds of $73,366 and gross realized gains and losses of $1,081
and $1,440, respectively. Fixed maturities available for sale were sold
during 1996 with proceeds of $47,542 and gross realized gains and losses of
$17 and $3,139, respectively.
At December 31, 1998, bonds carried at $3,292 were on deposit with various
states as required by law.
<PAGE>
2. Investments (continued)
At December 31, 1998, investments in fixed maturities comprised 82 percent
of the Company's total invested assets. These securities are rated by
Moody's and Standard & Poor's (S&P), except for securities carried at
approximately $480 million which are rated by AEFC internal analysts using
criteria similar to Moody's and S&P. A summary of investments in fixed
maturities, at amortized cost, by rating on December 31 is as follows:
Rating 1998 1997
---------------------- -- -------- -- ------
Aaa/AAA $1,242,301 $1,531,588
Aa/AA 45,526 34,167
Aa/A 60,019 69,775
A/A 422,725 421,733
A/BBB 228,656 222,022
Baa/BBB 1,030,874 954,962
Baa/BB 79,687 84,053
Below investment grade 498,117 478,003
------------ ------------
$3,607,905 $3,796,303
At December 31, 1998, approximately 94 percent of the securities rated
Aaa/AAA are GNMA, FNMA and FHLMC mortgage-backed securities. No holdings of
any other issuer are greater than one percent of the Company's total
investments in fixed maturities.
At December 31, 1998, approximately 18 percent of the Company's invested
assets were mortgage loans on real estate. Summaries of mortgage loans by
region of the United States and by type of real estate are as follows:
<TABLE>
<CAPTION>
December 31, 1998 December 31, 1997
----------------------- ---------------------
On Balance Commitments On Balance Commitments
Region Sheet to Purchase Sheet to Purchase
<S> <C> <C> <C> <C>
South Atlantic $198,552 $ 651 $186,714 $ 9,199
Middle Atlantic 129,284 520 128,239 10,167
East North Central 134,165 2,211 125,018 6,294
Mountain 113,581 -- 94,061 11,620
West North Central 119,380 9,626 96,701 11,135
New England 46,103 -- 50,932 --
Pacific 43,706 -- 33,052 --
West South Central 32,086 -- 19,573 --
East South Central 7,449 -- 7,480 --
--------- ------------ --------- ------------
824,306 13,008 741,770 48,415
Less allowance for losses 8,500 -- 3,718 --
---------- ------------ ---------- ------------
$815,806 $13,008 $738,052 $48,415
======== ======= ======== =======
</TABLE>
<PAGE>
2. Investments (continued)
<TABLE>
<CAPTION>
December 31, 1998 December 31, 1997
------------------- -------------------
On Balance Commitments On Balance Commitments
Property type Sheet to Purchase Sheet to Purchase
<S> <C> <C> <C> <C>
Department/retail stores $253,380 $ 781 $242,307 $ 9,683
Apartments 186,030 2,211 189,752 10,167
Office buildings 206,285 9,496 169,177 7,262
Industrial buildings 82,857 520 60,195 17,430
Hotels/Motels 45,552 -- 33,508 --
Medical buildings 33,103 -- 30,103 3,873
Nursing/retirement homes 6,731 -- 9,552 --
Mixed Use 10,368 -- 7,176 --
---------- ------------ ----------- ------------
824,306 13,008 741,770 48,415
Less allowance for losses 8,500 -- 3,718 --
----------- ----------- ----------- -----------
$815,806 $13,008 $738,052 $48,415
======== ======= ======== =======
</TABLE>
Mortgage loan fundings are restricted by state insurance regulatory
authorities to 80 percent or less of the market value of the real estate at
the time of origination of the loan. The Company holds the mortgage
document, which gives it the right to take possession of the property if
the borrower fails to perform according to the terms of the agreement.
Commitments to purchase mortgages are made in the ordinary course of
business. The fair value of the mortgage commitments is $nil.
At December 31, 1998, the Company's recorded investment in impaired loans
was $1,932 with an allowance of $500. At December 31, 1997, the Company's
recorded investment in impaired loans was $4,443 with an allowance of $718.
During 1998 and 1997, the average recorded investment in impaired loans was
$2,736 and $6,473, respectively.
The Company recognized $251, $nil and $nil of interest income related to
impaired loans for the years ended December 31, 1998, 1997 and 1996,
respectively.
The following table presents changes in the allowance for investment losses
related to all loans:
<TABLE>
<CAPTION>
1998 1997 1996
- ---- - ---- - ----
<S> <C> <C> <C>
Balance, January 1 $3,718 $2,370 $ --
Provision for investment losses 4,782 1,805 2,370
Loan payoffs -- (457) --
---------- ------- ---------
Balance, December 31 $8,500 $3,718 $2,370
====== ====== ======
Net investment income for the years ended December 31 is summarized as
follows:
1998 1997 1996
- ----- -- ----- - ----
Interest on fixed maturities $285,260 $278,736 $230,559
Interest on mortgage loans 65,351 55,085 41,010
Interest on cash equivalents 137 704 1,402
Other (2,493) 1,544 1,194
----------- ------------- -----------
348,255 336,069 274,165
Less investment expenses 8,036 3,801 2,446
----------- ----------- -----------
$340,219 $332,268 $271,719
======== ======== ========
</TABLE>
<PAGE>
2. Investments (continued)
Net realized gain (loss) on investments for the years ended December 31 is
summarized as follows:
1998 1997 1996
-- ---- -- ---- -- ----
Fixed maturities $ 863 $ 1,638 $(2,888)
Mortgage loans (4,816) (1,348) (2,370)
Other investments (835) (799) --
-------- ------ ----------
$(4,788) $ (509) $(5,258)
======= ======= =======
Changes in net unrealized appreciation (depreciation) of investments for
the years ended December 31 are summarized as follows:
<TABLE>
<CAPTION>
1998 1997 1996
-- ---- -- ---- -- ----
<S> <C> <C> <C>
Fixed maturities available for sale $(8,032) $57,188 $(31,970)
</TABLE>
3. Income taxes
The Company qualifies as a life insurance company for federal income tax
purposes. As such, the Company is subject to the Internal Revenue Code
provisions applicable to life insurance companies.
The income tax expense (benefit) for the years ended December 31, consists
of the following:
1998 1997 1996
-- ---- -- ---- -- ----
Federal income taxes:
Current $ 23,227 $17,668 $7,124
Deferred (9,591) (2,485) 5,084
--------- -------- -------
13,636 15,183 12,208
State income taxes-current 759 1,462 704
----------- --------- --------
Income tax expense $ 14,395 $16,645 $12,912
======== ======= =======
Increases (decreases) to the federal income tax provision applicable to
pretax income based on the statutory rate, for the years ended December 31,
are attributable to:
<TABLE>
<CAPTION>
1998 1997 1996
----------- -------- -------
Provision Rate Provision Rate Provision Rate
Federal income taxes based
<S> <C> <C> <C> <C> <C> <C>
on the statutory rate $13,972 35.0% $15,735 35.0% $12,507 35.0%
Increases (decreases) are attributable to :
Tax-excluded interest (35) (0.1) (41) (0.1) (53) (0.1)
State tax, net of federal benefit 493 1.2 956 2.1 459 1.3
Other, net (35) -- (5) -- (1) --
------ ------ ------- ------ ------ ------
Federal income taxes $14,395 36.1% $16,645 37.0% $12,912 36.2%
======= ==== ======= ==== ======= ====
</TABLE>
<PAGE>
3. Income taxes (continued)
Significant components of the Company's deferred income tax assets and
liabilities as of December 31 are as follows:
Deferred income tax assets: 1998 1997
-------- -------
Policy reserves $51,298 $54,468
Other 2,214 1,736
--------- -------
Total deferred income tax assets 53,512 56,204
-------- ------
Deferred income tax liabilities:
Deferred policy acquisition costs 52,908 63,630
Investments 23,803 28,175
-------- ------
Total deferred income tax liabilities _76,711 91,805
------- --------
Net deferred income tax liabilities $23,199 $35,601
======= =======
The Company is required to establish a valuation allowance for any portion
of the deferred income tax assets that management believes will not be
realized. In the opinion of management, it is more likely than not that the
Company will realize the benefit of the deferred income tax assets and,
therefore, no such valuation allowance has been established.
4. Stockholder's equity
Retained earnings available for distribution as dividends to IDS Life are
limited to the Company's surplus as determined in accordance with
accounting practices prescribed by state insurance regulatory authorities.
Statutory unassigned surplus aggregated $45,716 and $17,392 as of December
31, 1998 and 1997, respectively. In addition, dividends in excess of
$37,902 would require approval by the Insurance Department of the state of
Indiana.
Statutory net income and stockholder's equity as of December 31, are
summarized as follows:
1998 1997 1996
-------- --------- -------
Statutory net income $ 37,902 $ 23,589 $ 9,138
Statutory stockholder's equity 330,588 302,264 250,975
5. Related party transactions
On December 31, 1998, the Company purchased interest rate floors from IDS
Life and entered into an interest rate swap with IDS Life to manage its
exposure to interest rate risk. The interest rate floors had a carrying
amount of $6,651 and $8,400 at December 31, 1998 and 1997, respectively.
The interest rate swap is an off balance sheet transaction.
The Company has no employees. Charges by IDS Life for services and use of
other joint facilities aggregated $28,482, $24,535 and $17,936 for the
years ended December 31, 1998, 1997 and 1996, respectively. Certain of
these costs are included in deferred policy acquisition costs.
<PAGE>
6. Lines of credit
The Company has an available line of credit with AEFC aggregating $50,000.
The rate for the line of credit is the parent's cost of funds, established
by reference to various indices plus 20 to 45 basis points, depending on
the term. There were no borrowings outstanding under this agreement at
December 31, 1998 or 1997.
7. Derivative financial instruments
The Company enters into transactions involving derivative financial
instruments to manage its exposure to interest rate risk, including hedging
specific transactions. The Company does not hold derivative instruments for
trading purposes. The Company manages risks associated with these
instruments as described below.
Market risk is the possibility that the value of the derivative financial
instruments will change due to fluctuations in a factor from which the
instrument derives its value, primarily an interest rate. The Company is
not impacted by market risk related to derivatives held for non-trading
purposes beyond that inherent in cash market transactions. Derivatives are
largely used to manage risk and, therefore, the cash flow and income
effects of the derivatives are inverse to the effects of the underlying
transactions.
Credit risk is the possibility that the counterparty will not fulfill the
terms of the contract. The Company monitors credit risk related to
derivative financial instruments through established approval procedures,
including setting concentration limits by counterparty, and requiring
collateral, where appropriate. A vast majority of the Company's
counterparties are rated A or better by Moody's and Standard & Poor's.
Credit risk related to interest rate caps and floors is measured by
replacement cost of the contracts. The replacement cost represents the fair
value of the instruments.
The notional or contract amount of a derivative financial instrument is
generally used to calculate the cash flows that are received or paid over
the life of the agreement. Notional amounts are not recorded on the balance
sheet. Notional amounts far exceed the related credit exposure.
The Company's holdings of derivative financial instruments are as follows:
<TABLE>
<CAPTION>
Notional Carrying Fair Total Credit
December 31, 1998 Amount Amount Value Exposure
----------------- ------ - ------ -- ----- --------
Assets:
<S> <C> <C> <C> <C>
Interest rate caps $ 900,000 $ 5,452 $ 1,518 $ 1,518
Interest rate floors 1,000,000 6,651 17,798 17,798
Interest rate swaps 1,000,000 -- -- --
------------- ------------ -------------
$12,103 $19,316 $19,316
= ======= ======= =======
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
7. Derivative financial instruments (continued)
Notional Carrying Fair Total Credit
December 31, 1997 Amount Amount Value Exposure
----------------- - ------ -- ------ -- ----- -- --------
Assets:
<S> <C> <C> <C> <C>
Interest rate caps $ 900,000 $ 7,624 $ 5,340 $ 5,340
Interest rate floors 1,000,000 8,400 8,400 8,400
Interest rate swaps 1,000,000 -- -- --
------------- ------------ ------------
$16,024 $13,740 $13,740
======= ======= =======
</TABLE>
The fair values of derivative financial instruments are based on market
values, dealer quotes or pricing models. All interest rate caps, floors and
swaps will expire on various dates from 2000 to 2003.
Interest rate caps, floors and swaps are used to manage the Company's
exposure to interest rate risk. These instruments are used primarily to
protect the margin between interest rates earned on investments and the
interest rates credited to related annuity contract holders.
8. Fair values of financial instruments
The Company discloses fair value information for most on- and off-balance
sheet financial instruments for which it is practicable to estimate that
value. Fair value of life insurance obligations, receivables and all
non-financial instruments, such as deferred acquisition costs are excluded.
Off-balance sheet intangible assets are also excluded. Management believes
the value of excluded assets and liabilities is significant. The fair value
of the Company, therefore, cannot be estimated by aggregating the amounts
presented.
<TABLE>
<CAPTION>
December 31,
1998 1997
-------- --------
Carrying Fair Carrying Fair
Financial Assets Amount Value Amount Value
Investments:
Fixed maturities (Note 2):
<S> <C> <C> <C> <C>
Held to maturity $1,081,193 $1,126,732 $1,186,682 $1,223,108
Available for sale 2,594,858 2,594,858 2,685,799 2,685,799
Mortgage loans on real estate (Note 2) 815,806 874,064 738,052 775,869
Derivative financial instruments (Note 7) 12,103 19,316 16,024 13,740
Separate account assets (Note 1) 123,185 123,185 62,087 62,087
Financial Liabilities
Future policy benefits for fixed annuities $4,152,059 $4,000,789 $4,330,173 $4,152,471
Separate account liabilities 123,185 115,879 62,087 58,116
</TABLE>
At December 31, 1998 and 1997, the carrying amount and fair value of future
policy benefits for fixed annuities exclude life insurance-related
contracts carried at $14,793 and $13,040, respectively. The fair value of
these benefits is based on the status of the annuities at December 31, 1998
and 1997.
<PAGE>
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 1998 and 1997.
9. Commitments and contingencies
A number of lawsuits have been filed against life and health insurers in
jurisdictions in which the Company conducts business involving insurers'
sales practices, alleged agent misconduct, failure to properly supervise
agents, and other matters. The Company, along with AEFC and its insurance
subsidiaries, has been named as a defendant in one of these types of
actions.
The plaintiffs purport to represent a class consisting of all persons who
purchased policies or contracts from IDS Life and its subsidiaries. The
complaint puts at issue various alleged sales practices and
misrepresentations, alleged breaches of fiduciary duties and alleged
violations of consumer fraud statutes. IDS Life and its subsidiaries
believe they have meritorious defenses to the claims raised in this
lawsuit.
The outcome of any litigation cannot be predicted with certainty. In the
opinion of management, however, the ultimate resolution of this lawsuit
should not have a material adverse effect on the Company's financial
position.
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 business is heavily dependent upon AEFC's computer systems and
has significant interactions with systems of third parties.
A comprehensive review of AEFC's computer systems and business processes,
has been conducted to identify the major systems that could be affected by
the Year 2000 issue. Steps have been taken to resolve potential problems
including modification to existing software and the purchase of new
software. AEFC's target date for substantially completing its program of
corrective measures on internal business critical systems was December 31,
1998. As of June 30, 1999, AEFC completed its program of corrective
measures on its internal systems and applications, including Year 2000
compliance testing. The Year 2000 readiness of unaffiliated investment
managers and other third parties whose system failures could have an impact
on the Company's operations continues to be evaluated. The failure of
external parties to resolve their own Year 2000 issues in a timely manner
could result in a material financial risk to AEFC or the company.
AEFC's Year 2000 project includes establishing Year 2000 contingency plans
for all key business units. Business continuation plans, which address
business continuation in the event of a system disruption, are in place for
all key business units. These plans are being amended to include specific
Year 20000 considerations and will contine to be refined throughout 1999 as
additional information related to potential Year 2000 exposure is gathered.
<PAGE>
PART C.
Item 24. Financial Statements and Exhibits
(a) Financial Statements included in Part B of this Registration Statement:
The audited financial statements of American Enterprise Life Insurance
Company including:
o Balance sheets as of Dec. 31, 1998 and 1997; and
o Related statements of income, stockholder's equity and cash
flows for the years ended Dec. 31, 1998, 1997 and 1996.
o Notes to Financial statements.
o Report of Independent Auditors dated Feb. 4, 1999.
(b) Exhibits:
1.1 Resolution of the Executive Committee of the Board of Directors of
American Enterprise Life establishing the American Enterprise Variable
Annuity Account dated July 15, 1987, filed electronically as Exhibit 1
to the Initial Registration Statement No. 33-54471, filed on or about
July 5, 1994, is incorporated herein by reference.
1.2 Resolution of the Board of Directors of American Enterprise Life
establishing 236 additional subaccounts within the separate account,
dated September 8, 1999 is filed electronically herewith.
2. Not applicable.
3. Form of Selling Agreement for American Enterprise Life Insurance
Company Variable Annuities is filed electronically herewith.
4.1 Form of Deferred Annuity Contract (form 44170) is filed electronically
herewith.
4.2 Form of Roth IRA Endorsement (form 43094) filed electronically as
Exhibit 4.2 to Pre-Effective Amendment No. 1 to Registration Statement
No. 33-74865, filed on or about August 4, 1999, is incorporated herein
by reference.
4.3 Form of SEP-IRA Endorsement (form 43412) filed electronically as
Exhibit 4.3 to Pre-Effective Amendment No. 1 to Registration Statement
No. 33-72777, is incorporated herein by reference.
5. Form of Variable Annuity Application (form 44171) is filed
electronically herewith.
6.1 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 herein by reference.
6.2 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 herein by reference.
7. Not applicable.
8.1 Form of Participation Agreement among Variable Insurance Products Fund,
Fidelity Distribution Corporation and IDS Life Insurance Company is
filed electronically herewith.
<PAGE>
8.2 Form of Participation agreement among Variable Insurance Products Fund
III, Fidelity Distributors Corporation and IDS Life Insurance Company
is filed electronically herewith.
9. Opinion of counsel and consent to its use as to the legality of the
securities being registered is filed electronically herewith.
10. Consent of Independent Auditors is filed electronically herewith.
11. None.
12. Not applicable.
13. Copy of schedule for computation of each performance quotation provided
in the Registration Statement in response to Item 21, filed
electronically as Exhibit 13 to the Initial Registration Statement No.
33-54471, filed on or about July 5, 1994, is incorporated herein by
reference.
14. Not applicable.
15.1 Power of Attorney to sign this Registration Statement, dated March 28,
1997, filed electronically as Exhibit 15 to Post-Effective Amendment
No. 7 to Registration Statement No. 33-54471, is incorporated
herein by reference.
15.2 Power of Attorney to sign this Registration Statement, dated April 9,
1998, filed electronically as Exhibit 15.2 to Post-Effective
Amendment No. 10 to Registration Statement No. 33-54471, is
incorporated herein by reference.
15.3 Power of Attorney to sign this Registration Statement, dated July 29,
1999, filed electronically as Exhibit 15.3 to Pre-Effective Amendment
No. 1 to Registration Statement No. 33-74865, is incorporated
herein by reference.
<TABLE>
<CAPTION>
Item 25. Directors and Officers of the Depositor (American Enterprise Life Insurance Company)
Name Principal Business Address Positions and Offices with Depositor
- - - ------------------------------------- -------------------------------------- --------------------------------------
<S> <C> <C>
James E. Choat IDS Tower 10 Director, President and Chief
Minneapolis, MN 55440 Executive Officer
Lorraine R. Hart IDS Tower 10 Vice President, Investments
Minneapolis, MN 55440
Jeffrey S. Horton IDS Tower 10 Vice President and Treasurer
Minneapolis, MN 55440
Richard W. Kling IDS Tower 10 Director and Chairman of the Board
Minneapolis, MN 55440
Bruce A. Kohn IDS Tower 10 Vice President, Group Counsel and
Minneapolis, MN 55440 Assistant Secretary
Paul S. Mannweiler Indianapolis Power and Light Director
One Monument Circle
P.O. Box 1595
Indianapolis, IN 46206-1595
<PAGE>
Name Principal Business Address Positions and Offices with Depositor
- - - ------------------------------------- -------------------------------------- --------------------------------------
Paula R. Meyer IDS Tower 10 Director and Executive Vice
Minneapolis, MN 55440 President, Assured Assets
Mary Ellyn Minenko IDS Tower 10 Vice President, Group Counsel and
Minneapolis, MN 55440 Assistant Secretary
Stuart A. Sedlacek IDS Tower 10 Executive Vice President
Minneapolis, MN 55440
F. Dale Simmons IDS Tower 10 Vice President, Real Estate Loan
Minneapolis, MN 55440 Management
William A. Stoltzmann IDS Tower 10 Director, Vice President, General
Minneapolis, MN 55440 Counsel and Secretary
Philip C. Wentzel IDS Tower 10 Vice President and Controller
Minneapolis, MN 55440
</TABLE>
Item 26. Persons Controlled by or Under Common Control with the
Depositor or Registrant
American Enterprise Life Insurance Company is a wholly-owned
subsidiary of IDS Life Insurance Company which is a
wholly-owned subsidiary of American Express Financial
Corporation. American Express Financial Corporation is a
wholly-owned subsidiary of American Express Company (American
Express).
The following list includes the names of major subsidiaries of
American Express.
<TABLE>
<CAPTION>
Jurisdiction of
Name of Subsidiary Incorporation
<S> <C>
I. Travel Related Services
American Express Travel Related Services Company, Inc. New York
II. International Banking Services
American Express Bank Ltd. Connecticut
III. Companies engaged in Financial Services
Advisory Capital Strategies Group Inc. Minnesota
American Centurion Life Assurance Company New York
American Enterprise Investment Services Inc. Minnesota
American Enterprise Life Insurance Company Indiana
American Express Asset Management Group Inc. Minnesota
American Express Asset Management International Inc. Delaware
American Express Asset Management International (Japan) Ltd. Japan
American Express Asset Management Ltd. England
American Express Client Service Corporation Minnesota
<PAGE>
American Express Corporation Delaware
American Express Financial Advisors Inc. Delaware
American Express Financial Corporation Delaware
American Express Insurance Agency of Arizona Inc. Arizona
American Express Insurance Agency of Idaho Inc. Idaho
American Express Insurance Agency of Nevada Inc. Nevada
American Express Insurance Agency of Oregon Inc. Oregon
American Express Minnesota Foundation Minnesota
American Express Property Casualty Insurance Agency of Kentucky Inc. Kentucky
American Express Property Casualty Insurance Agency of Maryland Inc. Maryland
American Express Property Casualty Insurance Agency of Pennsylvania Inc. Pennsylvania
American Express Trust Company Minnesota
American Partners Life Insurance Company Arizona
IDS Cable Corporation Minnesota
IDS Cable II Corporation Minnesota
IDS Capital Holdings Inc. Minnesota
IDS Certificate Company Delaware
IDS Futures Corporation Minnesota
IDS Insurance Agency of Alabama Inc. Alabama
IDS Insurance Agency of Arkansas Inc. Arkansas
IDS Insurance Agency of Massachusetts Inc. Massachusetts
IDS Insurance Agency of New Mexico Inc. New Mexico
IDS Insurance Agency of North Carolina Inc. North Carolina
IDS Insurance Agency of Utah Inc. Utah
IDS Insurance Agency of Wyoming Inc. Wyoming
IDS Life Insurance Company Minnesota
IDS Life Insurance Company of New York New York
IDS Management Corporation Minnesota
IDS Partnership Services Corporation Minnesota
IDS Plan Services of California, Inc. Minnesota
IDS Property Casualty Insurance Company Wisconsin
IDS Real Estate Services, Inc. Delaware
IDS Realty Corporation Minnesota
IDS Sales Support Inc. Minnesota
IDS Securities Corporation Delaware
Investors Syndicate Development Corp. Nevada
Public Employee Payment Company Minnesota
</TABLE>
Item 27. Number of Contract owners
Not applicable.
Item 28. 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.
<PAGE>
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 29 Principal Underwriters
To be filed by amendment
Item 30. Location of Accounts and Records
American Enterprise Life Insurance Company
IDS Tower 10
Minneapolis, MN 55402
Item 31. Management Services
Not applicable.
Item 32. Undertakings
(a) Registrant undertakes that it will file a post-effective
amendment to this registration statement as frequently as is
necessary to ensure that the audited financial statements in
the registration statement are never more than 16 months old
for so long as payments under the variable annuity contracts
may be accepted.
(b) Registrant undertakes that it will include either (1) as part
of any application to purchase a contract offered by the
prospectus, a space that an applicant can check to request a
Statement of Additional Information, or (2) a post card or
similar written communication affixed to or included in the
prospectus that the applicant can remove to send for a
Statement of Additional Information.
(c) Registrant undertakes to deliver any Statement of Additional
Information and any financial statements required to be made
available under this Form promptly upon written or oral
request to American Enterprise Life Contract Owner Service at
the address or phone number listed in the prospectus.
(d) 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.
(e) The sponsoring insurance company represents that the fees and
charges deducted under the contract, in the aggregate, are
reasonable in relation to the services rendered, the expenses
expected to be incurred, and the risks assumed by the
insurance company.
<PAGE>
SIGNATURES
As required by the Securities Act of 1933 and the Investment Company Act of
1940, 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, thereunto duly authorized in the City of Minneapolis, and State of
Minnesota, on the 21st day of September, 1999.
AMERICAN ENTERPRISE VARIABLE ANNUITY ACCOUNT
(Registrant)
By American Enterprise Life Insurance Company
(Sponsor)
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 21st day of
September, 1999.
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* Director and Chairman of the Board
Richard W. Kling
/s/ Paul S. Mannweiler* Director
Paul S. Mannweiler
/s/ Paula R. Meyer* Executive Vice President,
Paula R. Meyer Assured Assets
/s/ William A. Stoltzmann* Director, Vice President, General
William A. Stoltzmann 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 15.3 to Pre-Effective Amendment No. 1 to Registration Statement No.
33-74865, filed on or about August 4, 1999, incorporated herein by reference.
By: /s/ Mary Ellyn Minenko
Mary Ellyn Minenko
<PAGE>
CONTENTS OF PRE-EFFECTIVE AMENDMENT NO. 1 TO REGISTRATION STATEMENT
This Pre-Effective Amendment is comprised of the following papers and documents:
The Cover Page.
Part A.
The prospectus.
Part B.
Statement of Additional Information.
Financial Statements
Part C.
Other Information.
The signatures.
Exhibits
American Express Pinnacle Variable AnnuitySM
Registration Number 333-82149
Exhibit 1.2 Resolution of Board of Directors.
Exhibit 3 Form of Selling Agreement
Exhibit 4.1 Form of Deferred Annuity Contract (form 44170).
Exhibit 4 Form of Variable Annuity Application (form 44171).
Exhibit 8.1 Form of Participation Agreement (Variable Ins. Products Fund).
Exhibit 8.2 Form of Participation Agreement (Variable Ins. Product Fund III).
Exhibit 9 Opinion of Counsel and Consent.
Exhibit 10 Consent of Independent Auditor.
TO THE SECRETARY OF
AMERICAN ENTERPRISE LIFE INSURANCE COMPANY
By Resolution received by the Secretary on July 15, 1987, the Board of Directors
of American Enterprise Life Insurance Company:
RESOLVED, That American Enterprise Life Insurance Company, pursuant to
the provisions of Section 27-1-51 Section 1 Class 1(c) of the Indiana
Insurance Code, established a separate account designated American
Enterprise Variable Annuity Account, to be used for the Corporation's
Variable Annuity contracts; and
RESOLVED FURTHER, That the proper officers of the Corporation were
authorized and directed to establish such subaccounts and/or investment
divisions of the Account in the future as they determine to be
appropriate; and
RESOLVED FURTHER, That the proper officers of the Corporation were
authorized and directed to accomplish all filings, including
registration statements and applications for exemptive relief from
provisions of the securities laws as they deem necessary to carry the
foregoing into effect.
As President of American Enterprise Life Insurance Company, I hereby establish,
in accordance with the above resolutions and pursuant to authority granted by
the Board of Directors, 236 additional subaccounts within the separate account
to invest in the following funds or portfolios:
AXPsm Variable Portfolio - Blue Chip Advantage Fund (8 subaccounts)
AXPsm Variable Portfolio - Bond Fund (2 subaccounts)
AXPsm Variable Portfolio - Capital Resource Fund (6 subaccounts)
AXPsm Variable Portfolio - Cash Management Fund (2 subaccounts)
AXPsm Variable Portfolio - Diversified Equity Income Fund (8 subaccounts)
AXPsm Variable Portfolio - Extra Income Fund (7 subaccounts)
AXPsm Variable Portfolio - Federal Income Fund (7 subaccounts)
AXPsm Variable Portfolio - Managed Fund (2 subaccounts)
AXPsm Variable Portfolio - New Dimensions Fund (7 subaccounts)
AXPsm Variable Portfolio - Small Cap Advantage Fund (8 subaccounts)
AIM V.I. Capital Appreciation Fund (7 subaccounts)
AIM V.I. Value Fund (7 subaccounts)
Dreyfus Socially Responsible Growth Fund (6 subaccounts)
Fidelity VIP Fund III Balanced Portfolio (2 subaccounts)
Fidelity VIP Fund Growth Portfolio (2 subaccounts)
Fidelity VIP Fund III Growth & Income Portfolio (2 subaccounts)
Fidelity VIP Fund III Mid Cap Portfolio (2 subaccounts)
Franklin Templeton Variable Insurance Products Trust Income Securities
Fund - Class 2 (7 subaccounts)
Franklin Templeton International Fund - Class 2 (2 subaccounts)
Franklin Templeton Variable Insurance Products Trust Mutual Shares Securities
Fund - Class 2 (8 subaccounts)
Franklin Templeton Variable Insurance Products Trust Small Cap Fund -
Class 2 (8 subaccounts)
Franklin Templeton Variable Insurance Products Trust Real Estate Securities Fund
- - - - Class 2 (6 subaccounts)
Franklin Templeton Variable Insurance Products Trust Values Securities Fund
- - - - Class 2 (2 subaccounts)
Goldman Sachs Variable Insurance Trust CORE U.S. Equity Fund (6 subaccounts)
Goldman Sachs Variable Insurance Trust Global Income Fund (6 subaccounts)
Goldman Sachs Variable Insurance Trust Mid Cap Equity Fund (6 subaccounts)
MFS(R) Growth with Income Series (8 subaccounts)
MFS(R) New Discovery Series (2 subaccounts)
MFS(R) Total Return Series (2 subaccounts)
MFS(R) Utilities Series (7 subaccounts)
Wells Fargo Asset Allocation Fund (7 subaccounts)
Wells Fargo Money Market Fund (7 subaccounts)
Wells Fargo Corporate Bond Fund (7 subaccounts)
Wells Fargo Equity Value Fund (7 subaccounts)
Wells Fargo Growth Fund (7 subaccounts)
Wells Fargo Equity Income Fund (7 subaccounts)
Wells Fargo International Equity Fund (7 subaccounts)
Wells Fargo Large Company Growth Fund (7 subaccounts)
Wells Fargo Small Cap Fund (7 subaccounts)
Putnam VT Growth & Income Fund (IB) (2 subaccounts)
Putnam VT Income Fund (IB) ((2 subaccounts)
Putnam VT International Growth Fund (IB) (7 subaccounts)
Putnam VT Vista Fund (IB) (7 subaccounts)
In accordance with the above resolutions and pursuant to authority granted by
the Board of Directors of American Enterprise Life Insurance Company, the Unit
Investment Trust comprised of American Enterprise Variable Annuity Account and
consisting of 85 subaccounts is hereby reconstituted as American Enterprise
Variable Annuity Account consisting of 321 subaccounts.
Received by the Secretary:
__________________________________ __________________________________
James E. Choat William A. Stoltzmann
Date:________________________
SELLING AGREEMENT
FOR
AMERICAN ENTERPRISE LIFE INSURANCE COMPANY
VARIABLE ANNUITIES
This SELLING AGREEMENT ("Agreement") is entered into as of ("Effective Date") by
and between American Enterprise Life Insurance Company ("Company"), American
Express Financial Advisors Inc. ("Distributor", together with Company, "American
Express"), [[GA]] or its affiliated insurance agencies who have also executed
this Agreement or an Affiliate Participation Agreement attached as Exhibit C
("Affiliates") and are identified on Exhibit A ("Selling Agency") and
[[Broker-Dealer]] ("Broker-Dealer").
Recitals
The purpose of this Agreement is to establish the terms and conditions under
which Selling Agency and Broker-Dealer (referred to and defined further in
Section 1.2 herein as "Authorized Selling Firm") will market and sell Company's
variable annuities. American Express and Authorized Selling Firm intend that
Authorized Selling Firm will be responsible for managing and supervising the
marketing and sales of Company's variable annuities by its Producers pursuant to
this Agreement.
In consideration of the mutual covenants contained herein, the parties agree as
follows:
1. DEFINITIONS. As used in this Agreement, the following terms shall have
the following meanings:
1.1 "Affiliate" is an insurance agency affiliated with Selling Agency,
which has executed an Affiliate Participation Agreement of the form
attached hereto as Exhibit B, and which is identified on Exhibit A
("Products, Territory and Commission").
1.2 "Authorized Selling Firm" means the Broker-Dealer and Selling Agency,
taken together, with respect to the sale of Products under this
Agreement in accordance with the terms and conditions of the SEC
no-action letter First of America Brokerage Service, Inc. (dated Sept.
28, 1995).
1.3 "Broker-Dealer" is an entity duly registered as a broker-dealer with
the Securities and Exchange Commission ("SEC"), the National
Association of Securities Dealers ("NASD"), and states where required.
Selling Agency may also act as its own Broker-Dealer if properly
registered as a broker-dealer.
1.4 "Company Rules" mean any written instructions, bulletins, manuals, the
Agent Guide as defined in Section 4.4.14, and any underwriting or
suitability guidelines provided by the Company.
1.5 "Producer" is a duly licensed individual who sells Products as an
employee or independent contractor of Selling Agency and who is
appropriately registered with the NASD.
1.6 "Products" are those variable annuity products issued by Company which
will be marketed or sold by Selling Agency, Broker-Dealer and their
Producers under this Agreement, and which are set forth in Exhibit A
and its Addenda attached hereto.
1.7 "Replacement" is the sale of a Product which is funded by the annuity
purchaser with money obtained from the liquidation of another life
insurance policy or annuity contract, either of which was previously
issued either by Company or by any other life insurance company.
1.8 "Selling Agency" is an insurance agency or an Affiliate duly licensed
or otherwise qualified as an insurance agency, which, either itself or
through Producers who are its employees or independent contractors,
solicits and sells Products to the general public.
1.9 "Territory" is any of the 48 of the 50 United States (all states other
than New York and New Hampshire), and the District of Columbia, and
includes any other jurisdiction in which Selling Agency is permitted to
market and sell the Products through Producers, but only so long as
such jurisdictions are listed on Exhibit A, as it may be amended from
time to time.
2. TERM OF AGREEMENT. This Agreement shall remain in effect beginning upon
the Effective Date, until such time it is terminated pursuant to
Section 9, "Termination."
3. APPOINTMENT AND AUTHORIZATION OF SELLING AGENCY AND BROKER-DEALER.
3.1 Appointment and Authorization of Selling Agency and Broker-Dealer.
Company and Distributor hereby appoint and authorize Selling Agency and
Broker-Dealer to solicit sales of and sell Products in accordance with
the terms and conditions of this Agreement as an Authorized Selling
Firm, and Selling Agency and Broker-Dealer hereby accept the
appointment and authorization. These two appointments, taken together,
constitute the appointment of Authorized Selling Firm. Authorized
Selling Firm's authority will be nonexclusive, and will be limited to
the performance of the services and responsibilities set forth in this
Agreement.
3.2 Selection and Appointments of Affiliates. No Affiliate shall be
authorized to act as such until the Affiliate has executed this
Agreement or an Affiliate a Participation Agreement and Company has
authorized Affiliate to act as such.
4. DUTIES, OBLIGATIONS AND LIMITATIONS OF AUTHORIZED SELLING FIRM. Commencing
on the Effective Date, Authorized Selling Firm will faithfully perform all
of Authorized Selling Firm's duties within the scope of the agency
relationship created under this Agreement to the best of Authorized Selling
Firm's knowledge, skill and judgment. As Authorized Selling Firm, Selling
Agency and Broker-Dealer shall be jointly and severally responsible and
liable to American Express for the faithful performance of all obligations
and duties except those which this Agreement specifically identifies as
duties of Broker-Dealer. Authorized Selling Firm's duties shall include,
but not be limited to the following:
4.1 Recruitment of Producers. Authorized Selling Firm may recruit Producers
to sell under the supervision of Authorized Selling Firm. A Producer so
recruited may not solicit or sell Products prior to acquiring any
required state insurance license(s) in the state(s) where such Producer
will solicit and sell Products, being registered with the NASD as a
representative of the Broker-Dealer, being appointed by Company as an
agent, and completing the training described in Section 4.4.14.
4.2 Licensing, Registration and Appointment of Selling Agency and
Producers. Selling Agency shall be responsible for the preparation and
submission of proper appointment and licensing forms and the assurance
that all Producers recruited by Authorized Selling Firm are
appropriately licensed as insurance agents in the state(s) where such
Producers will solicit and sell Products. Broker-Dealer shall be
responsible for the preparation and submission to the NASD of proper
representative registration forms and the assurance that all Producers
are properly registered as representatives of Broker-Dealer with the
NASD. Authorized Selling Firm shall recommend Producers for appointment
with Company, but Company shall retain sole authority to make
appointments and may, by written notice to Authorized Selling Firm,
refuse to permit any Producer to solicit contracts for the sale of the
Products.
4.2.1 Background checks; Warranties. Authorized Selling Firm is
responsible for performing background checks on its Producers.
Authorized Selling Firm warrants that such background check
reports of Producers will comply with all applicable regulations
of the departments of insurance and securities in the states in
which said Producers will solicit and sell Products, and with the
requirements of the NASD. Authorized Selling Firm further
warrants and guarantees that copies of such background check
reports will be made available in a timely manner to any
regulator who may request them from Company, and that Company
will receive confirmation that such materials have been timely
delivered to any such regulator. Company will not require copies
of the reports themselves, but only the assurance that they have
been timely delivered as requested by such regulator, unless such
reports relate or may relate to a customer inquiry or complaint
about the Product or its sale, or unless such report relates to
Company's internal investigation of a Producer's sales practices
as regard the Products. Authorized Selling Firm further agrees
that it will provide to Company a copy of their respective
procedures and requirements for background checks to Company upon
request, but Company is entitled to rely on Authorized Selling
Firm for compliance with regulations as shown above even without
actually making such a demand.
4.3 Compliance with Company Policies and Applicable Laws. Authorized
Selling Firm will comply with all Company Rules and with all applicable
federal and state laws and regulations.
4.4 Supervision and Administration. Authorized Selling Firm shall have
full, joint and several responsibility for the training and supervision
of all of its Producers who are engaged directly or indirectly in the
offer or sale of the Products, and all such Producers shall be subject
to the control of Authorized Selling Firm with respect to their
securities and insurance regulated activities in connection with the
Products. Authorized Selling Firm shall be responsible for all acts or
omissions of Producers. Selling Agency's supervisory and administrative
responsibilities include, but are not limited to:
4.4.1 ensuring that Producers comply with Company Rules and all
federal and state laws and regulations applicable to the
Products;
4.4.2 training Producers prior to allowing a Producer to sell a
Product in accordance with Section 4.4.14;
4.4.3 providing advice and assistance to Producers with regard to
marketing and advertising of Products, and ensuring that no
advertising is used unless approved by Company in accordance
with Section 4.9, "Approved Advertising."
4.4.4 supplying sales literature and application forms approved by
Company to Producers;
4.4.5 ensuring that any sales literature or advertising used on or
from the premises of a financial institution be: (a) revised to
include the disclosure required by the financial institution
regulatory agencies and the NASD; (b) submitted to and approved
by Company and/or Distributor in accordance with
Section 4.9, "Approved Advertising," prior to first use;
and (c) delivered by the Producer to the prospective customer;
4.4.6 assisting Producers in responding to customer inquiries;
4.4.7 promptly delivering to Producers relevant Company communications
and Company Rules concerning Products, such as changes in rates,
regulatory notices or new Product announcements;
4.4.8 ensuring that Producers:
(a)submit premium payments directly and immediately to Company
in accordance with Section 4.5, "Collection and Submission of
Premiums";
(b)document transactions, including the fact of delivery, and
maintain any other documentation reasonably requested by
Company;
(c)have obtained and will continuously maintain the required
state insurance licenses in the state where such Producers
will solicit and sell Products; and
(d)have been appointed by Company in accordance with the laws
of the state in which the sale(s) occur and the customer
resides;
4.4.9 on all Replacement sales, ensuring that Producers provide
sufficient information to prospective annuity contract-holders as
to the suitability of the Replacement sale. Such information
includes but may not be limited to:
(a) the amount of the surrender charge to be incurred
on the investment to be liquidated;
(b) all fees and possible charges, such as surrender
charges, on the new investment;
(c) any change in the investment risk to the prospective
annuity contract-holder;
(d) any change in the nature or the provider of any guarantees
associated with the Product and/or the surrendered
product;
(e) any changes in the expenses associated with the Product \
and/or the surrendered product;
All such information will be retained by Selling Agency for seven
years counting from the date of the initial solicitation, whether
or not the Product was ever sold, and will be made available to
Company as is shown in Section 4.8, "Accurate Record; Audit,"
herein.
4.4.10 timely obtaining and maintaining all required state insurance
licenses, and notifying Company if any Selling Agency or Producer
fails to maintain the required state insurance license or becomes
inactive;
4.4.11 promptly informing Company of any violation of law or Company
Rules by Authorized Selling Firm or Producer, or of any
allegation by an annuity contract-holder or regulatory agency of
wrongdoing as regards the activities of Authorized Selling Firm,
or a Producer with respect to the Products; and
4.4.12 any other duties necessary or appropriate to perform Authorized
Selling Firm's obligations under this Agreement.
4.4.13 Broker-Dealer will fully comply with and will ensure Selling
Agency's and Producers' compliance with the requirements of the
NASD, the SEC and all other applicable federal and state laws,
and, with Selling Agency, will establish and maintain such
rules and procedures as may be necessary to cause diligent
supervision of the securities activities of Selling Agency and
Producers. Broker- Dealer's duties with respect to Selling
Agency's and Producers' securities activities, include, but are
not limited to:
(a) delivering to each person submitting an application a
prospectus to be furnished by American Express in the form
required by the applicable federal laws or by the acts or
statutes of any applicable state, province or country; (b)
ensuring that all sales literature or advertising used by
Authorized Selling Firm or Producers hereunder concerning the
Products or Company or Distributor has been approved by
American Express; (c) reviewing all Product applications for
accuracy and completeness, and to determine the suitability of
the sale; (d) complying with all applicable requirements of the
Securities Exchange Act of 1934 ("1934 Act") and the NASD,
including the requirements to maintain and preserve books and
records pursuant to Section 17(a) of the 1934 Act and the rules
thereunder and making such records and files available to staff
of American Express and personnel of state insurance
departments, the NASD, SEC or other regulatory agencies which
have authority over American Express.
4.4.14. Authorized Selling Firm shall be responsible for ensuring
that their Producers who market and sell the Products are
trained on (i) the product specifications and features, (ii)
requirements that American Express has adopted to satisfy
insurance laws and regulations regarding replacements, and
(iii) standards that American Express has established for
Authorized Selling Firms and their Producers to use in
meeting their respective duties to ensure suitable sales of
the Products (delivered together as the "Agent Guide")
before they begin to solicit or sell Products. If Authorized
Selling Firm chooses not to use the Agent Guide in training
their Representatives on (i), (ii) and (iii) above, then
Authorized Selling Firm shall provide to American Express
its own form of training to be used prior to the execution
of this Agreement.
After the execution of this Agreement, to the extent that
Authorized Selling Firm uses training material related to the
sale of the Products that is materially different from that
contained in the Agent Guide or training material other than
provided to American Express in accordance with the preceding
paragraph, Authorized Selling Firm must provide that training
material to American Express for approval prior to use.
Authorized Selling Firm shall also be responsible for assuring
that its Producers comply with Agent Guide, and the applicable
suitability requirements of the National Association of
Securities Dealers, Inc. ("NASD"), and any state or federal
law, as amended from time to time, in selling the Products.
4.5 Collection and Submission of Premiums. American Express and Authorized
Selling Firm will agree which of the following provisions will govern
Authorized Selling Firm's duties related to collection and submission
of premiums, by specifying on Exhibit A the applicable provision.
4.5.1 Check with Application. Authorized Selling Firm will assure its
Producers' collection and timely remittance to Company of the
premiums due on all Products as specified herein. Company will
receive premium payments no later than the second business day
after the application has been signed by the customer.
4.5.2 Gross Sweep. Authorized Selling Firm will assure its
Producers' collection of the premiums due on all Products
and will timely account for such premiums, directly
depositing them into an account established by Authorized
Selling Firm for the benefit of Company, at a bank approved
by Company, and notifying Company immediately of the gross
receipts for the business day and of the sales to which they
relate. Upon receipt of notification from Authorized Selling
Firm, Company will sweep the settlement account. Additional
specific procedures governing movement of money pursuant to
this paragraph will be established by Authorized Selling
Firm and Company and will become part of the Company Rules.
4.5.3 Gross ACH Through Clearing Broker. Authorized Selling Firm
will assure its Producer's collection of the premiums due
for all Products and the timely accounting for and
submission of all premiums directly and immediately to
Clearing Broker. Premiums must be in the form of check, bank
draft authorization, customer-approved account transfer, or
wire transfer, with funds payable to the order of Selling
Agency. Clearing Broker will immediately deposit premium
payments received from Selling Agency into an account for
the benefit of Selling Agency, or into the Clearing Broker's
segregated omnibus account established for the benefit of
Selling Agency (sometimes referred to as an "Omnibus
Account."). Selling Agency will notify, or will ensure that
the Clearing Broker notifies, Company immediately of the
gross receipts for each business day. Clearing Broker will,
through ACH transfer, remit the gross premiums received to a
Company-owned bank account designated by Company so that the
Company receives the premiums no later than the close of
business on the second day after the application was signed
by the Customer. Additional specific procedures governing
the movement of money pursuant to this paragraph will be
established by Selling Agency, Broker-Dealer, Company and
Distributor, and will become part of the Company Rules.
4.5.4 Net Wire Through Clearing Broker. Selling Agency will assure its
Representatives' collection of the premiums for all Variable
Contracts and the timely accounting for and submission of all
premiums directly and immediately to Clearing Broker. Premiums
must be in the form of check, bank draft authorization,
customer-approved account transfer, or wire transfer, with funds
to the order of Selling Agency.
Clearing Broker will immediately deposit premium payments
received from Selling Agency into an account for the benefit of
Selling Agency, or into the Clearing Broker's segregated account
(sometimes referred to as an "Omnibus Account") established for
the benefit of Selling Agency and any Affiliates or
Broker-Dealer. Selling Agency will notify, or will ensure that
the Clearing Broker notifies, Company immediately of the gross
receipts for each business day. Clearing Broker will, through
wire transfer, remit the premiums received, net of Selling
Agency's share of commissions, subject to the conditions set
forth below, to a Company-owned bank account designated by
Company so that the Company receives the premiums no later than
the close of business on the second day after the day the
application was signed by the Customer.
Clearing Broker may remit premium payments to Company net of
Selling Agency's share of commission only if shown on Exhibit A,
and only if Company and Selling Agency agree on specific
procedures to be used. Such procedures will become part of the
Company Rules. "Selling Agency's share of commission"
specifically excludes supplemental trail commissions or other
payments contemplated between the parties.
If Option 4.5.3 or 4.5.4 are agreed upon by American Express and
Authorized Selling Firm as the method of collection and
submission of premiums then the provisions of Exhibit B will
apply.
4.6 Solicitation. Authorized Selling Firm, through Producers, will solicit
applicants who appear to meet Company's and Distributor's underwriting
and suitability standards, provided that nothing in this Agreement
shall be deemed to require Authorized Selling Firm to solicit any
particular customer's application for an annuity.
4.7 Company Property. Authorized Selling Firm will safeguard, maintain and
account for all policies, forms, manuals, equipment, supplies,
advertising and sales literature furnished to Authorized Selling Firm
and Producers by American Express and will destroy or return the same
to American Express promptly upon request.
4.8 Accurate Record; Audit. As required by applicable laws and Company's
policies and procedures, Authorized Selling Firm will keep identifiable
and accurate records and accounts of all business and transactions
effected pursuant to this Agreement. Upon reasonable notice and at
reasonable times, continuing during a period of one year following the
termination of this Agreement, Authorized Selling Firm will permit
American Express to visit, inspect, examine, audit and verify, at
Authorized Selling Firms offices or elsewhere, any of the properties,
accounts, files, documents, books, reports, work papers and other
records belonging to or in the possession or control of Authorized
Selling Firm relating to the business covered by this Agreement, and to
make copies thereof and extracts therefrom, provided that such audit
shall not unreasonably interfere with Authorized Selling Firm's normal
course of business.
4.9 Approved Advertising. No sales promotions, promotional materials, or
any advertising relating to Products or Company or Distributor ("Sales
Material") shall be used by Authorized Selling Firm or Producers unless
the specific item has been approved in writing by Company and/or
Distributor before use. Any promotional material developed by
Authorized Selling Firm will become the sole property of American
Express once approved. Any modification of the promotional materials to
enable the use of such in a financial institution setting must also be
approved in accordance with this section.
4.10 Chargeback of Commissions. Selling Agency will be charged back for
Selling Agency's portion of commissions relating to certain surrenders
of annuity products as specified in Exhibit A and its addenda, as
amended from time to time.
4.11 Fidelity Bond. Authorized Selling Firm represents and warrants that
all directors, officers, employees and representatives of Selling
Agency who are appointed pursuant to this Agreement as Producers for
Company or who have access to funds of Company, including but not
limited to funds submitted with applications for Products or funds
being returned to owners, are and shall be covered by a blanket
fidelity bond, including coverage for larceny and embezzlement, issued
by a reputable bonding company acceptable to Company. The bond shall
be maintained by Broker-Dealer at Broker-Dealer's and/or Selling
Agency's expense. Company may require evidence, satisfactory to it,
that such coverage is in force. Authorized Selling Firm shall give
prompt written notice to Company of cancellation or change of
coverage.
4.12 Limitations. Authorized Selling Firm shall have no authority with
respect to American Express, nor shall it represent itself as having
such authority, other than as is specifically set forth in this
Agreement. Without limiting the foregoing, neither Selling Agency nor
Broker-Dealer shall, without the express written consent of Company
and/or Distributor, as applicable: 4.12.1 make, waive, alter or change
any term, rate or condition stated in any Company contract or Company
or Distributor approved form, or discharge any contract in the name
of Company;
4.12.2 waive a forfeiture;
4.12.3 extend the time for the payment of premiums or other monies
due Company;
4.12.4 institute, prosecute or maintain any legal proceedings on
behalf of Company or Distributor in connection with any matter
pertaining to Company's business, nor accept service of
process on behalf of Company or Distributor;
4.12.5 transact business in contravention of the rules and
regulations of any insurance department and/or other
governmental authorities having jurisdiction over any subject
matter embraced by this Agreement;
4.12.6 make, accept or endorse notes, or endorse checks payable to
Company or Distributor, or otherwise incur any expense or
liability on behalf of Company or Distributor;
4.12.7 offer to pay or pay, directly or indirectly, any rebate of
premium or any other inducement not specified in the Products
to any owner or annuitant;
4.12.8 misrepresent the Products for the purpose of inducing an
annuity contract-holder in any other company to lapse, forfeit
or surrender his/her insurance therewith;
4.12.9 give or offer to give any advice or opinion regarding the
taxation of any customer's income or estate in connection with
the purchase of any Product;
4.12.10 enter into an agreement with any person or entity to market or
sell the Products without the written consent of Company and
Distributor;
4.12.11 use Company's or Distributor's names, logos, trademarks,
service marks or any other proprietary designation without the
prior written permission of Company; or
4.12.12 engage in any program designed to replace Products with any
annuity products of other companies, at any time while this
Agreement is in force; or provide data to any other person or
organization which would allow or facilitate such replacement
of Company's Products. Nothing herein shall preclude the
replacement of Company's fixed annuity products with Company's
own variable annuity products, so long as such sales are
suitable and documented according to Section 4.4.9,
Replacement Sales. (See also Section 9.3, Post Termination
Limitations, and Section 11, Confidentiality, generally.)
4.13 [Wholesaling Services. Authorized Selling Firm shall receive certain
wholesaling services under this Agreement pursuant to a Wholesaling
Agreement entered into on , 1999, by American Enterprise Life
Insurance Company (the "Company"), American Express Financial Advisors
Inc. (the "Distributor") and ___________________________________ (the
"Wholesaler").
5. COMPANY AND DISTRIBUTOR REPRESENTATIONS AND RESPONSIBILITIES.
5.1 Representations.
5.1.1 Company represents and warrants that (a) it is duly incorporated
in the state of Indiana and licensed in all states in the
Territory; and (b) that all Products, and all Sales Material (as
defined in Section 4.9, above) provided by Company or
Distributor have been filed with and approved by state insurance
departments in all states in the Territory, and comply with all
applicable laws and regulations and rules of the NASD.
5.1.2 Distributor represents and warrants that it is duly registered
as a broker-dealer with the SEC, the NASD, all fifty states and
the District of Columbia, and is qualified to do business in all
states in which Company is licensed and qualified to do
business.
5.1.3 Distributor and Company represent and warrant that Company, as
issuer and on behalf of the underlying investment account(s),
has registered the underlying investment account(s) of the
Products with the SEC as a security under the Securities Act of
1933 ("1933 Act") and as a unit investment trust under the
Investment Company Act of 1940.
5.1.4 Company represents and warrants that the prospectuses and
registration statements relating to the Products do not contain
any untrue statements of material fact or any omission to state
a material fact, the omission of which makes any statement
contained in the prospectuses and registration statements
misleading.
5.1.5 Company represents and warrants that Company will meet any
requirements of the NASD and state departments of insurance in
the jurisdictions in which the Products are available for sale
regarding both the filing and approval of Sales Material.
5.2 Prospectuses, Sales Literature and Advertising. American Express will
provide to Authorized Selling Firm, without any expense to Authorized
Selling Firm, prospectuses relating to the Products and such other
Sales Material (as defined is Section 4.9, above) as American Express
determines is necessary or desirable for use in connection with sales
of the Products.
5.3 Transmission of Contracts for Delivery to Contract Owners. Company will
transmit contracts for Products directly to annuity contract-holders.
5.4 Confirmations. Upon Company's acceptance of any payment for a Product,
Company as agent for Distributor will deliver to each contract owner a
statement confirming the transaction in accordance with Rule 10b-10
under the 1934 Act.
5.5 Annuity Contract-holder Services. Company shall provide
administrative, accounting and other services to annuity
contract-holders as necessary and appropriate, in the same manner as
such services are provided to Company's other annuity
contract-holders.
5.6 Reservation of Rights. Notwithstanding any other provision of this
Agreement or any other agreement between Company and/or Distributor
and Selling Agency and/or Broker-Dealer, Company reserves the
unconditional right to modify any of the Products in any respect
whatsoever or to suspend the sale of any Products in whole or in part
at any time and without prior notice. Company reserves the
unconditional rights to refuse to accept applications procured by
Authorized Selling Firm or Producers which fail to meet underwriting
or other standards of Company.
5.7 Company Rules. American Express shall provide Authorized Selling Firm
with Company Rules as soon as is practicable. All revisions,
modifications and replacements of such Company Rules shall be provided
by Company and Distributor to Authorized Selling Firm promptly after
issuance by Company and/or Distributor.
6 COMPENSATION.
6.1 Compensation to Authorized Selling Firm. Company shall pay a total
commission on premiums collected pursuant to this Agreement based on
the rates of commission set forth on the attached Exhibit A and its
Addenda. In all cases, the amount of commission shown in the addenda is
the total compensation available for distribution from Company, or any
of its subsidiaries, affiliates, or other related entities owned or
controlled by American Express Company, whether under this Agreement or
under any other agreement between or among Company, Broker-Dealer, any
Selling Agency or Producer, or any other party. No commission will be
apid on sales outside the states shown in the Territory on Exhibit A.
No commission will be paid on the sale of an annuity under this
Agreement if that sale involves replacement of an asset or investment
issued by Company or by any other insurance company owned or controlled
by American Express Company. Company reserves the right from time to
time to adjust commission upwards for any of the Products, for a
specified period of time, upon notice to Selling Agency and
Broker-Dealer, without requiring signatures on a corresponding
addendum. No downward adjustment of commission will occur without
signatures of all parties to the Agreement, except for the return to
commission rates originally identified in the addenda. No compensation
shall be paid unless all of the following conditions precedent have
been met to Company's satisfaction:
6.1.1 Licensing of Producer. Prior to the time of any solicitation of
a sale or a sale of a Product, the Producer making such
solicitation or sale shall be licensed and appointed with
Company in accordance with the laws of the state(s) where the
sale is being made and the customer resides.
6.1.2 Licenses and Contracts. No person or entity, except
Producers satisfying the provisions of Section 6.1.1,
"Licensing of Producers," shall in any way share in any
commissions payable hereunder unless such person or entity
is licensed in accordance with the laws of the state(s) in
which the sale was made and the customer resides; and unless
such person or entity shall have entered into an agreement
with Selling Agency which specifies such person or entity's
rights and obligations and which makes provision for
payment, including splitting, of commissions.
Notwithstanding the preceding sentence, in those states
which permit payment of a commission to an entity which is
not licensed as an insurance agency, Company will pay
commissions to an unlicensed entity which is a party to this
Agreement, but only after such entity has provided evidence
satisfactory to Company as to how Company may make such
payments in accordance with applicable state insurance laws.
6.1.3 Alternative Payment Agreement. Only if shown on Exhibit A
attached hereto, Company may make commission payments and debit
commission chargebacks to Broker-Dealer, so long as
Broker-Dealer also has insurance licenses appropriate for the
sales of Products in affected states. See also Section 4.10.
6.1.4 Supplemental Trail Commissions. Amounts and conditions of
payment of Supplemental Trail Commission, if any, are attached
in the addenda and shown on Exhibit A. In no event will
Supplemental Trail Commission be paid on a contract less than
one year old.
6.2 Chargebacks. Company has the right to charge back Selling Agency for
commissions paid in the event of certain surrenders of annuity
contracts as specified in Exhibit A and its Addenda.
6.3 Expenses. Except as otherwise provided in this Agreement, or
subsequently agreed to in writing by American Express, Authorized
Selling Firm will be responsible for all costs and expenses of any kind
and nature incurred by Authorized Selling Firm in the performance of
its duties under this Agreement.
6.4 Post Termination Compensation Obligations. Upon termination of this
Agreement, Company's obligation to pay commissions to Selling Agency,
or Producers shall immediately cease except that:
6.4.1 Company will pay commissions, as the same become due and
payable, upon Products for which the application has been taken
and the required premium has been collected (or has become
irrevocably collectable from a third party) as of the date of
termination, and for which the Company subsequently issues a
policy.
6.4.2 Company will charge back against those commissions identified in
Exhibit A for surrenders of Products sold prior to the
termination of this Agreement by Authorized Selling Firm or
Producers. Company will invoice Selling Agency unless Company
and Selling Agency agree upon another method of payment of such
amounts.
6.4.3 Company shall pay commissions in accordance with Exhibit A and
its addenda, attached hereto, on all premiums collected on
Products issued prior to such termination.
7. INDEMNIFICATION.
7.1 Indemnification of Company and Distributor. Authorized Selling Firm
shall indemnify, defend and hold harmless American Express, any of its
officers, directors and employees, from and against any and all losses,
claims, damages, liabilities, actions, costs or expenses to which
American Express, or any of its officers, directors and employees, may
become subject (including any legal or other expenses incurred by it in
connection with investigating any claim against it and defending any
action and, provided Authorized Selling Firm will have given prior
written approval of such settlement or compromise, which consent will
not be unreasonably withheld or delayed, any amounts paid in settlement
or compromise) insofar as such losses, claims, damages, liabilities,
actions, costs or expenses arise out of or are based upon:
7.1.1 The acts or omissions of Authorized Selling Firm or any of its
employees, agents or Producers while acting (whether under actual
or apparent authority, or otherwise) on behalf of Authorized
Selling Firm or American Express in connection with this
Agreement;
7.1.2 Any breach of any covenant or agreement made by Authorized Selling
Firm under this Agreement; or
7.1.3 The inaccuracy or breach of any representation or warranty made by
Authorized Selling Firm under this Agreement.
This indemnification obligation shall not apply to the extent that such
alleged act or omission is attributable to American Express either
because (1) American Express directed the act or omission, or (2) the
act or omission by Authorized Selling Firm or any of its employees,
agents or Producers was the result of their compliance with the Company
Rules.
7.2 Indemnification of Selling Agency and Broker-Dealer. American Express
shall indemnify, defend and hold harmless Authorized Selling Firm, any
of its officers, directors and employees, from and against any and all
losses, claims, damages, liabilities, actions, costs or expenses to
which Authorized Selling Firm, or any of its officers, directors and
employees, may become subject (including any legal or other expenses
incurred by it in connection with investigating any claim against it
and defending any action and, provided American Express will have given
prior written approval of such settlement or compromise, which consent
will not be unreasonably withheld or delayed, any amounts paid in
settlement or compromise) insofar as such losses, claims, damages,
liabilities, actions, costs or expenses arise out of or are based upon:
7.2.1 The acts or omissions of American Express, or any employee or
agent of American Express, (excluding Authorized Selling Firm or
Producers) while acting (whether under actual or apparent
authority or otherwise) on behalf of Company in connection with
this Agreement;
7.2.2 Any breach of any covenant or agreement made by American Express
under this Agreement; or
7.2.3 The inaccuracy or breach of any representation or warranty made
by American Express under this Agreement.
7.3 Limitation of Liability. Except as expressly stated herein, as between
the parties, in no event will any party to this Agreement be
responsible to any other party for any incidental, indirect,
consequential, punitive, or exemplary damages of any kind arising from
this Agreement, including without limitation, lost revenues, loss of
profits or loss of business. The parties agree that the losses and
damages arising under and/or covered by Section 7.1 and 7.2 shall be
subject to this limitation.
8. ARBITRATION. The parties agree to attempt to settle any misunderstandings
or disputes arising out of this Agreement through consultation and
negotiation in good faith and a spirit of mutual cooperation. However, if
those attempts fail, the parties agree that any misunderstandings or
disputes arising from this Agreement will be decided by arbitration which
will be conducted, upon request of either party, before three arbitrators
(unless both parties agree on one arbitrator) designated by the American
Arbitration Association located in the city of Company's principal place of
business. The parties further agree that the arbitrator(s) will decide
which party must bear the expenses of the arbitration. This agreement to
arbitrate shall not preclude either party from obtaining provisional
remedies such as injunctive relief or the appointment of a receiver from a
court having jurisdiction, either before, during or after the pendency of
the arbitration. The institution and maintenance of such provisional
remedies shall not constitute a waiver of the right of a party to submit a
dispute to arbitration.
9. TERMINATION.
9.1 Termination for Cause. At any time during the Term of this Agreement,
American Express or Authorized Selling Firm may terminate this
Agreement immediately for cause upon written notice of such termination
to the other party. Such written notice shall state the cause with
specificity. As used in this Section, the term "cause" shall include
any one or more of the following:
9.1.1 the conviction of any party, its officers or supervisory
personnel of any felony, of fraud, or of any crime involving
dishonesty;
9.1.2 the intentional misappropriation by a party of funds or property
of any other party, or of funds received for it or for annuity
contract-holders;
9.1.3 the cancellation, or the refusal to renew by the issuing
insurance regulatory authority of, any license, certificate or
other regulatory approval required in order for any party to
perform its duties under this Agreement;
9.1.4 any action by a regulatory authority with jurisdiction over the
activities of a party that would place the party in receivership
or conservatorship or otherwise substantially interfere or
prevent such party from continuing to engage in the lines of
business relevant to the subject matter hereof; or
9.1.5 a party becoming a debtor in bankruptcy (whether voluntary or
involuntary) or the subject of an insolvency proceeding.
9.2 Termination without Cause. American Express or Authorized Selling Firm
may terminate this Agreement without cause upon 30 days prior written
notice to the other parties.
9.3 Post Termination Limitation. For a period of one year after termination
of this Agreement, Authorized Selling Firm and Producers shall not
knowingly induce or cause, or attempt to induce or cause, any concerted
or organized effort to recommend, promote, encourage or endorse the
termination, surrender, or cancellation of any Product sold pursuant to
this Agreement.
10. INDEPENDENT CONTRACTOR. This Agreement is not a contract of employment.
Nothing contained in this Agreement shall be construed or deemed to create
the relationship of joint venture, partnership, or employer and employee
between American Express and Authorized Selling Firm. Each party is an
independent contractor and shall be free, subject to the terms and
conditions of this Agreement, to exercise judgment and discretion with
regard to the conduct of business.
11. CONFIDENTIALITY.
11.1 Each party agrees that, during the term of this Agreement and
at all times thereafter, it will not disclose to any unaffiliated
person, firm, corporation or other entity, nor use for its own
account, any of the other parties' trade secrets or confidential
information, including, without limitation, the terms of this
Agreement; non-public program materials; member or customer lists;
proprietary information; information as to the other party's
business methods, operations or affairs, or the processes and
systems used in its operations and affairs, or the processes and
systems used in any aspect of the operation of its business; all
whether now known or subsequently learned by it. If this Agreement
is terminated, each party, within 60 days after such termination,
will return to the other parties, respectively, any and all copies,
in whatever form or medium, of any material disclosing any of the
other parties' trade secrets or confidential information as
described above.
Nothing in this Agreement shall require a party to keep
confidential any information that:
11.1.1 the party can prove was known to it prior to any
disclosure by any other party;
11.1.2 is or becomes publicly available through no fault of the
party;
11.1.3 the party can prove was independently developed by it
outside the scope of this Agreement and with no access to
any confidential or proprietary information of any other
party;
11.1.4 is required to be disclosed to governmental regulators or
pursuant to judicial or administrative process or subpoena;
11.1.5 is required in order to perform that party's obligation
under this Agreement;
11.1.6 is required to be disclosed by any applicable law; or
11.1.7 is mutually agreed upon by all parties to this Agreement.
11.2 In the event Authorized Selling Firm during the term of this Agreement and
for a period of one year after the effective date of its termination,
engages in a concerted effort to promote, recommend or encourage the
termination, surrender, or cancellation of any Product sold under this
Agreement, without reasonable grounds to believe that such termination,
cancellation or surrender is in each individual customer's best interest,
then American Express will have the right to contact present and former
purchasers of the Products sold under this Agreement with a view to
retaining the assets in their accounts with Company, without being found in
violation of this Section 11.
12. ASSIGNMENT. The parties to this Agreement may not assign, either wholly or
partially, this Agreement or any of the benefits accrued or to accrue under
it, or subcontract their interests or obligations under this Agreement,
without the written approval of all parties.
13. AMENDMENT OF AGREEMENT. American Express reserves the right to amend this
Agreement at any time, but no amendment shall be effective until approved
in writing by Authorized Selling Firm, subject to the provisions of Section
5.6, "Reservation of Rights," and Section 12, "Assignment," herein.
14. MISCELLANEOUS.
14.1 Applicable Law. This Agreement shall be governed by and interpreted
under the laws of the State of Minnesota.
14.2 Severability. Should any part of this Agreement be declared invalid,
the remainder of this Agreement shall remain in full force and effect,
as if the Agreement had originally been executed without the
invalid provisions.
14.3 Notice. Any notice hereunder shall be in writing and shall be deemed
to have been duly given if sent by certified or registered mail,
postage prepaid, or via a national courier service with the capacity
to track its shipments, to the following addresses:
<TABLE>
<CAPTION>
<S> <C>
If to Company: If to Distributor:
American Enterprise Life Insurance Company American Express Financial Advisors Inc.
80 South 8th Street 80 South 8th Street
Minneapolis, MN 55440 Minneapolis, MN 55440
Attn: Compliance Officer (Unit 1818) Attn: Compliance Officer (Unit 1818)
If to Selling Agency: If to Broker-Dealer:
[[GA]] [[Broker-Dealer]]
[[GAaddress1]] [[GBaddress1]]
[[GAaddress2]] [[GBaddress2]]
[[GAcity]], [[GAStatesName]] [[GAzip]] [[GBcity]]
</TABLE>
14.4 Binding Effect. This Agreement shall be binding upon and inure to the
benefit of the parties hereto and their respective successors and
assigns, subject to the provisions of this Agreement limiting
assignment.
14.5 Headings. The headings in this Agreement are for convenience only and
are not intended to have any legal effect.
14.6 Defined Terms. The terms defined in this Agreement are to be
interpreted in accordance with this Agreement. Such defined terms are
not intended to conform to specific statutory definitions of any
state.
14.7 Entire Agreement. This Agreement constitutes the entire agreement of
the parties with respect to the subject matter hereof and supersedes
all previous communications, representations, understandings and
agreements, either oral or written, between the parties or any
official representative thereof.
14.8 Survival. All terms and conditions of Section 7, "Indemnification";
Section 9.3, "Post Termination Limitations"; and Section 11,
"Confidentiality," will survive termination of this Agreement.
14.9 No Waiver. No failure to enforce, nor any breach of any term or
condition of this Agreement, shall operate as a waiver of such term or
condition, or of any other term or condition, nor constitute nor be
deemed a waiver or release of any other rights at law or in equity, or
of claims which any party may have against any other party, for
anything arising out of, connected with, or based upon this Agreement.
Any waiver, including a waiver of this Section, must be in writing and
signed by the parties hereto.
American Enterprise Life Insurance Company [[GA]]
Company Selling Agency
By: By:
Title: Title:
Date: Date:
American Express Financial Advisors Inc. [[Broker-Dealer]]
Distributor Broker-Dealer
By: By:
Title: Title:
Date: Date:
Affiliates: Affiliates:
[[Affiliate Name]] [[Affiliate Name]]
By: By:
Title: Title:
Date: Date:
<PAGE>
EXHIBIT A
Selling Agency: Products, Territory and Commissions
SUMMARY:
This Exhibit is intended to summarize the contents of Exhibit A and its Addenda,
as they are added to the arrangements with [[GA]], ("Selling Agency"),
[[Broker-Dealer]] ("Broker-Dealer"), Company and Distributor under this
Agreement.
<TABLE>
------------------------- ------------------------ ------------------------ ---------------------------- --------------
Selling Agency & Products Product Commission Remittance of Premiums Territory
Broker-Dealer (See Section 4.5)
------------------------- ------------------------ ------------------------ ---------------------------- --------------
------------------------- ------------------------ ------------------------ ---------------------------- --------------
<S> <C> <C> <C> <C>
[[Selling Agency or Variable B/D Product See Addendum A [[Money_Movement]] [[STATE1]]
Affiliate]] & (Service marked name [[STATE2]]
[[Broker-Dealer]] to be determined) [[STATE3]]
[[STATE4]]
only
------------------------- ------------------------ ------------------------ ---------------------------- --------------
</TABLE>
This Exhibit A will only be separately executed when: (i) a product is added or
deleted; or (ii) there is a reduction in compensation.
Last Revision Date: Effective Revision Date:
Purpose of Last Revision:
<PAGE>
Addendum A to Exhibit A: Products, Territory and Commissions
Addendum to the Selling Agreement between American Enterprise Life Insurance
Company ("Company") and American Express Financial Advisors Inc. ("Distributor")
and ("Broker-Dealer") and ("Selling Agency") dated . This Addendum
is effective .
The Product being offered through Selling Agency and Broker-Dealer is the
Platinum Flexible Premium Variable Annuity (B/D Variable Annuity).
COMMISSION:
The commission payable to Selling Agency for a given contract described in this
Addendum will be paid according to one of the following tables. For each
separate contract sold, Selling Agency is permitted to elect one of the
following three options. During the life of each such contract, the selected
option cannot be changed. If no election is shown on the application when it is
submitted to Company, commission will be paid according to Option B.
<TABLE>
<CAPTION>
OPTION A:
<S> <C> <C>
- - - -------------------------------- ------------------
Age of Older of Annuitant or Premium
Owner
- - - -------------------------------- ------------------
- - - -------------------------------- ------------------
Ages 0 - 75 6.00%
- - - -------------------------------- ------------------
- - - -------------------------------- ------------------
Ages 76 - 80 4.25%
- - - -------------------------------- ------------------
- - - -------------------------------- ------------------
Ages 81 - 90 2.50%
- - - -------------------------------- ------------------
OPTION B:
- - - -------------------------------- ------------------ ----------------------------------
Supplemental Trail
Age of Older of Annuitant or Premium Commission:
Owner (Annual rate; payable quarterly
at 1/4 of value shown)
- - - -------------------------------- ------------------ ----------------------------------
- - - -------------------------------- ------------------ ----------------------------------
Ages 0 - 75 5.00% 25 basis points
- - - -------------------------------- ------------------ ----------------------------------
- - - -------------------------------- ------------------ ----------------------------------
Ages 76 - 80 3.50% 25 basis points
- - - -------------------------------- ------------------ ----------------------------------
- - - -------------------------------- ------------------ ----------------------------------
Ages 81 - 90 2.00% 25 basis points
- - - -------------------------------- ------------------ ----------------------------------
OPTION C:
- - - -------------------------------- ------------------ ----------------------------------
Supplemental Trail
Age of Older of Annuitant or Premium Commission:
Owner (Annual rate; payable quarterly
at 1/4 of value shown)
- - - -------------------------------- ------------------ ----------------------------------
- - - -------------------------------- ------------------ ----------------------------------
Ages 0 - 75 1.00% 1.00%
- - - -------------------------------- ------------------ ----------------------------------
- - - -------------------------------- ------------------ ----------------------------------
Ages 76 - 80 1.00% 1.00%
- - - -------------------------------- ------------------ ----------------------------------
- - - -------------------------------- ------------------ ----------------------------------
Ages 81 - 90 1.00% 1.00%
- - - -------------------------------- ------------------ ----------------------------------
</TABLE>
In all cases, the amount of commission described above is the total compensation
available for distribution from Company, or any of its subsidiaries, affiliates,
or other related entities owned or controlled by American Express Company,
whether under this Agreement or under any other agreement between or among
Company, Broker-Dealer, any Selling Agency or Producer, or any other party,
except for the Supplemental Trail Commission. , conditions of payment of which
are described below.
CHARGEBACK:
In the event of the surrender of an annuity within six months of the payment
date, there will be a charge- back of commissions paid with respect to premiums
received in accordance with the following schedule:
Time Elapsed Since Payment Date Commission Chargeback
0-3 months 100%
Over 3 months to 6 months 50%
Over 6 months 0%
Chargebacks will be assessed in their entirety against the Authorized Selling
Firms. The chargeback will be waived in the events of death of an annuitant or
owner, or in case of annuitization or partial withdrawal. The chargeback
schedule applies separately to each payment upon cancellation or withdrawal. The
chargeback schedule applies during the free look period, or for any full
withdrawal.
Supplemental Trail Commission:
1. In addition to the compensation shown in other Addenda to this Agreement,
Company agrees to pay to Selling Agency a Supplemental Trail Commission as
shown in #2, below, subject to all the conditions in #3 below.
2. Payment. At the end of each calendar quarter, Company shall calculate and
pay the Supplemental Trail Commission as follows:
Supplemental Trail Compensation = Eligible Value x Annual Rate
Where:
Annual Rate of the Supplemental Trail Commission for Option B = 25
basis points as shown in Addendum A hereto.
Annual Rate of the Supplemental Trail Commission for Option C = 100
basis points as shown in Addendum A hereto.
Eligible Contracts means contracts sold to customers under this
Agreement, which have reached their first contract anniversary as of the
calendar quarter end, and for which Options B and C were was elected as
compensation.
Eligible Value means accumulation value (including interest and/or
earnings accrued), as of the quarter end for which the Supplemental Trail
Commission is being calculated, of all Eligible Contracts for Selling Agency.
3. Conditions of Payment:
a. Payment for each quarter's Supplemental Trail Commission shall be
final, and no credits or additions or adjustments shall be made to it.
Adjustments can be made in the next quarter in case of error.
b. If the Supplemental Trail Commission as calculated above is less than
$1000, Selling Agency waives payment thereof.
c. Company will supply supporting information for the calculation along
with payment within 45 days of the end of each calendar quarter.
d. The Supplemental Trail Commission does not apply to sales outside the
Territory or to sales which are otherwise excluded from normal
commission payments under Exhibit A and/or any other Addenda to this
Agreement (e.g., unlicensed sales, sales for which Selling Agency could
not otherwise be compensated, etc.).
e. In the event that Selling Agency has other agreements with Company
which contain a Supplemental Trail Commission addendum, all such
Supplemental Trail Commission addenda are merged for purposes of
calculating Eligible Value of Eligible Contracts. Supplemental Trail
Commission is paid only once per quarter per contract sold under any
such Supplemental Trail Commission addenda.
f. Subject to Condition d., above, Supplemental Trail Commission will be
paid to the Selling Agency for as long as each Eligible Contract
continues to remain an Eligible Contract as herein defined, and for as
long as the Authorized Selling Firm continues to be licensed as an
insurance agency with Company.
g. The obligation to pay Supplemental Trail Commission runs from Company
to Selling Agency only. All distribution of Supplemental Trail
Commission is the Authorized Selling Firm's responsibility. No claim
made by or on behalf of an individual Producer for Supplemental Trail
Commission will be honored by Company, and no expense, including
(without limitation) attorney fees, that an Authorized Selling Firm or
a Representative may incur to determine the individual Representative's
entitlement to Supplemental Trail Commission, will be absorbed by or
reimbursed by Company.
<PAGE>
EXHIBIT B TO SELLING AGENCY AGREEMENT
FOR THE SALE OF VARIABLE ANNUITIES
(for use if Payment Options 4.5.3 or 4.5.4 appear on Exhibit A)
The Selling Agency Agreement between American Enterprise Life Insurance Company
("Company"), American Express Financial Advisors Inc. ("Distributor"),
__________________ ("Selling Agency") and ____________________ ("Broker-Dealer")
dated ________ ("Agreement") is hereby amended as follows. This Amendment is
effective _________.
The purpose of this Amendment is to modify Selling Agency's and
Broker-Dealer's obligations and duties under the Agreement with respect to the
process for remitting premiums to Company to enable Authorized Selling Firm to
use the services of a third party, __________ _________________("Clearing
Broker"). To the extent there are any inconsistencies between the Agreement and
this Amendment, the provisions contained herein will supersede the Agreement.
Section 4.4, Supervision and Administration, is amended to replace subsection
4.4.8 (a) with the following: 4.4.8(a) Authorized Selling Firm will instruct
customers to pay their premiums for the Products, by check or bank draft
authorization or wire transfer, with funds to the order of Selling Agency in
accordance with Section 4.5, "Collection and Submission of Premiums."
Section 4.8, Accurate Record, Audit, shall be amended by adding the following,
at the end of the Section: Company will have the right to audit the books of the
Authorized Selling Firm and Authorized Selling Firm will obtain Clearing
Broker's consent for Company to audit the books of Clearing Broker, with respect
to any premium remittance, or the premium remittance process, insofar as either
involves the Clearing Broker.
Section 4 of the Agreement is hereby amended by inserting a new subsection,
4.13, Compensation to Clearing Broker:
4.13 Compensation to Clearing Broker. Authorized Selling Firm agrees that they
will only pay Clearing Broker for the services authorized herein on a fixed fee
basis. Such fee may be paid on a per-transaction basis only if it is reasonable
in relation to the services rendered, and only if prior written authorization is
obtained from the Company. Authorized Selling Firm will not pay Clearing Broker
a commission or use any form of compensation where the Clearing Broker's fee is
determined by the dollar amount of any given purchase of any Product, unless
Clearing Broker is separately licensed by appropriate state insurance licensing
authorities and appointed to sell Products.
Section 4 of the Agreement is hereby amended by inserting a new subsection,
Section 4.14, Representations and Warranties of Selling Agency and
Broker-Dealer:
4.14 Representations and Warranties of Selling Agency and Broker-Dealer:
4.14.1 Authorized Selling Firm represents and warrants that Clearing
Broker is the designated receiver of premium payments on
variable annuity products sold by Selling Agency.
4.14.2 Authorized Selling Firm represents and warrants that
Broker-Dealer has executed an agreement with the Clearing
Broker for the clearing of premiums which satisfies all
requirements of the National Association for Securities
Dealers, Inc.
4.14.3 Authorized Selling Firm represents and warrants that it will
ensure that activities of the Clearing Broker in connection
with the Products will be limited to those specified in this
Amendment, and that all such activities will be performed in
accordance with applicable state and federal laws and
regulations. Selling Agency and/or Broker-Dealer must obtain
Company's prior written agreement if the activities of
Clearing Broker are modified in any way.
Section 7.1, Indemnification of Company, is amended by adding the following
subsection: Section 7.1.4 The acts or omissions of the Clearing Broker or any
employee or agent of Clearing Broker while performing the activities covered by
this Agreement. The indemnity obligation of this paragraph will extend to any
regulatory penalties incurred by Company as a result of said activities.
<PAGE>
EXHIBIT C
Affiliate Participation Agreement
[[Agency_Affiliate]] ("Affiliate") agrees to act as an Affiliate of Selling
Agency and American Enterprise Life Insurance Company ("Company") agrees to
appoint Affiliate in the jurisdiction in the Territory identified on Exhibit A
and for the Products identified on Exhibit A in accordance with the terms and
conditions of the Selling Agreement between Selling Agency, Broker-Dealer,
Company and Distributor dated [[Effective_Date]] ("Agreement"), incorporated
herein by this reference, as it may be amended from time to time.
Affiliate acknowledges, warrants, covenants and agrees that:
1. All terms used herein shall have the definitions used in the
Agreement.
2. Affiliate assumes all of the duties and responsibilities of Selling
Agency as an insurance agency under the Agreement except that
Affiliate's rights, duties and responsibilities shall only extend
to the jurisdictions in the Territory on Exhibit A and Products
identified on Exhibit A.
3. Affiliate and Selling Agency are jointly and severally liable for
the performance of Affiliates duties and responsibilities under the
Agreement in the jurisdictions in the Territory identified on
Exhibit A.
4. Affiliate warrants that it has the licenses required to sell
annuities and perform the duties and responsibilities of an
insurance agency in the jurisdictions in the Territory identified
on Exhibit A.
5. Selling Agency, by this appointment, agrees that it will forward to
Affiliate any notices from Company which affect Affiliate.
Affiliate agrees that notice from Company to Selling Agency is
valid and effective notice to it.
6. All other provisions of the Agreement will apply to and govern
Affiliate's activities pursuant to this Affiliate Participation
Agreement, including, but not limited to the provisions concerning
amendments to the Agreement.
7. Selling Agency is authorized to execute amendments to the Exhibits
and Addenda on behalf of Selling Agency and Affiliate and Affiliate
will accept, agree to and perform its duties as Affiliate under the
Agreement in accordance with all such amendments upon receiving
written notice thereof from Selling Agency, provided that any term
of such an amendment which would be inconsistent with the terms of
this Affiliate Participation Agreement will require an amendment of
the Affiliate Participation Agreement in order to bind Affiliate to
that term.
8. This Affiliate Participation Agreement may be terminated in
accordance with the termination provision of the main Agreement.
IN WITNESS WHEREOF Affiliate and Selling Agency have signed this Affiliate
Participation Agreement as of
- - - ----------------------.
[[Agency_Affiliate]] [[Selling Agency]]
Affiliate Selling Agency
By: By:
Title: Title:
Send complete form to:
American Enterprise Life Insurance Company
80 South 8th Street, Minneapolis, MN 55402, Attn: Contract Manager, Unit 1818
Accepted and appointment of Affiliate made on________________ By: ____________
For American Enterprise Life Insurance Company
Deferred Annuity Contract
American Administrative Offices:
Express 80 South Eighth Street
P.O. Box 534
American Enterprise Life Minneapolis, MN 55440
This is a deferred annuity contract. It is a legal contract between you, as the
owner, and us, American Enterprise Life Insurance Company, a Stock Company,
Indianapolis, Indiana. PLEASE READ YOUR CONTRACT CAREFULLY.
If the annuitant is living on the Retirement Date, we will begin to pay you
monthly annuity payments. Any payments made by us are subject to the terms of
this contract. The owner and beneficiary are as named in the application unless
they are changed as provided for in this contract.
We issue this contract in consideration of your application and the payment of
the purchase payments.
Signed for and issued by American Enterprise Life Insurance Company of
Indianapolis, Indiana, as of the contract date.
ACCUMULATION VALUES, WHEN BASED ON THE INVESTMENT RESULTS OF THE SEPARATE
ACCOUNT, ARE VARIABLE AND NOT GUARANTEED AS TO FIXED DOLLAR AMOUNT. SEE PAGE 11
FOR VARIABLE PROVISIONS.
NOTICE OF YOUR RIGHT TO EXAMINE THIS CONTRACT FOR 10 DAYS. If for any reason you
are not satisfied with this contract, return it to us or our agent within 10
days after you receive it. We will then cancel this contract. Upon such
cancellation we will refund an amount equal to the sum of: (1) the contract
value; and (2) any premium tax charges paid. This contract will then be
considered void from its start.
William A. Stoltzmann James E. Choat
Secretary President
o Flexible Purchase Payments
o Optional Fixed Dollar or Variable Accumulation Values and Annuity Payments
o Annuity Payments to Begin on the Retirement Date
o This Contract is Nonparticipating -- Dividends Are Not Payable
<PAGE>
<TABLE>
<CAPTION>
<S> <C> <C>
Guide to Contract Provisions
Definitions Important words and meanings..........................................Page 3
General Provisions Entire contract; Annuity tax qualification; Contract modification;
Incontestability; Benefits based on incorrect data; State laws;
Reports to owner; Evidence of survival; Protection of proceeds;
Payments by us; Voting rights.........................................Page 4
Ownership and Beneficiary Owner rights; Change of ownership; Beneficiary;
Change of Beneficiary; Assignment.....................................Page 5
Payments to Beneficiary Describes options and amounts payable upon death......................Page 6
Purchase Payments Purchase payments amounts; Payment limits;
Allocations of purchase payments......................................Page 8
Contract Value Describes the fixed and variable account contract values;
Interest to be credited; Contract administrative charge;
Premium taxes; Transfers of contract values...........................Page 9
Fixed and Variable Accounts Describes the fixed account; Describes the variable subaccounts,
accumulation units and values; Net investment factor;
Mortality and expense risk charge; Variable account administrative
charge; Annuity unit value............................................Page 11
Withdrawal Provisions Contract withdrawal for its withdrawal value;
Rules for withdrawal..................................................Page 13
Annuity Provisions When annuity payments begin; Different ways to receive
annuity payments; Determination of payment amounts...................Page 15
Tables of Annuity Rates Tables showing the amount of the first variable annuity
payment and the guaranteed fixed annuity payments
for the various payment plans.........................................Page 17
</TABLE>
<PAGE>
Definitions
The following words are used often in this contract. When we use these words,
this is what we mean:
Accumulation Unit
An accumulation unit is an accounting unit of measure. It is used to calculate
the variable account contract value prior to annuitization.
Annuitant
The person or persons on whose life monthly annuity payments depend.
Annuitization
The application of the contract value of this contract to provide annuity
payments.
Annuity Unit
An annuity unit is an accounting unit of measure. It is used to calculate the
value of annuity payments from the variable account on and after annuitization.
Code
The Internal Revenue Code of 1986, as amended.
Contract Anniversary
The same day and month as the contract date each year that the contract remains
in force.
Contract Date
It is the date from which contract anniversaries, contract years, and contract
months are determined. Your contract date is shown under Contract Data.
Contract Value
The sum of the: (1) fixed account contract value; and (2) variable account
contract value.
Fixed Account
The fixed account is made up of all our assets other than those in any separate
account.
Fixed Annuity
A fixed annuity is an annuity with payments which are guaranteed by us as to
dollar amount during the annuity payment period.
IRA Contract
A contract used in or under a retirement plan or program that is intended to
qualify as an Individual Retirement Annuity under Section 408(b) of the Code.
IRA Required Minimum Distributions
The minimum distributions Code Section 408(b)(3) requires to be distributed from
an IRA, beginning not later than the April 1 following the calendar year you
reach age 70 1/2 (Required Beginning Date).
Nonqualified Contract
A contract used primarily for retirement purposes that is not intended to
qualify as an IRA contract.
Retirement Date
The date shown under Contract Data on which annuity payments are to begin. This
date may be changed as provided in this contract. You will be notified prior to
the retirement date in order to select an appropriate annuity payment plan.
<PAGE>
Valuation Date
A valuation date is each day the New York Stock Exchange is open for trading.
Valuation Period
A valuation period is the interval of time commencing at the close of business
on each valuation date and ending at the close of business on the next valuation
date.
Variable Account
The variable account is a separate investment account of ours. It consists of
several subaccounts. Each subaccount is named under Contract Data.
Variable Annuity
A variable annuity is an annuity with payments which are not predetermined or
guaranteed as to dollar amount and vary in amount with the investment experience
of one or more of the variable subaccounts.
We, Us, Our
American Enterprise Life Insurance Company
Written Request
A request in writing signed by you and delivered to us at our administrative
office.
You, Your
The owner of this contract. In a non-qualified contract, the owner may be
someone other than the annuitant. The owner is shown in the application unless
the owner has been changed as provided in this contract.
<PAGE>
General Provisions
Entire Contract
This contract form, any endorsements and the copy of the application attached to
it are the entire contract between you and us.
No one except one of our corporate officers (President, Vice President,
Secretary or Assistant Secretary) can change or waive any of our rights or
requirements under this contract. That person must do so in writing. None of our
other representatives or other persons has the authority to change or waive any
of our rights or requirements under this contract.
Annuity Tax Qualification
This contract is intended to qualify as an annuity contract under Section 72 of
the Code for federal income tax purposes. To that end, the provisions of this
contract are to be interpreted to ensure or maintain such tax-qualification,
notwithstanding any other provisions to the contrary.
Contract Modification
We reserve the right to modify this contract to the extent necessary to:
1. qualify this contract as an annuity contract under Section 72 of the Code
and all related laws and regulations which are in effect during the term of
this contract; and
2. if this contract is purchased as an IRA contract, to qualify this contract
as such an IRA contract under Section 408 of the Code and all related laws
and regulations which are in effect during the term of this contract.
We will obtain any necessary approval of any regulatory authority for the
modifications.
Incontestable
This contract is incontestable from its date of issue.
Benefits Based on Incorrect Data
Payments under the contract will be based on the annuitant's birthdate and sex.
If the annuitant's birthdate or sex or your birthdate has been misstated,
payments under this contract will be adjusted. They will be based on what would
have been provided at the correct birthdate and sex. Any underpayments made by
us will be made up immediately. Any overpayments made by us will be subtracted
from the future payments.
State Laws
This contract is governed by the law of the state in which it is delivered. The
values and benefits of this contract are at least equal to those required by
such state. Any paid up annuity, cash withdrawal or death benefits available
under the contract are not less than the minimum benefits required by any
statute of the state in which the contract is delivered.
Reports to Owner
At least once a year we will send you a statement showing the contract value and
the cash withdrawal value of this contract. This statement will be based on any
laws or regulations that apply to contracts of this type.
Evidence of Survival
Where any payments under this contract depend on the recipient or annuitant
being alive on a certain date, proof that such condition has been met may be
required by us. Such proof may be required prior to making the payments.
Protection of Proceeds
Payments under this contract are not assignable by any beneficiary prior to the
time they are due. To the extent allowed by law, payments are not subject to the
claims of creditors or to legal process.
<PAGE>
Payments by Us
All sums payable by us are payable at our administrative office. Any payment or
withdrawal from a variable annuity is based on the variable contract value.
Voting Rights
So long as federal law requires, we will give certain voting rights to
contractowners. As contractowner, if you have voting rights we will send a
notice to you telling you the time and place of a shareholder meeting. The
notice will also explain matters to be voted upon and how many votes you get.
Ownership and Beneficiary
Owner Rights
As long as the annuitant is living and unless otherwise provided in this
contract, you may exercise all rights and privileges provided in this contract
or allowed by us.
If this is an IRA contract, you shall be the annuitant, and during your life you
will have the sole and absolute power to receive and enjoy all rights under the
contract. Your entire interest is nonforfeitable. Joint ownership is not
permitted.
Change of Ownership
If this is an IRA contract, your right to change the ownership is restricted.
This contract may not be sold, assigned, transferred, discounted or pledged as
collateral for a loan or as security for the performance of an obligation or for
any other purpose to any person other than as may be required or permitted under
Section 408 of the Code, or under any other applicable section of the Code. Your
interest in this contract may be transferred to your former spouse, if any,
under a divorce decree or a written instrument incidental to such divorce.
If this is a nonqualified contract, you may change the ownership.
Any change of ownership as provided above must be made by written request on a
form approved by us. The change must be made while the annuitant is living. Once
the change is recorded by us, it will take effect as of the date of your
request, subject to any action taken or payment made by us before the recording.
Beneficiary
Beneficiaries are those you have named in the application or later changed as
provided below, to receive benefits of this contract if you or the annuitant die
while this contract is in force.
Only those beneficiaries who are living when death benefits become payable may
share in the benefits, if any. If no beneficiary is then living, we will pay the
benefits to you, if living, otherwise to your estate.
Change of Beneficiary
You may change the beneficiary anytime while the annuitant is living by
satisfactory written request to us. Once the change is recorded by us, it will
take effect as of the date of your request, subject to any action taken or
payment made by us before the recording.
Assignment
If this is an IRA contract, you may not assign this contract as collateral.
If this is a nonqualified contract, you can assign this contract or any interest
in it while the annuitant is living. Your interest and the interest of any
beneficiary is subject to the interest of the assignee. An assignment is not a
change of ownership and an assignee is not an owner as these terms are used in
this contract.
Any amounts payable to the assignee will be paid in a single sum.
<PAGE>
A copy of any assignment must be submitted to us at our administrative office.
Any assignment is subject to any action taken or payment made by us before the
assignment was recorded at our administrative office. We are not responsible for
the validity of any assignment.
Payments to Beneficiary
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.
The death benefit shall be either Option A or Option B (described below) as you
elected in your application and as is shown under Contract Data. Option A shall
apply if you or the annuitant are age 79 or older as of the contract date. The
death benefit option cannot be changed.
Option A - We will pay the beneficiary the greater of the following amounts:
1. the contract value; or
2. the total payments made to the contract minus adjustments for partial
withdrawals.
Option B - We will pay the beneficiary the greatest of the following amounts:
1. the contract value; or
2. the total payments made to the contract minus adjustments for partial
withdrawals; or
3. the highest contract value on any prior contract anniversary before either
your or the annuitant's 81st birthday, plus any purchase payments made since
that contract anniversary and less any "adjustments for partial withdrawals"
since that contract anniversary. After either your or the annuitant's 81st
birthday, this value will only change due to additional payments or
"adjustments for partial withdrawals".
Adjustments for Partial Withdrawals
Under either death benefit Option A or B, 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.
Payment of Nonqualified Contract Death Benefit Before Annuitization
The above death benefit will be payable in a lump sum upon the receipt of due
proof of death of you or the annuitant, whichever first occurs. The beneficiary
may elect to receive payment any time within five years after the date of death.
The above death benefit will also be made upon the first to die if ownership is
in a joint tenancy except where spouses are joint owners with right of
survivorship and the surviving joint spouse elects to continue the contract. In
lieu of a lump sum, payments may be made under an Annuity Payment Plan,
provided:
1. the beneficiary elects the plan within 60 days after we receive due proof
of death; and
2. the plan provides payments over a period which does not exceed the life or
life expectancy of the beneficiary; and
3. payments must begin no later than one year after the date of death.
For Annuity Payment Plans, the reference to "annuitant" in the Annuity
Provisions shall apply to the beneficiary.
<PAGE>
Payment of IRA Contract Death Benefit Before Annuitization
The above death benefit will be payable in a lump sum upon the receipt of due
proof of death. Under tax law, distributions are considered to have begun if
they are made when you reach your IRA required beginning date or if you have
annuitized according to applicable Treasury Regulations.
If distributions from your IRA have begun but you have not annuitized before
your death, your beneficiary must continue using the same method, or a faster
method, than you were using for your required minimum distributions, to receive
the death benefit.
If distributions from your IRA have not begun and you have not annuitized before
your death, your beneficiary may take one or more distributions so that the
entire death benefit is received within five years of the year in which your
death occurs. In lieu of taking payments within five years, payments may be made
under an Annuity Payment Plan, provided:
1. the beneficiary elects the plan within 60 days after we receive due proof
of death; and
2. the plan provides payments over a period which does not exceed the life or
life expectancy of the beneficiary; and
3. payments must begin no later than one year after the year your death
occurs, in the case of a non-spouse beneficiary, or by December 31 of the
year in which you would have turned age 70 1/2, in the case of a spouse
beneficiary.
Payment amounts, durations and life expectancy calculations must comply with
Section 401(a)(9) of the Code and regulations thereunder.
For purposes of the foregoing provisions, life expectancy and joint and last
survivor expectancy shall be determined by use of the expected return multiples
in Table V and VI of Treasury Regulation Section 1.72-9 in accordance with Code
Section 408(b)(3) and the regulations thereunder.
Life expectancy will be initially determined on the basis of your beneficiary's
attained age in the year distributions are required to commence. Unless you (or
your spouse) elects otherwise prior to the time distributions are required to
commence, your life expectancy and, if applicable, your spouse's life expectancy
will be recalculated annually based on your attained ages in the year for which
the required distribution is being determined. The life expectancy of a
nonspouse beneficiary will not be recalculated. Instead, life expectancy will be
calculated using the attained age of such beneficiary during the calendar year
in which the individual attains age 70 1/2, and payments for subsequent years
shall be calculated based on such life expectancy reduced by one for each
calendar year which has elapsed since the calendar year life expectancy was
first calculated.
You or your beneficiary, as applicable, shall have the sole responsibility for
requesting a distribution that complies with this Contract and applicable law.
For Annuity Payment Plans, the reference to "annuitant" in the Annuity
Provisions shall apply to the beneficiary.
Spouse's Option to Continue Contract
For nonqualified contracts: If you die prior to annuitization and your spouse is
the sole beneficiary or co-owner of the contract, your spouse may keep the
contract in force as owner and may make additional purchase payments to the
contract.
For IRA contracts: If you die prior to your required beginning date and your
spouse is the sole beneficiary, your spouse may keep the contract in force as
his or her own IRA. As owner, your spouse may make additional payments to the
contract. As owner, your spouse's life will determine the IRA required beginning
date and minimum distribution amounts. If you die after your required beginning
date, spousal continuation of this contract is not available.
<PAGE>
Death After Annuitization
If you or the annuitant die after annuitization, the amount payable to the
beneficiary, if any, will be as provided in the Annuity Payment Plan then in
effect.
Purchase Payments
Purchase Payments
Purchase payments are the payments you make for this contract and the benefits
it provides. Purchase payments must be paid or mailed to us at our
administrative office or to an authorized agent. If requested, we'll give you a
receipt for your purchase payments.
Net purchase payments are that part of your purchase payments applied to the
contract value. A net purchase payment is equal to the purchase payment less any
applicable premium tax charge.
Additional Purchase Payments
Additional purchase payments may be made until the earlier of:
1. the date this contract terminates by withdrawal or otherwise; or
2. the date on which annuity payments begin.
Additional purchase payments are subject to the "Payment Limits Provision"
below.
Payment Limits Provision
Maximum Purchase Payments -- The maximum total contract purchase payments may
not exceed the amounts shown under Contract Data. We reserve the right to
increase the maximums.
Additional Purchase Payments -- You may make additional purchase payments of at
least $100.
In addition, if this is an IRA contract, except as otherwise provided in this
paragraph, the total purchase payments for any taxable year may not exceed
$2,000 or as otherwise provided in the Code and all related laws and regulations
which are in effect during the term of this contract. In the case of a rollover
contribution described in Sections 402(c), 403(a)(4), 403(b)(8) or 408(d)(3) of
the Code, there is no limit on the amount of your purchase payment.
No contribution will be accepted under a SIMPLE plan established by any employer
pursuant to Code Section 408(p). No transfer or rollover of funds attributable
to contributions made by a particular employer under its SIMPLE plan will be
accepted from a SIMPLE IRA prior to the expiration of the two-year period
beginning on the date the individual first participated in that employer's
SIMPLE plan.
You shall have the sole responsibility for determining whether purchase payments
meet applicable income tax requirements.
All purchase payments must be made in cash. If you die before the entire
interest in this contract has been distributed to you, and your beneficiary is
other than your surviving spouse, no additional purchase payments will be
accepted from your beneficiary under this contract.
Allocation of Purchase Payments
You instruct us on how you want your purchase payments allocated among the fixed
account and variable subaccounts. Your choice for the fixed account and each
variable subaccount may be made in any whole percent from 0% to 100%. Your
allocation instructions as of the contract date are shown under Contract Data.
We reserve the right to limit the maximum number of accounts and/or subaccounts
to which you can allocate purchase payments or contract value at any time.
<PAGE>
By written request, or by another method agreed to by us, you may change your
choice of accounts or percentages. The first net purchase payment will be
allocated as of the end of the valuation period during which we make an
affirmative decision to issue this contract. Net purchase payments after the
first will be allocated as of the end of the valuation period during which we
receive the payment at our administrative office.
Contract Value
Contract Value
The contract value at any time is the sum of:
1. the fixed account contract value; and
2. the variable account contract value.
If:
1. part or all of the contract value is withdrawn; or
2. charges described herein are made against the contract value;
then a number of accumulation units from the variable subaccounts and an amount
from the fixed account will be deducted to equal such amount. For withdrawals,
deductions will be made from the fixed or variable subaccounts that you specify.
Otherwise, the number of units from the variable subaccounts and the amount from
the fixed account will be deducted in the same proportion that your interest in
each bears to the total contract value.
Variable Account Contract Value
The variable account contract value at any time will be:
1. the sum of the value of all variable subaccount accumulation units under
this contract resulting from purchase payments so allocated, or transfers
among the variable and fixed accounts; less
2. the value of any units deducted for charges or withdrawals.
Fixed Account Contract Value
The fixed account contract value at any time will be:
1. the sum of all purchase payments allocated to the fixed account, plus
interest credited; plus
2. any amounts transferred to the fixed account from any variable subaccount,
plus interest credited; less
3. any amounts transferred from the fixed account to any variable subaccount;
less
4. any amounts deducted for charges or withdrawals.
<PAGE>
Interest to Be Credited
We will credit interest to the fixed account contract value. Interest will begin
to accrue daily on the date the purchase payments which are received in our
administrative office become available for us to use. Such interest will be
credited at rates that we determine from time to time. However, we guarantee
that the rate will not be less than a 3% effective annual interest rate.
<TABLE>
<CAPTION>
Table of Fixed Account Guaranteed Minimum Values
Per $2,000 Annual Payments
Allocated 100% to the Fixed Account
Based on the 3% Minimum Interest Rate
<S> <C> <C> <C>
Guaranteed minimum fixed Guaranteed minimum fixed account
End of contract year account contract values withdrawal values
1 $ 2,030.00 $ 1,870.00
2 4,120.90 3,807.47
3 6,274.53 5,825.53
4 8,492.76 7,923.54
5 10,777.55 10,103.28
6 13,130.87 12,370.87
7 15,554.80 14,754.80
8 18,051.44 17,251.44
9 20,622.99 19,822.99
10 23,271.68 22,471.68
11 25,999.83 25,199.83
12 28,809.82 28,009.82
13 31,704.11 30,904.11
14 34,685.24 33,885.24
15 37,755.80 36,955.80
16 40,918.47 40,118.47
17 44,176.02 43,376.02
18 47,531.30 46,731.30
19 50,987.24 50,187.24
20 54,546.86 53,746.86
</TABLE>
If there are any additional payments, transfers to or from the variable
subaccounts, withdrawals or premium tax adjustments, the above values will be
adjusted as described in this contract.
Variable subaccount contract and withdrawal values are not guaranteed and cannot
be projected.
Contract Administrative Charge
We charge a fee for establishing and maintaining our records for this contract.
The charge is $30 per year and is deducted from the contract value at the end of
each contract year. The charge deducted will be prorated among the variable
subaccounts and the fixed account in the same proportion your interest in each
bears to the total contract value.
We waive the annual contract administrative charge for any contract year where
the contract value immediately prior to the deduction of the contract
administrative charge is $50,000 or more.
If you make a full withdrawal of this contract, we deduct the full $30 contract
administrative charge at the time of full withdrawal regardless of contract
value.
The charge does not apply at or after annuitization of this contract or at the
time a death benefit is paid.
<PAGE>
Premium Tax Charges
We reserve the right to assess a charge against the contract value of this
contract for any applicable premium tax assessed to us by a state or local
government. This charge could be deducted when you make purchase payments, or
make a full withdrawal of the contract value or at the time of annuitization.
Transfers of Contract Values
While this contract is in force prior to annuitization, transfers of contract
values may be made as outlined below.
1. You may transfer all or a part of the values held in one or more of the
variable subaccounts to another one or more of the variable subaccounts.
Subject to Item 2, you may also transfer values held in one or more of the
variable subaccounts to the fixed account.
2. On or within the 30 days before or after a contract anniversary you may
transfer values from the fixed account to one or more of the variable
subaccounts. If such a transfer is made, no transfers from any variable
subaccount to the fixed account may be made for six months after such a
transfer.
You may make a transfer by written request. Telephone transfers may also be made
according to telephone procedures that are then currently in effect, if any.
There is no fee or charge for these transfers. However, the minimum transfer
amount is $500, or if less, the entire value in the subaccount or in the fixed
account from which the transfer is being made, or other such minimum amounts
agreed to by us.
We may suspend or modify transfer privileges at any time. The right to transfer
contract values between the subaccounts is also subject to modification if we
determine, in our sole discretion, that the exercise of that right by one or
more contract owners is, or would be, to the disadvantage of other contract
owners. Any modification could be applied to transfers to or from some or all of
the subaccounts. These modifications could include, but not be limited to, the
requirements of a minimum time period between each transfer, not accepting
transfer requests of an agent acting under a power of attorney on behalf of more
than one contract owner or limiting the dollar amount that may be transferred
between the subaccounts and the fixed account by a contract owner at any one
time. We may apply these modifications or restrictions in any manner reasonably
designed to prevent any use of the transfer right we consider to be to the
disadvantage of other contract owners.
Fixed and Variable Accounts
The Fixed Account
The fixed account is our general account. It is made up of all our assets other
than:
1. those in the variable account; and
2. those in any other segregated asset account.
The Variable Account
The variable account is a separate investment account of ours. It consists of
several subaccounts which are named under Contract Data. We have allocated a
part of our assets for this and certain other contracts to the variable account.
Such assets remain our property. However, they may not be charged with the
liabilities from any other business in which we may take part.
Investments of the Variable Account
Purchase payments applied to the variable account will be allocated as specified
by the owner. Each variable subaccount will buy, at net asset value, shares of
the fund shown for that subaccount under Contract Data or as later added or
changed.
<PAGE>
We may change the funds the variable subaccounts buy shares from if laws or
regulations change, the existing funds become unavailable or, in the judgment of
American Enterprise Life, the funds are no longer suitable for the subaccounts.
We have the right to substitute any funds for those shown under Contract Data,
including funds other than those shown under Contract Data.
We may also:
o add new subaccounts,
o combine any two or more subaccounts,
o make additional subaccounts investing in additional funds,
o transfer assets to and from the subaccounts or the variable account, and
o eliminate or close any subaccounts.
We would first seek approval of the Securities and Exchange Commission if
necessary, and, where required, the insurance regulator of the state where this
contract is delivered.
Valuation of Assets
Fund shares in the variable subaccounts will be valued at their net asset value.
Variable Account Accumulation Units
The number of accumulation units for each of the variable subaccounts is found
by adding the number of accumulation units resulting from:
1. purchase payments and any contract value credits allocated to the subaccount;
and
2. transfers to the subaccount; and subtracting the number of accumulation
units resulting from:
1. transfers from the subaccount; and
2. withdrawals (including withdrawal charges) from the subaccount; and
3. contract administrative charge deductions from the subaccount.
The number of accumulation units added or subtracted for each of the above
transactions is found by dividing (1) by (2) where:
1. is the amount allocated to or deducted from the subaccount; and
2. is the accumulation unit value for the subaccount for the respective
valuation period during which we received the purchase payment or transfer
value, or during which we deducted transfers, withdrawals, withdrawal
charges or contract administrative charges.
Variable Account Accumulation Unit Value
The value of an accumulation unit for each of the variable subaccounts was set
at $1 when the first fund shares were bought. The value for any later valuation
period is found as follows:
The accumulation unit value for each variable subaccount for the last prior
valuation period is multiplied by the net investment factor for the same
subaccount for the next following valuation period. The result is the
accumulation unit value. The value of an accumulation unit may increase or
decrease from one valuation period to the next.
Net Investment Factor
The net investment factor is an index applied to measure the investment
performance of a variable subaccount from one valuation period to the next. The
net investment factor may be greater or less than one; therefore, the value of
an accumulation or annuity unit may increase or decrease.
<PAGE>
The net investment factor for any such subaccount for any valuation period is
determined by: dividing (1) by (2) and subtracting (3) and (4) from the result.
This is done where:
1. is the sum of:
a. net asset value per share of the fund held in the variable subaccount
determined at the end of the current valuation period; plus
b. the per share amount of any dividend or capital gain distribution made
by the fund held in the variable subaccount, if the "ex-dividend" date
occurs during the current valuation period; and
2. is the net asset value per share of the fund held in the variable
subaccount, determined at the end of the last prior valuation period; and
3. is a factor representing the mortality and expense risk charge; and
4. is a factor representing the variable account administrative charge.
Mortality and Expense Risk Charge
In calculating unit values we will deduct a mortality and expense risk charge
from the variable subaccounts equal, on an annual basis, to either 1.00% or
1.10% of their daily net asset value depending on the death benefit Option that
applies to your contract as shown under Contract Data. If death benefit Option A
applies, the mortality and expense risk charge is 1.00%. If death benefit Option
B applies, the mortality and expense risk charge is 1.10%. This deduction is
made to compensate us for assuming the mortality and expense risks under
contracts of this type. We estimate that approximately 2/3 of this charge is for
assumption of mortality risk and 1/3 is for assumption of expense risk. The
deduction will be:
1. made from each variable subaccount; and
2. computed on a daily basis.
Variable Account Administrative Charge
In calculating unit values, we will deduct a variable account administrative
charge from the variable subaccounts equal, on an annual basis, to 0.15% of the
daily net asset value. This deduction is made to compensate us for certain
administrative and operating expenses for contracts of this type. The deduction
will be:
1. made from each variable subaccount; and
2. computed on a daily basis.
Annuity Unit Value
The value of an annuity unit for each variable subaccount was arbitrarily set at
$1 when the first fund shares were bought. The value for any later valuation
period is found as follows:
1. the annuity unit value for each variable subaccount for the last prior
valuation period is multiplied by the net investment factor for the
subaccount for the valuation period for which the annuity unit value is
being calculated.
2. the result is multiplied by an interest factor. This is done to neutralize
the assumed investment rate which is built into the annuity tables on Page
17.
<PAGE>
Withdrawal Provisions
Withdrawal
By written request and subject to the rules below you may:
1. withdraw this contract for the total withdrawal value; or
2. partially withdraw this contract for a part of the withdrawal value.
Rules for Withdrawal
All withdrawals will have the following conditions.
1. You must apply by written request or other method agreed to by us:
a. while this contract is in force; and
b. prior to the earlier of beginning an annuity payment plan or the death
of the annuitant or owner.
2. You must withdraw an amount equal to at least $500. Each variable
subaccount value and the fixed account value after a partial withdrawal
must be either $0 or at least $50.
3. The amount withdrawn, less any charges, will normally be mailed to you
within seven days of the receipt of your written request and this contract,
if required.
For withdrawals from the fixed account, we have the right to defer payment
to you for up to six months from the date we receive your request.
4. For partial withdrawals, if you do not specify from which account the
withdrawal is to be made, the withdrawal will be made from the variable
subaccounts and the fixed account in the same proportion as your interest
in each bears to the contract value.
5. Any amounts withdrawn and charges which may apply cannot be repaid.
Upon withdrawal for the full withdrawal value this contract will terminate. We
may require that you return the contract to us before we pay the full withdrawal
value.
Withdrawal Value
The withdrawal value at any time will be:
1. the contract value;
2. minus the full $30 contract administrative charge;
3. minus any withdrawal charge.
Withdrawal Charge
If you withdraw all or a part of your contract, you may be subject to a
withdrawal charge. A withdrawal charge applies if all or a part of the contract
value you withdraw is from payments received during the seven years before
withdrawal. Refer to Waiver of Withdrawal Charges for situations when withdrawal
charges are not deducted.
We determine your withdrawal charge by multiplying each of your payments
withdrawn by the applicable withdrawal charge percentage, and then totaling the
withdrawal charges.
For a partial withdrawal that is subject to a withdrawal charge, the amount we
actually withdraw from your contract value will be the amount you request plus
any applicable withdrawal charge. The withdrawal charge is applied to this total
amount. We pay you the amount you requested.
<PAGE>
The withdrawal charge percentage depends upon the number of years since you made
the payment(s) withdrawn:
Number of Years From
Payment Receipt Withdrawal Charge Percentage
1 8.0%
2 8.0%
3 7.0%
4 6.0%
5 5.0%
6 4.0%
7 2.0%
Thereafter 0%
Waiver of Withdrawal Charges
Withdrawal charges are waived for all of the following.
1. In the first contract year, any contract earnings. ("Contract earnings" is
defined as the contract value less purchase payments not previously
withdrawn.)
2. In the second and later contract years, the greater of:
a. Withdrawals during the year totaling up to 10% of your prior contract
anniversary contract value, or
b. Contract earnings.
3. Withdrawals made if both you and the annuitant were under age 76 on the
contract date, and 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 and such
confinement began prior to your contract date.
To qualify, the nursing home must:
a. be licensed by an appropriate licensing agency to provide nursing
services; and
b provide 24-hour-a-day nursing services; and
c. have a doctor available for emergency situations; and
d. have a nurse on duty or call at all times; and
e. maintain clinical records; and
f. have appropriate methods for administering drugs.
4. Withdrawal charges are waived 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.
5. IRA required minimum distributions, for those amounts required to be
distributed from this contract only.
6. Annuity payment plan payments.
7. Payments made in the event of the death of the owner or annuitant.
<PAGE>
Withdrawal Order
We use this order to determine withdrawal charges.
1. First, withdrawals up to 10% of your prior contract anniversary contract
value not previously withdrawn during this contract year. This provision
(item #1) does not apply in the first contract year. (No withdrawal
charge.)
2. Next, withdrawals are from amounts representing contract earnings - if any
- in excess of the annual 10% free withdrawal amount. In the first contract
year, amounts representing contract earnings - if any - shall be withdrawn
first. (No withdrawal charge.)
3. Next, withdrawals are from purchase payments received eight or more years
before the withdrawal and not previously withdrawn. (No withdrawal charge.)
4. Last, withdrawals are from purchase payments received in the seven years
before the withdrawal on a "first-in, first-out" (FIFO) basis. There is a
withdrawal charge on these payments.
Suspension or Delay in Payment of Withdrawal
We have the right to suspend or delay the date of any withdrawal payment from
the variable subaccounts for any period:
1. when the New York Stock Exchange is closed; or
2. when trading on the New York Stock Exchange is restricted; or
3. when an emergency exists as a result of which:
a. disposal of securities held in the variable subaccounts is not
reasonably practical; or
b. it is not reasonably practical to fairly determine the value of the
net assets of the variable subaccounts; or
4. during any other period when the Securities and Exchange Commission, by
order, so permits for the protection of security holders.
Rules and regulations of the Securities and Exchange Commission will govern as
to whether the conditions set forth in 2 and 3 exist.
Annuity Provisions
Annuitization
When annuitization occurs, the contract value will be applied to make annuity
payments. The first payment will be made as of the retirement date. This date is
shown under Contract Data. Before payments begin we will require satisfactory
proof that the annuitant is alive. We may also require that you exchange this
contract for a supplemental contract which provides the annuity payments.
Change of Retirement Date
You may change the retirement date shown for this contract. Tell us the new date
by written request. If you select a new date, it must be at least 30 days after
we receive your written request at our administrative office.
The maximum retirement date on an IRA contract is the later of:
1. the April 1 following the calendar year in which the annuitant attains
age 70 1/2, or
2. such other date which satisfies the minimum distribution requirements under
the Code, its regulations, and/or promulgations by the Internal Revenue
Service; or
3. such other date as agreed upon by us.
<PAGE>
Notwithstanding the above, and for all nonqualified contracts, the maximum
retirement date is the later of:
1. the annuitant's 85th birthday; or
2. the 10th contract anniversary.
Annuity Payment Plans
Annuity payments may be made on a fixed dollar basis, a variable basis or a
combination of both. You can schedule receipt of annuity payments according to
one of the Plans A through E below or another plan agreed to by us.
If this is an IRA, payment amounts, durations and life expectancy calculations
must comply with Section 401(a)(9) of the Code and the Regulations thereunder
and generally must:
1. provide for payments over your life or over your and your beneficiary's
lives; or
2. provide for payments over a period which does not exceed your life
expectancy and/or the life expectancy of you and your beneficiary; and
3. meet the minimum incidental death benefit requirements under the Code and
all related laws and regulations which are then in effect.
The rules described in the "Payment of IRA Contract Death Benefit Before
Annuitization" section for determining life expectancy will apply in determining
the amount of these distributions, except that the life expectancy of you and
your beneficiary will be initially determined on the basis of your attained ages
in the year you reach 70 1/2.
IRA annuity payments must be nonincreasing, or may increase only for a variable
life annuity as provided in Treasury Regulation Section 1.401(a)(9)-1, Q&A F-3.
An appropriate annuity payment plan is intended to satisfy the following
requirements that otherwise apply: the annual distribution required to be made
by your IRA required beginning date is for the calendar year in which you
reached age 70 1/2; annual payments for subsequent years, including the year in
which your IRA required beginning date occurs, must be made by December 31 of
that year.
You shall have the sole responsibility for electing an annuity payment plan that
complies with this Contract and applicable law.
Plan A -- This provides monthly annuity payments during the lifetime of the
annuitant. No payments will be made after the annuitant dies.
Plan B -- This provides monthly annuity payments during the lifetime of the
annuitant with a guarantee by us that payments will be made for a period of at
least five, 10 or 15 years. You must select the guaranteed period.
Plan C -- This provides monthly annuity payments during the lifetime of the
annuitant with a guarantee by us that payments will be made for a certain number
of months. We determine the number of months by dividing the amount applied
under this plan by the amount of the first monthly annuity payment.
Plan D -- Monthly annuity payments will be paid during the lifetime of the
annuitant and joint annuitant. When either the annuitant or the joint annuitant
dies we will continue to make monthly payments during the lifetime of the
survivor. No payments will be made after the death of both the annuitant and
joint annuitant.
Plan E -- This provides monthly annuity payments for a period of years. The
period of years may be no less than 10 nor more than 30.
<PAGE>
You may select the plan by written request to us at least 30 days before the
retirement date. If at least 30 days before the retirement date we have not
received at our administrative office your written request to select a plan, we
will make payments according to Plan B with payments guaranteed for 10 years.
If the amount to be applied to a plan would not provide a monthly payment of at
least $20, we have the right to change the frequency of the payment or to make a
lump sum payment of the contract value.
Allocation of Contract Values at Annuitization
At the time of annuitization under an Annuity Payment Plan, you may reallocate
your contract value to the Fixed Account to provide fixed dollar payments and/or
among the variable subaccounts, to provide variable annuity payments. We reserve
the right to limit the number of variable subaccounts used at any one time
during annuitization.
Fixed Annuity
A fixed annuity is an annuity with payments that are guaranteed by us as to
dollar amount. Fixed annuity payments remain the same. At annuitization the
fixed account contract value will be applied to the applicable Annuity Table.
This will be done in accordance with the payment plan chosen. The minimum amount
payable for each $1,000 so applied is shown in Table B on Page 18.
Variable Annuity
A variable annuity is an annuity with payments which:
1. are not predetermined or guaranteed as to dollar amount; and
2. vary in amount with the investment experience of the variable subaccounts.
Determination of the First Variable Annuity Payment
At annuitization, the variable account contract value will be applied to the
applicable Annuity Table. This will be done:
1. on the valuation date on or next preceding the seventh calendar day before
the retirement date; and
2. in accordance with the payment plan chosen. The amount payable for the first
payment for each $1,000 so applied is shown in Table A on Page 17.
Variable Annuity Payments After the First Payment
Variable annuity payments after the first payment vary in amount. The amount
changes with the investment performance of the variable subaccounts. The dollar
amount of variable annuity payments after the first is not fixed. It may change
from month to month. The dollar amount of such payments is determined as
follows.
1. The dollar amount of the first annuity payment is divided by the value of
an annuity unit as of the valuation date on or next preceding the seventh
calendar day before the retirement date. This result establishes the number
of annuity units for each monthly annuity payment after the first payment.
This number of annuity units remains fixed during the annuity payment
period.
2. The fixed number of annuity units is multiplied by the annuity unit value
as of the valuation date on or next preceding the seventh calendar day
before the date the payment is due. The result establishes the dollar
amount of the payment.
We guarantee that the dollar amount of each payment after the first will not be
affected by variations in expenses or mortality experience.
Exchange of Annuity Units
After annuity payments begin, annuity units of any variable subaccount may be
exchanged for units of any of the other variable subaccounts. This may be done
no more than once a year. We reserve the right to limit the number of variable
subaccounts used at any one time. Once annuity payments start no exchanges may
be made to or from any fixed annuity.
<PAGE>
Tables of Annuity Rates
Table A below shows the amount of the first monthly variable annuity payment,
based on a 5% assumed investment return, for each $1,000 of value applied under
any payment plan. The amount of the first and all subsequent monthly fixed
dollar annuity payments for each $1,000 of value applied under any payment plan
will be based on our fixed dollar Table of Annuity Rates in effect at
annuitization. Such rates are guaranteed to be not less than those shown in
Table B. The amount of such annuity payments under Plans A, B, and C will depend
upon the sex and age of the annuitant at annuitization. The amount of such
annuity payments under Plan D will depend upon the sex and the age of the
annuitant and the joint annuitant at annuitization.
<TABLE>
<CAPTION>
Table A - Dollar Amount of First Monthly Variable Annuity Payment Per $1,000 Applied
- - - -------------------------------------------------------------------------------------------------------------------
Plan A Plan B Plan C Plan D
- - - -------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Age Life Income Life Income with Life Income Joint & Survivor
at Beginning Non-Refund Five Years Ten Years Fifteen Years Installment Non-Refund
Annui- In Certain Certain Certain Refund Male & Female
taxation Year Male Female Male Female Male Female Male Female Male Female Same Age
- - - -------------------------------------------------------------------------------------------------------------------
Age 65 2005 6.49 5.85 6.44 5.83 6.29 5.77 6.06 5.66 6.13 5.67 5.34
2010 6.40 5.78 6.35 5.76 6.22 5.71 6.00 5.61 6.06 5.61 5.30
2015 6.31 5.72 6.27 5.70 6.15 5.65 5.95 5.56 6.00 5.56 5.25
2020 6.23 5.66 6.19 5.64 6.08 5.60 5.90 5.52 5.93 5.51 5.21
2025 6.15 5.60 6.12 5.59 6.01 5.54 5.84 5.47 5.88 5.47 5.18
2030 6.08 5.55 6.05 5.53 5.95 5.50 5.80 5.43 5.82 5.43 5.14
Age 70 2005 7.41 6.54 7.29 6.50 6.98 6.36 6.54 6.14 6.79 6.22 5.85
2010 7.28 6.45 7.17 6.41 6.88 6.28 6.48 6.08 6.70 6.15 5.78
2015 7.16 6.35 7.06 6.32 6.80 6.21 6.42 6.03 6.61 6.08 5.72
2020 7.04 6.27 6.95 6.24 6.71 6.14 6.37 5.97 6.53 6.01 5.66
2025 6.93 6.19 6.85 6.16 6.63 6.07 6.31 5.92 6.45 5.95 5.61
2030 6.83 6.11 6.76 6.09 6.55 6.01 6.26 5.87 6.38 5.90 5.56
Age 75 2005 8.67 7.58 8.42 7.47 7.78 7.15 7.02 6.70 7.65 6.99 6.59
2010 8.49 7.43 8.26 7.34 7.68 7.05 6.97 6.63 7.53 6.89 6.49
2015 8.32 7.30 8.11 7.21 7.58 6.96 6.91 6.57 7.42 6.80 6.40
2020 8.16 7.18 7.97 7.10 7.48 6.87 6.86 6.51 7.31 6.71 6.31
2025 8.00 7.06 7.83 6.99 7.38 6.78 6.81 6.46 7.21 6.62 6.24
2030 7.86 6.95 7.70 6.89 7.29 6.70 6.75 6.40 7.12 6.55 6.16
Age 85 2005 13.01 11.44 11.71 10.69 9.46 9.09 7.69 7.60 10.30 9.50 9.30
2010 12.65 11.12 11.48 10.45 9.38 9.00 7.67 7.58 10.11 9.32 9.09
2015 12.31 10.82 11.26 10.23 9.30 8.90 7.66 7.56 9.93 9.15 8.90
2020 11.99 10.55 11.04 10.02 9.22 8.80 7.64 7.53 9.76 9.00 8.72
2025 11.70 10.29 10.84 9.83 9.15 8.71 7.62 7.51 9.60 8.85 8.55
2030 11.42 10.06 10.64 9.64 9.07 8.62 7.61 7.48 9.45 8.72 8.40
Table A above is based on the "1983 Individual Annuitant Mortality Table A" with
100% Projection Scale G and a 5% assumed investment return. Annuity rates for
any year, age, or any combination of year, age and sex not shown above, will be
calculated on the same basis as those rates shown in the Table above. Such rates
will be furnished by us upon request. Amounts shown in the Table below are based
on a 5% assumed investment return.
- - - -------------------------------------------------------------------------------------------------------------------
Plan E - Dollar Amount of First Monthly Variable Annuity Payment Per $1,000 Applied
- - - -------------------------------------------------------------------------------------------------------------------
Years Payable Monthly Payment Years Payable Monthly Payment Years Payable Monthly Payment
10 10.51 17 7.20 24 5.88
11 9.77 18 6.94 25 5.76
12 9.16 19 6.71 26 5.65
13 8.64 20 6.51 27 5.54
14 8.20 21 6.33 28 5.45
15 7.82 22 6.17 29 5.36
16 7.49 23 6.02 30 5.28
- - - -------------------------------------------------------------------------------------------------------------------
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
Table B - Dollar Amounts of Each Monthly Fixed Dollar Annuity Payment Per $1,000 Applied
- - - -------------------------------------------------------------------------------------------------------------------
- - - -------------------------------------------------------------------------------------------------------------------
Plan A Plan B Plan C Plan D
- - - -------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Settlement Life Income Life Income with Life Income Joint & Survivor
Beginning Non-Refund Five Years Ten Years Fifteen Years Installment Non-Refund
Settlement In Certain Certain Certain Refund Male & Female
Age Year Male Female Male Female Male Female Male Female Male Female Same Age
- - - -------------------------------------------------------------------------------------------------------------------
Age 65 2005 5.30 4.68 5.26 4.66 5.15 4.62 4.95 4.53 4.84 4.43 4.20
2010 5.21 4.61 5.17 4.60 5.07 4.55 4.89 4.48 4.77 4.38 4.15
2015 5.12 4.55 5.09 4.53 4.99 4.49 4.83 4.42 4.71 4.34 4.11
2020 5.04 4.48 5.01 4.47 4.92 4.44 4.77 4.38 4.66 4.29 4.07
2025 4.96 4.43 4.94 4.42 4.86 4.39 4.72 4.33 4.60 4.25 4.03
2030 4.89 4.37 4.87 4.37 4.79 4.34 4.67 4.29 4.55 4.21 3.99
Age 70 2005 6.21 5.38 6.12 5.35 5.87 5.24 5.48 5.05 5.45 4.97 4.74
2010 6.08 5.29 6.01 5.26 5.77 5.16 5.41 4.99 5.37 4.90 4.67
2015 5.96 5.20 5.89 5.17 5.68 5.08 5.35 4.93 5.29 4.84 4.61
2020 5.85 5.11 5.79 5.09 5.59 5.01 5.29 4.87 5.22 4.78 4.55
2025 5.75 5.03 5.69 5.01 5.51 4.94 5.23 4.82 5.15 4.72 4.49
2030 5.64 4.96 5.59 4.94 5.43 4.88 5.17 4.76 5.08 4.67 4.44
Age 75 2005 7.47 6.42 7.27 6.33 6.72 6.07 6.00 5.65 6.24 5.68 5.50
2010 7.29 6.28 7.11 6.20 6.61 5.97 5.94 5.59 6.14 5.60 5.40
2015 7.12 6.15 6.96 6.08 6.50 5.87 5.88 5.52 6.04 5.51 5.31
2020 6.96 6.03 6.82 5.97 6.40 5.78 5.83 5.46 5.95 5.43 5.23
2025 6.81 5.91 6.68 5.86 6.30 5.69 5.77 5.40 5.86 5.36 5.15
2030 6.67 5.81 6.55 5.76 6.21 5.60 5.72 5.34 5.77 5.29 5.08
Age 85 2005 11.77 10.25 10.64 9.60 8.51 8.12 6.73 6.64 8.66 7.97 8.24
2010 11.42 9.94 10.40 9.37 8.42 8.02 6.71 6.61 8.50 7.82 8.03
2015 11.09 9.65 10.18 9.15 8.34 7.91 6.70 6.59 8.35 7.68 7.84
2020 10.78 9.38 9.96 8.94 8.26 7.81 6.68 6.56 8.20 7.55 7.66
2025 10.49 9.14 9.75 8.74 8.18 7.72 6.66 6.54 8.06 7.42 7.50
2030 10.22 8.91 9.56 8.56 8.09 7.62 6.65 6.51 7.94 7.31 7.35
- - - -------------------------------------------------------------------------------------------------------------------
Table B above is based on the "1983 Individual Annuitant Mortality Table A" at
3.0% with 100% Projection Scale G. Annuity rates for any year, age, or any
combination of year, age and sex not shown above, will be calculated on the same
basis as those rates shown in the Table above . Such rates will be furnished by
us upon request. Amounts shown in the Table below are based on a 3.0% annual
effective interest rate.
- - - -------------------------------------------------------------------------------------------------------------------
Plan E - Dollar Amount of Each Monthly Fixed Dollar Annuity Payment Per $1,000 Applied
- - - -------------------------------------------------------------------------------------------------------------------
Years Payable Monthly Payment Years Payable Monthly Payment Years Payable Monthly Payment
10 9.61 17 6.23 24 4.84
11 8.86 18 5.96 25 4.71
12 8.24 19 5.73 26 4.59
13 7.71 20 5.51 27 4.47
14 7.26 21 5.32 28 4.37
15 6.87 22 5.15 29 4.27
16 6.53 23 4.99 30 4.18
- - - -------------------------------------------------------------------------------------------------------------------
</TABLE>
<PAGE>
American Administrative Offices:
Express 80 South Eighth Street
P.O. Box 534
American Enterprise Life Minneapolis, MN 55440
Deferred Annuity Contract
o Flexible Purchase Payments
o Optional Fixed Dollar or Variable Accumulation Values and Annuity Payments
o Annuity Payments to Begin on the Retirement Date
o This Contract is Nonparticipating -- Dividends Are Not Payable
Pinnacle Variable Annuity Application
American Enterprise Life Insurance Company
Administrative Offices:
80 South Eighth Street
P.O. Box 534
Minneapolis, MN 55440
- - - -------------------------------------------------------------------------------
1 Annuitant Full Name (First, Middle Initial, Last)
- - - -------------------------------------------------------------------------------
Address (Street Address or P.O. Box, City, State, Zip)
- - - -------------------------------------------------------------------------------
- - - -------------------------------------------------------------------------------
Citizenship: U.S.
Other (Country)
- - - -------------------------------------------------------------------------------
Phone Number
( )
- - - -------------------------------------------------------------------------------
Sex Date of Birth Social Security Number
( )M (Month/Day/Year) (Tax Identification Number)
( )F / /
- - - -------------------------------------------------------------------------------
2 Owner (check one)
( ) Same as Annuitant (Do no complete owner information below)
( ) Joint with Annuitant (Spouse only)-Not Available for IRA
( ) Other
- - - -------------------------------------------------------------------------------
Full Name (First, Middle Initial, Last)
- - - -------------------------------------------------------------------------------
Address (Street Address or P.O. Box, City, State, Zip)
- - - -------------------------------------------------------------------------------
- - - -------------------------------------------------------------------------------
- - - -------------------------------------------------------------------------------
Relationship to Annuituant
- - - -------------------------------------------------------------------------------
Phone Number
( )
- - - -------------------------------------------------------------------------------
Sex Date of Birth Social Security Number
(Month/Day/Year) (Tax Identification Number)
M / /
F
- - - -------------------------------------------------------------------------------
For joint spousal owners, the annuitant's Social Security
number will be used for tax reporting purposes unless you
specify otherwise under Remarks.
- - - -------------------------------------------------------------------------------
3 Primary Beneficiary (Name, relationship to the Annuitant;
if unrelated, include Social Security
number and date of birth)
- - - -------------------------------------------------------------------------------
Contingent Beneficiary (Name, relationship to the Annuitant;
if unrelated, include Social Security
numberand date of birth)
- - - -------------------------------------------------------------------------------
4 Annuity Plan (check one)
Nonqualified Traditional IRA SEP-IRA
Roth IRA Rollover
If IRA (check and complete applicable types)
Traditional IRA: Amount $_______ for ______ (year)
Traditional IRA: Amount $_______ for ______ (year)
SEP-IRA: Amount $_______ for ______ (year)
SEP-IRA: Amount $_______ for ______ (year)
Roth Contributory:Amount $_______ for ______ (year)
Roth Contributory:Amount $_______ for ______ (year)
Rollover IRA: Amount $__________
Trustee to Trustee IRA: Amount $__________
Roth Conversion IRA: Amount $__________
- - - --------------------------------------------------------------------------------
5 Death Benefit Option (check one)
NOTE: Option A shall apply if owner or annuitant is age 76 or older.
( ) Option A - Greater of Contract Value or Purchase Payments
( ) Option B - Highest Anniversary Value
- - - --------------------------------------------------------------------------------
6 Purchase Payments
Initial Purchase Payment $______________________________
Payment Allocation*:
______% AEL Fixed Account
______% AIM V.I. Capital Apprciation Fund
______% AIM V.I. Value Fund
______% AXPsm Blue Chip Advantage Fund
______% AXPsm VP Bond Fund
______% AXPsm Cash Management Fund
______% AXPsm Diversified Equity Income Fund
______% AXPsm VP Extra Income Fund
______% AXPsm VP Managed Fund
______% AXPsm VP New Dimensions Fund
______% AXPsm VP Small Cap Advantage Fund
______% Fidelity VIP III Balanced Portfolio: Service Class
______% Fidelity VIP III Growth & Income Portfolio: Service Class
______% Fidelity VIP III Growth Portfolio: Service Clas
______% Fidelity VIP III Mid Cap Portfolio: Service Clas
______% FT VIP Mutual Shares Securities Fund - Class 2
______% FT Value Securities Fund - Class 2
______% FT VIP Small Cap Fund - Class 2
______% Templeton International Fund - Class 2
______% MFS(R) Growth with Income Series
______% MFS(R) New Discovery Series
______% MFS(R) Total Return Series
______% MFS(R) Utilities Series
______% Putnam VT Growth & Income Fund - Class IB
______% Putnam VT Income Fund - Class IB
______% Putnam VT International Growth Fund - Class IB
______% Putnam VT Vista Fund - Class IB
*Must be whole numbers. your above payment allocation instruction will remain
in effect for any future payments you make until you change your instructions.
<PAGE>
7 Replacement
Will the annuity applied for replace any existing insurance or annuity?
( )Yes ( ) No
If Yes, provide details - company, contract number, amount,
reason - under Remarks.
8 Remarks and Special Instructions (including special mailing instructions)
9 Social Security or Taxpayer Identification Number Certification.
You certify, under the penalties of perjury as required by Form W-9 of
the Internal Revenue Service, that:
(1) The number shown on this form is your correct taxpayer identification
number (or you are waiting for a number to be issued to you), and
(2) You are not subject to backup withholding because: (a) you are exempt
from backup withholding, or (b) you have not been notified by the
Internal Revenue Service that you are subject to backup withholding as
a result of a failure to report all interest or dividends, or (c) the
IRS has notified you that you are no longer subject to backup
withholding.
You must cross out item 2 above if you have been notified by the IRS
that you are currently subject to backup withholding because of
underreporting interest of dividends on your tax return. The Internal
Revenue Service does not require your consent to any provision of this
document other than the certification required to avoid backup
withholding.
- - - -------------------------------------------------------------------------------
10 It Is Agreed That:
1. All statements and answers given above are true and complete to the
best of my/our knowledge.
2. Only an officer of American Enterprise Life Insurance Company can
modify any annuity contract or waive any requirement in this
application.
3. If joint spousal owners are named, ownership will be in joint
tenancy with right of survivorship unless prohibited by state
of settlement or specified otherwise in Remarks above.
4. I/we acknowledge receipt of current prospectuses for the variable
annuity and any funds involved.
5. I/we understand that earnings and values, when based on the
investment experience of a variable fund, portfolio, account or
subaccount, are not guaranteed and may both increase or decrease.
6. Tax law requires that all non-qualified deferred annuity
contracts issued by the same company, to the same policyholder
(owner), during the same calendar year are to be treated as a
single, unified contract. The amount of income included and taxed
in a distribution (or a transaction deemed a distribution under
tax law) taken from any one of such contracts is determined by
summing all such contracts together.
Signatures
_______________________________
Location (City/State)
________________________________
Date
X______________________________
Annuitant Signature
X______________________________
Licensed Agent Signature
X______________________________
Owner Signature (if other than annuitant)
X______________________________
Joint Owner (if any) Signature
-----------------------------------------------------------------------------
11 State Specific Information / Fraud Warnings:
For applicants in Arizona:
Write to us if you want information about your annuity contract benefits
and provisions. We'll promptly send your requested information. If for any
reason you are not satisfied with the contract, you may return it to us or
our agent within 10 days after receiving it. We will refund an amount equal
to the sum of the contract value and any premium tax charges and the
contract will then be void.
For applicants in Arkansas, Kentucky, Maine, New Mexico, Ohio and Pennsylvania:
Any person who knowingly and with intent to defraud any insurance company
or other person files an application for insurance or statement of claim
containing any materially false information or conceals for the purpose of
misleading, information concerning any fact material thereto commits a
fraudulent insurance act, which is a crime and subjects such person to
criminal and civil penalties.
For applicants in Colorado:
Any person who, with intent to defraud or knowing that he or she is
facilitating a fraud against an insurer, submits an application or files a
claim containing a false or deceptive statement, may be guilty of insurance
fraud.
For applicants in Florida:
Any person who knowingly and with intent to injure, defraud, or deceive any
insurer files a statement of claim or an application containing any false,
incomplete, or misleading information is guilty of a felony or the third
degree.
Agent's Printed Name:______________________________
Agent's Florida License ID #:_______________________
For applicants in New Jersey:
Any person who knowingly files a statement of claim containing any false or
misleading information is subject to criminal and civil penalties.
<PAGE>
Please complete Agent's Report on next page.
- - - -------------------------------------------------------------------------------
12 Agent's Report (Type or Print)
Agent's Name_______________________________________________________________
Agent's Social Security Number ____________________________________________
Agency Name and Number (if applicable) ____________________________________
Telephone Number ( )_____________________________________________
Fax Number ( )____________________________________________________
Branch Address_____________________________________________________________
Sale Location______________________________________________________________
I hereby certify that I personally solicited this application; that the
application and this report are complete and accurate to the best of my
knowledge and belief. To the best of my knowledge, this application does
does not involve replacement of existing life insurance or annuities. (If
replacement is involved, I have provided details - company, contract
number, amount, reason - under Remarks and have completed any state
replacement requirements including any required state replacement forms).
X_________________________________
Licensed Agent Signature
PARTICIPATION AGREEMENT
Among
VARIABLE INSURANCE PRODUCTS FUND,
FIDELITY DISTRIBUTORS CORPORATION
and
IDS LIFE INSURANCE COMPANY
THIS AGREEMENT, made and entered into as of the _________ day of
______________, 1999 by and among IDS LIFE INSURANCE COMPANY, (hereinafter the
"Company"), a Minnesota corporation, on its own behalf and on behalf of each
segregated asset account of the Company set forth on Schedule A hereto as may be
amended from time to time (each such account hereinafter referred to as the
"Account"), and the VARIABLE INSURANCE PRODUCTS FUND, an unincorporated business
trust organized under the laws of the Commonwealth of Massachusetts (hereinafter
the "Fund") and FIDELITY DISTRIBUTORS CORPORATION (hereinafter the
"Underwriter"), a Massachusetts corporation.
WHEREAS, the Fund engages in business as an open-end management
investment company and is available to act as the investment vehicle for
separate accounts established for variable life insurance policies and variable
annuity contracts (collectively, the "Variable Insurance Products") to be
offered by insurance companies which have entered into participation agreements
with the Fund and the Underwriter (hereinafter "Participating Insurance
Companies"); and
WHEREAS, the beneficial interest in the Fund is divided into
several series of shares, each representing the interest in a particular managed
portfolio of securities and other assets, any one or more of which may be made
available under this Agreement, as may be amended from time to time by mutual
agreement of the parties hereto (each such series hereinafter referred to as a
"Portfolio"); and
WHEREAS, the Fund has obtained an order from the Securities and
Exchange Commission, dated October 15, 1985 (File No. 812-6102), granting
Participating Insurance Companies and variable annuity and variable life
insurance separate accounts exemptions from the provisions of sections 9(a),
13(a), 15(a), and 15(b) of the Investment Company Act of 1940, as amended,
(hereinafter the "1940 Act") and Rules 6e-2(b) (15) and 6e-3(T) (b) (15)
thereunder, to the extent necessary to permit shares of the Fund to be sold to
and held by variable annuity and variable life insurance separate accounts of
both affiliated and unaffiliated life insurance companies (hereinafter the
"Shared Funding Exemptive Order"); and
WHEREAS, the Fund is registered as an open-end management
investment company under the 1940 Act and its shares are registered under the
Securities Act of 1933, as amended (hereinafter the "1933 Act"); and
WHEREAS, Fidelity Management & Research Company (the "Adviser")
is duly registered as an investment adviser under the federal Investment
Advisers Act of 1940 and any applicable state securities law; and
WHEREAS, the Company has registered or will register certain
variable life insurance and variable annuity contracts under the 1933 Act, which
are identified on Schedule A hereto ("Contracts"); and
WHEREAS, each Account is a duly organized, validly existing
segregated asset account, established by resolution of the Board of Directors of
the Company, on the date shown for such Account on Schedule A hereto, to set
aside and invest assets attributable to the aforesaid variable annuity
contracts; and
WHEREAS, the Company has registered or will register each
Account as a unit investment trust under the 1940 Act; and
WHEREAS, the Underwriter is registered as a broker dealer with
the Securities and Exchange Commission ("SEC") under the Securities Exchange Act
of 1934, as amended, (hereinafter the "1934 Act"), and is a member in good
standing of the National Association of Securities Dealers, Inc. (hereinafter
"NASD"); and
WHEREAS, to the extent permitted by applicable insurance laws
and regulations, the Company intends to purchase shares in the Portfolios on
behalf of each Account to fund certain of the aforesaid variable life and
variable annuity contracts and the Underwriter is authorized to sell such shares
to unit investment trusts such as each Account at net asset value;
NOW, THEREFORE, in consideration of their mutual promises, the
Company, the Fund and the Underwriter agree as follows:
ARTICLE I. Sale of Fund Shares
1.1. The Underwriter agrees to sell to the Company those shares
of the Fund which each Account orders, executing such orders on a daily basis at
the net asset value next computed after receipt by the Fund or its designee of
the order for the shares of the Fund. For purposes of this Section 1.1, the
Company shall be the designee of the Fund for receipt of such orders from each
Account and receipt by such designee shall constitute receipt by the Fund;
provided that the Fund receives notice of such order by 10:00 a.m. Boston time
on the next following Business Day. The Company shall use its best efforts to
begin placing all orders for the purchase or redemption of shares of the Funds
on behalf of the Accounts directly with the Funds or their transfer agent by
electronic transmission by March 31, 2000, and must begin doing so no later than
June 30, 2000. "Business Day" shall mean any day on which the New York Stock
Exchange is open for trading and on which the Fund calculates its net asset
value pursuant to the rules of the Securities and Exchange Commission.
1.2. The Fund agrees to make its shares available indefinitely
for purchase at the applicable net asset value per share by the Company and its
Accounts on those days on which the Fund calculates its net asset value pursuant
to rules of the Securities and Exchange Commission and the Fund shall use
reasonable efforts to calculate such net asset value on each day which the New
York Stock Exchange is open for trading. Notwithstanding the foregoing, the
Board of Trustees of the Fund (hereinafter the "Board") may refuse to sell
shares of any Portfolio to any person, or suspend or terminate the offering of
shares of any Portfolio if such action is required by law or by regulatory
authorities having jurisdiction or is, in the sole discretion of the Board
acting in good faith and in light of their fiduciary duties under federal and
any applicable state laws, necessary in the best interests of the shareholders
of such Portfolio.
1.3. The Fund and the Underwriter agree that shares of the Fund
will be sold only to Participating Insurance Companies and their separate
accounts. No shares of any Portfolio will be sold to the general public.
1.4. The Fund and the Underwriter will not sell Fund shares to
any insurance company or separate account unless an agreement containing
provisions substantially the same as Articles I, III, V, VII and Section 2.5 of
Article II of this Agreement is in effect to govern such sales.
1.5. The Fund agrees to redeem for cash, on the Company's
request, any full or fractional shares of the Fund held by the Company,
executing such requests on a daily basis at the net asset value next computed
after receipt by the Fund or its designee of the request for redemption. For
purposes of this Section 1.5, the Company shall be the designee of the Fund for
receipt of requests for redemption from each Account and receipt by such
designee shall constitute receipt by the Fund; provided that the Fund receives
notice of such request for redemption on the next following Business Day.
1.6. The Company agrees that purchases and redemptions of
Portfolio shares offered by the then current prospectus of the Fund shall be
made in accordance with the provisions of such prospectus. The Company agrees
that all net amounts available under the Contracts shall be invested in the
Fund, in such other Funds advised by the Adviser as may be mutually agreed to in
writing by the parties hereto, or in the Company's general account, provided
that such amounts may also be invested in an investment company other than the
Fund if (a) such other investment company, or series thereof, has investment
objectives or policies that are substantially different from the investment
objectives and policies of all the Portfolios of the Fund that underlie the
Contracts; or (b) the Company gives the Fund and the Underwriter 30 days written
notice of its intention to make such other investment company available as a
funding vehicle for the Contracts; or (c) such other investment company was
available as a funding vehicle for the Contracts prior to the date of this
Agreement and the Company so informs the Fund and Underwriter prior to their
signing this Agreement (a list of such funds appearing on Schedule C to this
Agreement); or (d) the Fund or Underwriter consents to the use of such other
investment company.
1.7. The Company shall pay for Fund shares on the next Business
Day after an order to purchase Fund shares is made in accordance with the
provisions of Section 1.1 hereof. Payment shall be in federal funds transmitted
by wire. For purposes of Section 2.10 and 2.11, upon receipt by the Fund of the
federal funds so wired, such funds shall cease to be the responsibility of the
Company and shall become the responsibility of the Fund.
1.8. Issuance and transfer of the Fund's shares will be by book
entry only. Stock certificates will not be issued to the Company or any Account.
Shares ordered from the Fund will be recorded in an appropriate title for each
Account or the appropriate subaccount of each Account.
1.9. The Fund shall furnish same day notice (by wire or
telephone, followed by written confirmation) to the Company of any income,
dividends or capital gain distributions payable on the Fund's shares. The
Company hereby elects to receive all such income dividends and capital gain
distributions as are payable on the Portfolio shares in additional shares of
that Portfolio. The Company reserves the right to revoke this election and to
receive all such income dividends and capital gain distributions in cash. The
Fund shall notify the Company of the number of shares so issued as payment of
such dividends and distributions.
1.10. The Fund shall make the net asset value per share for each
Portfolio available to the Company on a daily basis as soon as reasonably
practical after the net asset value per share is calculated (normally by 6:30
p.m. Boston time) and shall use its best efforts to make such net asset value
per share available by 7 p.m. Boston time.
ARTICLE II. Representations and Warranties
2.1. The Company represents and warrants that the Contracts are
or will be registered under the 1933 Act; that the Contracts will be filed and
qualified and/or approved for sale, as applicable, under insurance laws or
regulations of states in which the Contract will be offered prior to sale; and
that the sale of the Contracts shall comply in all material respects with
applicable federal and state securities and insurance laws and state insurance
suitability requirements. The Company further represents and warrants that it is
an insurance company duly organized and in good standing under applicable law
and that it has legally and validly established each Account prior to any
issuance or sale thereof as a segregated asset account under Section 61A.14 of
the Minnesota Insurance Code and has registered or, prior to any issuance or
sale of the Contracts, will register each Account as a unit investment trust in
accordance with the provisions of the 1940 Act to serve as a segregated
investment account for the Contracts.
2.2. The Fund represents and warrants that Fund shares sold
pursuant to this Agreement shall be registered under the 1933 Act, duly
authorized for issuance and sold in compliance with the laws of the State of
Minnesota and all applicable federal and state securities laws and that the Fund
is and shall remain registered under the 1940 Act. The Fund shall amend the
Registration Statement for its shares under the 1933 Act and the 1940 Act from
time to time as required in order to effect the continuous offering of its
shares. The Fund shall register and qualify the shares for sale in accordance
with the laws of the various states only if and to the extent deemed advisable
by the Fund or the Underwriter.
2.3. The Fund represents that it is currently qualified as a
Regulated Investment Company under Subchapter M of the Internal Revenue Code of
1986, as amended, (the "Code") and that it will make every effort to maintain
such qualification (under Subchapter M or any successor or similar provision)
and that it will notify the Company immediately upon having a reasonable basis
for believing that it has ceased to so qualify or that it might not so qualify
in the future.
2.4. The Company represents that the Contracts will be treated
at the time of sale as endowment, life insurance or annuity contracts, under
applicable provisions of the Code and that it will make every effort to maintain
such treatment and that it will notify the Fund and the Underwriter immediately
upon having a reasonable basis for believing that the Contracts have ceased to
be so treated or that they might not be so treated in the future.
2.5. (a) With respect to the Fund's Initial Class shares, the
Fund currently does not intend to make any payments to finance distribution
expenses pursuant to Rule 12b-1 under the 1940 Act or otherwise, although it may
make such payments in the future. The Fund has adopted a "no fee" or "defensive"
Rule 12b-1 Plan under which it makes no payments for distribution expenses. To
the extent that it decides to finance distribution expenses pursuant to Rule
12b-1, the Fund undertakes to have a board of trustees, a majority of whom are
not interested persons of the Fund, formulate and approve any plan under Rule
12b-1 to finance distribution expenses.
(b) With respect to the Fund's Service Class shares, the
Fund has adopted a Rule 12b-1 Plan under which it makes payments to finance
distribution expenses. The Fund represents and warrants that it has a board of
trustees, a majority of whom are not interested persons of the Fund, which has
formulated and approved the Fund's Rule 12b-1 Plan to finance distribution
expenses of the Fund and that any changes to the Fund's Rule 12b-1 Plan
will be approved by a similarly constituted board of trustees.
2.6. The Fund makes no representation as to whether any aspect
of its operations (including, but not limited to, fees and expenses and
investment policies) complies with the insurance laws or regulations of the
various states except that the Fund represents that the Fund's investment
policies, fees and expenses are and shall at all times remain in compliance with
the laws of the State of Minnesota and the Fund and the Underwriter represent
that their respective operations are and shall at all times remain in material
compliance with the laws of the State of Minnesota to the extent required to
perform this Agreement.
2.7. The Underwriter represents and warrants that it is and will
remain a member in good standing of the NASD and is and will remain registered
as a broker-dealer with the SEC. The Underwriter further represents that it will
sell and distribute the Fund shares in accordance with the laws of the State of
Minnesota and all applicable state and federal securities laws, including
without limitation the 1933 Act, the 1934 Act, and the 1940 Act.
2.8. The Fund represents that it is lawfully organized and
validly existing under the laws of the Commonwealth of Massachusetts and that it
does and will comply in all material respects with the 1940 Act.
2.9. The Underwriter represents and warrants that the Adviser is
and shall remain duly registered in all material respects under all applicable
federal and state securities laws and that the Adviser shall perform its
obligations for the Fund in compliance in all material respects with the laws of
the Commonwealth of Massachusetts and any applicable state and federal
securities laws.
2.10. The Fund and Underwriter represent and warrant that all of
their directors, officers, employees, investment advisers, and other
individuals/entities dealing with the money and/or securities of the Fund are
and shall continue to be at all times covered by a blanket fidelity bond or
similar coverage for the benefit of the Fund in an amount not less than the
minimal coverage as required currently by Rule 17g-(1) of the 1940 Act or
related provisions as may be promulgated from time to time. The aforesaid Bond
shall include coverage for larceny and embezzlement and shall be issued by a
reputable bonding company.
2.11. The Company represents and warrants that all of its
directors, officers, employees, investment advisers, and other
individuals/entities dealing with the money and/or securities of the Fund are
covered by a blanket fidelity bond or similar coverage for the benefit of the
Fund, and that said bond is issued by a reputable bonding company, includes
coverage for larceny and embezzlement, and is in an amount not less than $5
million. The Company agrees to make all reasonable efforts to see that this bond
or another bond containing these provisions is always in effect, and agrees to
notify the Fund and the Underwriter in the event that such coverage no longer
applies.
ARTICLE III. Prospectuses and Proxy Statements; Voting
3.1. The Underwriter shall provide the Company with as many
printed copies of the Fund's current prospectus and Statement of Additional
Information (including any supplements thereto) as the Company may reasonably
request. If requested by the Company in lieu thereof, the Fund shall provide
camera-ready film and/or computer diskette containing the Fund's prospectus and
Statement of Additional Information, and such other assistance as is reasonably
necessary in order for the Company once each year (or more frequently if the
prospectus and/or Statement of Additional Information for the Fund is amended
during the year) to have the prospectus for the Contracts and the Fund's
prospectus printed together in one document, and to have the Statement of
Additional Information for the Fund and the Statement of Additional Information
for the Contracts printed together in one document. Alternatively, the Company
may print the Fund's prospectus and/or its Statement of Additional Information
by itself or in combination with other fund companies' prospectuses and
statements of additional information. Except as provided in the following three
sentences, all expenses of printing and distributing Fund prospectuses and
Statements of Additional Information shall be the expense of the Company. For
prospectuses and Statements of Additional Information provided by the Company to
its existing owners of Contracts in order to update disclosure annually as
required by the 1933 Act and/or the 1940 Act, the cost of printing shall be
borne by the Fund. If the Company chooses to receive camera-ready film in lieu
of receiving printed copies of the Fund's prospectus, the Fund will reimburse
the Company in an amount equal to the product of A and B where A is the number
of such prospectuses distributed to owners of the Contracts, and B is the Fund's
per unit cost of typesetting and printing the Fund's prospectus. The same
procedures shall be followed with respect to the Fund's Statement of Additional
Information.
The Company agrees to provide the Fund or its designee with such
information as may be reasonably requested by the Fund to assure that the Fund's
expenses do not include the cost of printing any prospectuses or Statements of
Additional Information other than those actually distributed to existing owners
of the Contracts.
3.2. The Fund's prospectus shall state that the Statement of
Additional Information for the Fund is available from the Underwriter or the
Company (or in the Fund's discretion, the Prospectus shall state that such
Statement is available from the Fund).
3.3. The Fund, at its expense, shall provide the Company with
copies of its proxy statements, reports to shareholders, and other
communications (except for prospectuses and Statements of Additional
Information, which are covered in Section 3.1) to shareholders in such quantity
as the Company shall reasonably require for distributing to Contract owners.
3.4. If and to the extent required by law the Company shall:
(i) solicit voting instructions from Contract owners;
(ii) vote the Fund shares in accordance with
instructions received from Contract owners; and
(iii) vote Fund shares for which no instructions have
been received in a particular separate account in
the same proportion as Fund shares of such
portfolio for which instructions have been received
in that separate account,
so long as and to the extent that the Securities and Exchange Commission
continues to interpret the 1940 Act to require pass-through voting privileges
for variable contract owners. The Company reserves the right to vote Fund shares
held in any segregated asset account in its own right, to the extent permitted
by law. Participating Insurance Companies shall be responsible for assuring that
each of their separate accounts participating in the Fund calculates voting
privileges in a manner consistent with the standards set forth on Schedule B
attached hereto and incorporated herein by this reference, which standards will
also be provided to the other Participating Insurance Companies.
3.5. The Fund will comply with all provisions of the 1940 Act
requiring voting by shareholders, and in particular the Fund will either provide
for annual meetings or comply with Section 16(c) of the 1940 Act (although the
Fund is not one of the trusts described in Section 16(c) of that Act) as well as
with Sections 16(a) and, if and when applicable, 16(b). Further, the Fund will
act in accordance with the Securities and Exchange Commission's interpretation
of the requirements of Section 16(a) with respect to periodic elections of
trustees and with whatever rules the Commission may promulgate with respect
thereto.
ARTICLE IV. Sales Material and Information
4.1. The Company shall furnish, or shall cause to be furnished,
to the Fund or its designee, each piece of sales literature or other promotional
material in which the Fund or its investment adviser or the Underwriter is
named, at least fifteen Business Days prior to its use. No such material shall
be used if the Fund or its designee reasonably objects to such use within
fifteen Business Days after receipt of such material.
4.2. The Company shall not give any information or make any
representations or statements on behalf of the Fund or concerning the Fund in
connection with the sale of the Contracts other than the information or
representations contained in the registration statement or prospectus for the
Fund shares, as such registration statement and prospectus may be amended or
supplemented from time to time, or in reports or proxy statements for the Fund,
or in sales literature or other promotional material approved by the Fund or its
designee or by the Underwriter, except with the permission of the Fund or the
Underwriter or the designee of either. The Fund and the Underwriter agree to
respond to any request for approval on a prompt and timely basis.
4.3. The Fund, Underwriter, or its designee shall furnish, or
shall cause to be furnished, to the Company or its designee, each piece of sales
literature or other promotional material in which the Company and/or its
separate account(s), is named at least fifteen Business Days prior to its use.
No such material shall be used if the Company or its designee reasonably objects
to such use within fifteen Business Days after receipt of such material.
4.4. The Fund and the Underwriter shall not give any information
or make any representations or statements on behalf of the Company or concerning
the Company, each Account, or the Contracts other than the information or
representations contained in a registration statement or prospectus for the
Contracts, as such registration statement and prospectus may be amended or
supplemented from time to time, or in published reports for each Account which
are in the public domain or approved by the Company for distribution to Contract
owners, or in sales literature or other promotional material approved by the
Company or its designee, except with the permission of the Company. The Company
agrees to respond to any request for approval on a prompt and timely basis.
4.5. The Fund will provide to the Company at least one complete
copy of all registration statements, prospectuses, Statements of Additional
Information, reports, proxy statements, sales literature and other promotional
materials, applications for exemptions, requests for no-action letters, and all
amendments to any of the above, that relate to the Fund or its shares,
contemporaneously with the filing of such document with the Securities and
Exchange Commission or other regulatory authorities.
4.6. The Company will provide to the Fund at least one complete
copy of all registration statements, prospectuses, Statements of Additional
Information, reports, solicitations for voting instructions, sales literature
and other promotional materials, applications for exemptions, requests for no
action letters, and all amendments to any of the above, that relate to the
Contracts or each Account, contemporaneously with the filing of such document
with the SEC or other regulatory authorities.
4.7. For purposes of this Article IV, the phrase "sales
literature or other promotional material" includes, but is not limited to, any
of the following that refer to the Fund or any affiliate of the Fund:
advertisements (such as material published, or designed for use in, a newspaper,
magazine, or other periodical, radio, television, telephone or tape recording,
videotape display, signs or billboards, motion pictures, on-line networks or
other public media), sales literature (i.e., any written communication
distributed or made generally available to customers or the public, including
brochures, circulars, research reports, market letters, form letters, seminar
texts, reprints or excerpts of any other advertisement, sales literature, or
published article), educational or training materials or other communications
distributed or made generally available to some or all agents or employees, and
registration statements, prospectuses, Statements of Additional Information,
shareholder reports, and proxy materials and any other material constituting
sales literature or advertising under the NASD rules, the 1933 Act or the 1940
Act.
ARTICLE V. Fees and Expenses
5.1. The Fund and Underwriter shall pay no fee or other
compensation to the Company under this agreement, except that if the Fund or any
Portfolio adopts and implements a plan pursuant to Rule 12b-1 to finance
distribution expenses, then the Underwriter may make payments to the Company or
to the underwriter for the Contracts if and in amounts agreed to by the
Underwriter in writing and such payments will be made out of existing fees
otherwise payable to the Underwriter, past profits of the Underwriter or other
resources available to the Underwriter. No such payments shall be made directly
by the Fund.
5.2. All expenses incident to performance by the Fund under this
Agreement shall be paid by the Fund. The Fund shall see to it that all its
shares are registered and authorized for issuance in accordance with applicable
federal law and, if and to the extent deemed advisable by the Fund, in
accordance with applicable state laws prior to their sale. The Fund shall bear
the expenses for the cost of registration and qualification of the Fund's
shares, preparation and filing of the Fund's prospectus and registration
statement, proxy materials and reports, setting the prospectus in type, setting
in type and printing the proxy materials and reports to shareholders (including
the costs of printing a prospectus that constitutes an annual report), the
preparation of all statements and notices required by any federal or state law,
and all taxes on the issuance or transfer of the Fund's shares.
5.3. The Company shall bear the expenses of distributing the
Fund's prospectus and annual and semiannual reports to owners of Contracts
issued by the Company. The Fund shall bear the costs of soliciting Fund proxies
from Contract owners, including the costs of mailing proxy materials and
tabulating proxy voting instructions. The Fund and the Underwriter shall not be
responsible for the costs of any proxy solicitations other than proxies
sponsored by the Fund.
ARTICLE VI. Diversification
6.1. The Fund will at all times invest money from the Contracts
in such a manner as to ensure that the Contracts will be treated as variable
contracts under the Code and the regulations issued thereunder. Without limiting
the scope of the foregoing, the Fund will at all times comply with Section
817(h) of the Code and Treasury Regulation 1.817-5, relating to the
diversification requirements for variable annuity, endowment, or life insurance
contracts and any amendments or other modifications to such Section or
Regulations. In the event of a breach of this Article VI by the Fund, it will
take all reasonable steps (a) to notify Company of such breach and (b) to
adequately diversify the Fund so as to achieve compliance within the grace
period afforded by Regulation 1.817-5.
ARTICLE VII. Potential Conflicts
7.1. The Board will monitor the Fund for the existence of any
material irreconcilable conflict between the interests of the contract owners of
all separate accounts investing in the Fund. An irreconcilable material conflict
may arise for a variety of reasons, including: (a) an action by any state
insurance regulatory authority; (b) a change in applicable federal or state
insurance, tax, or securities laws or regulations, or a public ruling, private
letter ruling, no-action or interpretative letter, or any similar action by
insurance, tax, or securities regulatory authorities; (c) an administrative or
judicial decision in any relevant proceeding; (d) the manner in which the
investments of any Portfolio are being managed; (e) a difference in voting
instructions given by variable annuity contract and variable life insurance
contract owners; or (f) a decision by an insurer to disregard the voting
instructions of contract owners. The Board shall promptly inform the Company if
it determines that an irreconcilable material conflict exists and the
implications thereof.
7.2. The Company will report any potential or existing conflicts
of which it is aware to the Board. The Company will assist the Board in carrying
out its responsibilities under the Shared Funding Exemptive Order, by providing
the Board with all information reasonably necessary for the Board to consider
any issues raised. This includes, but is not limited to, an obligation by the
Company to inform the Board whenever contract owner voting instructions are
disregarded.
7.3. If it is determined by a majority of the Board, or a
majority of its disinterested trustees, that a material irreconcilable conflict
exists, the Company and other Participating Insurance Companies shall, at their
expense and to the extent reasonably practicable (as determined by a majority of
the disinterested trustees), take whatever steps are necessary to remedy or
eliminate the irreconcilable material conflict, up to and including: (1),
withdrawing the assets allocable to some or all of the separate accounts from
the Fund or any Portfolio and reinvesting such assets in a different investment
medium, including (but not limited to) another Portfolio of the Fund, or
submitting the question whether such segregation should be implemented to a vote
of all affected Contract owners and, as appropriate, segregating the assets of
any appropriate group (i.e., annuity contract owners, life insurance contract
owners, or variable contract owners of one or more Participating Insurance
Companies) that votes in favor of such segregation, or offering to the affected
contract owners the option of making such a change; and (2), establishing a new
registered management investment company or managed separate account.
7.4. If a material irreconcilable conflict arises because of a
decision by the Company to disregard contract owner voting instructions and that
decision represents a minority position or would preclude a majority vote, the
Company may be required, at the Fund's election, to withdraw the affected
Account's investment in the Fund and terminate this Agreement with respect to
such Account; provided, however that such withdrawal and termination shall be
limited to the extent required by the foregoing material irreconcilable conflict
as determined by a majority of the disinterested members of the Board. Any such
withdrawal and termination must take place within six (6) months after the Fund
gives written notice that this provision is being implemented, and until the end
of that six month period the Underwriter and Fund shall continue to accept and
implement orders by the Company for the purchase (and redemption) of shares of
the Fund.
7.5. If a material irreconcilable conflict arises because a
particular state insurance regulator's decision applicable to the Company
conflicts with the majority of other state regulators, then the Company will
withdraw the affected Account's investment in the Fund and terminate this
Agreement with respect to such Account within six months after the Board informs
the Company in writing that it has determined that such decision has created an
irreconcilable material conflict; provided, however, that such withdrawal and
termination shall be limited to the extent required by the foregoing material
irreconcilable conflict as determined by a majority of the disinterested members
of the Board. Until the end of the foregoing six month period, the Underwriter
and Fund shall continue to accept and implement orders by the Company for the
purchase (and redemption) of shares of the Fund.
7.6. For purposes of Sections 7.3 through 7.6 of this Agreement,
a majority of the disinterested members of the Board shall determine whether any
proposed action adequately remedies any irreconcilable material conflict, but in
no event will the Fund be required to establish a new funding medium for the
Contracts. The Company shall not be required by Section 7.3 to establish a new
funding medium for the Contracts if an offer to do so has been declined by vote
of a majority of Contract owners materially adversely affected by the
irreconcilable material conflict. In the event that the Board determines that
any proposed action does not adequately remedy any irreconcilable material
conflict, then the Company will withdraw the Account's investment in the Fund
and terminate this Agreement within six (6) months after the Board informs the
Company in writing of the foregoing determination, provided, however, that such
withdrawal and termination shall be limited to the extent required by any such
material irreconcilable conflict as determined by a majority of the
disinterested members of the Board.
7.7. If and to the extent that Rule 6e-2 and Rule 6e-3(T) are
amended, or Rule 6e-3 is adopted, to provide exemptive relief from any provision
of the Act or the rules promulgated thereunder with respect to mixed or shared
funding (as defined in the Shared Funding Exemptive Order) on terms and
conditions materially different from those contained in the Shared Funding
Exemptive Order, then (a) the Fund and/or the Participating Insurance Companies,
as appropriate, shall take such steps as may be necessary to comply with Rules
6e-2 and 6e-3(T), as amended, and Rule 6e-3, as adopted, to the extent such
rules are applicable; and (b) Sections 3.4, 3.5, 7.1, 7.2, 7.3, 7.4, and 7.5 of
this Agreement shall continue in effect only to the extent that terms and
conditions substantially identical to such Sections are contained in such
Rule(s) as so amended or adopted.
ARTICLE VIII. Indemnification
8.1. Indemnification By The Company
8.1(a). The Company agrees to indemnify and hold harmless the
Fund and each trustee of the Board and officers and each person, if any, who
controls the Fund within the meaning of Section 15 of the 1933 Act
(collectively, the "Indemnified Parties" for purposes of this Section 8.1)
against any and all losses, claims, damages, liabilities (including amounts paid
in settlement with the written consent of the Company) or litigation (including
legal and other expenses), to which the Indemnified Parties may become subject
under any statute or regulation, at common law or otherwise, insofar as such
losses, claims, damages, liabilities or expenses (or actions in respect thereof)
or settlements are related to the sale or acquisition of, or investment in, the
Fund's shares or the Contracts and:
(i) arise out of or are based upon any untrue statements
or alleged untrue statements of any material fact contained in
the Registration Statement or prospectus for the Contracts or
contained in the Contracts or sales literature for the Contracts
(or any amendment or supplement to any of the foregoing), or
arise out of or are based upon the omission or the alleged
omission to state therein a material fact required to be stated
therein or necessary to make the statements therein not
misleading, provided that this agreement to indemnify shall not
apply as to any Indemnified Party if such statement or omission
or such alleged statement or omission was made in reliance upon
and in conformity with information furnished to the Company by
or on behalf of the Fund for use in the Registration Statement
or prospectus for the Contracts or in the Contracts or sales
literature (or any amendment or supplement) or otherwise for use
in connection with the sale of the Contracts or Fund shares; or
(ii) arise out of or as a result of statements or
representations (other than statements or representations
contained in the Registration Statement, prospectus or sales
literature of the Fund not supplied by the Company, or persons
under its control) or wrongful conduct of the Company or persons
under its control, with respect to the sale or distribution of
the Contracts or Fund Shares; or
(iii) arise out of any untrue statement or alleged untrue
statement of a material fact contained in a Registration
Statement, prospectus, or sales literature of the Fund or any
amendment thereof or supplement thereto or the omission or
alleged omission to state therein a material fact required to be
stated therein or necessary to make the statements therein not
misleading if such a statement or omission was made in reliance
upon and in conformity with information furnished to the Fund by
or on behalf of the Company; or
(iv) arise as a result of any failure by the Company to
provide the services and furnish the materials under the terms
of this Agreement; or
(v) arise out of or result from any material breach of any
representation and/or warranty made by the Company in this
Agreement or arise out of or result from any other material
breach of this Agreement by the Company;
as limited by and in accordance with the provisions of Sections 8.1(b) and 8.1
(c) hereof.
8.1(b). The Company shall not be liable under this
indemnification provision with respect to any losses, claims, damages,
liabilities or litigation incurred or assessed against an Indemnified Party as
such may arise from such Indemnified Party's willful misfeasance, bad faith, or
gross negligence in the performance of such Indemnified Party's duties or by
reason of such Indemnified Party's reckless disregard of obligations or duties
under this Agreement or to the Fund, whichever is applicable.
8.1(c). The Company shall not be liable under this
indemnification provision with respect to any claim made against an Indemnified
Party unless such Indemnified Party shall have notified the Company in writing
within a reasonable time after the summons or other first legal process giving
information of the nature of the claim shall have been served upon such
Indemnified Party (or after such Indemnified Party shall have received notice of
such service on any designated agent), but failure to notify the Company of any
such claim shall not relieve the Company from any liability which it may have to
the Indemnified Party against whom such action is brought otherwise than on
account of this indemnification provision. In case any such action is brought
against the Indemnified Parties, the Company shall be entitled to participate,
at its own expense, in the defense of such action. The Company also shall be
entitled to assume the defense thereof, with counsel satisfactory to the party
named in the action. After notice from the Company to such party of the
Company's election to assume the defense thereof, the Indemnified Party shall
bear the fees and expenses of any additional counsel retained by it, and the
Company will not be liable to such party under this Agreement for any legal or
other expenses subsequently incurred by such party independently in connection
with the defense thereof other than reasonable costs of investigation.
8.1(d). The Indemnified Parties will promptly notify the Company
of the commencement of any litigation or proceedings, or complaints or actions
by regulatory authorities, against them in connection with the issuance or sale
of the Fund Shares or the Contracts or the operation of the Fund.
8.2. Indemnification by the Underwriter
8.2(a). The Underwriter agrees to indemnify and hold harmless
the Company and each of its directors and officers and each person, if any, who
controls the Company within the meaning of Section 15 of the 1933 Act
(collectively, the "Indemnified Parties" for purposes of this Section 8.2)
against any and all losses, claims, damages, liabilities (including amounts paid
in settlement with the written consent of the Underwriter) or litigation
(including legal and other expenses) to which the Indemnified Parties may become
subject under any statute or regulation, at common law or otherwise, insofar as
such losses, claims, damages, liabilities or expenses (or actions in respect
thereof) or settlements are related to the sale or acquisition of, or investment
in, the Fund's shares or the Contracts and:
(i) arise out of or are based upon any untrue statement or alleged untrue
statement of any material fact contained in the Registration Statement or
prospectus or sales literature of the Fund (or any amendment or supplement
to any of the foregoing), or arise out of or are based upon the omission or
the alleged omission to state therein a material fact required to be stated
therein or necessary to make the statements therein not misleading,
provided that this agreement to indemnify shall not apply as to any
Indemnified Party if such statement or omission or such alleged statement
or omission was made in reliance upon and in conformity with information
furnished to the Underwriter or Fund by or on behalf of the Company for use
in the Registration Statement or prospectus for the Fund or in sales
literature (or any amendment or supplement) or otherwise for use in
connection with the sale of the Contracts or Fund shares; or
(ii) arise out of or as a result of statements or representations (other than
statements or representations contained in the Registration Statement,
prospectus or sales literature for the Contracts not supplied by the
Underwriter or persons under its control) or wrongful conduct of the Fund,
Adviser or Underwriter or persons under their control, with respect to the
sale or distribution of the Contracts or Fund shares; or
(iii)arise out of any untrue statement or alleged untrue statement of a material
fact contained in a Registration Statement, prospectus, or sales literature
covering the Contracts, or any amendment thereof or supplement thereto, or
the omission or alleged omission to state therein a material fact required
to be stated therein or necessary to make the statement or statements
therein not misleading, if such statement or omission was made in reliance
upon and in conformity with information furnished to the Company by or on
behalf of the Fund or the Underwriter; or
(iv) arise as a result of any failure by the Fund to provide the services and
furnish the materials under the terms of this Agreement (including a
failure, whether unintentional or in good faith or otherwise, to comply
with the diversification requirements specified in Article VI of this
Agreement); or
(v) arise out of or result from any material breach of any representation
and/or warranty made by the Underwriter in this Agreement or arise out of
or result from any other material breach of this Agreement by the
Underwriter;
as limited by and in accordance with the provisions of Sections 8.2(b) and 8.2
(c) hereof.
8.2(b). The Underwriter shall not be liable under this
indemnification provision with respect to any losses, claims, damages,
liabilities or litigation to which an Indemnified Party would otherwise be
subject by reason of such Indemnified Party's willful misfeasance, bad faith, or
gross negligence in the performance of such Indemnified Party's duties or by
reason of such Indemnified Party's reckless disregard of obligations and duties
under this Agreement or to each Company or the Account, whichever is applicable.
8.2(c). The Underwriter shall not be liable under this
indemnification provision with respect to any claim made against an Indemnified
Party unless such Indemnified Party shall have notified the Underwriter in
writing within a reasonable time after the summons or other first legal process
giving information of the nature of the claim shall have been served upon such
Indemnified Party (or after such Indemnified Party shall have received notice of
such service on any designated agent), but failure to notify the Underwriter of
any such claim shall not relieve the Underwriter from any liability which it may
have to the Indemnified Party against whom such action is brought otherwise than
on account of this indemnification provision. In case any such action is brought
against the Indemnified Parties, the Underwriter will be entitled to
participate, at its own expense, in the defense thereof. The Underwriter also
shall be entitled to assume the defense thereof, with counsel satisfactory to
the party named in the action. After notice from the Underwriter to such party
of the Underwriter's election to assume the defense thereof, the Indemnified
Party shall bear the fees and expenses of any additional counsel retained by it,
and the Underwriter will not be liable to such party under this Agreement for
any legal or other expenses subsequently incurred by such party independently in
connection with the defense thereof other than reasonable costs of
investigation.
8.2(d). The Company agrees promptly to notify the Underwriter of
the commencement of any litigation or proceedings, or complaints or actions by
regulatory authorities, against it or any of its officers or directors in
connection with the issuance or sale of the Contracts or the operation of each
Account.
8.3. Indemnification By the Fund
8.3(a). The Fund agrees to indemnify and hold harmless the
Company, and each of its directors and officers and each person, if any, who
controls the Company within the meaning of Section 15 of the 1933 Act
(collectively, the "Indemnified Parties" for purposes of this Section 8.3)
against any and all losses, claims, damages, liabilities (including amounts paid
in settlement with the written consent of the Fund) or litigation (including
legal and other expenses) to which the Indemnified Parties may become subject
under any statute or regulation, at common law or otherwise, insofar as such
losses, claims, damages, liabilities or expenses (or actions in respect thereof)
or settlements result from the gross negligence, bad faith or willful misconduct
of the Board or any member thereof, are related to the operations of the Fund
and:
(i) arise as a result of any failure by the Fund to
provide the services and furnish the materials under
the terms of this Agreement (including a failure to
comply with the diversification requirements
specified in Article VI of this Agreement);or
(ii) arise out of or result from any material breach of
any representation and/or warranty made by the Fund
in this Agreement or arise out of or result from any
other material breach of this Agreement by the Fund;
as limited by and in accordance with the provisions of Sections 8.3(b) and 8.3
(c) hereof.
8.3(b). The Fund shall not be liable under this indemnification
provision with respect to any losses, claims, damages, liabilities or litigation
incurred or assessed against an Indemnified Party as such may arise from such
Indemnified Party's willful misfeasance, bad faith, or gross negligence in the
performance of such Indemnified Party's duties or by reason of such Indemnified
Party's reckless disregard of obligations and duties under this Agreement or to
the Company, the Fund, the Underwriter or each Account, whichever is applicable.
8.3(c). The Fund shall not be liable under this indemnification
provision with respect to any claim made against an Indemnified Party unless
such Indemnified Party shall have notified the Fund in writing within a
reasonable time after the summons or other first legal process giving
information of the nature of the claim shall have been served upon such
Indemnified Party (or after such Indemnified Party shall have received notice of
such service on any designated agent), but failure to notify the Fund of any
such claim shall not relieve the Fund from any liability which it may have to
the Indemnified Party against whom such action is brought otherwise than on
account of this indemnification provision. In case any such action is brought
against the Indemnified Parties, the Fund will be entitled to participate, at
its own expense, in the defense thereof. The Fund also shall be entitled to
assume the defense thereof, with counsel satisfactory to the party named in the
action. After notice from the Fund to such party of the Fund's election to
assume the defense thereof, the Indemnified Party shall bear the fees and
expenses of any additional counsel retained by it, and the Fund will not be
liable to such party under this Agreement for any legal or other expenses
subsequently incurred by such party independently in connection with the defense
thereof other than reasonable costs of investigation.
8.3(d). The Company and the Underwriter agree promptly to notify
the Fund of the commencement of any litigation or proceedings against it or any
of its respective officers or directors in connection with this Agreement, the
issuance or sale of the Contracts, with respect to the operation of either
Account, or the sale or acquisition of shares of the Fund.
ARTICLE IX. Applicable Law
9.1. This Agreement shall be construed and the provisions hereof
interpreted under and in accordance with the laws of the Commonwealth of
Massachusetts.
9.2. This Agreement shall be subject to the provisions of the
1933, 1934 and 1940 acts, and the rules and regulations and rulings thereunder,
including such exemptions from those statutes, rules and regulations as the
Securities and Exchange Commission may grant (including, but not limited to, the
Shared Funding Exemptive Order) and the terms hereof shall be interpreted and
construed in accordance therewith.
ARTICLE X. Termination
10.1. This Agreement shall continue in full force and effect until
the first to occur of:
(a) termination by any party for any reason by ninety (90)
days' advance written notice delivered to the other
parties; or
(b) termination by the Company by written notice to the Fund
and the Underwriter with respect to any Portfolio based
upon the Company's determination that shares of such
Portfolio are not reasonably available to meet the
requirements of the Contracts; or
(c) termination by the Company by written notice to the Fund
and the Underwriter with respect to any Portfolio in the
event any of the Portfolio's shares are not registered,
issued or sold in accordance with applicable state and/or
federal law or such law precludes the use of such shares
as the underlying investment media of the Contracts issued
or to be issued by the Company; or
(d) termination by the Company by written notice to the Fund
and the Underwriter with respect to any Portfolio in the
event that such Portfolio ceases to qualify as a Regulated
Investment Company under Subchapter M of the Code or under
any successor or similar provision, or if the Company
reasonably believes that the Fund may fail to so qualify;
or
(e) termination by the Company by written notice to the Fund
and the Underwriter with respect to any Portfolio in the
event that such Portfolio fails to meet the
diversification requirements specified in Article VI
hereof or if the company reasonably and in good faith
believes the Portfolio may fail to meet such requirements;
or
(f) termination by either the Fund or the Underwriter by
written notice to the Company, if either one or both of
the Fund or the Underwriter respectively, shall determine,
in their sole judgment exercised in good faith, that the
Company and/or its affiliated companies has suffered a
material adverse change in its business, operations,
financial condition or prospects since the date of this
Agreement or is the subject of material adverse publicity;
or
(g) termination by the Company by written notice to the Fund
and the Underwriter, if the Company shall determine, in
its sole judgment exercised in good faith, that either the
Fund or the Underwriter has suffered a material adverse
change in its business, operations, financial condition or
prospects since the date of this Agreement or is the
subject of material adverse publicity; or
(h) termination by the Fund or the Underwriter by written
notice to the Company, if the Company gives the Fund and
the Underwriter the written notice specified in Section
1.6(b) hereof and at the time such notice was given there
was no notice of termination outstanding under any other
provision of this Agreement; provided, however any
termination under this Section 10.1(h) shall be effective
thirty (30) days after the notice specified in Section
1.6(b) was given.
10.2. Effect of Termination. Notwithstanding any termination of
this Agreement, the Fund and the Underwriter shall at the option of the Company,
continue to make available additional shares of the Fund pursuant to the terms
and conditions of this Agreement, for all Contracts in effect on the effective
date of termination of this Agreement (hereinafter referred to as "Existing
Contracts"). Specifically, without limitation, the owners of the Existing
Contracts shall be permitted to reallocate investments in the Fund, redeem
investments in the Fund and/or invest in the Fund upon the making of additional
purchase payments under the Existing Contracts. The parties agree that this
Section 10.2 shall not apply to any terminations under Article VII and the
effect of such Article VII terminations shall be governed by Article VII of this
Agreement.
10.3 The Company shall not redeem Fund shares attributable to
the Contracts (as opposed to Fund shares attributable to the Company's assets
held in the Account) except (i) as necessary to implement Contract Owner
initiated or approved transactions, or (ii) as required by state and/or federal
laws or regulations or judicial or other legal precedent of general application
(hereinafter referred to as a "Legally Required Redemption") or (iii) as
permitted by an order of the SEC pursuant to Section 26(b) of the 1940 Act. Upon
request, the Company will promptly furnish to the Fund and the Underwriter the
opinion of counsel for the Company (which counsel shall be reasonably
satisfactory to the Fund and the Underwriter) or other evidence satisfactory to
the Fund and the Underwriter to the effect that any redemption pursuant to
clause (ii) above is a Legally Required Redemption. Furthermore, except in cases
where permitted under the terms of the Contracts, the Company shall not prevent
Contract Owners from allocating payments to a Portfolio that was otherwise
available under the Contracts by (i) substituting another fund for the Fund; or
(ii) not offering the Fund under sales of new Contracts; or (iii) any other
legally permissible means, without first giving the Fund or the Underwriter 90
days notice of its intention to do so.
ARTICLE XI. Notices
Any notice shall be sufficiently given when sent by registered
or certified mail, or other method agreed to in writing by the parties, to the
other party at the address of such party set forth below or at such other
address as such party may from time to time specify in writing to the other
party.
If to the Fund:
82 Devonshire Street
Boston, Massachusetts 02109
Attention: Treasurer
<PAGE>
If to the Company:
IDS Life Insurance Company
IDS Tower 10
Minneapolis, MN 55440
Attention: President
With a copy to:
Law Department (Unit 52)
IDS Life Insurance Company
IDS Tower 10
Minneapolis, MN 55440
If to the Underwriter:
82 Devonshire Street
Boston, Massachusetts 02109
Attention: Treasurer
ARTICLE XII. Miscellaneous
12.1 All persons dealing with the Fund must look solely to the
property of the Fund for the enforcement of any claims against the Fund as
neither the Board, officers, agents or shareholders assume any personal
liability for obligations entered into on behalf of the Fund.
12.2 The Fund and the Underwriter acknowledge that the
identities of the customers of the Company or any of its affiliates
(collectively the "Protected Parties" for purposes of this section 12.2) and
information maintained by the Company regarding those customers are the valuable
property of the Protected Parties. The Fund and the Underwriter agree that if
they come into possession of any list or compilation of the identities of or
other information about the Protected Parties' customers, other than such
information as may be independently developed or independently compiled by the
Fund or the Underwriter, the Fund and the Underwriter will hold such information
or property in confidence and refrain from using, disclosing, or distributing
any of such information or other property except: (a) with the Company's prior
written consent; or (b) as required by law or judicial process. In addition,
subject to the requirements of legal process and regulatory authority, each
party hereto shall treat as confidential the names and addresses of the owners
of the Contract and all information reasonably identified as confidential in
writing by any other party hereto and, except as permitted by this Agreement,
shall not disclose, disseminate or utilize such names and addresses and other
confidential information until such time as it may come into the public domain
without the express written consent of the affected party.
12.3 The captions in this Agreement are included for convenience
of reference only and in no way define or delineate any of the provisions hereof
or otherwise affect their construction or effect.
12.4 This Agreement may be executed simultaneously in two or
more counterparts, each of which taken together shall constitute one and the
same instrument.
12.5 If any provision of this Agreement shall be held or made
invalid by a court decision, statute, rule or otherwise, the remainder of the
Agreement shall not be affected thereby.
12.6 Each party hereto shall cooperate with each other party and
all appropriate governmental authorities (including without limitation the SEC,
the NASD and state insurance regulators) and shall permit such authorities
reasonable access to its books and records in connection with any investigation
or inquiry relating to this Agreement or the transactions contemplated hereby.
Notwithstanding the generality of the foregoing, each party hereto further
agrees to furnish the California Insurance Commissioner with any information or
reports in connection with services provided under this Agreement which such
Commissioner may request in order to ascertain whether the insurance operations
of the Company are being conducted in a manner consistent with the California
Insurance Regulations and any other applicable law or regulations.
12.7 The rights, remedies and obligations contained in this
Agreement are cumulative and are in addition to any and all rights, remedies and
obligations, at law or in equity, which the parties hereto are entitled to under
state and federal laws.
12.8. This Agreement or any of the rights and obligations
hereunder may not be assigned by any party without the prior written consent of
all parties hereto; provided, however, that the Underwriter may assign this
Agreement or any rights or obligations hereunder to any affiliate of or company
under common control with the Underwriter, if such assignee is duly licensed and
registered to perform the obligations of the Underwriter under this Agreement.
The Company shall promptly notify the Fund and the Underwriter of any change in
control of the Company.
12.9. The Company shall furnish, or shall cause to be furnished,
to the Fund or its designee copies of the following reports:
(a) the Company's annual statement (prepared under
statutory accounting principles) and annual report
(prepared under generally accepted accounting
principles ("GAAP"), if any), as soon as practical
and in any event within 90 days after the end of
each fiscal year;
(b) the Company's quarterly statements (statutory)
(and GAAP, if any), as soon as practical and in
any event within 45 days after the end of each
quarterly period:
(c) any financial statement, proxy statement, notice
or report of the Company sent to stockholders
and/or policyholders, as soon as practical after
the delivery thereof to stockholders;
(d) any registration statement (without exhibits) and
financial reports of the Company filed with the
Securities and Exchange Commission or any state
insurance regulator, as soon as practical after
the filing thereof;
(e) any other nonconfidential report submitted to the
Company by independent accountants in connection
with any annual, interim or special audit made by
them of the books of the Company, as soon as
practical after the receipt thereof.
IN WITNESS WHEREOF, each of the parties hereto has caused this
Agreement to be executed in its name and on its behalf by its duly authorized
representative.
IDS LIFE INSURANCE COMPANY ATTEST
By: _________________________ By:
---------------------------
Pamela J. Moret William A. Stoltzmann
Executive Vice President Secretary
VARIABLE INSURANCE PRODUCTS FUND
By: ________________________
Robert C. Pozen
Senior Vice President
FIDELITY DISTRIBUTORS CORPORATION
By: _______________________
Kevin J. Kelly
Vice President
<PAGE>
Schedule A
Separate Accounts and Associated Contracts
Name of Separate Account and Policy Form Numbers of Contracts
Date Established by Board of Directors Funded By Separate Account
IDS Life Variable Account 10 31043-NQ
(established August 23, 1995) 31044-Q
31045-IRA
31046-NQ
31047-Q
31048-IRA and state variations
thereof
<PAGE>
SCHEDULE B
PROXY VOTING PROCEDURE
The following is a list of procedures and corresponding responsibilities for the
handling of proxies relating to the Fund by the Underwriter, the Fund and the
Company. The defined terms herein shall have the meanings assigned in the
Participation Agreement except that the Company may engage a third party to
perform the functions stated below and the term "Company" shall also include the
department or third party assigned by the Insurance Company to perform the steps
delineated below. Expenses will be borne as stated in the Participation
Agreement.
1. The number of proxy proposals is given to the Company by the Underwriter
as early as possible before the date set by the Fund for the shareholder
meeting to facilitate the establishment of tabulation procedures. At
this time the Underwriter will inform the Company of the Record, Mailing
and Meeting dates. This will be done verbally approximately two months
before meeting.
2. Promptly after the Record Date, the Company will perform a "tape run",
or other activity, which will generate the names, addresses and number
of units which are attributed to each contractowner/policyholder (the
"Customer") as of the Record Date. Allowance should be made for account
adjustments made after this date that could affect the status of the
Customers' accounts as of the Record Date.
Note: The number of proxy statements is determined by the activities
described in Step #2. The Company will use its best efforts to call in
the number of Customers to Fidelity, as soon as possible, but no later
than two weeks after the Record Date.
3. The Fund's Annual Report no longer needs to be sent to each Customer by
the Company either before or together with the Customers' receipt of a
proxy statement. Underwriter will provide the last Annual Report to the
Company pursuant to the terms of Section 3.3 of the Agreement to which
this Schedule relates.
4. The text and format for the Voting Instruction Cards ("Cards" or "Card")
is provided to the Company by the Fund. The Company shall produce and
personalize the Voting Instruction Cards. The Legal Department of the
Underwriter or its affiliate ("Fidelity Legal") must approve the Card
before it is printed. Allow approximately 2-4 business days for printing
information on the Cards. Information commonly found on the Cards
includes:
a. name (legal name as found on account registration)
b. address
c. Fund or account number
d. coding to state number of units
e. individual Card number for use in tracking and verification
of votes (already on Cards as printed by the Fund)
(This and related steps may occur later in the chronological process due to
possible uncertainties relating to the proposals.)
5. During this time, Fidelity Legal will develop, produce, and the Fund
will pay for the Notice of Proxy and the Proxy Statement (one document).
Printed and folded notices and statements will be sent to Company for
insertion into envelopes (envelopes and return envelopes are provided
and paid for by the Insurance Company). Contents of envelope sent to
Customers by Company will include:
a. Voting Instruction Card(s)
b. One proxy notice and statement (one document)
c. return envelope (postage pre-paid by Company) addressed
to the Company or its tabulation agent
d. "urge buckslip" - optional, but recommended. (This is a
small, single sheet of paper that requests Customers to
vote as quickly as possible and that their vote is
important. One copy will be supplied by the Fund.)
e. cover letter - optional, supplied by Company and
reviewed and approved in advance by Fidelity Legal.
6. The above contents should be received by the Company approximately 3-5
business days before mail date. Individual in charge at Company reviews
and approves the contents of the mailing package to ensure correctness
and completeness. Copy of this approval sent to Fidelity Legal.
7. Package mailed by the Company.
* The Fund must allow at least a 15-day solicitation time to the
Company as the shareowner. (A 5-week period is recommended.)
Solicitation time is calculated as calendar days from (but not
including) the meeting, counting backwards.
8. Collection and tabulation of Cards begins. Tabulation usually takes
place in another department or another vendor depending on process used.
An often used procedure is to sort Cards on arrival by proposal into
vote categories of all yes, no, or mixed replies, and to begin data
entry.
Note: Postmarks are not generally needed. A need for postmark information would
be due to an insurance company's internal procedure and has not been required by
Fidelity in the past.
9. Signatures on Card checked against legal name on account registration which
was printed on the Card.
Note: For Example, If the account registration is under "Bertram C. Jones,
Trustee," then that is the exact legal name to be printed on the Card and is the
signature needed on the Card.
10. If Cards are mutilated, or for any reason are illegible or are not
signed properly, they are sent back to Customer with an explanatory
letter, a new Card and return envelope. The mutilated or illegible Card
is disregarded and considered to be not received for purposes of vote
tabulation. Any Cards that have "kicked out" (e.g. mutilated, illegible)
of the procedure are "hand verified," i.e., examined as to why they did
not complete the system. Any questions on those Cards are usually
remedied individually.
11. There are various control procedures used to ensure proper tabulation of
votes and accuracy of that tabulation. The most prevalent is to sort the
Cards as they first arrive into categories depending upon their vote; an
estimate of how the vote is progressing may then be calculated. If the
initial estimates and the actual vote do not coincide, then an internal
audit of that vote should occur.
This may entail a recount.
12. The actual tabulation of votes is done in units which is then converted
to shares. (It is very important that the Fund receives the tabulations
stated in terms of a percentage and the number of shares.) Fidelity
Legal must review and approve tabulation format.
13. Final tabulation in shares is verbally given by the Company to Fidelity
Legal on the morning of the meeting not later than 10:00 a.m. Boston
time. Fidelity Legal may request an earlier deadline if required to
calculate the vote in time for the meeting.
14. A Certification of Mailing and Authorization to Vote Shares will be
required from the Company as well as an original copy of the final vote.
Fidelity Legal will provide a standard form for each Certification.
15. The Company will be required to box and archive the Cards received from
the Customers. In the event that any vote is challenged or if otherwise
necessary for legal, regulatory, or accounting purposes, Fidelity Legal
will be permitted reasonable access to such Cards.
16. All approvals and "signing-off" may be done orally, but must always be
followed up in writing.
<PAGE>
SCHEDULE C
Other investment companies currently available under variable annuities or
variable life insurance issued by the Company and listed on Schedule A:
Policy Form Numbers 31043-NQ; 31044-Q; 31045-IRA; 31046-NQ; 31047-Q; 31048-IRA -
American Express Retirement
Advisor Variable Annuitysm
American Express(R) Variable Portfolio Funds
AXPsm Variable Portfolio - Investment Series, Inc.
AXPsm Variable Portfolio - Managed Series, Inc.
AXPsm Variable Portfolio - Money Market Series, Inc.
AXPsm Variable Portfolio - Income Series, Inc.
AIM Variable Insurance Funds, Inc.
American Century Variable Portfolios, Inc.
Franklin Templeton Variable Insurance Products Trust
Goldman Sachs Variable Insurance Trust
Janus Aspen Series
Lazard Retirement Series, Inc.
Putnam Variable Trust
Royce Capital Fund
Third Avenue Variable Series Trust
Wanger Advisors Trust
Warburg Pincus Trust
<PAGE>
SUB-LICENSE AGREEMENT
Agreement effective as of this __ of _______, 199_, by and between
Fidelity Distributors Corporation (hereinafter called "Fidelity"), a corporation
organized and existing under the laws of the Commonwealth of Massachusetts, with
a principal place of business at 82 Devonshire Street, Boston, Massachusetts,
and IDS Life Insurance Company (hereinafter called "Company"), a company
organized and existing under the laws of the State of Minnesota, with a
principal place of business at Minneapolis, Minnesota.
WHEREAS, FMR Corp., a Massachusetts corporation, the parent company of
Fidelity, is the owner of the trademark and the tradename "FIDELITY INVESTMENTS"
and is the owner of a trademark in a pyramid design (hereinafter, collectively
the "Fidelity Trademarks"), a copy of each of which is attached hereto as
Exhibit "A"; and
WHEREAS, FMR Corp. has granted a license to Fidelity (the "Master
License Agreement") to sub-license the Fidelity Trademarks to third parties for
their use in connection with Promotional Materials as hereinafter defined; and
WHEREAS, Company is desirous of using the Fidelity Trademarks in
connection with distribution of "sales literature and other promotional
material" with information, including the Fidelity Trademarks, printed in said
material (such material hereinafter called the Promotional Material). For the
purpose of this Agreement, "sales literature and other promotional material"
shall have the same meaning as in the certain Participation Agreement dated as
of the __ day of _______, 199_, among Fidelity, Company and Variable Insurance
Products Fund (hereinafter "Participation Agreement"); and
WHEREAS, Fidelity is desirous of having the Fidelity Trademarks used in
connection with the Promotional Material.
NOW, THEREFORE, in consideration of the foregoing and for other good and
valuable consideration, the receipt and adequacy whereof is hereby acknowledged,
and of the mutual promises hereinafter set forth, the parties hereby agree as
follows:
1. Fidelity hereby grants to Company a non-exclusive, non-transferable
license to use the Fidelity Trademarks in connection with the promotional
distribution of the Promotional Material and Company accepts said license,
subject to the terms and conditions set forth herein.
2. Company acknowledges that FMR Corp. is the owner of all right, title
and interest in the Fidelity Trademarks and agrees that it will do nothing
inconsistent with the ownership of the Fidelity Trademarks by FMR Corp., and
that it will not, now or hereinafter, contest any registration or application
for registration of the Fidelity Trademarks by FMR Corp., nor will it, now or
hereafter, aid anyone in contesting any registration or application for
registration of the Fidelity Trademarks by FMR Corp.
3. Company agrees to use the Fidelity Trademarks only in the form and
manner approved by Fidelity and not to use any other trademark, service mark or
registered trademark in combination with any of the Fidelity Trademarks without
approval by Fidelity.
4. Company agrees that it will place all necessary and proper notices
and legends in order to protect the interests of FMR Corp. and Fidelity therein
pertaining to the Fidelity Trademarks on the Promotional Material including, but
not limited to, symbols indicating trademarks, service marks and registered
trademarks. Company will place such symbols and legends on the Promotional
Material as requested by Fidelity or FMR Corp. upon receipt of notice of same
from Fidelity or FMR Corp.
5. Company agrees that the nature and quality of all of the Promotional
Material distributed by Company bearing the Fidelity Trademarks shall conform to
standards set by, and be under the control of, Fidelity.
6. Company agrees to cooperate with Fidelity in facilitating Fidelity's
control of the use of the Fidelity Trademarks and of the quality of the
Promotional Material to permit reasonable inspection of samples of same by
Fidelity and to supply Fidelity with reasonable quantities of samples of the
Promotional Material upon request.
7. Company shall comply with all applicable laws and regulations and
obtain any and all licenses or other necessary permits pertaining to the
distribution of said Promotional Material.
8. Company agrees to notify Fidelity of any unauthorized use of the
Fidelity Trademarks by others promptly as it comes to the attention of Company.
Fidelity or FMR Corp. shall have the sole right and discretion to commence
actions or other proceedings for infringement, unfair competition or the like
involving the Fidelity Trademarks and Company shall cooperate in any such
proceedings if so requested by Fidelity or FMR Corp.
9. This agreement shall continue in force until terminated by Fidelity.
This agreement shall automatically terminate upon termination of the Master
License Agreement. In addition, Fidelity shall have the right to terminate this
agreement at any time upon notice to Company, with or without cause. Upon any
such termination, Company agrees to cease immediately all use of the Fidelity
Trademarks and shall destroy, at Company's expense, any and all materials in its
possession bearing the Fidelity Trademarks, and agrees that all rights in the
Fidelity Trademarks and in the goodwill connected therewith shall remain the
property of FMR Corp. Unless so terminated by Fidelity, or extended by written
agreement of the parties, this agreement shall expire on the termination of that
certain Participation Agreement.
10. Company shall indemnify Fidelity and FMR Corp. and hold each of them
harmless from and against any loss, damage, liability, cost or expense of any
nature whatsoever, including without limitation, reasonable attorneys' fees and
all court costs, arising out of use of the Fidelity Trademarks by Company.
11. In consideration for the promotion and advertising of Fidelity as a
result of the distribution by Company of the Promotional Material, Company shall
not pay any monies as a royalty to Fidelity for this license.
12. This agreement is not intended in any manner to modify the terms and
conditions of the Participation Agreement. In the event of any conflict between
the terms and conditions herein and thereof, the terms and conditions of the
Participation Agreement shall control.
13. This agreement shall be interpreted according to the laws of the
Commonwealth of Massachusetts.
IN WITNESS WHEREOF, the parties hereunto set their hands and seals, and
hereby execute this agreement, as of the date first above written.
FIDELITY DISTRIBUTORS CORPORATION
By: _____________________ By: ____________________
Name:___________________
Title: _____________________ Title:__________________
ATTEST IDS LIFE INSURANCE COMPANY
By:_____________________________ By:_________________________
William A. Stoltzmann Pamela J. Moret
Secretary Executive Vice President
<PAGE>
EXHIBIT A
Int. Cl.: 36
Prior U.S. Cls.: 101 and 102
Reg. No. 1,481,040
United States Patent and Trademark Office Registered Mar. 15, 1988
------------------------------------------------------------------------------
SERVICE MARK
PRINCIPAL REGISTER
[GRAPHIC OMITTED] Fidelity
Investments
<TABLE>
<CAPTION>
<S> <C>
FMR CORP. (MASSACHUSETTS CORPORATION) FIRST USE 2-22-1984; IN COMMERCE 2-22-1984.
82 DEVONSHIRE STREET
BOSTON, MA 02109, ASSIGNEE OF FIDELITY DISTRIBUTORS NO CLAIM IS MADE TO THE EXCLUSIVE RIGHT TO USE
CORPORATION (MASSACHUSETTS CORPORATION) BOSTON, MA "INVESTMENTS", APART FROM THE MARK AS SHOWN.
02109
SER. NO. 641,707, FILED 1-28-1987
FOR: MUTUAL FUND AND STOCK BROKERAGE SERVICES, IN CLASS
36 (U.S. CLS. 101 AND 102) RUSS HERMAN, EXAMINING ATTORNEY
</TABLE>
PARTICIPATION AGREEMENT
Among
VARIABLE INSURANCE PRODUCTS FUND III,
FIDELITY DISTRIBUTORS CORPORATION
and
IDS LIFE INSURANCE COMPANY
THIS AGREEMENT, made and entered into as of the _________ day of
______________, 1999 by and among IDS LIFE INSURANCE COMPANY, (hereinafter the
"Company"), a Minnesota corporation, on its own behalf and on behalf of each
segregated asset account of the Company set forth on Schedule A hereto as may be
amended from time to time (each such account hereinafter referred to as the
"Account"), and the VARIABLE INSURANCE PRODUCTS FUND III, an unincorporated
business trust organized under the laws of the Commonwealth of Massachusetts
(hereinafter the "Fund") and FIDELITY DISTRIBUTORS CORPORATION (hereinafter the
"Underwriter"), a Massachusetts corporation.
WHEREAS, the Fund engages in business as an open-end management
investment company and is available to act as the investment vehicle for
separate accounts established for variable life insurance policies and variable
annuity contracts (collectively, the "Variable Insurance Products") to be
offered by insurance companies which have entered into participation agreements
with the Fund and the Underwriter (hereinafter "Participating Insurance
Companies"); and
WHEREAS, the beneficial interest in the Fund is divided into
several series of shares, each representing the interest in a particular managed
portfolio of securities and other assets, any one or more of which may be made
available under this Agreement, as may be amended from time to time by mutual
agreement of the parties hereto (each such series hereinafter referred to as a
"Portfolio"); and
WHEREAS, the Fund has obtained an order from the Securities and
Exchange Commission, dated September 17, 1986 (File No. 812-6422), granting
Participating Insurance Companies and variable annuity and variable life
insurance separate accounts exemptions from the provisions of sections 9(a),
13(a), 15(a), and 15(b) of the Investment Company Act of 1940, as amended,
(hereinafter the "1940 Act") and Rules 6e-2(b) (15) and 6e-3(T) (b) (15)
thereunder, to the extent necessary to permit shares of the Fund to be sold to
and held by variable annuity and variable life insurance separate accounts of
both affiliated and unaffiliated life insurance companies (hereinafter the
"Shared Funding Exemptive Order"); and
WHEREAS, the Fund is registered as an open-end management
investment company under the 1940 Act and its shares are registered under the
Securities Act of 1933, as amended (hereinafter the "1933 Act"); and
WHEREAS, Fidelity Management & Research Company (the "Adviser")
is duly registered as an investment adviser under the federal Investment
Advisers Act of 1940 and any applicable state securities law; and
WHEREAS, the Company has registered or will register certain
variable life insurance and variable annuity contracts under the 1933 Act, which
are identified on Schedule A hereto ("Contracts"); and
WHEREAS, each Account is a duly organized, validly existing
segregated asset account, established by resolution of the Board of Directors of
the Company, on the date shown for such Account on Schedule A hereto, to set
aside and invest assets attributable to the aforesaid variable annuity
contracts; and
WHEREAS, the Company has registered or will register each
Account as a unit investment trust under the 1940 Act; and
WHEREAS, the Underwriter is registered as a broker dealer with
the Securities and Exchange Commission ("SEC") under the Securities Exchange Act
of 1934, as amended, (hereinafter the "1934 Act"), and is a member in good
standing of the National Association of Securities Dealers, Inc. (hereinafter
"NASD"); and
WHEREAS, to the extent permitted by applicable insurance laws
and regulations, the Company intends to purchase shares in the Portfolios on
behalf of each Account to fund certain of the aforesaid variable life and
variable annuity contracts and the Underwriter is authorized to sell such shares
to unit investment trusts such as each Account at net asset value;
NOW, THEREFORE, in consideration of their mutual promises, the
Company, the Fund and the Underwriter agree as follows:
ARTICLE I. Sale of Fund Shares
1.1. The Underwriter agrees to sell to the Company those shares
of the Fund which each Account orders, executing such orders on a daily basis at
the net asset value next computed after receipt by the Fund or its designee of
the order for the shares of the Fund. For purposes of this Section 1.1, the
Company shall be the designee of the Fund for receipt of such orders from each
Account and receipt by such designee shall constitute receipt by the Fund;
provided that the Fund receives notice of such order by 10:00 a.m. Boston time
on the next following Business Day. The Company shall use its best efforts to
begin placing all orders for the purchase or redemption of shares of the Funds
on behalf of the Accounts directly with the Funds or their transfer agent by
electronic transmission by March 31, 2000, and must begin doing so no later than
June 30, 2000. "Business Day" shall mean any day on which the New York Stock
Exchange is open for trading and on which the Fund calculates its net asset
value pursuant to the rules of the Securities and Exchange Commission.
1.2. The Fund agrees to make its shares available indefinitely
for purchase at the applicable net asset value per share by the Company and its
Accounts on those days on which the Fund calculates its net asset value pursuant
to rules of the Securities and Exchange Commission and the Fund shall use
reasonable efforts to calculate such net asset value on each day which the New
York Stock Exchange is open for trading. Notwithstanding the foregoing, the
Board of Trustees of the Fund (hereinafter the "Board") may refuse to sell
shares of any Portfolio to any person, or suspend or terminate the offering of
shares of any Portfolio if such action is required by law or by regulatory
authorities having jurisdiction or is, in the sole discretion of the Board
acting in good faith and in light of their fiduciary duties under federal and
any applicable state laws, necessary in the best interests of the shareholders
of such Portfolio.
1.3. The Fund and the Underwriter agree that shares of the Fund
will be sold only to Participating Insurance Companies and their separate
accounts. No shares of any Portfolio will be sold to the general public.
1.4. The Fund and the Underwriter will not sell Fund shares to
any insurance company or separate account unless an agreement containing
provisions substantially the same as Articles I, III, V, VII and Section 2.5 of
Article II of this Agreement is in effect to govern such sales.
1.5. The Fund agrees to redeem for cash, on the Company's
request, any full or fractional shares of the Fund held by the Company,
executing such requests on a daily basis at the net asset value next computed
after receipt by the Fund or its designee of the request for redemption. For
purposes of this Section 1.5, the Company shall be the designee of the Fund for
receipt of requests for redemption from each Account and receipt by such
designee shall constitute receipt by the Fund; provided that the Fund receives
notice of such request for redemption on the next following Business Day.
1.6. The Company agrees that purchases and redemptions of
Portfolio shares offered by the then current prospectus of the Fund shall be
made in accordance with the provisions of such prospectus. The Company agrees
that all net amounts available under the Contracts shall be invested in the
Fund, in such other Funds advised by the Adviser as may be mutually agreed to in
writing by the parties hereto, or in the Company's general account, provided
that such amounts may also be invested in an investment company other than the
Fund if (a) such other investment company, or series thereof, has investment
objectives or policies that are substantially different from the investment
objectives and policies of all the Portfolios of the Fund that underlie the
Contracts; or (b) the Company gives the Fund and the Underwriter 30 days written
notice of its intention to make such other investment company available as a
funding vehicle for the Contracts; or (c) such other investment company was
available as a funding vehicle for the Contracts prior to the date of this
Agreement and the Company so informs the Fund and Underwriter prior to their
signing this Agreement (a list of such funds appearing on Schedule C to this
Agreement); or (d) the Fund or Underwriter consents to the use of such other
investment company.
1.7. The Company shall pay for Fund shares on the next Business
Day after an order to purchase Fund shares is made in accordance with the
provisions of Section 1.1 hereof. Payment shall be in federal funds transmitted
by wire. For purposes of Section 2.10 and 2.11, upon receipt by the Fund of the
federal funds so wired, such funds shall cease to be the responsibility of the
Company and shall become the responsibility of the Fund.
1.8. Issuance and transfer of the Fund's shares will be by book
entry only. Stock certificates will not be issued to the Company or any Account.
Shares ordered from the Fund will be recorded in an appropriate title for each
Account or the appropriate subaccount of each Account.
1.9. The Fund shall furnish same day notice (by wire or
telephone, followed by written confirmation) to the Company of any income,
dividends or capital gain distributions payable on the Fund's shares. The
Company hereby elects to receive all such income dividends and capital gain
distributions as are payable on the Portfolio shares in additional shares of
that Portfolio. The Company reserves the right to revoke this election and to
receive all such income dividends and capital gain distributions in cash. The
Fund shall notify the Company of the number of shares so issued as payment of
such dividends and distributions.
1.10. The Fund shall make the net asset value per share for each
Portfolio available to the Company on a daily basis as soon as reasonably
practical after the net asset value per share is calculated (normally by 6:30
p.m. Boston time) and shall use its best efforts to make such net asset value
per share available by 7 p.m. Boston time.
ARTICLE II. Representations and Warranties
2.1. The Company represents and warrants that the Contracts are
or will be registered under the 1933 Act; that the Contracts will be filed and
qualified and/or approved for sale, as applicable, under insurance laws or
regulations of states in which the Contract will be offered prior to sale; and
that the sale of the Contracts shall comply in all material respects with
applicable federal and state securities and insurance laws and state insurance
suitability requirements. The Company further represents and warrants that it is
an insurance company duly organized and in good standing under applicable law
and that it has legally and validly established each Account prior to any
issuance or sale thereof as a segregated asset account under Section 61A.14 of
the Minnesota Insurance Code and has registered or, prior to any issuance or
sale of the Contracts, will register each Account as a unit investment trust in
accordance with the provisions of the 1940 Act to serve as a segregated
investment account for the Contracts.
2.2. The Fund represents and warrants that Fund shares sold
pursuant to this Agreement shall be registered under the 1933 Act, duly
authorized for issuance and sold in compliance with the laws of the State of
Minnesota and all applicable federal and state securities laws and that the Fund
is and shall remain registered under the 1940 Act. The Fund shall amend the
Registration Statement for its shares under the 1933 Act and the 1940 Act from
time to time as required in order to effect the continuous offering of its
shares. The Fund shall register and qualify the shares for sale in accordance
with the laws of the various states only if and to the extent deemed advisable
by the Fund or the Underwriter.
2.3. The Fund represents that it is currently qualified as a
Regulated Investment Company under Subchapter M of the Internal Revenue Code of
1986, as amended, (the "Code") and that it will make every effort to maintain
such qualification (under Subchapter M or any successor or similar provision)
and that it will notify the Company immediately upon having a reasonable basis
for believing that it has ceased to so qualify or that it might not so qualify
in the future.
2.4. The Company represents that the Contracts will be treated
at the time of sale as endowment, life insurance or annuity contracts, under
applicable provisions of the Code and that it will make every effort to maintain
such treatment and that it will notify the Fund and the Underwriter immediately
upon having a reasonable basis for believing that the Contracts have ceased to
be so treated or that they might not be so treated in the future.
2.5. (a) With respect to the Fund's Initial Class shares, the
Fund currently does not intend to make any payments to finance distribution
expenses pursuant to Rule 12b-1 under the 1940 Act or otherwise, although it may
make such payments in the future. The Fund has adopted a "no fee" or "defensive"
Rule 12b-1 Plan under which it makes no payments for distribution expenses. To
the extent that it decides to finance distribution expenses pursuant to Rule
12b-1, the Fund undertakes to have a board of trustees, a majority of whom are
not interested persons of the Fund, formulate and approve any plan under Rule
12b-1 to finance distribution expenses.
(b) With respect to the Fund's Service Class shares, the
Fund has adopted a Rule 12b-1 Plan
under which it makes payments to finance distribution expenses. The Fund
represents and warrants that it has a board of trustees, a majority of whom are
not interested persons of the Fund, which has formulated and approved the Fund's
Rule 12b-1 Plan to finance distribution expenses of the Fund and that any
changes to the Fund's Rule 12b-1 Plan will be approved by a similarly
constituted board of trustees.
2.6. The Fund makes no representation as to whether any aspect
of its operations (including, but not limited to, fees and expenses and
investment policies) complies with the insurance laws or regulations of the
various states except that the Fund represents that the Fund's investment
policies, fees and expenses are and shall at all times remain in compliance with
the laws of the State of Minnesota and the Fund and the Underwriter represent
that their respective operations are and shall at all times remain in material
compliance with the laws of the State of Minnesota to the extent required to
perform this Agreement.
2.7. The Underwriter represents and warrants that it is and will
remain a member in good standing of the NASD and is and will remain registered
as a broker-dealer with the SEC. The Underwriter further represents that it will
sell and distribute the Fund shares in accordance with the laws of the State of
Minnesota and all applicable state and federal securities laws, including
without limitation the 1933 Act, the 1934 Act, and the 1940 Act.
2.8. The Fund represents that it is lawfully organized and
validly existing under the laws of the Commonwealth of Massachusetts and that it
does and will comply in all material respects with the 1940 Act.
2.9. The Underwriter represents and warrants that the Adviser is
and shall remain duly registered in all material respects under all applicable
federal and state securities laws and that the Adviser shall perform its
obligations for the Fund in compliance in all material respects with the laws of
the Commonwealth of Massachusetts and any applicable state and federal
securities laws.
2.10. The Fund and Underwriter represent and warrant that all of
their directors, officers, employees, investment advisers, and other
individuals/entities dealing with the money and/or securities of the Fund are
and shall continue to be at all times covered by a blanket fidelity bond or
similar coverage for the benefit of the Fund in an amount not less than the
minimal coverage as required currently by Rule 17g-(1) of the 1940 Act or
related provisions as may be promulgated from time to time. The aforesaid Bond
shall include coverage for larceny and embezzlement and shall be issued by a
reputable bonding company.
2.11. The Company represents and warrants that all of its
directors, officers, employees, investment advisers, and other
individuals/entities dealing with the money and/or securities of the Fund are
covered by a blanket fidelity bond or similar coverage for the benefit of the
Fund, and that said bond is issued by a reputable bonding company, includes
coverage for larceny and embezzlement, and is in an amount not less than $5
million. The Company agrees to make all reasonable efforts to see that this bond
or another bond containing these provisions is always in effect, and agrees to
notify the Fund and the Underwriter in the event that such coverage no longer
applies.
ARTICLE III. Prospectuses and Proxy Statements; Voting
3.1. The Underwriter shall provide the Company with as many
printed copies of the Fund's current prospectus and Statement of Additional
Information (including any supplements thereto) as the Company may reasonably
request. If requested by the Company in lieu thereof, the Fund shall provide
camera-ready film and/or computer diskette containing the Fund's prospectus and
Statement of Additional Information, and such other assistance as is reasonably
necessary in order for the Company once each year (or more frequently if the
prospectus and/or Statement of Additional Information for the Fund is amended
during the year) to have the prospectus for the Contracts and the Fund's
prospectus printed together in one document, and to have the Statement of
Additional Information for the Fund and the Statement of Additional Information
for the Contracts printed together in one document. Alternatively, the Company
may print the Fund's prospectus and/or its Statement of Additional Information
by itself or in combination with other fund companies' prospectuses and
statements of additional information. Except as provided in the following three
sentences, all expenses of printing and distributing Fund prospectuses and
Statements of Additional Information shall be the expense of the Company. For
prospectuses and Statements of Additional Information provided by the Company to
its existing owners of Contracts in order to update disclosure annually as
required by the 1933 Act and/or the 1940 Act, the cost of printing shall be
borne by the Fund. If the Company chooses to receive camera-ready film in lieu
of receiving printed copies of the Fund's prospectus, the Fund will reimburse
the Company in an amount equal to the product of A and B where A is the number
of such prospectuses distributed to owners of the Contracts, and B is the Fund's
per unit cost of typesetting and printing the Fund's prospectus. The same
procedures shall be followed with respect to the Fund's Statement of Additional
Information.
The Company agrees to provide the Fund or its designee with such
information as may be reasonably requested by the Fund to assure that the Fund's
expenses do not include the cost of printing any prospectuses or Statements of
Additional Information other than those actually distributed to existing owners
of the Contracts.
3.2. The Fund's prospectus shall state that the Statement of
Additional Information for the Fund is available from the Underwriter or the
Company (or in the Fund's discretion, the Prospectus shall state that such
Statement is available from the Fund).
3.3. The Fund, at its expense, shall provide the Company with
copies of its proxy statements, reports to shareholders, and other
communications (except for prospectuses and Statements of Additional
Information, which are covered in Section 3.1) to shareholders in such quantity
as the Company shall reasonably require for distributing to Contract owners.
3.4. If and to the extent required by law the Company shall:
(i) solicit voting instructions from Contract owners;
(ii) vote the Fund shares in accordance with
instructions received from Contract owners; and
(iii) vote Fund shares for which no instructions have
been received in a particular separate account in
the same proportion as Fund shares of such
portfolio for which instructions have been received
in that separate account,
so long as and to the extent that the Securities and Exchange Commission
continues to interpret the 1940 Act to require pass-through voting privileges
for variable contract owners. The Company reserves the right to vote Fund shares
held in any segregated asset account in its own right, to the extent permitted
by law. Participating Insurance Companies shall be responsible for assuring that
each of their separate accounts participating in the Fund calculates voting
privileges in a manner consistent with the standards set forth on Schedule B
attached hereto and incorporated herein by this reference, which standards will
also be provided to the other Participating Insurance Companies.
3.5. The Fund will comply with all provisions of the 1940 Act
requiring voting by shareholders, and in particular the Fund will either provide
for annual meetings or comply with Section 16(c) of the 1940 Act (although the
Fund is not one of the trusts described in Section 16(c) of that Act) as well as
with Sections 16(a) and, if and when applicable, 16(b). Further, the Fund will
act in accordance with the Securities and Exchange Commission's interpretation
of the requirements of Section 16(a) with respect to periodic elections of
trustees and with whatever rules the Commission may promulgate with respect
thereto.
ARTICLE IV. Sales Material and Information
4.1. The Company shall furnish, or shall cause to be furnished,
to the Fund or its designee, each piece of sales literature or other promotional
material in which the Fund or its investment adviser or the Underwriter is
named, at least fifteen Business Days prior to its use. No such material shall
be used if the Fund or its designee reasonably objects to such use within
fifteen Business Days after receipt of such material.
4.2. The Company shall not give any information or make any
representations or statements on behalf of the Fund or concerning the Fund in
connection with the sale of the Contracts other than the information or
representations contained in the registration statement or prospectus for the
Fund shares, as such registration statement and prospectus may be amended or
supplemented from time to time, or in reports or proxy statements for the Fund,
or in sales literature or other promotional material approved by the Fund or its
designee or by the Underwriter, except with the permission of the Fund or the
Underwriter or the designee of either. The Fund and the Underwriter agree to
respond to any request for approval on a prompt and timely basis.
4.3. The Fund, Underwriter, or its designee shall furnish, or
shall cause to be furnished, to the Company or its designee, each piece of sales
literature or other promotional material in which the Company and/or its
separate account(s), is named at least fifteen Business Days prior to its use.
No such material shall be used if the Company or its designee reasonably objects
to such use within fifteen Business Days after receipt of such material.
4.4. The Fund and the Underwriter shall not give any information
or make any representations or statements on behalf of the Company or concerning
the Company, each Account, or the Contracts other than the information or
representations contained in a registration statement or prospectus for the
Contracts, as such registration statement and prospectus may be amended or
supplemented from time to time, or in published reports for each Account which
are in the public domain or approved by the Company for distribution to Contract
owners, or in sales literature or other promotional material approved by the
Company or its designee, except with the permission of the Company. The Company
agrees to respond to any request for approval on a prompt and timely basis.
4.5. The Fund will provide to the Company at least one complete
copy of all registration statements, prospectuses, Statements of Additional
Information, reports, proxy statements, sales literature and other promotional
materials, applications for exemptions, requests for no-action letters, and all
amendments to any of the above, that relate to the Fund or its shares,
contemporaneously with the filing of such document with the Securities and
Exchange Commission or other regulatory authorities.
4.6. The Company will provide to the Fund at least one complete
copy of all registration statements, prospectuses, Statements of Additional
Information, reports, solicitations for voting instructions, sales literature
and other promotional materials, applications for exemptions, requests for no
action letters, and all amendments to any of the above, that relate to the
Contracts or each Account, contemporaneously with the filing of such document
with the SEC or other regulatory authorities.
4.7. For purposes of this Article IV, the phrase "sales
literature or other promotional material" includes, but is not limited to, any
of the following that refer to the Fund or any affiliate of the Fund:
advertisements (such as material published, or designed for use in, a newspaper,
magazine, or other periodical, radio, television, telephone or tape recording,
videotape display, signs or billboards, motion pictures, on-line networks or
other public media), sales literature (i.e., any written communication
distributed or made generally available to customers or the public, including
brochures, circulars, research reports, market letters, form letters, seminar
texts, reprints or excerpts of any other advertisement, sales literature, or
published article), educational or training materials or other communications
distributed or made generally available to some or all agents or employees, and
registration statements, prospectuses, Statements of Additional Information,
shareholder reports, and proxy materials and any other material constituting
sales literature or advertising under the NASD rules, the 1933 Act or the 1940
Act.
ARTICLE V. Fees and Expenses
5.1. The Fund and Underwriter shall pay no fee or other
compensation to the Company under this agreement, except that if the Fund or any
Portfolio adopts and implements a plan pursuant to Rule 12b-1 to finance
distribution expenses, then the Underwriter may make payments to the Company or
to the underwriter for the Contracts if and in amounts agreed to by the
Underwriter in writing and such payments will be made out of existing fees
otherwise payable to the Underwriter, past profits of the Underwriter or other
resources available to the Underwriter. No such payments shall be made directly
by the Fund.
5.2. All expenses incident to performance by the Fund under this
Agreement shall be paid by the Fund. The Fund shall see to it that all its
shares are registered and authorized for issuance in accordance with applicable
federal law and, if and to the extent deemed advisable by the Fund, in
accordance with applicable state laws prior to their sale. The Fund shall bear
the expenses for the cost of registration and qualification of the Fund's
shares, preparation and filing of the Fund's prospectus and registration
statement, proxy materials and reports, setting the prospectus in type, setting
in type and printing the proxy materials and reports to shareholders (including
the costs of printing a prospectus that constitutes an annual report), the
preparation of all statements and notices required by any federal or state law,
and all taxes on the issuance or transfer of the Fund's shares.
5.3. The Company shall bear the expenses of distributing the
Fund's prospectus and annual and semiannual reports to owners of Contracts
issued by the Company. The Fund shall bear the costs of soliciting Fund proxies
from Contract owners, including the costs of mailing proxy materials and
tabulating proxy voting instructions. The Fund and the Underwriter shall not be
responsible for the costs of any proxy solicitations other than proxies
sponsored by the Fund.
ARTICLE VI. Diversification
6.1. The Fund will at all times invest money from the Contracts
in such a manner as to ensure that the Contracts will be treated as variable
contracts under the Code and the regulations issued thereunder. Without limiting
the scope of the foregoing, the Fund will at all times comply with Section
817(h) of the Code and Treasury Regulation 1.817-5, relating to the
diversification requirements for variable annuity, endowment, or life insurance
contracts and any amendments or other modifications to such Section or
Regulations. In the event of a breach of this Article VI by the Fund, it will
take all reasonable steps (a) to notify Company of such breach and (b) to
adequately diversify the Fund so as to achieve compliance within the grace
period afforded by Regulation 1.817-5.
ARTICLE VII. Potential Conflicts
7.1. The Board will monitor the Fund for the existence of any
material irreconcilable conflict between the interests of the contract owners of
all separate accounts investing in the Fund. An irreconcilable material conflict
may arise for a variety of reasons, including: (a) an action by any state
insurance regulatory authority; (b) a change in applicable federal or state
insurance, tax, or securities laws or regulations, or a public ruling, private
letter ruling, no-action or interpretative letter, or any similar action by
insurance, tax, or securities regulatory authorities; (c) an administrative or
judicial decision in any relevant proceeding; (d) the manner in which the
investments of any Portfolio are being managed; (e) a difference in voting
instructions given by variable annuity contract and variable life insurance
contract owners; or (f) a decision by an insurer to disregard the voting
instructions of contract owners. The Board shall promptly inform the Company if
it determines that an irreconcilable material conflict exists and the
implications thereof.
7.2. The Company will report any potential or existing conflicts
of which it is aware to the Board. The Company will assist the Board in carrying
out its responsibilities under the Shared Funding Exemptive Order, by providing
the Board with all information reasonably necessary for the Board to consider
any issues raised. This includes, but is not limited to, an obligation by the
Company to inform the Board whenever contract owner voting instructions are
disregarded.
7.3. If it is determined by a majority of the Board, or a
majority of its disinterested trustees, that a material irreconcilable conflict
exists, the Company and other Participating Insurance Companies shall, at their
expense and to the extent reasonably practicable (as determined by a majority of
the disinterested trustees), take whatever steps are necessary to remedy or
eliminate the irreconcilable material conflict, up to and including: (1),
withdrawing the assets allocable to some or all of the separate accounts from
the Fund or any Portfolio and reinvesting such assets in a different investment
medium, including (but not limited to) another Portfolio of the Fund, or
submitting the question whether such segregation should be implemented to a vote
of all affected Contract owners and, as appropriate, segregating the assets of
any appropriate group (i.e., annuity contract owners, life insurance contract
owners, or variable contract owners of one or more Participating Insurance
Companies) that votes in favor of such segregation, or offering to the affected
contract owners the option of making such a change; and (2), establishing a new
registered management investment company or managed separate account.
7.4. If a material irreconcilable conflict arises because of a
decision by the Company to disregard contract owner voting instructions and that
decision represents a minority position or would preclude a majority vote, the
Company may be required, at the Fund's election, to withdraw the affected
Account's investment in the Fund and terminate this Agreement with respect to
such Account; provided, however that such withdrawal and termination shall be
limited to the extent required by the foregoing material irreconcilable conflict
as determined by a majority of the disinterested members of the Board. Any such
withdrawal and termination must take place within six (6) months after the Fund
gives written notice that this provision is being implemented, and until the end
of that six month period the Underwriter and Fund shall continue to accept and
implement orders by the Company for the purchase (and redemption) of shares of
the Fund.
7.5. If a material irreconcilable conflict arises because a
particular state insurance regulator's decision applicable to the Company
conflicts with the majority of other state regulators, then the Company will
withdraw the affected Account's investment in the Fund and terminate this
Agreement with respect to such Account within six months after the Board informs
the Company in writing that it has determined that such decision has created an
irreconcilable material conflict; provided, however, that such withdrawal and
termination shall be limited to the extent required by the foregoing material
irreconcilable conflict as determined by a majority of the disinterested members
of the Board. Until the end of the foregoing six month period, the Underwriter
and Fund shall continue to accept and implement orders by the Company for the
purchase (and redemption) of shares of the Fund.
7.6. For purposes of Sections 7.3 through 7.6 of this Agreement,
a majority of the disinterested members of the Board shall determine whether any
proposed action adequately remedies any irreconcilable material conflict, but in
no event will the Fund be required to establish a new funding medium for the
Contracts. The Company shall not be required by Section 7.3 to establish a new
funding medium for the Contracts if an offer to do so has been declined by vote
of a majority of Contract owners materially adversely affected by the
irreconcilable material conflict. In the event that the Board determines that
any proposed action does not adequately remedy any irreconcilable material
conflict, then the Company will withdraw the Account's investment in the Fund
and terminate this Agreement within six (6) months after the Board informs the
Company in writing of the foregoing determination, provided, however, that such
withdrawal and termination shall be limited to the extent required by any such
material irreconcilable conflict as determined by a majority of the
disinterested members of the Board.
7.7. If and to the extent that Rule 6e-2 and Rule 6e-3(T) are
amended, or Rule 6e-3 is adopted, to provide exemptive relief from any provision
of the Act or the rules promulgated thereunder with respect to mixed or shared
funding (as defined in the Shared Funding Exemptive Order) on terms and
conditions materially different from those contained in the Shared Funding
Exemptive Order, then (a) the Fund and/or the Participating Insurance Companies,
as appropriate, shall take such steps as may be necessary to comply with Rules
6e-2 and 6e-3(T), as amended, and Rule 6e-3, as adopted, to the extent such
rules are applicable; and (b) Sections 3.4, 3.5, 7.1, 7.2, 7.3, 7.4, and 7.5 of
this Agreement shall continue in effect only to the extent that terms and
conditions substantially identical to such Sections are contained in such
Rule(s) as so amended or adopted.
ARTICLE VIII. Indemnification
8.1. Indemnification By The Company
8.1(a). The Company agrees to indemnify and hold harmless the
Fund and each trustee of the Board and officers and each person, if any, who
controls the Fund within the meaning of Section 15 of the 1933 Act
(collectively, the "Indemnified Parties" for purposes of this Section 8.1)
against any and all losses, claims, damages, liabilities (including amounts paid
in settlement with the written consent of the Company) or litigation (including
legal and other expenses), to which the Indemnified Parties may become subject
under any statute or regulation, at common law or otherwise, insofar as such
losses, claims, damages, liabilities or expenses (or actions in respect thereof)
or settlements are related to the sale or acquisition of, or investment in, the
Fund's shares or the Contracts and:
(i) arise out of or are based upon any untrue statements
or alleged untrue statements of any material fact contained in
the Registration Statement or prospectus for the Contracts or
contained in the Contracts or sales literature for the Contracts
(or any amendment or supplement to any of the foregoing), or
arise out of or are based upon the omission or the alleged
omission to state therein a material fact required to be stated
therein or necessary to make the statements therein not
misleading, provided that this agreement to indemnify shall not
apply as to any Indemnified Party if such statement or omission
or such alleged statement or omission was made in reliance upon
and in conformity with information furnished to the Company by
or on behalf of the Fund for use in the Registration Statement
or prospectus for the Contracts or in the Contracts or sales
literature (or any amendment or supplement) or otherwise for use
in connection with the sale of the Contracts or Fund shares; or
(ii) arise out of or as a result of statements or
representations (other than statements or representations
contained in the Registration Statement, prospectus or sales
literature of the Fund not supplied by the Company, or persons
under its control) or wrongful conduct of the Company or persons
under its control, with respect to the sale or distribution of
the Contracts or Fund Shares; or
(iii) arise out of any untrue statement or alleged untrue
statement of a material fact contained in a Registration
Statement, prospectus, or sales literature of the Fund or any
amendment thereof or supplement thereto or the omission or
alleged omission to state therein a material fact required to be
stated therein or necessary to make the statements therein not
misleading if such a statement or omission was made in reliance
upon and in conformity with information furnished to the Fund by
or on behalf of the Company; or
(iv) arise as a result of any failure by the Company to
provide the services and furnish the materials under the terms
of this Agreement; or
(v) arise out of or result from any material breach of any
representation and/or warranty made by the Company in this
Agreement or arise out of or result from any other material
breach of this Agreement by the Company;
as limited by and in accordance with the provisions of Sections 8.1(b) and 8.
(c) hereof.
8.1(b). The Company shall not be liable under this
indemnification provision with respect to any losses, claims, damages,
liabilities or litigation incurred or assessed against an Indemnified Party as
such may arise from such Indemnified Party's willful misfeasance, bad faith, or
gross negligence in the performance of such Indemnified Party's duties or by
reason of such Indemnified Party's reckless disregard of obligations or duties
under this Agreement or to the Fund, whichever is applicable.
8.1(c). The Company shall not be liable under this
indemnification provision with respect to any claim made against an Indemnified
Party unless such Indemnified Party shall have notified the Company in writing
within a reasonable time after the summons or other first legal process giving
information of the nature of the claim shall have been served upon such
Indemnified Party (or after such Indemnified Party shall have received notice of
such service on any designated agent), but failure to notify the Company of any
such claim shall not relieve the Company from any liability which it may have to
the Indemnified Party against whom such action is brought otherwise than on
account of this indemnification provision. In case any such action is brought
against the Indemnified Parties, the Company shall be entitled to participate,
at its own expense, in the defense of such action. The Company also shall be
entitled to assume the defense thereof, with counsel satisfactory to the party
named in the action. After notice from the Company to such party of the
Company's election to assume the defense thereof, the Indemnified Party shall
bear the fees and expenses of any additional counsel retained by it, and the
Company will not be liable to such party under this Agreement for any legal or
other expenses subsequently incurred by such party independently in connection
with the defense thereof other than reasonable costs of investigation.
8.1(d). The Indemnified Parties will promptly notify the Company
of the commencement of any litigation or proceedings, or complaints or actions
by regulatory authorities, against them in connection with the issuance or sale
of the Fund Shares or the Contracts or the operation of the Fund.
8.2. Indemnification by the Underwriter
8.2(a). The Underwriter agrees to indemnify and hold harmless
the Company and each of its directors and officers and each person, if any, who
controls the Company within the meaning of Section 15 of the 1933 Act
(collectively, the "Indemnified Parties" for purposes of this Section 8.2)
against any and all losses, claims, damages, liabilities (including amounts paid
in settlement with the written consent of the Underwriter) or litigation
(including legal and other expenses) to which the Indemnified Parties may become
subject under any statute or regulation, at common law or otherwise, insofar as
such losses, claims, damages, liabilities or expenses (or actions in respect
thereof) or settlements are related to the sale or acquisition of, or investment
in, the Fund's shares or the Contracts and:
(i) arise out of or are based upon any untrue statement or alleged untrue
statement of any material fact contained in the Registration Statement or
prospectus or sales literature of the Fund (or any amendment or supplement
to any of the foregoing), or arise out of or are based upon the omission or
the alleged omission to state therein a material fact required to be stated
therein or necessary to make the statements therein not misleading,
provided that this agreement to indemnify shall not apply as to any
Indemnified Party if such statement or omission or such alleged statement
or omission was made in reliance upon and in conformity with information
furnished to the Underwriter or Fund by or on behalf of the Company for use
in the Registration Statement or prospectus for the Fund or in sales
literature (or any amendment or supplement) or otherwise for use in
connection with the sale of the Contracts or Fund shares; or
(ii) arise out of or as a result of statements or representations (other than
statements or representations contained in the Registration Statement,
prospectus or sales literature for the Contracts not supplied by the
Underwriter or persons under its control) or wrongful conduct of the Fund,
Adviser or Underwriter or persons under their control, with respect to the
sale or distribution of the Contracts or Fund shares; or
(iii)arise out of any untrue statement or alleged untrue statement of a material
fact contained in a Registration Statement, prospectus, or sales literature
covering the Contracts, or any amendment thereof or supplement thereto, or
the omission or alleged omission to state therein a material fact required
to be stated therein or necessary to make the statement or statements
therein not misleading, if such statement or omission was made in reliance
upon and in conformity with information furnished to the Company by or on
behalf of the Fund or the Underwriter; or
(iv) arise as a result of any failure by the Fund to provide the services and
furnish the materials under the terms of this Agreement (including a
failure, whether unintentional or in good faith or otherwise, to comply
with the diversification requirements specified in Article VI of this
Agreement); or
(v) arise out of or result from any material breach of any representation
and/or warranty made by the Underwriter in this Agreement or arise out of
or result from any other material breach of this Agreement by the
Underwriter;
as limited by and in accordance with the provisions of Sections 8.2(b) and 8.2
(c) hereof.
8.2(b). The Underwriter shall not be liable under this
indemnification provision with respect to any losses, claims, damages,
liabilities or litigation to which an Indemnified Party would otherwise be
subject by reason of such Indemnified Party's willful misfeasance, bad faith, or
gross negligence in the performance of such Indemnified Party's duties or by
reason of such Indemnified Party's reckless disregard of obligations and duties
under this Agreement or to each Company or the Account, whichever is applicable.
8.2(c). The Underwriter shall not be liable under this
indemnification provision with respect to any claim made against an Indemnified
Party unless such Indemnified Party shall have notified the Underwriter in
writing within a reasonable time after the summons or other first legal process
giving information of the nature of the claim shall have been served upon such
Indemnified Party (or after such Indemnified Party shall have received notice of
such service on any designated agent), but failure to notify the Underwriter of
any such claim shall not relieve the Underwriter from any liability which it may
have to the Indemnified Party against whom such action is brought otherwise than
on account of this indemnification provision. In case any such action is brought
against the Indemnified Parties, the Underwriter will be entitled to
participate, at its own expense, in the defense thereof. The Underwriter also
shall be entitled to assume the defense thereof, with counsel satisfactory to
the party named in the action. After notice from the Underwriter to such party
of the Underwriter's election to assume the defense thereof, the Indemnified
Party shall bear the fees and expenses of any additional counsel retained by it,
and the Underwriter will not be liable to such party under this Agreement for
any legal or other expenses subsequently incurred by such party independently in
connection with the defense thereof other than reasonable costs of
investigation.
8.2(d). The Company agrees promptly to notify the Underwriter of
the commencement of any litigation or proceedings, or complaints or actions by
regulatory authorities, against it or any of its officers or directors in
connection with the issuance or sale of the Contracts or the operation of each
Account.
8.3. Indemnification By the Fund
8.3(a). The Fund agrees to indemnify and hold harmless the
Company, and each of its directors and officers and each person, if any, who
controls the Company within the meaning of Section 15 of the 1933 Act
(collectively, the "Indemnified Parties" for purposes of this Section 8.3)
against any and all losses, claims, damages, liabilities (including amounts paid
in settlement with the written consent of the Fund) or litigation (including
legal and other expenses) to which the Indemnified Parties may become subject
under any statute or regulation, at common law or otherwise, insofar as such
losses, claims, damages, liabilities or expenses (or actions in respect thereof)
or settlements result from the gross negligence, bad faith or willful misconduct
of the Board or any member thereof, are related to the operations of the Fund
and:
(i) arise as a result of any failure by the Fund to
provide the services and furnish the materials under
the terms of this Agreement (including a failure to
comply with the diversification requirements
specified in Article VI of this Agreement);or
(ii) arise out of or result from any material breach of
any representation and/or warranty made by the Fund
in this Agreement or arise out of or result from any
other material breach of this Agreement by the Fund;
as limited by and in accordance with the provisions of Sections 8.3(b) and 8.3
(c) hereof.
8.3(b). The Fund shall not be liable under this indemnification
provision with respect to any losses, claims, damages, liabilities or litigation
incurred or assessed against an Indemnified Party as such may arise from such
Indemnified Party's willful misfeasance, bad faith, or gross negligence in the
performance of such Indemnified Party's duties or by reason of such Indemnified
Party's reckless disregard of obligations and duties under this Agreement or to
the Company, the Fund, the Underwriter or each Account, whichever is applicable.
8.3(c). The Fund shall not be liable under this indemnification
provision with respect to any claim made against an Indemnified Party unless
such Indemnified Party shall have notified the Fund in writing within a
reasonable time after the summons or other first legal process giving
information of the nature of the claim shall have been served upon such
Indemnified Party (or after such Indemnified Party shall have received notice of
such service on any designated agent), but failure to notify the Fund of any
such claim shall not relieve the Fund from any liability which it may have to
the Indemnified Party against whom such action is brought otherwise than on
account of this indemnification provision. In case any such action is brought
against the Indemnified Parties, the Fund will be entitled to participate, at
its own expense, in the defense thereof. The Fund also shall be entitled to
assume the defense thereof, with counsel satisfactory to the party named in the
action. After notice from the Fund to such party of the Fund's election to
assume the defense thereof, the Indemnified Party shall bear the fees and
expenses of any additional counsel retained by it, and the Fund will not be
liable to such party under this Agreement for any legal or other expenses
subsequently incurred by such party independently in connection with the defense
thereof other than reasonable costs of investigation.
8.3(d). The Company and the Underwriter agree promptly to notify
the Fund of the commencement of any litigation or proceedings against it or any
of its respective officers or directors in connection with this Agreement, the
issuance or sale of the Contracts, with respect to the operation of either
Account, or the sale or acquisition of shares of the Fund.
ARTICLE IX. Applicable Law
9.1. This Agreement shall be construed and the provisions hereof
interpreted under and in accordance with the laws of the Commonwealth of
Massachusetts.
9.2. This Agreement shall be subject to the provisions of the
1933, 1934 and 1940 acts, and the rules and regulations and rulings thereunder,
including such exemptions from those statutes, rules and regulations as the
Securities and Exchange Commission may grant (including, but not limited to, the
Shared Funding Exemptive Order) and the terms hereof shall be interpreted and
construed in accordance therewith.
ARTICLE X. Termination
10.1. This Agreement shall continue in full force and effect until
the first to occur of:
(a) termination by any party for any reason by ninety (90)
days' advance written notice delivered to the other
parties; or
(b) termination by the Company by written notice to the Fund
and the Underwriter with respect to any Portfolio based
upon the Company's determination that shares of such
Portfolio are not reasonably available to meet the
requirements of the Contracts; or
(c) termination by the Company by written notice to the Fund
and the Underwriter with respect to any Portfolio in the
event any of the Portfolio's shares are not registered,
issued or sold in accordance with applicable state and/or
federal law or such law precludes the use of such shares
as the underlying investment media of the Contracts issued
or to be issued by the Company; or
(d) termination by the Company by written notice to the Fund
and the Underwriter with respect to any Portfolio in the
event that such Portfolio ceases to qualify as a Regulated
Investment Company under Subchapter M of the Code or under
any successor or similar provision, or if the Company
reasonably believes that the Fund may fail to so qualify;
or
(e) termination by the Company by written notice to the Fund
and the Underwriter with respect to any Portfolio in the
event that such Portfolio fails to meet the
diversification requirements specified in Article VI
hereof or if the company reasonably and in good faith
believes the Portfolio may fail to meet such requirements;
or
(f) termination by either the Fund or the Underwriter by
written notice to the Company, if either one or both of
the Fund or the Underwriter respectively, shall determine,
in their sole judgment exercised in good faith, that the
Company and/or its affiliated companies has suffered a
material adverse change in its business, operations,
financial condition or prospects since the date of this
Agreement or is the subject of material adverse publicity;
or
(g) termination by the Company by written notice to the Fund
and the Underwriter, if the Company shall determine, in
its sole judgment exercised in good faith, that either the
Fund or the Underwriter has suffered a material adverse
change in its business, operations, financial condition or
prospects since the date of this Agreement or is the
subject of material adverse publicity; or
(h) termination by the Fund or the Underwriter by written
notice to the Company, if the Company gives the Fund and
the Underwriter the written notice specified in Section
1.6(b) hereof and at the time such notice was given there
was no notice of termination outstanding under any other
provision of this Agreement; provided, however any
termination under this Section 10.1(h) shall be effective
thirty (30) days after the notice specified in Section
1.6(b) was given.
10.2. Effect of Termination. Notwithstanding any termination of
this Agreement, the Fund and the Underwriter shall at the option of the Company,
continue to make available additional shares of the Fund pursuant to the terms
and conditions of this Agreement, for all Contracts in effect on the effective
date of termination of this Agreement (hereinafter referred to as "Existing
Contracts"). Specifically, without limitation, the owners of the Existing
Contracts shall be permitted to reallocate investments in the Fund, redeem
investments in the Fund and/or invest in the Fund upon the making of additional
purchase payments under the Existing Contracts. The parties agree that this
Section 10.2 shall not apply to any terminations under Article VII and the
effect of such Article VII terminations shall be governed by Article VII of this
Agreement.
10.3 The Company shall not redeem Fund shares attributable to
the Contracts (as opposed to Fund shares attributable to the Company's assets
held in the Account) except (i) as necessary to implement Contract Owner
initiated or approved transactions, or (ii) as required by state and/or federal
laws or regulations or judicial or other legal precedent of general application
(hereinafter referred to as a "Legally Required Redemption") or (iii) as
permitted by an order of the SEC pursuant to Section 26(b) of the 1940 Act. Upon
request, the Company will promptly furnish to the Fund and the Underwriter the
opinion of counsel for the Company (which counsel shall be reasonably
satisfactory to the Fund and the Underwriter) or other evidence satisfactory to
the Fund and the Underwriter to the effect that any redemption pursuant to
clause (ii) above is a Legally Required Redemption. Furthermore, except in cases
where permitted under the terms of the Contracts, the Company shall not prevent
Contract Owners from allocating payments to a Portfolio that was otherwise
available under the Contracts by (i) substituting another fund for the Fund; or
(ii) not offering the Fund under sales of new Contracts; or (iii) any other
legally permissible means, without first giving the Fund or the Underwriter 90
days notice of its intention to do so.
ARTICLE XI. Notices
Any notice shall be sufficiently given when sent by registered
or certified mail, or other method agreed to in writing by the parties, to the
other party at the address of such party set forth below or at such other
address as such party may from time to time specify in writing to the other
party.
If to the Fund:
82 Devonshire Street
Boston, Massachusetts 02109
Attention: Treasurer
<PAGE>
If to the Company:
IDS Life Insurance Company
IDS Tower 10
Minneapolis, MN 55440
Attention: President
With a copy to:
Law Department (Unit 52)
IDS Life Insurance Company
IDS Tower 10
Minneapolis, MN 55440
If to the Underwriter:
82 Devonshire Street
Boston, Massachusetts 02109
Attention: Treasurer
ARTICLE XII. Miscellaneous
12.1 All persons dealing with the Fund must look solely to the
property of the Fund for the enforcement of any claims against the Fund as
neither the Board, officers, agents or shareholders assume any personal
liability for obligations entered into on behalf of the Fund.
12.2 The Fund and the Underwriter acknowledge that the
identities of the customers of the Company or any of its affiliates
(collectively the "Protected Parties" for purposes of this section 12.2) and
information maintained by the Company regarding those customers are the valuable
property of the Protected Parties. The Fund and the Underwriter agree that if
they come into possession of any list or compilation of the identities of or
other information about the Protected Parties' customers, other than such
information as may be independently developed or independently compiled by the
Fund or the Underwriter, the Fund and the Underwriter will hold such information
or property in confidence and refrain from using, disclosing, or distributing
any of such information or other property except: (a) with the Company's prior
written consent; or (b) as required by law or judicial process. In addition,
subject to the requirements of legal process and regulatory authority, each
party hereto shall treat as confidential the names and addresses of the owners
of the Contract and all information reasonably identified as confidential in
writing by any other party hereto and, except as permitted by this Agreement,
shall not disclose, disseminate or utilize such names and addresses and other
confidential information until such time as it may come into the public domain
without the express written consent of the affected party.
12.3 The captions in this Agreement are included for convenience
of reference only and in no way define or delineate any of the provisions hereof
or otherwise affect their construction or effect.
12.4 This Agreement may be executed simultaneously in two or
more counterparts, each of which taken together shall constitute one and the
same instrument.
12.5 If any provision of this Agreement shall be held or made
invalid by a court decision, statute, rule or otherwise, the remainder of the
Agreement shall not be affected thereby.
12.6 Each party hereto shall cooperate with each other party and
all appropriate governmental authorities (including without limitation the SEC,
the NASD and state insurance regulators) and shall permit such authorities
reasonable access to its books and records in connection with any investigation
or inquiry relating to this Agreement or the transactions contemplated hereby.
Notwithstanding the generality of the foregoing, each party hereto further
agrees to furnish the California Insurance Commissioner with any information or
reports in connection with services provided under this Agreement which such
Commissioner may request in order to ascertain whether the insurance operations
of the Company are being conducted in a manner consistent with the California
Insurance Regulations and any other applicable law or regulations.
12.7 The rights, remedies and obligations contained in this
Agreement are cumulative and are in addition to any and all rights, remedies and
obligations, at law or in equity, which the parties hereto are entitled to under
state and federal laws.
12.8. This Agreement or any of the rights and obligations
hereunder may not be assigned by any party without the prior written consent of
all parties hereto; provided, however, that the Underwriter may assign this
Agreement or any rights or obligations hereunder to any affiliate of or company
under common control with the Underwriter, if such assignee is duly licensed and
registered to perform the obligations of the Underwriter under this Agreement.
The Company shall promptly notify the Fund and the Underwriter of any change in
control of the Company.
12.9. The Company shall furnish, or shall cause to be furnished,
to the Fund or its designee copies of the following reports:
(a) the Company's annual statement (prepared under
statutory accounting principles) and annual report
(prepared under generally accepted accounting
principles ("GAAP"), if any), as soon as practical
and in any event within 90 days after the end of
each fiscal year;
(b) the Company's quarterly statements (statutory)
(and GAAP, if any), as soon as practical and in
any event within 45 days after the end of each
quarterly period:
(c) any financial statement, proxy statement, notice
or report of the Company sent to stockholders
and/or policyholders, as soon as practical after
the delivery thereof to stockholders;
(d) any registration statement (without exhibits) and
financial reports of the Company filed with the
Securities and Exchange Commission or any state
insurance regulator, as soon as practical after
the filing thereof;
(e) any other nonconfidential report submitted to the
Company by independent accountants in connection
with any annual, interim or special audit made by
them of the books of the Company, as soon as
practical after the receipt thereof.
<PAGE>
IN WITNESS WHEREOF, each of the parties hereto has caused this
Agreement to be executed in its name and on its behalf by its duly authorized
representative.
IDS LIFE INSURANCE COMPANY ATTEST
By: _________________________ By:_________________________
Pamela J. Moret William A. Stoltzmann
Executive Vice President Secretary
VARIABLE INSURANCE PRODUCTS FUND
By: ________________________
Robert C. Pozen
Senior Vice President
FIDELITY DISTRIBUTORS CORPORATION
By: _______________________
Kevin J. Kelly
Vice President
<PAGE>
Schedule A
Separate Accounts and Associated Contracts
Name of Separate Account and Policy Form Numbers of Contracts
Date Established by Board of Directors Funded By Separate Account
IDS Life Variable Account 10 31043-NQ
(established August 23, 1995) 31044-Q
31045-IRA
31046-NQ
31047-Q
31048-IRA and state variation
thereof
<PAGE>
SCHEDULE B
PROXY VOTING PROCEDURE
The following is a list of procedures and corresponding responsibilities for the
handling of proxies relating to the Fund by the Underwriter, the Fund and the
Company. The defined terms herein shall have the meanings assigned in the
Participation Agreement except that the Company may engage a third party to
perform the functions stated below and the term "Company" shall also include the
department or third party assigned by the Insurance Company to perform the steps
delineated below. Expenses will be borne as stated in the Participation
Agreement.
1. The number of proxy proposals is given to the Company by the Underwriter
as early as possible before the date set by the Fund for the shareholder
meeting to facilitate the establishment of tabulation procedures. At
this time the Underwriter will inform the Company of the Record, Mailing
and Meeting dates. This will be done verbally approximately two months
before meeting.
2. Promptly after the Record Date, the Company will perform a "tape run",
or other activity, which will generate the names, addresses and number
of units which are attributed to each contractowner/policyholder (the
"Customer") as of the Record Date. Allowance should be made for account
adjustments made after this date that could affect the status of the
Customers' accounts as of the Record Date.
Note: The number of proxy statements is determined by the activities
described in Step #2. The Company will use its best efforts to call in
the number of Customers to Fidelity, as soon as possible, but no later
than two weeks after the Record Date.
3. The Fund's Annual Report no longer needs to be sent to each Customer by
the Company either before or together with the Customers' receipt of a
proxy statement. Underwriter will provide the last Annual Report to the
Company pursuant to the terms of Section 3.3 of the Agreement to which
this Schedule relates.
4. The text and format for the Voting Instruction Cards ("Cards" or "Card")
is provided to the Company by the Fund. The Company shall produce and
personalize the Voting Instruction Cards. The Legal Department of the
Underwriter or its affiliate ("Fidelity Legal") must approve the Card
before it is printed. Allow approximately 2-4 business days for printing
information on the Cards. Information commonly found on the Cards
includes:
a. name (legal name as found on account registration)
b. address
c. Fund or account number
d. coding to state number of units
e. individual Card number for use in tracking and verification
of votes (already on Cards as printed by the Fund)
(This and related steps may occur later in the chronological process due to
possible uncertainties relating to the proposals.)
5. During this time, Fidelity Legal will develop, produce, and the Fund
will pay for the Notice of Proxy and the Proxy Statement (one document).
Printed and folded notices and statements will be sent to Company for
insertion into envelopes (envelopes and return envelopes are provided
and paid for by the Insurance Company). Contents of envelope sent to
Customers by Company will include:
a. Voting Instruction Card(s)
b. One proxy notice and statement (one document)
c. return envelope (postage pre-paid by Company) addressed
to the Company or its tabulation agent
d. "urge buckslip" - optional, but recommended. (This is a
small, single sheet of paper that requests Customers to
vote as quickly as possible and that their vote is
important. One copy will be supplied by the Fund.)
e. cover letter - optional, supplied by Company and
reviewed and approved in advance by Fidelity Legal.
6. The above contents should be received by the Company approximately 3-5
business days before mail date. Individual in charge at Company reviews
and approves the contents of the mailing package to ensure correctness
and completeness. Copy of this approval sent to Fidelity Legal.
7. Package mailed by the Company.
* The Fund must allow at least a 15-day solicitation time to the
Company as the shareowner. (A 5-week period is recommended.)
Solicitation time is calculated as calendar days from (but not
including) the meeting, counting backwards.
8. Collection and tabulation of Cards begins. Tabulation usually takes
place in another department or another vendor depending on process used.
An often used procedure is to sort Cards on arrival by proposal into
vote categories of all yes, no, or mixed replies, and to begin data
entry.
Note: Postmarks are not generally needed. A need for postmark information would
be due to an insurance company's internal procedure and has not been required by
Fidelity in the past.
9. Signatures on Card checked against legal name on account registration
which was printed on the Card.
Note: For Example, If the account registration is under "Bertram C. Jones,
Trustee," then that is the exact legal name to be printed on the Card and is the
signature needed on the Card.
10. If Cards are mutilated, or for any reason are illegible or are not
signed properly, they are sent back to Customer with an explanatory
letter, a new Card and return envelope. The mutilated or illegible Card
is disregarded and considered to be not received for purposes of vote
tabulation. Any Cards that have "kicked out" (e.g. mutilated, illegible)
of the procedure are "hand verified," i.e., examined as to why they did
not complete the system. Any questions on those Cards are usually
remedied individually.
11. There are various control procedures used to ensure proper tabulation of
votes and accuracy of that tabulation. The most prevalent is to sort the
Cards as they first arrive into categories depending upon their vote; an
estimate of how the vote is progressing may then be calculated. If the
initial estimates and the actual vote do not coincide, then an internal
audit of that vote should occur.
This may entail a recount.
12. The actual tabulation of votes is done in units which is then converted
to shares. (It is very important that the Fund receives the tabulations
stated in terms of a percentage and the number of shares.) Fidelity
Legal must review and approve tabulation format.
13. Final tabulation in shares is verbally given by the Company to Fidelity
Legal on the morning of the meeting not later than 10:00 a.m. Boston
time. Fidelity Legal may request an earlier deadline if required to
calculate the vote in time for the meeting.
14. A Certification of Mailing and Authorization to Vote Shares will be
required from the Company as well as an original copy of the final vote.
Fidelity Legal will provide a standard form for each Certification.
15. The Company will be required to box and archive the Cards received from
the Customers. In the event that any vote is challenged or if otherwise
necessary for legal, regulatory, or accounting purposes, Fidelity Legal
will be permitted reasonable access to such Cards.
16. All approvals and "signing-off" may be done orally, but must always
be followed up in writing.
<PAGE>
SCHEDULE C
Other investment companies currently available under variable annuities or
variable life insurance issued by the Company and listed on Schedule A:
Policy Form Numbers 31043-NQ; 31044-Q; 31045-IRA; 31046-NQ; 31047-Q; 31048-IRA -
American Express Retirement
Advisor Variable Annuitysm
American Express(R) Variable Portfolio Funds
AXPsm Variable Portfolio - Investment Series, Inc.
AXPsm Variable Portfolio - Managed Series, Inc.
AXPsm Variable Portfolio - Money Market Series, Inc.
AXPsm Variable Portfolio - Income Series, Inc.
AIM Variable Insurance Funds, Inc.
American Century Variable Portfolios, Inc.
Franklin Templeton Variable Insurance Products Trust
Goldman Sachs Variable Insurance Trust
Janus Aspen Series
Lazard Retirement Series, Inc.
Putnam Variable Trust
Royce Capital Fund
Third Avenue Variable Series Trust
Wanger Advisors Trust
Warburg Pincus Trust
<PAGE>
SUB-LICENSE AGREEMENT
Agreement effective as of this __ of _______, 199_, by and between
Fidelity Distributors Corporation (hereinafter called "Fidelity"), a corporation
organized and existing under the laws of the Commonwealth of Massachusetts, with
a principal place of business at 82 Devonshire Street, Boston, Massachusetts,
and IDS Life Insurance Company (hereinafter called "Company"), a company
organized and existing under the laws of the State of Minnesota, with a
principal place of business at Minneapolis, Minnesota.
WHEREAS, FMR Corp., a Massachusetts corporation, the parent company of
Fidelity, is the owner of the trademark and the tradename "FIDELITY INVESTMENTS"
and is the owner of a trademark in a pyramid design (hereinafter, collectively
the "Fidelity Trademarks"), a copy of each of which is attached hereto as
Exhibit "A"; and
WHEREAS, FMR Corp. has granted a license to Fidelity (the "Master
License Agreement") to sub-license the Fidelity Trademarks to third parties for
their use in connection with Promotional Materials as hereinafter defined; and
WHEREAS, Company is desirous of using the Fidelity Trademarks in
connection with distribution of "sales literature and other promotional
material" with information, including the Fidelity Trademarks, printed in said
material (such material hereinafter called the Promotional Material). For the
purpose of this Agreement, "sales literature and other promotional material"
shall have the same meaning as in the certain Participation Agreement dated as
of the __ day of _______, 199_, among Fidelity, Company and Variable Insurance
Products Fund III (hereinafter "Participation Agreement"); and
WHEREAS, Fidelity is desirous of having the Fidelity Trademarks used in
connection with the Promotional Material.
NOW, THEREFORE, in consideration of the foregoing and for other good and
valuable consideration, the receipt and adequacy whereof is hereby acknowledged,
and of the mutual promises hereinafter set forth, the parties hereby agree as
follows:
1. Fidelity hereby grants to Company a non-exclusive, non-transferable
license to use the Fidelity Trademarks in connection with the promotional
distribution of the Promotional Material and Company accepts said license,
subject to the terms and conditions set forth herein.
2. Company acknowledges that FMR Corp. is the owner of all right, title
and interest in the Fidelity Trademarks and agrees that it will do nothing
inconsistent with the ownership of the Fidelity Trademarks by FMR Corp., and
that it will not, now or hereinafter, contest any registration or application
for registration of the Fidelity Trademarks by FMR Corp., nor will it, now or
hereafter, aid anyone in contesting any registration or application for
registration of the Fidelity Trademarks by FMR Corp.
3. Company agrees to use the Fidelity Trademarks only in the form and
manner approved by Fidelity and not to use any other trademark, service mark or
registered trademark in combination with any of the Fidelity Trademarks without
approval by Fidelity.
4. Company agrees that it will place all necessary and proper notices
and legends in order to protect the interests of FMR Corp. and Fidelity therein
pertaining to the Fidelity Trademarks on the Promotional Material including, but
not limited to, symbols indicating trademarks, service marks and registered
trademarks. Company will place such symbols and legends on the Promotional
Material as requested by Fidelity or FMR Corp. upon receipt of notice of same
from Fidelity or FMR Corp.
5. Company agrees that the nature and quality of all of the Promotional
Material distributed by Company bearing the Fidelity Trademarks shall conform to
standards set by, and be under the control of, Fidelity.
6. Company agrees to cooperate with Fidelity in facilitating Fidelity's
control of the use of the Fidelity Trademarks and of the quality of the
Promotional Material to permit reasonable inspection of samples of same by
Fidelity and to supply Fidelity with reasonable quantities of samples of the
Promotional Material upon request.
7. Company shall comply with all applicable laws and regulations and
obtain any and all licenses or other necessary permits pertaining to the
distribution of said Promotional Material.
8. Company agrees to notify Fidelity of any unauthorized use of the
Fidelity Trademarks by others promptly as it comes to the attention of Company.
Fidelity or FMR Corp. shall have the sole right and discretion to commence
actions or other proceedings for infringement, unfair competition or the like
involving the Fidelity Trademarks and Company shall cooperate in any such
proceedings if so requested by Fidelity or FMR Corp.
9. This agreement shall continue in force until terminated by Fidelity.
This agreement shall automatically terminate upon termination of the Master
License Agreement. In addition, Fidelity shall have the right to terminate this
agreement at any time upon notice to Company, with or without cause. Upon any
such termination, Company agrees to cease immediately all use of the Fidelity
Trademarks and shall destroy, at Company's expense, any and all materials in its
possession bearing the Fidelity Trademarks, and agrees that all rights in the
Fidelity Trademarks and in the goodwill connected therewith shall remain the
property of FMR Corp. Unless so terminated by Fidelity, or extended by written
agreement of the parties, this agreement shall expire on the termination of that
certain Participation Agreement.
10. Company shall indemnify Fidelity and FMR Corp. and hold each of them
harmless from and against any loss, damage, liability, cost or expense of any
nature whatsoever, including without limitation, reasonable attorneys' fees and
all court costs, arising out of use of the Fidelity Trademarks by Company.
11. In consideration for the promotion and advertising of Fidelity as a
result of the distribution by Company of the Promotional Material, Company shall
not pay any monies as a royalty to Fidelity for this license.
12. This agreement is not intended in any manner to modify the terms and
conditions of the Participation Agreement. In the event of any conflict between
the terms and conditions herein and thereof, the terms and conditions of the
Participation Agreement shall control.
13. This agreement shall be interpreted according to the laws of the
Commonwealth of Massachusetts.
IN WITNESS WHEREOF, the parties hereunto set their hands and seals, and
hereby execute this agreement, as of the date first above written.
FIDELITY DISTRIBUTORS CORPORATION
By: _____________________ By:______________________
Name:_______________________
Title: _____________________ Title:______________________
ATTEST IDS LIFE INSURANCE COMPANY
By:___________________________ By:_________________________
William A. Stoltzmann Pamela J. Moret
Secretary Executive Vice President
<PAGE>
EXHIBIT A
Int. Cl.: 36
Prior U.S. Cls.: 101 and 102
Reg. No. 1,481,040
United States Patent and Trademark Office Registered Mar. 15, 1988
-------------------------------------------------------------------------------
SERVICE MARK
PRINCIPAL REGISTER
<TABLE>
<CAPTION>
[GRAPHIC OMITTED] Fidelity
Investments
<S> <C>
FMR CORP. (MASSACHUSETTS CORPORATION) FIRST USE 2-22-1984; IN COMMERCE 2-22-1984.
82 DEVONSHIRE STREET
BOSTON, MA 02109, ASSIGNEE OF FIDELITY DISTRIBUTORS NO CLAIM IS MADE TO THE EXCLUSIVE RIGHT TO USE
CORPORATION (MASSACHUSETTS CORPORATION) BOSTON, MA "INVESTMENTS", APART FROM THE MARK AS SHOWN.
02109
SER. NO. 641,707, FILED 1-28-1987
FOR: MUTUAL FUND AND STOCK BROKERAGE SERVICES, IN CLASS
36 (U.S. CLS. 101 AND 102) RUSS HERMAN, EXAMINING ATTORNEY
</TABLE>
September 21, 1999
American Enterprise Life Insurance Company
80 South Eighth Street
P.O. Box 534
Minneapolis, MN 55440-0534
RE: American Enterprise Variable Annuity Account
Pre-Effective Amendment No. 1
File No.: 333-82149/811-7195
Ladies and Gentlemen:
I am familiar with the establishment of the American Enterprise Variable Annuity
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
Group Counsel
Consent of Independent Auditors
We consent to the reference to our firm under the caption "Independent Auditors"
in the Statement of Additional Information and to the use of our report dated
February 4, 1999 with respect to the financial statements of American Enterprise
Life Insurance Company included in Pre-Effective Amendment No. 1 to the
Registration Statement (Form N-4, No. 333-82149) and related Prospectus for the
registration of the American Express Pinnacle Variable Annuity Contracts to be
offered by American Enterprise Life Insurance Company.
/s/ Ernst & Young
Ernst & Young LLP
Minneapolis, Minnesota
September 21, 1999
