SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM N-4
REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933
Pre-Effective Amendment No. ------- [ ]
Post-Effective Amendment No. 5 [X]
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and/or
REGISTRATION STATEMENT UNDER THE INVESTMENT COMPANY ACT OF 1940
Amendment No. 7 (File No. 811-7195) [X]
---------
(Check appropriate box or boxes)
AMERICAN ENTERPRISE VARIABLE ANNUITY ACCOUNT
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(Exact Name of Registrant)
American Enterprise Life Insurance Company
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(Name of Depositor)
829 AXP Financial Center, Minneapolis, MN 55474
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(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, 200 AXP Financial Center, Minneapolis, MN 55474
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(Name and Address of Agent for Service)
It is proposed that this filing will become effective (check appropriate box)
[ ] immediately upon filing pursuant to paragraph (b) of Rule 485
[X] on May 1, 2000 pursuant to paragraph (b) of Rule 485
[ ] 60 days after filing pursuant to paragraph (a)(i) of Rule 485
[ ] on (date) pursuant to paragraph (a)(i) of Rule 485
If appropriate, check the following box:
[ ] this post-effective amendment designates a new effective date for a
previously filed post-effective amendment.
<PAGE>
Prospectus
May 1, 2000
Wells Fargo Advantage(SM) Variable Annuity
INDIVIDUAL OR GROUP FLEXIBLE PREMIUM DEFERRED COMBINATION FIXED/VARIABLE ANNUITY
American Enterprise Variable Annuity Account
Issued by: American Enterprise Life Insurance Company (American Enterprise Life)
829 AXP Financial Center
Minneapolis, MN 55474
Telephone: 1-800-333-3437
This prospectus contains information that you should know before investing. You
also will receive the prospectuses for:
o American Express(R) Variable Portfolio Funds
o AIM Variable Insurance Funds
o The Dreyfus Socially Responsible Growth Fund, Inc.
o Franklin Templeton Variable Insurance Products Trust (FTVIPT)
o Goldman Sachs Variable Insurance Trust (VIT)
o MFS(R) Variable Insurance Trust(SM)
o Putnam Variable Trust - Class IB Shares
o Wells Fargo Variable Trust Funds
Please read the prospectuses carefully and keep them for future reference.
The Securities and Exchange Commission (SEC) has not approved or disapproved
these securities or passed upon the accuracy or adequacy of this prospectus. Any
representation to the contrary is a criminal offense.
An investment in this contract is not a deposit of a bank or financial
institution and is not insured or guaranteed by the Federal Deposit Insurance
Corporation or any other government agency. An investment in this contract
involves investment risk including the possible loss of principal.
A Statement of Additional Information (SAI), dated the same date as this
prospectus, is incorporated by reference into this prospectus. It is filed with
the SEC and is available without charge by contacting American Enterprise Life
at the telephone number above or by completing and sending the order form on the
last page of this prospectus. The table of contents of the SAI is on the last
page of this prospectus.
<PAGE>
Table of Contents
Key Terms 3
The Contract in Brief 5
Expense Summary 7
Condensed Financial Information (Unaudited) 15
Financial Statements 18
Performance Information 18
The Variable Account and the Funds 20
The Fixed Accounts 26
Buying Your Contract 28
Charges 31
Valuing Your Investment 36
Making the Most of Your Contract 38
Withdrawals 44
Changing Ownership 45
Benefits in Case of Death 45
The Annuity Payout Period 49
Taxes 52
Voting Rights 54
Substitution of Investments 55
About the Service Providers 56
Additional Information About American Enterprise Life 57
Directors and Executive Officers 62
Experts 63
American Enterprise Life Insurance Company Financial Information 64
Table of Contents of the Statement of Additional Information 81
<PAGE>
Key Terms
These terms can help you understand details about your contract.
Accumulation unit -- A measure of the value of each subaccount before annuity
payouts begin.
Annuitant -- The person on whose life or life expectancy the annuity payouts are
based.
Annuity payouts -- An amount paid at regular intervals under one of several
plans.
Beneficiary -- The person you designate to receive annuity benefits in case of
the owner's or annuitant's death while the contract is in force and before
annuity payouts begin.
Close of business -- When the New York Stock Exchange (NYSE) closes, normally 4
p.m. Eastern time.
Contract -- a deferred annuity contract, or a certificate showing your interest
under a group annuity contract, that permits you to accumulate money for
retirement by making one or more purchase payments. It provides for lifetime or
other forms of payouts beginning at a specified time in the future.
Contract value -- The total value of your contract before we deduct any
applicable charges.
Contract year -- A period of 12 months, starting on the effective date of your
contract and on each anniversary of the effective date.
Fixed accounts -- The one-year fixed account is an account to which you may
allocate purchase payments. Amounts you allocate to this account earn interest
at rates that we declare periodically. Guarantee Period Accounts are fixed
accounts to which you may also allocate purchase payments. These accounts have
guaranteed interest rates declared for periods ranging from two to ten years.
Withdrawals from these accounts prior to the end of the term specified will
receive a Market Value Adjustment, which may result in a gain or loss of
principal.
Funds -- Investment options under your contract. You may allocate your purchase
payments into subaccounts investing in shares of any or all of these funds.
Guarantee Period -- The number of years that a guaranteed interest rate is
credited.
Market Value Adjustment (MVA) -- A positive or negative adjustment assessed if
any portion of a Guarantee Period Account is withdrawn or transferred prior to
the end of its Guarantee Period.
Owner (you, your) -- The person who controls the contract (decides on investment
allocations, transfers, payout options, etc.). Usually, but not always, the
owner is also the annuitant. The owner is responsible for taxes, regardless of
whether he or she receives the contract's benefits.
<PAGE>
Qualified annuity -- A contract that you purchase to fund one of the following
tax-deferred retirement plans that is subject to applicable federal law and any
rules of the plan itself:
o Individual Retirement Annuities (IRAs) under Section 408(b) of the Internal
Revenue Code of 1986, as amended (the Code)
o Roth IRAs under Section 408A of the Code
o Simplified Employee Pension (SEP) plans under Section 408(k) of the Code
A qualified annuity will not provide any necessary or additional tax deferral if
it is used to fund a retirement plan that is already tax-deferred.
All other contracts are considered nonqualified annuities.
Retirement date -- The date when annuity payouts are scheduled to begin.
Valuation date -- Any normal business day, Monday through Friday, that the NYSE
is open. Each valuation date ends at the close of business. We calculate the
value of each subaccount at the close of business on each valuation date.
Variable account -- Consists of separate subaccounts to which you may allocate
purchase payments; each invests in shares of one fund. The value of your
investment in each subaccount changes with the performance of the particular
fund.
Withdrawal value -- The amount you are entitled to receive if you make a full
withdrawal from your contract. It is the contract value minus any applicable
charges.
<PAGE>
The Contract in Brief
Purpose: The purpose of the contract is to allow you to accumulate money for
retirement. You do this by making one or more purchase payments; you may
allocate your purchase payments to the fixed accounts and/or subaccounts under
the contract. These accounts in turn, may earn returns that increase the value
of the contract. Beginning at a specified time in the future called the
retirement date, the contract provides lifetime or other forms of payouts of
your contract value (less any applicable premium tax). As in the case of other
annuities, it may not be advantageous for you to purchase this contract as a
replacement for, or in addition to, an existing annuity.
A qualified annuity will not provide any necessary or additional tax deferral if
it is used to fund a retirement plan that is tax-deferred. However, the contract
has features other than tax deferral that may make it an appropriate investment
for your retirement plan. You should compare these features and their costs with
other investment options before deciding to purchase this contract.
Free look period: You may return your contract to your sales representative or
to our office within the time stated on the first page of your contract and
receive a full refund of the contract value. However, you bear the investment
risk from the time of purchase until you return the contract; the refund amount
may be more or less than the payment you made. (Exception: If the law requires,
we will refund all of your purchase payments.)
Accounts: Currently, you may allocate your purchase payments among
any or all of:
o the subaccounts, each of which invests in a fund with a particular
investment objective. The value of each subaccount varies with the
performance of the particular fund in which it invests. We cannot guarantee
that the value at the retirement date will equal or exceed the total
purchase payments you allocate to the subaccounts. (p. 20)
o the fixed accounts, which earn interest at rates that we adjust
periodically. Some states restrict the amount you can allocate to these
accounts. (p. 26)
Buying your contract: Your sales representative will help you complete and
submit an application. Applications are subject to acceptance at our office.
Contracts sold through American Express Financial Advisors Inc. (AEFA) are only
available with a seven-year withdrawal charge schedule. You may buy a qualified
annuity or a nonqualified annuity through your AEFA sales representative. You
may be able to buy another contract with the same underlying funds. This
contract has different mortality and expense risk fees and withdrawal charges
and offers purchase payment credits. For information on this contract, please
call us at the telephone number listed on the first page of this prospectus or
ask your sales representative. After your initial purchase payment, you have the
option of making additional purchase payments in the future. (p. 28)
o Minimum initial purchase payment (not including Systematic Investment Plans
(SIPs)) -- $5,000 in Texas, Washington and South Carolina; $2,000 in all
other states.
o Minimum additional purchase payment -- $100 ($50 for SIPs).
o Maximum total purchase payments (without prior approval) -- $99,999 for
contracts sold through AEFA and $1,000,000 for all other contracts.
Transfers: Subject to certain restrictions you currently may redistribute your
money among the accounts without charge at any time until annuity payouts begin,
and once per contract year among the subaccounts after annuity payouts begin.
Transfers out of the Guarantee Period Accounts before the end of the Guarantee
Period will be subject to a MVA. You may establish automated transfers among the
accounts. Fixed account transfers are subject to special restrictions. (p. 39)
<PAGE>
Withdrawals: You may withdraw all or part of your contract value at any time
before the retirement date. You also may establish automated partial
withdrawals. Withdrawals may be subject to charges and tax penalties (including
a 10% IRS penalty if you make withdrawals prior to your reaching age 591/2) and
may have other tax consequences; also, certain restrictions apply. (p. 44)
Changing ownership: You may change ownership of a nonqualified annuity by
written instruction, but this may have federal income tax consequences.
Restrictions apply to changing ownership of a qualified annuity. (p. 45)
Benefits in case of death: If you or the annuitant die before annuity payouts
begin, we will pay the beneficiary an amount at least equal to the contract
value. (p. 45)
Annuity payouts: You can apply your contract value to an annuity payout plan
that begins on the retirement date. You may choose from a variety of plans to
make sure that payouts continue as long as you like. If you purchased a
qualified annuity, the payout schedule must meet the requirements of the
qualified plan. We can make payouts on a fixed or variable basis, or both. Total
monthly payouts may include amounts from each subaccount and the one-year fixed
account. During the annuity payout period, your choices for subaccounts may be
limited. The Guarantee Period Accounts are not available during the payout
period. (p. 49)
Taxes: Generally, your contract grows tax-deferred until you make withdrawals
from it or begin to receive payouts. (Under certain circumstances, IRS penalty
taxes may apply.) Even if you direct payouts to someone else, you will be taxed
on the income if you are the owner. However, Roth IRAs may grow and be
distributed tax free if you meet certain distribution requirements. (p. 52)
Charges: We assess certain charges in connection with your contract (p. 31):
o $30 annual contract administrative charge;
o a 0.15% variable account administrative charge;
o a 1.30% mortality and expense risk fee applies (if you allocate money to
one or more subaccounts) with a five-year withdrawal charge schedule;
o a 1.05% mortality and expense risk fee applies (if you allocate money to
one or more subaccounts) with a seven-year withdrawal charge schedule;
o if you select the Enhanced Death Benefit Rider*, an additional 0.20%
mortality and expense risk fee (if you allocate money to one or more
subaccounts);
o if you select the Guaranteed Minimum Income Benefit Rider**, an annual fee
based on the Guaranteed Income Benefit Base (currently at 0.30%);
o withdrawal charge;
o any premium taxes that may be imposed on us by state or local governments
(currently, we deduct any applicable premium tax when you make a total
withdrawal or when annuity payouts begin, but we reserve the right to
deduct this tax at other times such as when you make purchase payments or
when you make a total withdrawal); and
o the operating expenses of the funds in which the subaccounts invest.
*Available if both you and the annuitant are 79 or younger. May not be available
in all states.
**This rider is only available at the time you purchase your contract if the
annuitant is 75 or younger and you also select the Enhanced Death Benefit Rider
option. Riders may not be available in all states.
<PAGE>
Expense Summary
The purpose of the following information is to help you understand the various
costs and expenses associated with your contract.
You pay no sales charge when you purchase your contract. We show all costs that
we deduct directly from your contract or indirectly from the subaccounts and
funds below. Some expenses may vary as we explain under "Charges." Please see
the funds' prospectuses for more information on the operating expenses of each
fund.
CONTRACT OWNER EXPENSES
Withdrawal charge: contingent deferred sales charge as a percentage of purchase
payment withdrawn. You select either a five-year or seven-year withdrawal charge
schedule* at the time of application.
Five-year schedule Seven-year schedule
Years from purchase Withdrawal charge Years from purchase Withdrawal charge
payment receipt percentage payment receipt percentage
1 8% 1 8%
2 8 2 8
3 6 3 7
4 4 4 6
5 2 5 5
Thereafter 0 6 4
7 2
Thereafter 0
*Contracts sold through AEFA are only available with a seven-year withdrawal
charge schedule.
Withdrawal charge under Annuity Payout Plan E -- Payouts for a specified period:
The amount equal to the difference in the present value of remaining payments
using the assumed investment rate and such present value using the assumed
investment rate plus 1.77% if the original contract had a five-year withdrawal
charge schedule and 1.52% if the original contract had a seven-year withdrawal
charge schedule. In no event would your withdrawal charge exceed 9% of the
amount available for payouts under the plan.
Annual contract administrative charge $30**
**We will waive this charge when your contract value is $50,000 or more on the
current contract anniversary.
Guaranteed Minimum Income Benefit Rider*** fee:
as a percentage of the Guaranteed Income Benefit Base charged
annually. This is an optional expense. 0.30%
***This rider is only available at the time you purchase your contract if the
annuitant is 75 or younger and you also select the Enhanced Death Benefit Rider
option. Riders may not be available in all states.
<PAGE>
ANNUAL VARIABLE ACCOUNT EXPENSES (as a percentage of average subaccount value)
You can choose the length of your contract's withdrawal charge schedule and the
death benefit guarantee provided. The combination you choose determines the fees
you pay. The table below shows the combinations available to you and their cost.
<TABLE>
<CAPTION>
<S> <C> <C>
Five-year withdrawal Seven-year withdrawal
schedule schedule
Variable account administrative charge 0.15% 0.15%
Mortality and expense risk fee 1.30% 1.05%
Enhanced Death Benefit Rider* fee as part of the mortality and
expense risk fee. This is an optional expense. 0.20% 0.20%
Total annual variable account expenses without the optional
Enhanced Death Benefit Rider fee 1.45% 1.20%
Total annual variable account expenses with the optional
Enhanced Death Benefit Rider fee 1.65% 1.40%
*Available if both you and the annuitant are 79 or younger. May not be available
in all states.
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
Annual operating expenses of the funds (after fee waivers and/or expense reimbursements, if applicable, as a percentage
of average daily net assets)
<S> <C> <C> <C> <C>
Management 12b-1 Other
Fees Fees Expenses Total
AXP(SM) Variable Portfolio -
Blue Chip Advantage Fund .56% .13 .26 .95%(1)
Capital Resource Fund .60% .13 .06 .79%(2)
Diversified Equity Income Fund .56% .13 .26 .95%(1)
Extra Income Fund .62% .13 .08 .83%(2)
Federal Income Fund .61% .13 .14 .88%(1)
New Dimensions Fund(R) .61% .13 .07 .81%(2)
Small Cap Advantage Fund .79% .13 .31 1.23%(1)
AIM V.I.
Capital Appreciation Fund .62% -- .11 .73%(3)
Value Fund .61% -- .15 .76%(3)
Dreyfus
The Dreyfus Socially Responsible Growth Fund, Inc. .75% -- .04 .79%(3)
FTVIPT
Franklin Income Securities Fund - Class 2 .48% .25 .02 .75%(4)
Franklin Real Estate Fund - Class 2 .56% .25 .02 .83%(5)
Franklin Small Cap Fund - Class 2 .55% .25 .27 1.07%(6)
Mutual Shares Securities Fund - Class 2 .60% .25 .19 1.04%(4),(7)
Goldman Sachs VIT
CORE(SM) U.S. Equity Fund .70% -- .20 .90%(8)
Global Income Fund .90% -- .25 1.15%(8)
Internet Tollkeeper Fund 1.00% -- .25 1.25%(9)
Mid Cap Value Fund .80% -- .25 1.05%(8)
MFS(R)
Growth with Income Series .75% -- .13 .88%(10)
Utilities Series .75% -- .16 .91%(10)
Putnam Variable Trust
Putnam VT International Growth Fund - Class IB Shares .80% .15 .22 1.17%(3)
Putnam VT Vista Fund - Class IB Shares .65% .15 .10 .90%(3)
Wells Fargo VT
Asset Allocation Fund .42% .25 .33 1.00%(11)
Corporate Bond Fund .10% .25 .55 .90%(11)
Equity Income Fund .38% .25 .37 1.00%(11)
Equity Value Fund --% .25 .75 1.00%(11)
Growth Fund .32% .25 .43 1.00%(11)
Large Company Growth Fund .12% .25 .63 1.00%(11)
Money Market Fund .10% .25 .50 .85%(11)
Small Cap Growth Fund --% .25 .95 1.20%(11)
</TABLE>
<PAGE>
(1) Based on estimated expenses after fee waivers and expense reimbursements.
Without fee waivers and expense reimbursements "Other Expenses" and "Total"
would be 0.39% and 1.08% for AXP(SM) Variable Portfolio - Blue Chip
Advantage and AXP(SM) Variable Portfolio Diversified Equity Income Funds,
0.26% and 1.00% for AXP(SM) Variable Portfolio - Federal Income Fund, and
0.43% and 1.35% for AXP(SM) Variable Portfolio - Small Cap Advantage Fund.
(2) The fund's expense figures are based on actual expenses for the fiscal year
ended Aug. 31, 1999 restated to include a Rule 12b-1 distribution fee of
0.125% that went into effect Sept. 21, 1999.
(3) Figures in "Management Fees," "12b-1 Fees," "Other Expenses" and "Total"
are based on actual expenses for the fiscal year ended Dec. 31, 1999.
(4) The fund's class 2 distribution plan or "Rule 12b-1 plan" is described in
the fund's prospectus. The fund administration fee is paid indirectly
through the management fee.
(5) Previously Franklin Real Estate Securities Fund. The fund's class 2
distribution plan or "Rule 12b-1 plan" is described in the fund's
prospectus. The fund administration fee is paid indirectly through the
management fee.
(6) On Feb. 8, 2000, a merger and reorganization was approved that combined the
assets of the fund with a similar fund of the Templeton Variable Products
Series Fund, effective May 1, 2000. On Feb. 8, 2000, fund shareholders
approved new management fees, which apply to the combined fund effective
May 1, 2000. The table shows restated total expenses based on the new fees
and assets of the fund as of Dec. 31, 1999, and not the assets of the
combined fund. However, if the table reflected both the new fees and the
combined assets, the fund's expenses after May 1, 2000 would be estimated
as: Management Fees 0.55%, 12b-1 Fees 0.25%, Other Expenses 0.27%, and
Total 1.07%. The fund's class 2 distribution plan or "Rule 12b-1 plan" is
described in the fund's prospectus.
(7) On Feb. 8, 2000, a merger and reorganization was approved that combined the
fund with a similar fund of Templeton Variable Products Series Fund,
effective May 1, 2000. The table shows total expenses based on the fund's
assets as of Dec. 31, 1999, and not the assets of the combined fund.
However, if the table reflected combined assets, the fund's expenses after
May 1, 2000 would be estimated as: Management Fees 0.60%, 12b-1 Fees 0.25%,
Other Expenses 0.19% and Total 1.04%. The fund's class 2 distribution plan
or "Rule 12b-1 plan" is described in the fund's prospectus.
(8) The fund's expenses are based on estimated expenses for the fiscal year
Dec. 31, 2000. Goldman Sachs Asset Management and Goldman Sachs Asset
Management International, the investment advisors, have voluntarily agreed
to reduce or limit certain other expenses (excluding management fees,
taxes, interest, brokerage fees, litigation, indemnification and other
extraordinary expenses) to the extent such expenses exceed the percentage
stated in the above table (as calculated per annum) of each fund's
respective average daily net assets. Without the limitations described
above, "Other expenses" and "Total" of the funds would be as follows: 1.78%
and 2.68% for Global Income Fund, 0.42% and 1.22% for Mid Cap Value Fund
(formerly the Mid Cap Equity Fund), and 0.20% and 0.90% for CORE(SM) U.S.
Equity Fund. CORE(SM) is a service mark of Goldman Sachs & Co..
(9) Based on projected assets of $150 million, there will be no expense
reimbursement.
(10) Each series has an expense offset arrangement which reduces the series'
custodian fee based upon the amount of cash maintained by the series with
its custodian and dividend disbursing agent. Each series may enter into
other such arrangements and directed brokerage arrangements, which would
also have the effect of reducing the series' expenses. "Other Expenses" do
not take into account these expense reductions, and are therefore higher
than the actual expenses of the series. Had these fee reductions been taken
into account, "Net Expenses" would be lower for certain series and would
equal: 0.87% for Growth with Income Series and 0.90% for Utilities Series.
(11) Amounts represent expenses as of Dec. 31, 1999 and have been adjusted for
changes in contract rates that occurred during 1999. Expenses are shown
after fee waivers and expense reimbursements. Absent fee waivers
"Management Fees" and "Total" would have been 0.55% and 1.13% for Wells
Fargo VT Asset Allocation, 0.45% and 1.25% for Wells Fargo VT Corporate
Bond Fund, 0.55% and 1.17% for Wells Fargo VT Equity Income Fund, 0.55% and
1.57% for Wells Fargo VT Equity Value Fund, 0.55% and 1.23% for Wells Fargo
VT Growth Fund, 0.55% and 1.43% for Wells Fargo VT Large Company Growth
Fund, 0.40% and 1.15% for Wells Fargo VT Money Market Fund, and 0.75% and
2.41% for Wells Fargo VT Small Cap Growth Fund.
<PAGE>
Examples:*
<TABLE>
<CAPTION>
You would pay the following expenses on a $1,000 investment if you selected a
five-year withdrawal charge schedule without any optional riders and assuming a
5% annual return and .....
no withdrawal or selection
total withdrawal at the of an annuity payout plan at the
end of each time period end of each time period
<S> <C> <C> <C> <C> <C> <C> <C> <C>
1 year 3 years 5 years 10 years 1 year 3 years 5 years 10 years
AXP(SM) Variable Portfolio -
Blue Chip Advantage Fund $105.30 $137.78 $152.89 $283.03 $25.30 $77.78 $132.89 $283.03
Capital Resource Fund 103.66 132.86 144.68 266.68 23.66 72.86 124.68 266.68
Diversified Equity Income Fund 105.30 137.78 152.89 283.03 25.30 77.78 132.89 283.03
Extra Income Fund 104.07 134.09 146.74 270.79 24.07 74.09 126.74 270.79
Federal Income Fund 104.58 135.63 149.31 275.91 24.58 75.63 129.31 275.91
New Dimensions Fund(R) 103.86 133.47 145.71 268.74 23.86 73.47 125.71 268.74
Small Cap Advantage Fund 108.17 146.36 167.12 311.02 28.17 86.36 147.12 311.02
AIM V.I.
Capital Appreciation Fund 103.04 131.01 141.59 260.48 23.04 71.01 121.59 260.48
Value Fund 103.35 131.93 143.14 263.58 23.35 71.93 123.14 263.58
Dreyfus
The Dreyfus Socially Responsible 103.66 132.86 144.68 266.68 23.66 72.86 124.68 266.68
Growth Fund, Inc.
FTVIPT
Franklin Income Securities Fund -
Class 2 103.25 131.62 142.62 262.55 23.25 71.62 122.62 262.55
Franklin Real Estate Fund - Class 2 104.07 134.09 146.74 270.79 24.07 74.09 126.74 270.79
Franklin Small Cap Fund - Class 2 106.53 141.46 159.01 295.12 26.53 81.46 139.01 295.12
Mutual Shares Securities Fund -
Class 2 106.22 140.54 157.48 292.11 26.22 80.54 137.48 292.11
Goldman Sachs VIT
CORE(SM) U.S. Equity Fund 104.78 136.24 150.33 277.94 24.78 76.24 130.33 277.94
Global Income Fund 107.35 143.91 163.07 303.10 27.35 83.91 143.07 303.10
Internet Tollkeeper Fund 108.37 146.97 168.13 312.99 28.37 86.97 148.13 312.99
Mid Cap Value Fund 106.32 140.85 157.99 293.11 26.32 80.85 137.99 293.11
MFS(R)
Growth with Income Series 104.58 135.63 149.31 275.91 24.58 75.63 129.31 275.91
Utilities Series 104.89 136.55 150.84 278.96 24.89 76.55 130.84 278.96
Putnam Variable Trust
Putnam VT International Growth Fund -
Class IB Shares 107.55 144.53 164.09 305.09 27.55 84.53 144.09 305.09
Putnam VT Vista Fund - Class IB Shares 104.78 136.24 150.33 277.94 24.78 76.24 130.33 277.94
Wells Fargo VT
Asset Allocation Fund 105.81 139.32 155.44 288.08 25.81 79.32 135.44 288.08
Corporate Bond Fund 104.78 136.24 150.33 277.94 24.78 76.24 130.33 277.94
Equity Income Fund 105.81 139.32 155.44 288.08 25.81 79.32 135.44 288.08
Equity Value Fund 105.81 139.32 155.44 288.08 25.81 79.32 135.44 288.08
Growth Fund 105.81 139.32 155.44 288.08 25.81 79.32 135.44 288.08
Large Company Growth Fund 105.81 139.32 155.44 288.08 25.81 79.32 135.44 288.08
Money Market Fund 104.27 134.71 147.77 272.84 24.27 74.71 127.77 272.84
Small Cap Growth Fund 107.86 145.44 165.60 308.06 27.86 85.44 145.60 308.06
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
You would pay the following expenses on a $1,000 investment if you selected a
five-year withdrawal charge schedule with the optional 0.20% Enhanced Death
Benefit Rider and the 0.30% Guaranteed Minimum Income Benefit Rider and assuming
a 5% annual return and....
no withdrawal or selection
total withdrawal at the of an annuity payout plan at the
end of each time period end of each time period
<S> <C> <C> <C> <C> <C> <C> <C> <C>
1 year 3 years 5 years 10 years 1 year 3 years 5 years 10 years
AXP(SM) Variable Portfolio -
Blue Chip Advantage Fund $110.50 $153.84 $180.48 $342.72 $30.50 $93.84 $160.48 $342.72
Capital Resource Fund 108.86 148.94 172.34 326.69 28.86 88.94 152.34 326.69
Diversified Equity Income Fund 110.50 153.84 180.48 342.72 30.50 93.84 160.48 342.72
Extra Income Fund 109.27 150.17 174.38 330.72 29.27 90.17 154.38 330.72
Federal Income Fund 109.78 151.70 176.92 335.74 29.78 91.70 156.92 335.74
New Dimensions Fund(R) 109.06 149.55 173.36 328.71 29.06 89.55 153.36 328.71
Small Cap Advantage Fund 113.37 162.39 194.59 370.16 33.37 102.39 174.59 370.16
AIM V.I.
Capital Appreciation Fund 108.24 147.10 169.27 320.62 28.24 87.10 149.27 320.62
Value Fund 108.55 148.02 170.81 323.66 28.55 88.02 150.81 323.66
Dreyfus
The Dreyfus Socially Responsible
Growth Fund, Inc. 108.86 148.94 172.34 326.69 28.86 88.94 152.34 326.69
FTVIPT
Franklin Income Securities Fund -
Class 2108.45 147.71 170.30 322.65 28.45 87.71 150.30 322.65
Franklin Real Estate Fund - Class 2 109.27 150.17 174.38 330.72 29.27 90.17 154.38 330.72
Franklin Small Cap Fund - Class 2 111.73 157.51 186.55 354.57 31.73 97.51 166.55 354.57
Mutual Shares Securities Fund - Class 2 111.42 156.60 185.03 351.62 31.42 96.60 165.03 351.62
Goldman Sachs VIT
CORE(SM) U.S. Equity Fund 109.98 152.31 177.94 337.74 29.98 92.31 157.94 337.74
Global Income Fund 112.55 159.95 190.57 362.40 32.55 99.95 170.57 362.40
Internet Tollkeeper Fund 113.57 162.99 195.59 372.09 33.57 102.99 175.59 372.09
Mid Cap Value Fund 111.52 156.90 185.54 352.61 31.52 96.90 165.54 352.61
MFS(R)
Growth with Income Series 109.78 151.70 176.92 335.74 29.78 91.70 156.92 335.74
Utilities Series 110.09 152.62 178.45 338.74 30.09 92.62 158.45 338.74
Putnam Variable Trust
Putnam VT International Growth Fund -
Class IB Shares 112.75 160.56 191.58 364.34 32.75 100.56 171.58 364.34
Putnam VT Vista Fund - Class IB Shares 109.98 152.31 177.94 337.74 29.98 92.31 157.94 337.74
Wells Fargo VT
Asset Allocation Fund 111.01 155.37 183.01 347.68 31.01 95.37 163.01 347.68
Corporate Bond Fund 109.98 152.31 177.94 337.74 29.98 92.31 157.94 337.74
Equity Income Fund 111.01 155.37 183.01 347.68 31.01 95.37 163.01 347.68
Equity Value Fund 111.01 155.37 183.01 347.68 31.01 95.37 163.01 347.68
Growth Fund 111.01 155.37 183.01 347.68 31.01 95.37 163.01 347.68
Large Company Growth Fund 111.01 155.37 183.01 347.68 31.01 95.37 163.01 347.68
Money Market Fund 109.47 150.78 175.40 332.73 29.47 90.78 155.40 332.73
Small Cap Growth Fund 113.06 161.47 193.08 367.26 33.06 101.47 173.08 367.26
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
You would pay the following expenses on a $1,000 investment if you selected a
seven-year withdrawal charge schedule without any optional riders and assuming a
5% annual return and ....
no withdrawal or selection
total withdrawal at the of an annuity payout plan at the
end of each time period end of each time period
<S> <C> <C> <C> <C> <C> <C> <C> <C>
1 year 3 years 5 years 10 years 1 year 3 years 5 years 10 years
AXP(SM) Variable Portfolio -
Blue Chip Advantage Fund $102.73 $140.08 $170.04 $257.37 $22.73 $70.08 $120.04 $257.37
Capital Resource Fund 101.09 135.13 161.75 240.61 21.09 65.13 111.75 240.61
Diversified Equity Income Fund 102.73 140.08 170.04 257.37 22.73 70.08 120.04 257.37
Extra Income Fund 101.50 136.37 163.83 244.82 21.50 66.37 113.83 244.82
Federal Income Fund 102.02 137.92 166.42 250.07 22.02 67.92 116.42 250.07
New Dimensions Fund(R) 101.30 135.75 162.79 242.72 21.30 65.75 112.79 242.72
Small Cap Advantage Fund 105.60 148.70 184.42 286.06 25.60 78.70 134.42 286.06
AIM V.I.
Capital Appreciation Fund 100.48 133.27 158.62 234.26 20.48 63.27 108.62 234.26
Value Fund 100.79 134.20 160.19 237.44 20.79 64.20 110.19 237.44
Dreyfus
The Dreyfus Socially Responsible
Growth Fund, Inc. 101.09 135.13 161.75 240.61 21.09 65.13 111.75 240.61
FTVIPT
Franklin Income Securities Fund -
Class 2 100.68 133.89 159.67 236.38 20.68 63.89 109.67 236.38
Franklin Real Estate Fund - Class 2 101.50 136.37 163.83 244.82 21.50 66.37 113.83 244.82
Franklin Small Cap Fund - Class 2 103.96 143.78 176.23 269.76 23.96 73.78 126.23 269.76
Mutual Shares Securities Fund - Class 2 103.66 142.86 174.68 266.68 23.66 72.86 124.68 266.68
Goldman Sachs VIT
CORE(SM) U.S. Equity Fund 102.22 138.53 167.46 252.16 22.22 68.53 117.46 252.16
Global Income Fund 104.78 146.24 180.33 277.94 24.78 76.24 130.33 277.94
Internet Tollkeeper Fund 105.81 149.32 185.44 288.08 25.81 79.32 135.44 288.08
Mid Cap Value Fund 103.76 143.17 175.20 267.71 23.76 73.17 125.20 267.71
MFS(R)
Growth with Income Series 102.02 137.92 166.42 250.07 22.02 67.92 116.42 250.07
Utilities Series 102.32 138.84 167.97 253.20 22.32 68.84 117.97 253.20
Putnam Variable Trust
Putman VT International Growth Fund -
Class IB Shares 104.99 146.86 181.36 279.98 24.99 76.86 131.36 279.98
Putnam VT Vista Fund - Class IB Shares 102.22 138.53 167.46 252.16 22.22 68.53 117.46 252.16
Wells Fargo VT
Asset Allocation Fund 103.25 141.62 172.62 262.55 23.25 71.62 122.62 262.55
Corporate Bond Fund 102.22 138.53 167.46 252.16 22.22 68.53 117.46 252.16
Equity Income Fund 103.25 141.62 172.62 262.55 23.25 71.62 122.62 262.55
Equity Value Fund 103.25 141.62 172.62 262.55 23.25 71.62 122.62 262.55
Growth Fund 103.25 141.62 172.62 262.55 23.25 71.62 122.62 262.55
Large Company Growth Fund 103.25 141.62 172.62 262.55 23.25 71.62 122.62 262.55
Money Market Fund 101.71 136.99 164.87 246.92 21.71 66.99 114.87 246.92
Small Cap Growth Fund 105.30 147.78 182.89 283.03 25.30 77.78 132.89 283.03
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
You would pay the following expenses on a $1,000 investment if you selected a
seven-year withdrawal charge schedule with the optional 0.20% Enhanced Death
Benefit Rider and the 0.30% Guaranteed Minimum Income Benefit Rider and assuming
a 5% annual return and....
no withdrawal or selection
total withdrawal at the of an annuity payout plan at the
end of each time period end of each time period
<S> <C> <C> <C> <C> <C> <C> <C> <C>
1 year 3 years 5 years 10 years 1 year 3 years 5 years 10 years
AXP(SM) Variable Portfolio -
Blue Chip Advantage Fund $107.93 $156.17 $197.74 $317.57 $27.93 $86.17 $147.74 $317.57
Capital Resource Fund 106.29 151.25 189.51 301.14 26.29 81.25 139.51 301.14
Diversified Equity Income Fund 107.93 156.17 197.74 317.57 27.93 86.17 147.74 317.57
Extra Income Fund 106.70 152.48 191.57 305.27 26.70 82.48 141.57 305.27
Federal Income Fund 107.22 154.02 194.15 310.41 27.22 84.02 144.15 310.41
New Dimensions Fund(R) 106.50 151.86 190.54 303.20 26.50 81.86 140.54 303.20
Small Cap Advantage Fund 110.80 164.76 212.00 345.70 30.80 94.76 162.00 345.70
AIM V.I.
Capital Appreciation Fund 105.68 149.39 186.41 294.91 25.68 79.39 136.41 294.91
Value Fund 105.99 150.32 187.96 298.03 25.99 80.32 137.96 298.03
Dreyfus
The Dreyfus Socially Responsible
Growth Fund, Inc. 106.29 151.25 189.51 301.14 26.29 81.25 139.51 301.14
FTVIPT
Franklin Income Securities Fund -
Class 2 105.88 150.01 187.45 296.99 25.88 80.01 137.45 296.99
Franklin Real Estate Fund - Class 2 106.70 152.48 191.57 305.27 26.70 82.48 141.57 305.27
Franklin Small Cap Fund - Class 2 109.16 159.86 203.87 329.72 29.16 89.86 153.87 329.72
Mutual Shares Securities Fund - Class 2 108.86 158.94 202.34 326.69 28.86 88.94 152.34 326.69
Goldman Sachs VIT
CORE(SM) U.S. Equity Fund 107.42 154.64 195.17 312.46 27.42 84.64 145.17 312.46
Global Income Fund 109.98 162.31 207.94 337.74 29.98 92.31 157.94 337.74
Internet Tollkeeper Fund 111.01 165.37 213.01 347.68 31.01 95.37 163.01 347.68
Mid Cap Value Fund 108.96 159.25 202.85 327.70 28.96 89.25 152.85 327.70
MFS(R)
Growth with Income Series 107.22 154.02 194.15 310.41 27.22 84.02 144.15 310.41
Utilities Series 107.52 154.94 195.69 313.48 27.52 84.94 145.69 313.48
Putnam Variable Trust
Putnam VT International Growth Fund -
Class IB Shares 110.19 162.93 208.96 339.73 30.19 92.93 158.96 339.73
Putnam VT Vista Fund - Class IB Shares 107.42 154.64 195.17 312.46 27.42 84.64 145.17 312.46
Wells Fargo VT
Asset Allocation Fund 108.45 157.71 200.30 322.65 28.45 87.71 150.30 322.65
Corporate Bond Fund 107.42 154.64 195.17 312.46 27.42 84.64 145.17 312.46
Equity Income Fund 108.45 157.71 200.30 322.65 28.45 87.71 150.30 322.65
Equity Value Fund 108.45 157.71 200.30 322.65 28.45 87.71 150.30 322.65
Growth Fund 108.45 157.71 200.30 322.65 28.45 87.71 150.30 322.65
Large Company Growth Fund 108.45 157.71 200.30 322.65 28.45 87.71 150.30 322.65
Money Market Fund 106.91 153.10 192.60 307.33 26.91 83.10 142.60 307.33
Small Cap Growth Fund 110.50 163.84 210.48 342.72 27.35 93.84 160.48 342.72
</TABLE>
* In these examples, the $30 contract administrative charge is approximated as a
0.068% charge based on our estimated average contract size. Premium taxes
imposed by some state and local governments are not reflected in this table. We
entered into certain arrangements under which we are compensated by the funds'
advisors and/or distributors for the administrative services we provide to the
funds.
You should not consider these examples as representations of past or future
expenses. Actual expenses may be more or less than those shown.
<PAGE>
<TABLE>
<CAPTION>
Condensed Financial Information (Unaudited)
The following tables give per-unit information about the financial history of
each subaccount. We have not provided this information for some subaccounts
because they are new and do not have any history.
<S> <C> <C> <C> <C> <C>
Year ended Dec. 31, 1999 1998 1997 1996 1995
Subaccount ECR(1) (Investing in shares of AXP(SM) Variable Portfolio - Capital Resource Fund)
Accumulation unit value at beginning of period $1.91 $1.56 $1.27 $1.20 $1.00
Accumulation unit value at end of period $2.33 $1.91 $1.56 $1.27 $1.20
Number of accumulation units outstanding at end of period (000 omitted) 5,864 5,163 3,813 2,350 818
Ratio of operating expense to average net assets 1.40% 1.40% 1.40% 1.50% 1.50%
____________________________________________________________________________________________________________________________________
Subaccount EIA(2) (Investing in shares of AXP(SM) Variable Portfolio - Extra Income Fund)
Accumulation unit value at beginning of period $1.00 -- -- -- --
Accumulation unit value at end of period $1.00 -- -- -- --
Number of accumulation units outstanding at end of period (000 omitted) 8 -- -- -- --
Ratio of operating expense to average net assets 1.40% -- -- -- --
____________________________________________________________________________________________________________________________________
Subaccount EGD(3) (Investing in shares of AXP(SM) Variable Portfolio - New Dimensions Fund(R))
Accumulation unit value at beginning of period $1.32 $1.05 $1.00 -- --
Accumulation unit value at end of period $1.72 $1.32 $1.05 -- --
Number of accumulation units outstanding at end of period (000 omitted) 2,141 1,108 69 -- --
Ratio of operating expense to average net assets 1.40% 1.40% 1.40% -- --
____________________________________________________________________________________________________________________________________
Subaccount ECA(2) (Investing in shares of AIM V.I. Capital Appreciation Fund)
Accumulation unit value at beginning of period $1.00 -- -- -- --
Accumulation unit value at end of period $1.43 -- -- -- --
Number of accumulation units outstanding at end of period (000 omitted) 57 -- -- -- --
Ratio of operating expense to average net assets 1.40% -- -- -- --
____________________________________________________________________________________________________________________________________
Subaccount EVA(4) (Investing in shares of AIM V.I. Value Fund)
Accumulation unit value at beginning of period $1.34 $1.03 $1.00 -- --
Accumulation unit value at end of period $1.72 $1.34 $1.03 -- --
Number of accumulation units outstanding at end of period (000 omitted) 5,638 1,779 66 -- --
Ratio of operating expense to average net assets 1.40% 1.40% 1.40% -- --
____________________________________________________________________________________________________________________________________
Subaccount ESR(2) (Investing in shares of The Dreyfus Socially Responsible Growth
Fund, Inc.)
Accumulation unit value at beginning of period $1.00 -- -- -- --
Accumulation unit value at end of period $1.23 -- -- -- --
Number of accumulation units outstanding at end of period (000 omitted) 123 -- -- -- --
Ratio of operating expense to average net assets 1.40% -- -- -- --
<PAGE>
Year ended Dec. 31, 1999 1998 1997 1996 1995
Subaccount ERE(5) (Investing in shares of FTVIPT Franklin Real Estate Fund - Class 2)
Accumulation unit value at beginning of period $1.00 -- -- -- --
Accumulation unit value at end of period $0.97 -- -- -- --
Number of accumulation units outstanding at end of period (000 omitted) 1 -- -- -- --
Ratio of operating expense to average net assets 1.40% -- -- -- --
____________________________________________________________________________________________________________________________________
Subaccount EMU(5) (Investing in shares of FTVIPT Mutual Shares Securities Fund - Class 2)
Accumulation unit value at beginning of period $1.00 -- -- -- --
Accumulation unit value at end of period $1.05 -- -- -- --
Number of accumulation units outstanding at end of period (000 omitted) 31 -- -- -- --
Ratio of operating expense to average net assets 1.40% -- -- -- --
____________________________________________________________________________________________________________________________________
Subaccount JUS(5) (Investing in shares of Goldman Sachs VIT CORE(SM) U.S. Equity Fund)
Accumulation unit value at beginning of period $1.00 -- -- -- --
Accumulation unit value at end of period $1.12 -- -- -- --
Number of accumulation units outstanding at end of period (000 omitted) 480 -- -- -- --
Ratio of operating expense to average net assets 1.40% -- -- -- --
____________________________________________________________________________________________________________________________________
Subaccount JGL(5) (Investing in shares of Goldman Sachs VIT Global Income Fund)
Accumulation unit value at beginning of period $1.00 -- -- -- --
Accumulation unit value at end of period $0.97 -- -- -- --
Number of accumulation units outstanding at end of period (000 omitted) 34 -- -- -- --
Ratio of operating expense to average net assets 1.40% -- -- -- --
____________________________________________________________________________________________________________________________________
Subaccount JMC(6) (Investing in shares of Goldman Sachs VIT Mid Cap Value Fund)
Accumulation unit value at beginning of period $1.00 -- -- -- --
Accumulation unit value at end of period $0.98 -- -- -- --
Number of accumulation units outstanding at end of period (000 omitted) 79 -- -- -- --
Ratio of operating expense to average net assets 1.40% -- -- -- --
____________________________________________________________________________________________________________________________________
Subaccount EUT(5) (Investing in shares of MFS(R) Utilities Series)
Accumulation unit value at beginning of period $1.00 -- -- -- --
Accumulation unit value at end of period $1.20 -- -- -- --
Number of accumulation units outstanding at end of period (000 omitted) 30 -- -- -- --
Ratio of operating expense to average net assets 1.40% -- -- -- --
<PAGE>
Year ended Dec. 31, 1999 1998 1997 1996 1995
Subaccount EPL5 (Investing in shares of Putnam VT International Growth Fund - Class IB Shares)
Accumulation unit value at beginning of period $1.00 -- -- -- --
Accumulation unit value at end of period $1.33 -- -- -- --
Number of accumulation units outstanding at end of period (000 omitted) 347 -- -- -- --
Ratio of operating expense to average net assets 1.40% -- -- -- --
____________________________________________________________________________________________________________________________________
Subaccount EPT(2) (Investing in shares of Putnam VT Vista Fund - Class IB Shares)
Accumulation unit value at beginning of period $1.00 -- -- -- --
Accumulation unit value at end of period $1.48 -- -- -- --
Number of accumulation units outstanding at end of period (000 omitted) 1 -- -- -- --
Ratio of operating expense to average net assets 1.40% -- -- -- --
</TABLE>
(1) Operations commenced on Feb. 21, 1995.
(2) Operations commenced on Aug. 26, 1999.
(3) Operations commenced on Oct. 29, 1997.
(4) Operations commenced on Oct. 30, 1997.
(5) Operations commenced on Sept. 22, 1999.
(6) Operations commenced on Oct. 4, 1999
<PAGE>
Financial Statements
You can find the audited financial statements of the subaccounts with financial
history in the SAI. The SAI does not include the audited financial statements
for some of the subaccounts because they are new and do not have any assets. You
can find our audited financial statements later in this prospectus.
Performance Information
Performance information for the subaccounts may appear from time to time in
advertisements or sales literature. This information reflects the performance of
a hypothetical investment in a particular subaccount during a specified time
period. We show actual performance from the date the subaccounts began investing
in the funds. For some subaccounts, we do not provide any performance
information because they are new and have not had any activity to date. We also
show performance from the commencement date of the funds as if the contract
existed at that time, which it did not. Although we base performance figures on
historical earnings, past performance does not guarantee future results.
We include non-recurring charges (such as withdrawal charges) in total return
figures, but not in yield quotations. Excluding non-recurring charges in yield
calculations increases the reported value.
Total return figures reflect deduction of all applicable charges, including the:
o contract administrative charge,
o variable account administrative charge,
o Enhanced Death Benefit Rider fee*,
o Guaranteed Minimum Income Benefit Rider** fee,
o mortality and expense risk fee, and
o withdrawal charge (assuming a withdrawal at the end of the illustrated
period).
*Available if both you and the annuitant are 79 or younger. May not be available
in all states.
**This rider is only available at the time you purchase your contract if the
annuitant is 75 or younger and you also select the Enhanced Death Benefit Rider
option. Riders may not be available in all states.
We also show optional total return quotations that do not reflect deduction of
the withdrawal charge (assuming no withdrawal), the Enhanced Death Benefit Rider
fee and the Guaranteed Minimum Income Benefit Rider fee. We may show total
return quotations by means of schedules, charts or graphs.
Average annual total return is the average annual compounded rate of return of
the investment over a period of one, five and ten years (or up to the life of
the subaccount if it is less than ten years old).
Cumulative total return is the cumulative change in the value of an investment
over a specified time period. We assume that income earned by the investment is
reinvested. Cumulative total return generally will be higher than average annual
total return.
Annualized simple yield (for subaccounts investing in money market funds)
"annualizes" the income generated by the investment over a given seven-day
period. That is, we assume the amount of income generated by the investment
during the period will be generated each seven-day period for a year. We show
this as a percentage of the investment.
Annualized compound yield (for subaccounts investing in money market funds) is
calculated like simple yield except that we assume the income is reinvested when
we annualize it. Compound yield will be higher than the simple yield because of
the compounding effect of the assumed reinvestment.
<PAGE>
Annualized yield (for subaccounts investing in income funds) divides the net
investment income (income less expenses) for each accumulation unit during a
given 30-day period by the value of the unit on the last day of the period. We
then convert the result to an annual percentage.
You should consider performance information in light of the investment
objectives, policies, characteristics and quality of the fund in which the
subaccount invests and the market conditions during the specified time period.
Advertised yields and total return figures include charges that reduce
advertised performance. Therefore, you should not compare subaccount performance
to that of mutual funds that sell their shares directly to the public. (See the
SAI for a further description of methods used to determine total return and
yield.)
If you would like additional information about actual performance, please
contact us at the address or telephone number on the first page of this
prospectus.
<PAGE>
The Variable Account and the Funds
<TABLE>
<CAPTION>
You may allocate payments to any or all of the subaccounts of the variable
account that invest in shares of the following funds:
<S> <C> <C> <C>
____________________________________________________________________________________________________________________________________
Subaccount Investing In Investment Objectives and Policies Investment Advisor or Manager
____________________________________________________________________________________________________________________________________
WBCA2 AXP(SM) Variable Portfolio - Objective: long-term total return exceeding IDS Life Insurance
WBCA4 Blue Chip Advantage Fund exceeding that of the U.S. stock market. Company (IDS Life),
WBCA5 Invests primarily in common stocks of investment manager;
WBCA7 companies included in the unmanaged S&P American Express
500 Index. Financial Corporation (AEFC),
investment advisor.
ECR AXP(SM) Variable Portfolio - Objective: capital appreciation. Invests IDS Life, investment
WCAR2 Capital Resource Fund primarily in U.S. common stocks and other manager; AEFC, investment
WCAR4 securities convertible into common stocks. advisor.
WCAR7
WDEI2 AXP(SM) Variable Portfolio - Objective: a high level of current income IDS Life, investment
WDE14 Diversified Equity Income Fund and, as a secondary goal, steady growth of manager; AEFC, investment
WDE15 capital. Invests primarily in advisor.
WDE17 dividend-paying common and preferred stocks
EIA AXP(SM) Variable Portfolio - Objective: high current income, with IDS Life, investment
WEXI2 Extra Income Fund capital growth as a secondary objective. manager; AEFC, investment
WEXI4 Invests primarily in high-yielding, advisor.
WEXI7 high-risk corporate bonds issued by U.S.
and foreign companies and governments.
WFDI2 AXP(SM) Variable Portfolio - Objective: a high level of current income IDS Life, investment
WFDI4 Federal Income Fund and safety of principal consistent with an manager; AEFC, investment
WFDI5 investment in U.S. government and advisor.
WFDI7 government agency securities. Invests
primarily in debt obligations issued or
guaranteed as to principal and interest by
the U.S. government, its agencies or
instrumentalities.
EGD AXP(SM) Variable Portfolio - Objective: long-term growth of capital. IDS Life, investment
WNDM2 New Dimensions Fund(R) Invests primarily in common stocks of U.S. manager; AEFC, investment
WNDM4 and foreign companies showing potential advisor.
WNDM7 for significant growth.
<PAGE>
____________________________________________________________________________________________________________________________________
Subaccount Investing In Investment Objectives and Policies Investment Advisor or Manager
____________________________________________________________________________________________________________________________________
WSCA2 AXP(SM) Variable Portfolio - Objective: long-term capital growth. IDS Life, investment
WSCA4 Small Cap Advantage Fund Invests primarily in equity stocks of manager; AEFC, investment
WSCA5 small companies that are often included in advisor; Kenwood Capital
WSCA7 the S&P SmallCap 600 Index or the Russell Management LLC,
2000 Index. sub-investment advisor.
ECA AIM V.I. Capital Objective: growth of capital. Invests A I M Advisors, Inc.
WCAP2 Appreciation Fund primarily in common stocks, with emphasis
WCAP4 on medium- and small-sized growth companies.
WCAP7
EVA AIM V.I. Value Fund Objective: long-term growth of capital A I M Advisors, Inc.
WVAL2 with income as a secondary objective.
WVAL4 Invests primarily in equity securities
WVAL7 judged to be undervalued relative to the
investment advisor's appraisal of the current
or projected earnings of the companies
issuing the securities, or relative to current
market values of assets owned by the companies
issuing the securities, or relative to
the equity market generally.
ESR The Dreyfus Socially Objective: capital growth, with current The Dreyfus Corporation,
WSRG2 Responsible Growth Fund, Inc. income as a secondary objective. Invests investment advisor; NCM
WSRG4 primarily in the common stock of companies Capital Management Group,
WSRG7 that, in the opinion of the fund's Inc., sub-investment
management, meet traditional investment advisor.
standards and conduct their business in a
manner that contributes to the enhancement
of the quality of life in America.
WISE2 FTVIPT Franklin Income Objective: maximize income while Franklin Advisers, Inc.
WISE4 Securities Fund - Class 2 maintaining prospects for capital
WISE5 appreciation. Invests primarily in a
WISE7 diversified portfolio of debt and equity
securities, including high yield,
lower-rated "junk bonds."
ERE FTVIPT Franklin Real Estate Objective: capital appreciation with a Franklin Advisers, Inc.
WRES2 Fund Class 2 (previously secondary goal to earn current income.
WRES4 Franklin Real Estate Invests primarily in securities of
WRES7 Securities Fund) companies operating in the real estate
industry, primarily equity real estate
investment trusts (REITS).
WSMC2 FTVIPT Franklin Small Cap Objective: long-term capital growth. Franklin Advisers, Inc.
WSMC4 Fund - Class 2 Invests primarily in equity securities of
WSMC5 U.S. small capitalization (small cap)
WSMC7 growth companies.
<PAGE>
____________________________________________________________________________________________________________________________________
Subaccount Investing In Investment Objectives and Policies Investment Advisor or Manager
____________________________________________________________________________________________________________________________________
EMU FTVIPT Mutual Shares Objective: capital appreciation with Franklin Mutual Advisers, LLC
WMSI2 Securities Fund - Class 2 income as a secondary goal. Invests
WMSI4 primarily in equity securities of companies
WMSI4 that the manager believes are available at
market prices less than their value based on
certain recognized or objective criteria
(intrinsic value).
JUS Goldman Sachs VIT CORE(SM) Objective: long-term growth of capital and Goldman Sachs Asset
WUSE2 U.S. Equity Fund dividend income. Primarily invests in a Management
WUSE4 broadly diversified portfolio of large-cap
WUSE7 and blue chip equity securities representing
all major sectors of the U.S. economy.
JGL Goldman Sachs VIT Global Objective: high total return, emphasizing Goldman Sachs Asset
WGLI2 Income Fund current income, and, to a lesser extent, Management International
WGLI4 providing opportunities for capital
WGLI7 appreciation. Invests primarily in a
portfolio of high quality fixed-income
securities of U.S. and foreign issuers and
enters into transactions in foreign
currencies.
WITO2 Goldman Sachs VIT Internet Objective: long-term growth of capital. Goldman Sachs Asset
WITO4 Tollkeeper Fund Invests primarily in equity securities of Management
WIT05 companies that the Investment Advisor
WIT07 believes will benefit from the growth of the
Internet by providing access, infrastructure,
content and services to Internet companies
and customers.
JMC Goldman Sachs VIT Mid Cap Objective: long-term capital appreciation. Goldman Sachs Asset
WMCE2 Value Fund Invests primarily in mid-capitalization Management
WMCE4 companies within the range of the market
WMCE7 capitalization of companies consituting the
Russell Mid Cap Value Index at the time
of investment.
WGIS2 MFS(R) Growth with Income Objective: reasonable current income and MFS Investment Management(R)
WGIS4 Series long-term growth of capital and income.
WGIS5 Invests primarily in common stocks and
WGIS7 related securities, such as preferred stocks,
convertible securities and depositary
receipts for those securities.
<PAGE>
____________________________________________________________________________________________________________________________________
Subaccount Investing In Investment Objectives and Policies Investment Advisor or Manager
____________________________________________________________________________________________________________________________________
EUT MFS(R) Utilities Series Objective: capital growth and current MFS Investment
WUTS2 income. Invests primarily in equity and Management(R)
WUTS4 debt securities of domestic and foreign
WUTS7 companies in the utilities industry.
EPL Putnam VT International Growth Objective: capital appreciation. Invests Putnam Investment
WIGR2 Fund - Class IB Shares primarily in equity securities of Management, Inc.
WIGR4 companies located in a country other than
WIGR7 the U.S.
EPT Putnam VT Vista Fund - Class Objective: capital appreciation. Invests Putnam Investment
WVIS2 IB Shares primarily in a diversified portfolio of Management, Inc.
WVIS4 common stocks that Putnam Management
WVIS7 believes have above-average potential for
capital appreciation
WAAL2 Wells Fargo VT Asset Objective: long-term total return, Wells Fargo Bank, N.A.,
WAAL4 Allocation Fund consistent with reasonable risk. Invests advisor; Barclays Global
WAAL5 primarily in the securities of various Fund Advisors,
WAAL7 indexes to replicate the total return of sub-advisor.
the index. We use an asset allocation
model to allocate and reallocate assets
among common stocks (S&P 500 Index), U.S.
Treasury bonds (Lehman Brothers 20+ Bond
Index)and money market instruments, assuming
a "normal" allocation of 60% stocks and 40%
bonds.
WCBD2 Wells Fargo VT Corporate Bond Objective: high level of current income Wells Fargo Bank, N.A.,
WCBD4 Fund consistent with reasonable risk. Invests advisor; Wells Capital
WCBD5 primarily in corporate debt securities of Management Incorporated,
WCBD7 any maturity. sub-advisor.
<PAGE>
____________________________________________________________________________________________________________________________________
Subaccount Investing In Investment Objectives and Policies Investment Advisor or Manager
____________________________________________________________________________________________________________________________________
WEQI2 Wells Fargo VT Equity Income Objective: long-term capital appreciation Wells Fargo Bank, N.A.,
WEQI4 Fund and above-average dividend income. advisor; Wells Capital
WEQI5 Invests primarily in common stock of Management Incorporated,
WEQI7 large, high-quality domestic companies sub-advisor.
with above-average return potential and
above-average dividend income.
WEQV2 Wells Fargo VT Equity Value Objective: long-term capital appreciation. Wells Fargo Bank, N.A.,
WEQV4 Fund Invests primarily in equity advisor; Wells Capital
WEQV5 securities that we believe are undervalued Management Incorporated,
WEQV7 in relation to the overall stock markets. sub-advisor.
WGRO2 Wells Fargo VT Growth Fund Objective: long-term capital appreciation. Wells Fargo Bank, N.A.,
WGRO4 Invests primarily in common stocks and advisor; Wells Capital
WGRO5 other equity securities. We look for Management Incorporated,
WGRO7 companies that have a strong earnings sub-advisor.
growth trend that we believe have
above-average prospects for future growth.
WLCG2 Wells Fargo VT Large Company Objective: long-term capital appreciation. Wells Fargo Bank, N.A.,
WLCG4 Growth Fund Invests primarily in common stock of advisor; Peregrine
WLCG5 large, high-quality domestic companies Capital Management, Inc.,
WLCG7 that the Advisor believes have superior sub-advisor.
growth potential.
WMMK2 Wells Fargo VT Money Market Objective: current income, while Wells Fargo Bank, N.A.,
WMMK4 Fund preserving capital and liquidity. Invests advisor; Wells Capital
WMMK5 primarily in high-quality, U.S. Management Incorporated,
WMMK7 dollar-denominated money market sub-advisor.
instruments, including debt obligations.
WSCG2 Wells Fargo VT Small Cap Objective: long-term capital appreciation. Wells Fargo Bank, N.A.,
WSCG4 Growth Fund Invests primarily in common stocks issued advisor; Wells Capital
WSCG5 by companies whose market capitalization Management Incorporated,
WSCG7 falls within the range of the Russell sub-advisor.
2000 Index, which is considered a small
capitalization index.
</TABLE>
The investment objectives and policies of some of the funds are similar to the
investment objectives and policies of other mutual funds that an investment
advisor or its affiliates manage. Although the objectives and policies may be
similar, each fund will have its own portfolio holdings and its own fees and
expenses. Accordingly, each fund will have its own investment results, and those
results may differ significantly from other funds with similar investment
objectives and policies.
The investment managers and advisors cannot guarantee that the funds will meet
their investment objectives. Please read the funds' prospectuses for facts you
should know before investing. These prospectuses also are available by
contacting us at the address or telephone number on the first page of this
prospectus.
All funds are available to serve as the underlying investments for variable
annuities. Some funds also are available to serve as investment options for
variable life insurance policies and tax-deferred retirement plans. It is
possible that in the future, it may be disadvantageous for variable annuity
accounts and variable life insurance accounts and/or tax-deferred retirement
plans to invest in the available funds simultaneously.
<PAGE>
Although the insurance company and the funds do not currently foresee any such
disadvantages, the boards of directors or trustees of the appropriate funds will
monitor events in order to identify any material conflicts between annuity
owners, policy owners and tax-deferred retirement plans and to determine what
action, if any, should be taken in response to a conflict. If a board were to
conclude that it should establish separate funds for the variable annuity,
variable life insurance and tax-deferred retirement plan accounts, you would not
bear any expenses associated with establishing separate funds. Please refer to
the funds' prospectuses for risk disclosure regarding simultaneous investments
by variable annuity, variable life insurance and tax-deferred retirement plan
accounts.
The Internal Revenue Service (IRS) issued final regulations relating to the
diversification requirements under Section 817(h) of the Code. Each fund intends
to comply with these requirements.
The variable account was established under Indiana law on July 15, 1987, and the
subaccounts are registered together as a single unit investment trust under the
Investment Company Act of 1940 (the 1940 Act). This registration does not
involve any supervision of our management or investment practices and policies
by the SEC. All obligations arising under the contracts are general obligations
of American Enterprise Life.
The variable account meets the definition of a separate account under federal
securities laws. We credit or charge income, capital gains and capital losses of
each subaccount only to that subaccount. State insurance law prohibits us from
charging a subaccount with liabilities of any other subaccount or of our general
business. The variable account includes other subaccounts that are available
under contracts that are not described in this prospectus.
The U.S. Treasury and the IRS indicated that they may provide additional
guidance on investment control. This concerns how many variable subaccounts an
insurance company may offer and how many exchanges among subaccounts it may
allow before the contract owner would be currently taxed on income earned within
subaccount assets. At this time, we do not know what the additional guidance
will be or when action will be taken. We reserve the right to modify the
contract, as necessary, so that the owner will not be subject to current
taxation as the owner of the subaccount assets.
We intend to comply with all federal tax laws so that the contract continues to
qualify as an annuity for federal income tax purposes. We reserve the right to
modify the contract as necessary to comply with any new tax laws.
<PAGE>
The Fixed Accounts
GUARANTEE PERIOD ACCOUNTS
You may allocate purchase payments to one or more of the Guarantee Period
Accounts with Guarantee Periods ranging from two to ten years. These accounts
are not available in all states and are not offered after annuity payouts begin.
Some states also restrict the amount you can allocate to these accounts. Each
Guarantee Period Account pays an interest rate that is declared when you
allocate money to that account. That interest rate is then fixed for the
Guarantee Period that you chose. We will periodically change the declared
interest rate for any future allocations to these accounts, but we will not
change the rate paid on money currently in a Guarantee Period Account.
The interest rates that we will declare as guaranteed rates in the future are
determined by us at our discretion. We will determine these rates based on
various factors including, but not limited to, the interest rate environment,
returns available on investments backing these annuities, product design,
competition and American Enterprise Life's revenues and other expenses.
You may transfer money out of the Guarantee Period Accounts within 30 days
before the end of the Guarantee Period without receiving a MVA (see "Market
Value Adjustment (MVA)" below.) At that time you may choose to start a new
Guarantee Period of the same length, transfer the money to another Guarantee
Period Account, transfer the money to any of the subaccounts, or withdraw the
money from the contract (subject to applicable withdrawal provisions). If we do
not receive any instructions at the end of your Guarantee Period, we will
automatically transfer the money into the one-year fixed account.
We hold amounts you allocate to the Guarantee Period Accounts in a "nonunitized"
separate account we have established under the Indiana Insurance Code. This
separate account provides an additional measure of assurance that we will make
full payment of amounts due under the Guarantee Period Accounts. State insurance
law prohibits us from charging this separate account with liabilities of any
other separate account or of our general business. We own the assets of this
separate account as well as any favorable investment performance of those
assets. You do not participate in the performance of the assets held in this
separate account. We guarantee all benefits relating to your value in the
Guarantee Period Accounts.
We intend to construct and manage the investment portfolio relating to the
separate account using a strategy known as "immunization." Immunization seeks to
lock in a defined return on the pool of assets versus the pool of liabilities
over a specified time horizon. Since the return on the assets versus the
liabilities is locked in, it is "immune" to any potential fluctuations in
interest rates during the given time. We achieve immunization by constructing a
portfolio of assets with a price sensitivity to interest rate changes (i.e.,
price duration) that is essentially equal to the price duration of the
corresponding portfolio of liabilities. Portfolio immunization provides us with
flexibility and efficiency in creating and managing the asset portfolio, while
still assuring safety and soundness for funding liability obligations.
We must invest this portfolio of assets in accordance with requirements
established by applicable state laws regarding the nature and quality of
investments that life insurance companies may make and the percentage of their
assets that they may commit to any particular type of investment. Our investment
strategy will incorporate the use of a variety of debt instruments having price
durations tending to match the applicable Guarantee Periods. These instruments
include, but are not necessarily limited to, the following:
o Securities issued by the U.S. government or its agencies or
instrumentalities, which issues may or may not be guaranteed by the U.S.
government;
o Debt securities that have an investment grade, at the time of purchase,
within the four highest grades assigned by any of three nationally
recognized rating agencies -- Standard & Poor's, Moody's Investors Service
or Duff and Phelp's -- or are rated in the two highest grades by the
National Association of Insurance Commissioners;
<PAGE>
o Other debt instruments which are unrated or rated below investment grade,
limited to 10% of assets at the time of purchase; and
o Real estate mortgages, limited to 45% of portfolio assets at the time of
acquisition.
In addition, options and futures contracts on fixed income securities will be
used from time to time to achieve and maintain appropriate investment and
liquidity characteristics on the overall asset portfolio.
While this information generally describes our investment strategy, we are not
obligated to follow any particular strategy except as may be required by federal
law and Indiana and other state insurance laws.
MARKET VALUE ADJUSTMENT (MVA)
You may choose to transfer or withdraw money out of the Guarantee Period
Accounts prior to the end of the Guarantee Period. The amount transferred or
withdrawn will receive a MVA which will increase or decrease the actual amount
transferred or withdrawn. We calculate the MVA using the formula shown below and
we base it on the current level of interest rates compared to the rate of your
Guarantee Period Account.
Amount transferred x ( l + i ) n/12
( l + j + .001 )
Where: i = rate earned in the account from which funds
are being transferred
j = current rate for a new Guarantee Period equal
to the remaining term in the current
Guarantee Period
n = number of months remaining in the current
Guarantee Period (rounded up)
We will not make MVAs for amounts withdrawn for withdrawal charges, the annual
contract administrative charge or paid out as a death claim. We also will not
make MVAs on automatic transfers from the two-year Guarantee Period Account. We
determine any applicable withdrawal charges based on the market value adjusted
withdrawals. In some states, the MVA is limited.
THE ONE-YEAR FIXED ACCOUNT
You may also allocate purchase payments to the one-year fixed account. Some
states restrict the amount you can allocate to this account. We back the
principal and interest guarantees relating to the one-year fixed account. The
value of the one-year fixed account increases as we credit interest to the
account. Purchase payments and transfers to the one-year fixed account become
part of our general account. We credit interest daily and compound it annually.
We will change the interest rates from time to time at our discretion. These
rates will be based on various factors including, but not limited to, the
interest rate environment, returns earned on investments backing these
annuities, the rates currently in effect for new and existing company annuities,
product design, competition, and the company's revenues and expenses.
Interest in the one-year fixed account is not required to be registered with the
SEC. However, the Market Value Adjustment interests under the contracts are
registered with the SEC. The SEC staff does not review the disclosures in this
prospectus on the one-year fixed account (but the SEC does review the
disclosures in this prospectus on the Market Value Adjustment interests).
Disclosures regarding the one-year fixed account, however, may be subject to
certain generally applicable provisions of the federal securities laws relating
to the accuracy and completeness of statements made in prospectuses. (See
"Making the Most of Your Contract -- Transfer policies" for restrictions on
transfers involving the one-year fixed account.)
<PAGE>
Buying Your Contract
You can fill out an application and send it along with your initial purchase
payment to our office. As the owner, you have all rights and may receive all
benefits under the contract. You may buy a qualified annuity or a nonqualified
annuity through your AEFAsales representative. You may be able to buy another
contract with the same underlying funds. this contract has different mortality
and expense risk fees and withdrawal charges and offers purchase payment
credits. For information on this contract, please call us at the telephone
number listed on the first page of this prospectus or ask your sales
representative.
You can own a nonqualified annuity in joint tenancy with rights of survivorship
only in spousal situations. You cannot own a qualified annuity in joint tenancy.
You can buy a contract or become an annuitant if you are 85 or younger. (The age
limit may be younger for qualified annuities in some states.)
When you apply, you may select:
o the length of the withdrawal charge period (five or seven years)*;
o the optional Enhanced Death Benefit Rider**;
o the optional Guaranteed Minimum Income Benefit Rider***;
o the one-year fixed account, Guarantee Period Accounts and/or subaccounts in
which you want to invest****;
o how you want to make purchase payments; and
o a beneficiary.
* Contracts sold through AEFA are only available with a seven-year withdrawal
charge schedule.
** Available if both you and the annuitant are 79 or younger. May not be
available in all states.
*** This rider is only available at the time you purchase your contract if the
annuitant is 75 or younger and you also select the Enhanced Death Benefit
Rider option. Riders may not be available in all states.
****Some states restrict the amount you can allocate to these accounts.
The contract provides for allocation of purchase payments to the subaccounts of
the variable account and/or to the fixed accounts in even 1% increments.
If your application is complete, we will process it and apply your purchase
payment to the fixed accounts and subaccounts you selected within two business
days after we receive it at our office. If we accept your application, we will
send you a contract. If we cannot accept your application within five business
days, we will decline it and return your payment. We will credit additional
purchase payments you make to your accounts on the valuation date we receive
them. We will value the additional payments at the next accumulation unit value
calculated after we receive your payments at our office.
You may make monthly payments to your contract under a Systematic Investment
Plan (SIP). To begin the SIP, you will complete and send a form and your first
SIP payment along with your application. There is no charge for SIP. You can
stop your SIP payments at any time.
In most states, you may make additional purchase payments to nonqualified and
qualified annuities until the retirement date.
<PAGE>
THE RETIREMENT DATE
Annuity payouts are scheduled to begin on the retirement date. When we process
your application, we will establish the retirement date to the maximum age or
date described below. You can also select a date within the maximum limits. You
can align this date with your actual retirement from a job, or it can be a
different future date, depending on your needs and goals and on certain
restrictions. You also can change the date, provided you send us written
instructions at least 30 days before annuity payouts begin.
For nonqualified annuities and Roth IRAs, the retirement date must be:
o no earlier than the 60th day after the contract's effective date; and
o no later than the annuitant's 85th birthday or the tenth contract
anniversary, if purchased after age 75.
For qualified annuities (except Roth IRAs), to avoid IRS penalty taxes, the
retirement date generally must be:
o on or after the date the annuitant reaches age 591/2; and
o for IRAs and SEPs, by April 1 of the year following the calendar year when
the annuitant reaches age 701/2.
If you take the minimum IRA distribution as required by the Code from another
tax-qualified investment, or in the form of partial withdrawals from this
contract, annuity payouts can start as late as the annuitant's 85th birthday or
the tenth contract anniversary, if later.
BENEFICIARY
We will pay your named beneficiary the death benefit if it becomes payable
before the retirement date (while the contract is in force and before annuity
payouts begin). If there is no named beneficiary, then you or your estate will
be the beneficiary. (See "Benefits in Case of Death" for more about
beneficiaries.)
PURCHASE PAYMENTS
Minimum initial purchase payment (not including SIPs):
$5,000 in Texas, Washington and
South Carolina
$2,000 in all other states
Minimum additional purchase payments:
If paying by SIP*: If paying by any other method:
$50 $100
*Payments made using SIP must total $2,000 before you can make partial
withdrawals.
Maximum total allowable purchase payments**
(without prior approval): $99,999 for contracts sold
through AEFA
$1,000,000 for all other contracts
**This limit applies in total to all American Enterprise Life annuities you
own. We reserve the right to increase the maximum limit. For qualified
annuities, the tax-deferred retirement plan's limits on annual contributions
also apply.
<PAGE>
HOW TO MAKE PURCHASE PAYMENTS
1 By letter:
Send your check along with your name and contract number to:
American Enterprise Life Insurance Company
829 AXP Financial Center
Minneapolis, MN 55474
2 By SIP:
Contact your sales representative to complete the necessary SIP paperwork.
<PAGE>
Charges
CONTRACT ADMINISTRATIVE CHARGE
We charge this fee for establishing and maintaining your records. We deduct $30
from the contract value on your contract anniversary at the end of each contract
year. We prorate this charge among the subaccounts and the fixed accounts in the
same proportion your interest in each account bears to your total contract
value.
We will waive this charge when your contract value is $50,000 or more on the
current contract anniversary.
If you take a full withdrawal from your contract, we will deduct this charge at
the time of withdrawal regardless of the contract value. We cannot increase the
annual contract administrative charge and it does not apply after annuity
payouts begin or when we pay death benefits.
VARIABLE ACCOUNT ADMINISTRATIVE CHARGE
We apply this charge daily to the subaccounts. It is reflected in the unit
values of your subaccounts and it totals 0.15% of their average daily net assets
on an annual basis. It covers certain administrative and operating expenses of
the subaccounts such as accounting, legal and data processing fees and expenses
involved in the preparation and distribution of reports and prospectuses. We
cannot increase the variable account administrative charge.
MORTALITY AND EXPENSE RISK FEE
We charge this fee daily to the subaccounts. The unit values of your subaccounts
reflect this fee. For contracts with a five-year withdrawal charge schedule,
this fee totals 1.30% of their average daily net assets on an annual basis. For
contracts with a seven-year withdrawal charge schedule, this fee totals 1.05% of
their average daily net assets on an annual basis. This fee covers the mortality
and expense risk that we assume. Approximately two-thirds of this amount is for
our assumption of mortality risk, and one-third is for our assumption of expense
risk. If you choose the optional Enhanced Death Benefit Rider, we will charge an
additional 0.20% of the average daily net assets on annual basis (see "Enhanced
Death Benefit Rider fee" below.) These fees do not apply to the fixed accounts.
We cannot increase these fees.
Mortality risk arises because of our guarantee to pay a death benefit and our
guarantee to make annuity payouts according to the terms of the contract, no
matter how long a specific annuitant lives and no matter how long our entire
group of annuitants live. If, as a group, annuitants outlive the life expectancy
we assumed in our actuarial tables, then we must take money from our general
assets to meet our obligations. If, as a group, annuitants do not live as long
as expected, we could profit from the mortality risk fee.
Expense risk arises because we cannot increase the contract administrative
charge or the variable account administrative charge and these charges may not
cover our expenses. We would have to make up any deficit from our general
assets. We could profit from the expense risk fee if future expenses are less
than expected.
<PAGE>
The subaccounts pay us the mortality and expense risk fee they accrued as
follows:
o first, to the extent possible, the subaccounts pay this fee from any
dividends distributed from the funds in which they invest;
o then, if necessary, the funds redeem shares to cover any remaining fees
payable.
We may use any profits we realize from the subaccounts' payment to us of the
mortality and expense risk fee for any proper corporate purpose, including,
among others, payment of distribution (selling) expenses. We do not expect that
the withdrawal charge, discussed in the following paragraphs, will cover sales
and distribution expenses.
ENHANCED DEATH BENEFIT RIDER FEE
We charge a fee for this optional feature only if you choose this option. If
selected, we apply this fee daily to the subaccounts as part of the mortality
and expense risk fee. It is reflected in the unit values of the subaccounts and
it totals 0.20% of their average daily net assets on an annual basis. We cannot
increase the Enhanced Death Benefit Rider fee.
GUARANTEED MINIMUM INCOME BENEFIT RIDER FEE
We charge a fee based on the Guaranteed Income Benefit Base for this optional
feature only if you choose this option. If selected, we deduct the fee
(currently 0.30%) from the contract value on your contract anniversary at the
end of each contract year. We prorate this fee among the subaccounts and fixed
accounts in the same proportion your interest in each account bears to your
total contract value.
We apply the fee on an adjusted benefit base calculated as the result of (a) +
(b) - (c), where:
(a) is the Guaranteed Income Benefit Base,
(b) is the adjusted transfers from the subaccounts to the fixed accounts made in
the last six months, and
(c) is the total contract value in the fixed accounts.
The result of (b) minus (c) cannot be greater than zero. It allows us to base
the charge largely on the subaccounts, and not on the fixed accounts.
We will deduct the fee, adjusted for the number of calendar days coverage was in
place if the contract is terminated for any reason or when annuity payouts
begin. We cannot increase the Guaranteed Minimum Income Benefit Rider fee after
the rider effective date and it does not apply after annuity payouts begin. We
can increase the Guaranteed Minimum Income Benefit Rider fee on new contracts up
to a maximum of 0.75%.
<PAGE>
WITHDRAWAL CHARGE
If you withdraw all or part of your contract, you may be subject to a withdrawal
charge. A withdrawal charge applies if all or part of the withdrawal amount is
from purchase payments we received within five or seven years before withdrawal.
You select the withdrawal charge period at the time of your application for the
contract. The withdrawal charge percentages that apply to you are shown in your
contract. In addition, amounts withdrawn from a Guarantee Period Account prior
to the end of the applicable Guarantee Period will be subject to a MVA. (See
"The Fixed Accounts -- Market Value Adjustment (MVA).")
For purposes of calculating any withdrawal charge, we treat amounts withdrawn
from your contract value in the following order:
1. First, in each contract year, we withdraw amounts totaling up to 15% of
your prior anniversary contract value. (We consider your initial purchase
payment to be the prior anniversary contract value during the first
contract year.) We do not assess a withdrawal charge on this amount.
2. Next, we withdraw contract earnings, if any, that are greater than the
annual 15% free withdrawal amount described in number one above. Contract
earnings equal contract value less purchase payments received and not
previously withdrawn. We do not assess a withdrawal charge on contract
earnings.
NOTE:We determine contract earnings by looking at the entire contract value,
not the earnings of any particular subaccount or the fixed accounts.
3. Next we withdraw purchase payments received prior to the withdrawal charge
period you selected and shown in your contract. We do not assess a
withdrawal charge on these purchase payments.
4. Finally, if necessary, we withdraw purchase payments received that are
still within the withdrawal charge period you selected and shown in your
contract. We withdraw these payments on a first-in, first-out (FIFO) basis.
We do assess a withdrawal charge on these payments.
We determine your withdrawal charge by multiplying each of your payments
withdrawn by the applicable withdrawal charge percentage, and then adding the
total withdrawal charges.
The withdrawal charge percentage depends on the number of years since you made
the payments that are withdrawn, depending on the schedule you selected:
Five-year schedule Seven-year schedule
Years from purchase Withdrawal charge Years from purchase Withdrawal charge
payment receipt percentage payment receipt percentage
1 8% 1 8%
2 8 2 8
3 6 3 7
4 4 4 6
5 2 5 5
Thereafter 0 6 4
7 2
Thereafter 0
<PAGE>
For a partial withdrawal that is subject to a withdrawal charge, the amount
deducted for the withdrawal charge will be a percentage of the total amount
withdrawn. We will deduct the charge from the value remaining after we pay you
the amount you requested. Example: Assume you request a withdrawal of $1,000 and
there is a 7% withdrawal charge. The withdrawal charge is $75.26 for a total
withdrawal amount of $1,075.26. This charge represents 7% of the total amount
withdrawn and we deduct it from the contract value remaining after we pay you
the $1,000 you requested. If you make a full withdrawal of your contract, we
also will deduct the applicable contract administrative charge.
Withdrawal charge under Annuity Payout Plan E -- Payouts for a specified period.
Under this payout plan, you can choose to take a withdrawal. The amount that you
can withdraw is the present value of any remaining variable payouts. If the
original contract had a five-year withdrawal charge schedule, the discount rate
we use in the calculation will be 5.27% if the assumed investment rate is 3.5%
and 6.77% if the assumed investment rate is 5%. If the original contract had a
seven-year withdrawal charge schedule, the discount rate we use in the
calculation will be 5.02% if the assumed investment rate is 3.5% and 6.52% if
the assumed investment rate is 5%. The withdrawal charge is equal to the
difference in discount values using the above discount rates and the assumed
investment rate. In no event would your withdrawal charge exceed 9% of the
amount available for payouts under the plan.
Withdrawal charge calculation example:
The following is an example of the calculation we would make to determine the
withdrawal charge on a contract with a seven-year withdrawal charge schedule
with this history:
o The contract date is Nov. 1, 2000 with a contract year of Nov. 1 through
Oct. 30 and with an anniversary date of Nov. 1 each year; and
o We received these payments
-- $10,000 Nov. 1, 2000;
-- $8,000 Dec. 31, 2006; and
-- $6,000 Feb. 20, 2008; and
o The owner withdraws the contract for its total withdrawal value of $38,101
on Aug. 5, 2010 and had not made any other withdrawals during that contract
year; and
o The prior anniversary Nov. 1, 2009 contract value was $38,488.
Withdrawal Charge Explanation
$0 $5,773.20 is 15% of the prior anniversary contract value
withdrawn without withdrawal charge; and
0 $8,327.80 is contract earnings in excess of the 15% free
withdrawal amount withdrawn without withdrawal charge; and
0 $10,000 Nov.1, 2000 payment was received eight or more
years before withdrawal and is withdrawn without withdrawal
charge; and
480 $8,000 Dec. 31, 2006 payment is in its fourth year from
receipt, withdrawn with a 6% withdrawal charge; and
420 $6,000 Feb. 20, 2008 payment is in its third year from
receipt withdrawn with a 7% withdrawal charge.
_______________
$900
<PAGE>
Waiver of withdrawal charges
We do not assess withdrawal charges for:
o withdrawals of any contract earnings;
o withdrawals of amounts totaling up to 15% of your prior contract
anniversary contract value to the extent it exceeds contract earnings;
o required minimum distributions from a qualified annuity (for those amounts
required to be distributed from the contract described in this prospectus);
o contracts settled using an annuity payout plan;
o withdrawals made as a result of one of the "Contingent events" described
below to the extent permitted by state law (see your contract for
additional conditions and restrictions);
o amounts we refund to you during the free look period; and
o death benefits.
Contingent events
o Withdrawals you make if you or the annuitant are confined to a hospital or
nursing home and have been for the prior 60 days. Your contract will
include this provision when the owner and annuitant are under age 76 on the
date we issue the contract. You must provide proof satisfactory to us of
the confinement as of the date you request the withdrawal.
o To the extent permitted by state law, withdrawals you make if you or the
annuitant are diagnosed in the second or later contract years as disabled
with a medical condition that with reasonable medical certainty will result
in death within 12 months or less from the date of the licensed physician's
statement. You must provide us with a licensed physician's statement
containing the terminal illness diagnosis and the date the terminal illness
was initially diagnosed.
o Withdrawals you make if you or the annuitant become disabled within the
meaning of IRC Section 72(m)(7) after your contract date. The disabled
person must also be receiving Social Security disability or state long term
disability benefits. The disabled person must be age 70 or younger at the
time of withdrawal. You must provide us with a signed letter from the
disabled person stating that he or she meets the above criteria, a legible
photocopy of Social Security disability or state long term disability
benefit payments and the application for such payments.
o Withdrawals you make once a year if you or the annuitant become unemployed
at least one year after your contract's date, up to the following amounts
each year:
(a) 25% of your prior anniversary contract value (or $10,000 if greater)
if the unemployment condition is met for at least 30 straight days; or
(b) 50% of your prior anniversary contract value (or $10,000 if greater)
if the unemployment condition is met for at least 180 straight days.
The unemployment condition is met if the unemployed person is currently
receiving unemployment compensation from a government unit of the United States,
whether federal or state. You must provide us with a signed letter from the
unemployed person stating that he or she meets the above criteria and a legible
photocopy of the unemployment payment benefits meeting the above criteria with
regard to dates.
<PAGE>
Possible group reductions: In some cases we may incur lower sales and
administrative expenses due to the size of the group, the average contribution
and the use of group enrollment procedures. In such cases, we may be able to
reduce or eliminate the contract administrative and withdrawal charges. However,
we expect this to occur infrequently.
PREMIUM TAXES
Certain state and local governments impose premium taxes on us (up to 3.5%).
These taxes depend upon your state of residence or the state in which the
contract was sold. Currently, we deduct any applicable premium taxes when
annuity payouts begin, but we reserve the right to deduct this tax at other
times such as when you make purchase payments or when you make a full withdrawal
from your contract.
Valuing Your Investment
We value your accounts as follows:
FIXED ACCOUNTS
We value the amounts you allocated to the fixed accounts directly in dollars.
The value of a fixed account equals:
o the sum of your purchase payments and transfer amounts allocated to the
one-year fixed account and the Guarantee Period Accounts;
o plus interest credited;
o minus the sum of amounts withdrawn after any applicable MVA (including any
applicable withdrawal charges) and amounts transferred out;
o minus any prorated contract administrative charge; and
o minus any prorated portion of the Guaranteed Minimum Income Benefit Rider
fee (if applicable).
SUBACCOUNTS
We convert amounts you allocated to the subaccounts into accumulation units.
Each time you make a purchase payment or transfer amounts into one of the
subaccounts, we credit a certain number of accumulation units to your contract
for that subaccount. Conversely, each time you take a partial withdrawal,
transfer amounts out of a subaccount, or we assess a contract administrative
charge or the Guaranteed Minimum Income Benefit Rider fee, we subtract a certain
number of accumulation units from your contract.
The accumulation units are the true measure of investment value in each
subaccount during the accumulation period. They are related to, but not the same
as, the net asset value of the fund in which the subaccount invests. The dollar
value of each accumulation unit can rise or fall daily depending on the variable
account expenses, performance of the fund and on certain fund expenses.
Here is how we calculate accumulation unit values:
Number of units: to calculate the number of accumulation units for a particular
subaccount, we divide your investment by the current accumulation unit value.
<PAGE>
Accumulation unit value: the current accumulation unit value for each subaccount
equals the last value times the subaccount's current net investment factor.
We determine the net investment factor by:
o adding the fund's current net asset value per share, plus the per share
amount of any accrued income or capital gain dividends to obtain a current
adjusted net asset value per share; then
o dividing that sum by the previous adjusted net asset value per share; and
o subtracting the percentage factor representing the mortality and expense
risk fee, the variable account administrative charge and the Enhanced Death
Benefit Rider fee (if selected) from the result.
Because the net asset value of the fund may fluctuate, the accumulation unit
value may increase or decrease. You bear all the investment risk in a
subaccount.
Factors that affect subaccount accumulation units: accumulation units may change
in two ways -- in number and in value.
The number of accumulation units you own may fluctuate due to:
o additional purchase payments you allocate to the subaccounts;
o transfers into or out of the subaccounts;
o partial withdrawals;
o withdrawal charges;
o prorated portions of the contract administrative charge; and/or
o prorated portions of the Guaranteed Minimum Income Benefit Rider fee (if
selected).
Accumulation unit values will fluctuate due to:
o changes in funds' net asset value;
o dividends distributed to the subaccounts;
o capital gains or losses of funds;
o fund operating expenses; and/or
o mortality and expense risk fee, the variable account administrative charge
and the Enhanced Death Benefit Rider fee (if selected).
<PAGE>
Making the Most of Your Contract
AUTOMATED DOLLAR-COST AVERAGING
Currently, you can use automated transfers to take advantage of dollar-cost
averaging (investing a fixed amount at regular intervals). For example, you
might transfer a set amount monthly from a relatively conservative subaccount to
a more aggressive one, or to several others, or from the one-year fixed account
or the two-year Guarantee Period Account to one or more subaccounts. The three
to ten year Guarantee Period Accounts are not available for automated transfers.
You also can obtain the benefits of dollar-cost averaging by setting up regular
automatic SIP payments. There is no charge for dollar-cost averaging.
This systematic approach can help you benefit from fluctuations in accumulation
unit values caused by fluctuations in the market values of the funds. Since you
invest the same amount each period, you automatically acquire more units when
the market value falls and fewer units when it rises. The potential effect is to
lower your average cost per unit.
How dollar-cost averaging works
Month Amount Accumulation Number of units
invested unit value purchased
By investing an
equal number of Jan $100 $20 5.00
dollars each month...
Feb 100 18 5.56
Mar 100 17 5.88
You automatically Apr 100 15 6.67
buy more units
when the per unit May 100 16 6.25
market price is low...
Jun 100 18 5.56
Jul 100 17 5.88
Aug 100 19 5.26
and fewer units Sep 100 21 4.76
when the per unit
market price is high. Oct 100 20 5.00
You paid an average price of only $17.91 per unit over the 10 months, while the
average market price actually was $18.10.
Dollar-cost averaging does not guarantee that any subaccount will gain in value
nor will it protect against a decline in value if market prices fall. Because
dollar-cost averaging involves continuous investing, your success will depend
upon your willingness to continue to invest regularly through periods of low
price levels. Dollar-cost averaging can be an effective way to help meet your
long-term goals. For specific features contact your sales representative.
<PAGE>
ASSET REBALANCING
You can ask us in writing to automatically rebalance the subaccount portion of
your contract value either quarterly, semi-annually or annually. The period you
select will start to run on the date we record your request. On the first
valuation date of each of these periods, we automatically will rebalance your
contract value so that the value in each subaccount matches your current
subaccount percentage allocations. These percentage allocations must be in whole
numbers. Asset rebalancing does not apply to the fixed accounts. There is no
charge for asset rebalancing. The contract value must be at least $2,000.
You can change your percentage allocations or your rebalancing period at any
time by contacting us in writing. We will restart the rebalancing period you
selected as of the date we record your change. You also can ask us in writing to
stop rebalancing your contract value. You must allow 30 days for us to change
any instructions that currently are in place. For more information on asset
rebalancing, contact your sales representative.
TRANSFERRING MONEY BETWEEN ACCOUNTS
You may transfer money from any one subaccount, or the fixed accounts, to
another subaccount before annuity payouts begin. (Certain restrictions apply to
transfers involving the one-year fixed account.) We will process your transfer
on the valuation date we receive your request. We will value your transfer at
the next accumulation unit value calculated after we receive your request. There
is no charge for transfers. Before making a transfer, you should consider the
risks involved in switching investments. Transfers out of the Guarantee Period
Accounts will be subject to a MVA if done more than 30 days before the end of
the Guarantee Period.
We may suspend or modify transfer privileges at any time. Excessive trading
activity can disrupt fund management strategy and increase expenses, which are
borne by all contract owners who allocated purchase payments to the fund
regardless of their transfer activity. We may apply modifications or
restrictions in any reasonable manner to prevent transfers we believe will
disadvantage other contract owners.
These modifications could include, but not be limited to:
o requiring a minimum time period between each transfer;
o not accepting transfer requests of an agent acting under power of attorney
on behalf of more than one contract owner; or
o limiting the dollar amount that a contract owner may transfer at any one
time.
For information on transfers after annuity payouts begin, see "Transfer
policies" below.
Transfer policies
o Before annuity payouts begin, you may transfer contract values between the
subaccounts, or from the subaccounts to the fixed accounts at any time.
However, if you made a transfer from the one-year fixed account to the
subaccounts, you may not make a transfer from any subaccount back to the
one-year fixed account for six months following that transfer.
o You may transfer contract values from the one-year fixed account to the
subaccounts or the Guarantee Period Accounts once a year on or within 30
days before or after the contract anniversary (except for automated
transfers, which can be set up at any time for certain transfer periods
subject to certain minimums). Transfers from the one-year fixed account are
not subject to a MVA.
o You may transfer contract values from the Guarantee Period Accounts at any
time. Transfers made before the end of the Guarantee Period will receive a
MVA, which may result in a gain or loss of contract value.
o If we receive your request on or within 30 days before or after the
contract anniversary date, the transfer from the one-year fixed account to
the subaccounts or the Guarantee Period Accounts will be effective on the
valuation date we receive it.
o We will not accept requests for transfers from the one-year fixed account
at any other time.
o Once annuity payouts begin, you may not make transfers to or from the
one-year fixed account, but you may make transfers once per contract year
among the subaccounts. During the annuity payout period, we reserve the
right to limit the number of subaccounts in which you may invest.
o Once annuity payouts begin, you may not make any transfers to the Guarantee
Period Accounts.
<PAGE>
HOW TO REQUEST A TRANSFER OR WITHDRAWAL
1 By letter:
Send your name, contract number, Social Security Number or Taxpayer
Identification Number and signed request for a transfer or withdrawal to:
American Enterprise Life Insurance Company
829 AXP Financial Center
Minneapolis, MN 55474
Minimum amount
Transfers or withdrawals: $500 or entire account balance
Maximum amount
Transfers or withdrawals: Contract value or entire account balance
2 By automated transfers and automated partial withdrawals:
Your sales representative can help you set up automated transfers or partial
withdrawals among your subaccounts or fixed accounts.
You can start or stop this service by written request or other method acceptable
to us. You must allow 30 days for us to change any instructions that are
currently in place.
o Automated transfers from the one-year fixed account to any one of the
subaccounts may not exceed an amount that, if continued, would deplete the
one-year fixed account within 12 months.
o Automated withdrawals may be restricted by applicable law under some
contracts.
o You may not make additional purchase payments if automated partial
withdrawals are in effect.
o Automated partial withdrawals may result in IRS taxes and penalties on all
or part of the amount withdrawn.
Minimum amount
Transfers or withdrawals: $100 monthly
$250 quarterly, semi-annually or annually
<PAGE>
3 By phone:
Call between 8 a.m. and 6 p.m. Central time:
1-800-333-3437
Minimum amount
Transfers or withdrawals: $500 or entire account balance
Maximum amount
Transfers: Contract value or entire account balance
Withdrawals: $25,000
We answer telephone requests promptly, but you may experience delays when the
call volume is unusually high. If you are unable to get through, use the mail
procedure as an alternative.
We will honor any telephone transfer or withdrawal requests that we believe are
authentic and we will use reasonable procedures to confirm that they are. This
includes asking identifying questions and tape recording calls. We will not
allow a telephone withdrawal within 30 days of a phoned-in address change. As
long as we follow the procedures, we (and our affiliates) will not be liable for
any loss resulting from fraudulent requests.
Telephone transfers and withdrawals are automatically available. You may request
that telephone transfers and withdrawals not be authorized from your account by
writing to us.
GUARANTEED MINIMUM INCOME BENEFIT RIDER
An optional Guaranteed Minimum Income Benefit Rider may be available in many
jurisdictions for a separate annual charge, (see "Charges -- Guaranteed Minimum
Income Rider fee"). The rider guarantees a minimum amount of fixed annuity
lifetime income during the annuity payout period if your contract has been in
force for at least ten years, subject to the conditions described below. The
rider also provides you the option of variable annuity payouts, with a
guaranteed minimum initial payment. This rider is only available at the time you
purchase your contract if you also select the Enhanced Death Benefit Rider
option.
In some instances, we may allow you to add this rider if it was not available
when you initially purchased your contract. In these instances, we would add
this rider at the next contract anniversary and all conditions of the rider
would use this date as the effective date.
This rider does not create contract value or guarantee the performance of any
investment option. Fixed annuity payouts under the terms of this rider will
occur at the guaranteed annuity purchase rates stated in the contract. We base
first year payments from the variable annuity payout option offered under this
rider on the same factors as the fixed annuity payout option. We base subsequent
payments on the initial payment and an assumed annual return of 5%. Because this
rider is based on guaranteed actuarial factors for the fixed option, the level
of fixed lifetime income it guarantees may be less than the level that would be
provided by applying the then current annuity factors. Likewise, for the
variable annuity payout option, we base the rider on more conservative factors
resulting in a lower initial payment and lower lifetime payments than those
provided otherwise if the same benefit base were used. However, the Guaranteed
Income Benefit Base described below establishes a floor, which when higher than
the contract value, can result in a higher annuity payout level. Thus, the rider
is a guarantee of a minimum amount of annuity income.
<PAGE>
The Guaranteed Income Benefit Base is equal to the Enhanced Death Benefit if:
o the Guaranteed Minimum Income Rider became effective on the contract date,
and
o all payments are recognized in the benefit base.
The Guaranteed Income Benefit Base, less any applicable premium tax, is the
value that will be used to determine minimum annuity payouts if the rider is
exercised.
We reserve the right to exclude subsequent payments paid in the last five years
before exercise of the benefit, in the calculation of the Guaranteed Income
Benefit Base. We would do so only if such payments total $50,000 or more or if
they are 25% or more of total payments paid into the contract.
If we exclude such payments, the Guaranteed Income Benefit Base would be
calculated as the greatest of:
(a) contract value less "market value adjusted prior five years of payments";
(b) total payments less prior five years of payment, less adjusted partial
withdrawals;
(c) Maximum anniversary value immediately preceding the date of settlement,
plus payments and minus adjusted partial withdrawals since that
anniversary, less the "market value adjusted prior five years of payments";
or
(d) the Variable account 5% floor, less the 5% adjusted prior five years of
payments.
"Market value adjusted prior five years of payments" are calculated as the sum
of each such payment, multiplied by the ratio of the current contract value over
the estimated contract value on the anniversary prior to such payment. The
estimated contract value at such anniversary is calculated by assuming that
payments and partial withdrawals occurring in a contract year take place at the
beginning of the year for that anniversary and every year after that to the
current contract year.
"5% Adjusted prior five years of payments" are calculated as the sum of each
payment accumulated at 5% for the number of full contract years they have been
in the contract.
Conditions on election of the rider:
o you must elect the rider at the time you purchase your contract along with
the Enhanced Death Benefit Rider option, and
o the annuitant must be age 75 or younger on the contract date.
Fund selection to continue the rider: You may allocate your purchase payments to
any of the subaccounts or the fixed accounts. However, we reserve the right to
limit the amount in the Wells Fargo Money Market Fund to 10% of the total amount
in the subaccounts. If we are required to activate this restriction, and you
have more than 10% of your subaccount value in this fund, we will send you
notice and ask that you reallocate your contract value so that the limitation is
satisfied within 60 days. If after 60 days the limitation is not satisfied we
will terminate the rider.
<PAGE>
Exercising the rider:
o you may only exercise the rider within 30 days after any contract
anniversary following the expiration of a ten-year waiting period from the
effective date of the rider, and
o the annuitant on the retirement date must be between 50 and 86 years old,
and
o you can only take an annuity payout in one of the following annuity payout
plans:
-- Plan A -- Life Annuity - no refund
-- Plan B -- Life Annuity with ten years certain
-- Plan D -- Joint and last survivor life annuity - no refund
Contingent event benefits: If the annuitant satisfies the conditions for the
waiver of withdrawal charges in the event of disability, terminal illness or a
confinement in a nursing home or hospital (see "Charges -- Waiver of withdrawal
charges") you can exercise the rider at any time. In this event, you can take up
to 50% of the Guaranteed Income Benefit Base in cash. You can use the balance of
the Guaranteed Income Benefit Base for annuity payouts under the terms above
with regard to annuitant age at retirement date, the annuity payout plans and
the more conservative annuity factors. You can also change the annuitant for the
payouts.
Terminating the rider:
o You may terminate the rider within 30 days after the first and fifth
anniversary of the effective date of the rider.
o You may terminate the rider any time after the 10th anniversary of the
effective date of the rider.
o The rider will terminate on the date you make a full withdrawal from the
contract, or annuity payouts begin, or on the date that a death benefit is
payable.
o The rider will terminate on the contract anniversary after the annuitant's
86th birthday.
Example:
o You purchase the contract with a payment of $100,000 on Jan. 1, 2000.
o There are no additional purchase payments and no partial withdrawals.
o The money is fully allocated to the subaccounts.
o The annuitant is male and age 55 on the contract date. For the joint and
last survivor option (annuity payout Plan D), the joint annuitant is female
and age 55 on the contract date.
o The Guaranteed Income Benefit Base is based on the Variable account 5%
floor.
o The contract is within 30 days after contract anniversary.
If the Guaranteed Minimum Income Benefit Rider is exercised, the minimum fixed
annuity monthly payout or the first year variable annuity monthly payout would
be:
<TABLE>
<CAPTION>
Fixed Annuity Payout Options
Minimum Guaranteed Annual Income
<S> <C> <C> <C> <C>
Plan A -- Plan B -- Plan D --
Life Annuity - Life Annuity with Joint and last survivor
Contract Anniversary Minimum Guaranteed no refund ten years certain life annuity - no refund
At Exercise Benefit Base
10 $162,889 $848.65 $825.85 $675.99
15 $207,893 $1,239.04 $1,180.83 $958.38
</TABLE>
After the first year payments, lifetime income payments on a variable annuity
payout option will depend on the investment performance of the subaccounts you
select. The payments will be higher if investment performance is greater than a
5% annual return and lower if investment performance is less than a 5% annual
return.
<PAGE>
Withdrawals
You may withdraw all or part of your contract at any time before annuity payouts
begin by sending us a written request or calling us. We will process your
withdrawal request on the valuation date we receive it. For total withdrawals,
we will compute the value of your contract at the next accumulation unit value
calculated after we receive your request. We may ask you to return the contract.
You may have to pay charges (see "Charges -- Withdrawal charge") and IRS taxes
and penalties (see "Taxes"). You cannot make withdrawals after annuity payouts
begin except under Plan E (see "The Annuity Payout Period -- Annuity payout
plans").
WITHDRAWAL POLICIES
If you have a balance in more than one account and you request a partial
withdrawal, we will withdraw money from all your subaccounts and/or the fixed
accounts in the same proportion as your value in each account correlates to your
total contract value, unless you request otherwise.
RECEIVING PAYMENT
By regular or express mail:
o payable to owner;
o mailed to address of record.
NOTE: We will charge you a fee if you request express mail delivery.
Normally, we will send the payment within seven days after receiving your
request. However, we may postpone the payment if:
-- the withdrawal amount includes a purchase payment check that has not
cleared;
-- the NYSE is closed, except for normal holiday and weekend closings;
-- trading on the NYSE is restricted, according to SEC rules;
-- an emergency, as defined by SEC rules, makes it impractical to sell
securities or value the net assets of the accounts; or
-- the SEC permits us to delay payment for the protection of security
holders.
<PAGE>
Changing Ownership
You may change ownership of your nonqualified annuity at any time by completing
a change of ownership form we approve and sending it to our office. The change
will become binding upon us when we receive and record it. We will honor any
change of ownership request that we believe is authentic and we will use
reasonable procedures to confirm authenticity. If we follow these procedures, we
will not take any responsibility for the validity of the change.
If you have a nonqualified annuity, you may incur income tax liability by
transferring, assigning or pledging any part of it. (See "Taxes.")
If you have a qualified annuity, you may not sell, assign, transfer, discount or
pledge your contract as collateral for a loan, or as security for the
performance of an obligation or for any other purpose except as required or
permitted by the Code. However, if the owner is a trust or custodian, or an
employer acting in a similar capacity, ownership of a contract may be
transferred to the annuitant.
Benefits in Case of Death
We will pay the death benefit to your beneficiary upon the earlier of your death
or the annuitant's death. We will base the benefit paid on the death benefit
coverage you selected when you purchased the contract. If a contract has more
than one person as the owner, we will pay benefits upon the first to die of any
owner or the annuitant.
If you or the annuitant die before annuity payouts begin while this contract is
in force, we will pay the beneficiary the greatest of:
1. the contract value; or
2. the total purchase payments paid less any "adjusted partial withdrawals";
or
3. the "maximum anniversary value" immediately preceding the date of death
plus the dollar amount of any payments since that anniversary and minus any
"adjusted partial withdrawals" since that anniversary.
If you own the contract in joint tenancy with rights of survivorship, we will
pay benefits upon the first to die of either you or the annuitant.
Adjusted partial withdrawals:
We calculate an "adjusted partial withdrawal" for
each partial withdrawal as the product of (a) times (b) where:
(a) is the ratio of the amount of the partial withdrawal (including any
applicable withdrawal charge) to the contract value on the date of (but
prior to) the partial withdrawal; and
(b) is the death benefit on the date of (but prior to) the partial withdrawal.
Maximum anniversary value: Each contract anniversary prior to the earlier of
your or the annuitant's 81st birthday, we calculate the anniversary value which
is the greater of:
(a) the contract value on that anniversary; or
(b) total purchase payments made to the contract minus any "adjusted partial
withdrawals."
The "maximum anniversary value" is equal to the greatest of these anniversary
values.
After your or the annuitant's 81st birthday, the death benefit continues to be
the death benefit value as of that date, plus any subsequent payments and minus
any "adjusted partial withdrawals".
<PAGE>
Example:
o You purchase the contract with a payment of $20,000 on Jan. 1, 2000.
o On Jan. 1, 2001 (the first contract anniversary) the contract value grows
to $24,000.
o On March 1, 2001 the contract value falls to $22,000, at which point you
take a $1,500 partial withdrawal, leaving a contract value of $20,500.
We calculate the death benefit on March 1, 2001 as follows:
The "maximum anniversary value:" $24,000.00
(the greatest of the anniversary values
which was the contract value on Jan. 1, 2001)
plus any purchase payments paid since that anniversary: + 0.00
minus any "adjusted partial withdrawal" taken since that
anniversary, calculated as: 1,500 x 24,000 = - 1,636.36
--------------
22,000
for a death benefit of: $22,363.64
ENHANCED DEATH BENEFIT RIDER
If this rider is available in your state and both you and the annuitant are age
79 or younger on the contract date, you may choose to add this benefit to you
contract. This rider provides that if you or the annuitant die before annuity
payouts begin while this contract is in force, we will pay the beneficiary the
greatest of:
1. the contract value; or
2. the total purchase payments paid less any "adjusted partial withdrawals";
or
3. the "maximum anniversary value" immediately preceding the date of death
plus the dollar amount of any payments since that anniversary and minus any
"adjusted partial withdrawals" since that anniversary; or
4. the Variable account 5% floor
The variable account 5% floor
The Variable account 5% floor is the sum of the value in the fixed accounts plus
the variable account floor. On each contract anniversary prior to the earlier of
your or the annuitant's 81st birthday, we increase the variable account floor by
accumulating the prior anniversary's floor at 5%. On the first contract
anniversary, the floor is increased by 5% of the accumulated initial purchase
payments allocated to the subaccounts. On any day that you allocate additional
amounts to, or withdraw or transfer from the subaccounts, we adjust the floor by
adding the additional amounts and subtracting the "adjusted partial withdrawals"
or "adjusted transfers."
After the contract anniversary immediately following either your or the
annuitant's 81st birthday, the Variable account floor is the floor on that
anniversary increased by additional purchase payments made since that
anniversary and reduced by any "adjusted partial withdrawals" since that
anniversary.
<PAGE>
For the Variable account 5% floor, we calculate the "adjusted partial
withdrawals" or "adjusted transfers" as the result of (a) times (b) where
(a) is the ratio of the amount of withdrawal (including any withdrawal charges)
or transfer from the subaccounts to the total value in the subaccounts on
the date of (but prior to) the withdrawal or transfer.
(b) is the variable account floor on the date of (but prior to) the withdrawal
or transfer.
Example:
o You purchase the contract with a payment of $20,000 on Jan. 1, 2000 with
$5,000 allocated to the one-year fixed account and $15,000 allocated to the
subaccounts.
o On Jan. 1, 2001 (the first contract anniversary), the one-year fixed
account value is $5,200 and the subaccount value is $12,000. Total contract
value is $17, 200.
o On March 1, 2001, the one-year fixed account value is $5,300 and the
subaccount value is $14,000. Total contract value is $19,300. You take a
$1,500 partial withdrawal all from the subaccounts, leaving the contract
value at $17,800.
We calculate the death benefit on March 1, 2001 as follows:
The "maximum anniversary value" (the purchase payment): $20,000.00
plus any purchase payment paid since that anniversary: + 0.00
Minus any "adjusted partial withdrawal" taken since that anniversary,
calculated as: 1,500 x 20,000
19,300 = - 1,554.40
Maximum anniversary value benefit $18,445.60
The variable account floor on Jan. 1, 2001,
calculated as: 1.05 x 15,000 = $15,750.00
plus any purchase payments paid since that anniversary: + 0.00
minus any "adjusted partial withdrawals" from the subaccounts,
calculated as: 1,500 x 15,750 -$1,687.50
14,000 =
Variable account floor benefit $14,062.50
plus the one-year fixed account value + 5,300.00
Variable account 5% floor, calculated as the one-year fixed account
plus the Variable account floor benefit $19,362.50
Enhanced Death Benefit, calculated as the greater of the Maximum
anniversary value benefit and the Variable account 5% floor
$19,362.50
If your spouse is sole beneficiary and you die before the retirement date, your
spouse may keep the contract as owner with the contract value equal to the death
benefit that would have otherwise been paid. To do this your spouse must, within
60 days after we receive proof of death, give us written instructions to keep
the contract in force. There will be no withdrawal charges on the contract from
that point forward unless additional purchase payments are made. The Guaranteed
Minimum Income Benefit Rider, if selected, is then terminated.
<PAGE>
Payments: Under a nonqualified annuity, we will pay the beneficiary in a single
sum unless you give us other written instructions. We must fully distribute the
death benefit within five years of your death. However, the beneficiary may
receive payouts under any annuity payout plan available under this contract if:
o the beneficiary asks us in writing within 60 days after we receive proof of
death; and
o payouts begin no later than one year after your death, or other date as
permitted by the Code; and
o the payout period does not extend beyond the beneficiary's life or life
expectancy.
When paying the beneficiary, we will process the death claim on the valuation
date our death claim requirements are fulfilled. We will determine the
contract's value at the next accumulation unit value calculated after our death
claim requirements are fulfilled. We pay interest, if any, from the date of
death at a rate no less than required by law. We will mail payment to the
beneficiary within seven days after our death claim requirements are fulfilled.
Other rules may apply to qualified annuities. (See "Taxes.")
<PAGE>
The Annuity Payout Period
As owner of the contract, you have the right to decide how and to whom annuity
payouts will be made starting at the retirement date. You may select one of the
annuity payout plans outlined below, or we may mutually agree on other payout
arrangements. We do not deduct any withdrawal charges under the payout plans
listed below.
You also decide whether we will make annuity payouts on a fixed or variable
basis, or a combination of fixed and variable. The amounts available to purchase
payouts under the plan you select is the contract value on your retirement date
(less any applicable premium tax). You may reallocate this contract value to the
one-year fixed account to provide fixed dollar payouts and/or among the
subaccounts to provide variable annuity payouts. During the annuity payout
period, we reserve the right to limit the number of subaccounts in which you may
invest. The Guarantee Period Accounts are not available during this payout
period.
Amounts of fixed and variable payouts depend on:
o the annuity payout plan you select;
o the annuitant's age and, in most cases, sex;
o the annuity table in the contract; and
o the amounts you allocated to the accounts at settlement.
In addition, for variable payouts only, amounts depend on the investment
performance of the subaccounts you select. These payouts will vary from month to
month because the performance of the funds will fluctuate. (In the case of fixed
annuities, payouts remain the same from month to month.)
For information with respect to transfers between accounts after annuity payouts
begin, see "Making the Most of Your Contract -- Transfer policies."
ANNUITY TABLE
The annuity table in your contract shows the amount of the first monthly payment
for each $1,000 of contract value according to the age and, when applicable, the
sex of the annuitant. (Where required by law, we will use a unisex table of
settlement rates.) The table assumes that the contract value is invested at the
beginning of the annuity payout period and earns a 5% rate of return, which is
reinvested and helps to support future payouts.
<PAGE>
SUBSTITUTION OF 3.5% TABLE
If you ask us at least 30 days before the retirement date, we will substitute an
annuity table based on an assumed 3.5% investment rate for the 5% table in the
contract. The assumed investment rate affects both the amount of the first
payout and the extent to which subsequent payouts increase or decrease. Using
the 5% table results in a higher initial payment, but later payouts will
increase more slowly when annuity unit values rise and decrease more rapidly
when they decline.
ANNUITY PAYOUT PLANS
You may choose any one of these annuity payout plans by giving us written
instructions at least 30 days before contract values are used to purchase the
payout plan:
o Plan A -- Life annuity - no refund: We make monthly payouts until the
annuitant's death. Payouts end with the last payout before the annuitant's
death. We will not make any further payouts. This means that if the
annuitant dies after we made only one monthly payout, we will not make any
more payouts.
o Plan B -- Life annuity with five, ten or 15 years certain: We make monthly
payouts for a guaranteed payout period of five, ten or 15 years that you
elect. This election will determine the length of the payout period to the
beneficiary if the annuitant should die before the elected period expires.
We calculate the guaranteed payout period from the retirement date. If the
annuitant outlives the elected guaranteed payout period, we will continue
to make payouts until the annuitant's death.
o Plan C -- Life annuity - installment refund: We make monthly payouts until
the annuitant's death, with our guarantee that payouts will continue for
some period of time. We will make payouts for at least the number of months
determined by dividing the amount applied under this option by the first
monthly payout, whether or not the annuitant is living.
o Plan D -- Joint and last survivor life annuity - no refund: We make monthly
payouts while both the annuitant and a joint annuitant are living. If
either annuitant dies, we will continue to make monthly payouts at the full
amount until the death of the surviving annuitant. Payouts end with the
death of the second annuitant.
o Plan E -- Payouts for a specified period: We make monthly payouts for a
specific payout period of ten to 30 years that you elect. We will make
payouts only for the number of years specified whether the annuitant is
living or not. Depending on the selected time period, it is foreseeable
that an annuitant can outlive the payout period selected. During the payout
period, you can elect to have us determine the present value of any
remaining variable payouts and pay it to you in a lump sum. We determine
the present value of the remaining annuity payouts which are assumed to
remain level at the initial payment. If the original contract had a
five-year withdrawal charge schedule, the discount rate we use in the
calculation will vary between 5.27% and 6.77% depending on the applicable
assumed investment rate. If the original contract had a seven-year
withdrawal charge schedule, the discount rate we use in the calculation
will vary between 5.02% and 6.52% depending on the applicable assumed
investment rate. (See "Charges -- Withdrawal charge under Annuity Payout
Plan E.") You can also take a portion of the discounted value once a year.
If you do so, your monthly payouts will be reduced by the proportion of
your withdrawal to the full discounted value. A 10% IRS penalty tax could
apply if you take a withdrawal. (See "Taxes.")
<PAGE>
Restrictions for some tax-deferred retirement plans: If you purchased a
qualified annuity, you may be required to select a payout plan that provides for
payouts:
o over the life of the annuitant;
o over the joint lives of the annuitant and a designated beneficiary;
o for a period not exceeding the life expectancy of the annuitant; or
o for a period not exceeding the joint life expectancies of the annuitant and
a designated beneficiary.
You have the responsibility for electing a payout plan that complies with your
contract and with applicable law.
If we do not receive instructions: You must give us written instructions for the
annuity payouts at least 30 days before the annuitant's retirement date. If you
do not, we will make payouts under Plan B, with 120 monthly payouts guaranteed.
Contract values that you allocated to the one-year fixed account will provide
fixed dollar payouts and contract values that you allocated among the
subaccounts will provide variable annuity payouts.
If monthly payouts would be less than $20: We will calculate the amount of
monthly payouts at the time the contract value is used to purchase a payout
plan. If the calculations show that monthly payouts would be less than $20, we
have the right to pay the contract value to you in a lump sum or to change the
frequency of the payouts.
DEATH AFTER ANNUITY PAYOUTS BEGIN
If you or the annuitant die after annuity payouts begin, we will pay any amount
payable to the beneficiary as provided in the annuity payout plan in effect.
<PAGE>
Taxes
Generally, under current law, your contract has a tax deferral feature. This
means any increase in the value of the fixed accounts and/or subaccounts in
which you invest is taxable to you only when you receive a payout or withdrawal
(see detailed discussion below). Any portion of the annuity payouts and any
withdrawals you request that represent ordinary income normally are taxable. We
will send you a tax information reporting form for any year in which we made a
taxable distribution according to our records. Roth IRAs may grow and be
distributed tax free if you meet certain distribution requirements.
Annuity payouts under nonqualified annuities: A portion of each payout will be
ordinary income and subject to tax, and a portion of each payout will be
considered a return of part of your investment and will not be taxed. All
amounts you receive after your investment in the contract is fully recovered
will be subject to tax.
Tax law requires that all nonqualified deferred annuity contracts issued by the
same company (and possibly its affiliates) to the same owner during a calendar
year be taxed as a single, unified contract when you take distributions from any
one of those contracts.
Qualified annuities: Your contract may be used to fund a tax-deferred retirement
plan that is already tax-deferred under the Code. The contract will not provide
any necessary or additional tax deferral if it is used to fund a retirement plan
that is tax-deferred. Special rules apply to these retirement plans. Your rights
to benefits may be subject to the terms and conditions of these retirement plans
regardless of the terms of the contract.
Adverse tax consequences may result if you do not ensure that contributions,
distributions and other transactions under the contract comply with the law.
Qualified annuities have minimum distribution rules that govern the timing and
amount of distributions during your life (except for Roth IRAs) and after your
death. You should refer to your retirement plan or adoption agreement or consult
a tax advisor for more information about your distribution rules.
Annuity payouts under qualified annuities (except Roth IRAs): Under a qualified
annuity, the entire payout generally is includable as ordinary income and is
subject to tax except to the extent that contributions were made with after-tax
dollars. If you or your employer invested in your contract with deductible or
pre-tax dollars as part of a tax-deferred retirement plan, such amounts are not
considered to be part of your investment in the contract and will be taxed when
paid to you.
Withdrawals: If you withdraw part or all of your contract before your annuity
payouts begin, your withdrawal payment will be taxed to the extent that the
value of your contract immediately before the withdrawal exceeds your
investment. You also may have to pay a 10% IRS penalty for withdrawals you make
before reaching age 591/2 unless certain exceptions apply. For qualified
annuities, other penalties may apply if you withdraw your contract before your
plan specifies that you can receive payouts.
Death benefits to beneficiaries: The death benefit under a contract (except a
Roth IRA) is not tax-exempt. Any amount your beneficiary receives that
represents previously deferred earnings within the contract is taxable as
ordinary income to the beneficiary in the years he or she receives the payments.
The death benefit under a Roth IRA generally is not taxable as ordinary income
to the beneficiary if certain distribution requirements are met.
Annuities owned by corporations, partnerships or trusts: For nonqualified
annuities any annual increase in the value of annuities held by such entities
generally will be treated as ordinary income received during that year. This
provision is effective for purchase payments made after Feb. 28, 1986. However,
if the trust was set up for the benefit of a natural person only, the income
will remain tax-deferred.
<PAGE>
Penalties: If you receive amounts from your contract before reaching age 591/2,
you may have to pay a 10% IRS penalty on the amount includable in your ordinary
income. However, this penalty will not apply to any amount received by you or
your beneficiary:
o because of your death;
o because you become disabled (as defined in the Code);
o if the distribution is part of a series of substantially equal periodic
payments, made at least annually, over your life or life expectancy (or
joint lives or life expectancies of you and your beneficiary); or
o if it is allocable to an investment before Aug. 14, 1982 (except for
qualified annuities).
For a qualified annuity, other penalties or exceptions may apply if you make
withdrawals from your contract before your plan specifies that payouts can be
made.
Withholding, generally: If you receive all or part of the contract value, we may
deduct withholding against the taxable income portion of the payment. Any
withholding represents a prepayment of your tax due for the year. You take
credit for these amounts on your annual tax return.
If the payment is part of an annuity payout plan, we generally compute the
amount of withholding using payroll tables. You may provide us with a statement
of how many exemptions to use in calculating the withholding. As long as you've
provided us with a valid Social Security Number or Taxpayer Identification
Number, you can elect not to have any withholding occur.
If the distribution is any other type of payment (such as a partial or full
withdrawal), we compute withholding using 10% of the taxable portion. Similar to
above, as long as you have provided us with a valid Social Security Number or
Taxpayer Identification Number, you can elect not to have this withholding
occur.
Some states also impose withholding requirements similar to the federal
withholding described above. If this should be the case, we may deduct state
withholding from any payment from which we deduct federal withholding. The
withholding requirements may differ if we are making payment to a non-U.S.
citizen or if we deliver the payment outside the United States.
Transfer of ownership of a nonqualified annuity: If you transfer a nonqualified
annuity without receiving adequate consideration, the transfer is a gift and
also may be a withdrawal for federal income tax purposes. If the gift is a
currently taxable event for income tax purposes, the original owner will be
taxed on the amount of deferred earnings at the time of the transfer and also
may be subject to the 10% IRS penalty discussed earlier. In this case, the new
owner's investment in the contract will be the value of the contract at the time
of the transfer.
Collateral assignment of a nonqualified annuity: If you collaterally assign or
pledge your contract, earnings on purchase payments you made after Aug. 13, 1982
will be taxed to you like a withdrawal.
Important: Our discussion of federal tax laws is based upon our understanding of
current interpretations of these laws. Federal tax laws or current
interpretations of them may change. For this reason and because tax consequences
are complex and highly individual and cannot always be anticipated, you should
consult a tax advisor if you have any questions about taxation of your contract.
Tax qualification: We intend that the contract qualify as an annuity for federal
income tax purposes. To that end, the provisions of the contract are to be
interpreted to ensure or maintain such tax qualification, in spite of any other
provisions of the contract. We reserve the right to amend the contract to
reflect any clarifications that may be needed or are appropriate to maintain
such qualification or to conform the contract to any applicable changes in the
tax qualification requirements. We will send you a copy of any amendments.
<PAGE>
Voting Rights
As a contract owner with investments in the subaccounts, you may vote on
important fund policies until annuity payouts begin. Once they begin, the person
receiving them has voting rights. We will vote fund shares according to the
instructions of the person with voting rights.
Before annuity payouts begin, the number of votes you have is determined by
applying your percentage interest in each subaccount to the total number of
votes allowed to the subaccount.
After annuity payouts begin, the number of votes you have is equal to:
o the reserve held in each subaccount for your contract;
o divided by the net asset value of one share of the applicable fund.
As we make annuity payouts, the reserve for the contract decreases; therefore,
the number of votes also will decrease.
We calculate votes separately for each subaccount. We will send notice of
shareholders' meetings, proxy materials and a statement of the number of votes
to which the voter is entitled. We will vote shares for which we have not
received instructions in the same proportion as the votes for which we received
instructions. We also will vote the shares for which we have voting rights in
the same proportion as the votes for which we received instructions.
<PAGE>
Substitution of Investments
We may substitute the funds in which the subaccounts invest if:
o laws or regulations change,
o existing funds become unavailable, or
o in our judgment, the funds no longer are suitable for the subaccounts.
If any of these situations occur and if we believe it is in the best interest of
persons having voting rights under the contract, we have the right to substitute
funds other than those currently listed in this prospectus for other funds.
We may also:
o add new subaccounts;
o combine any two or more subaccounts;
o add subaccounts investing in additional funds;
o transfer assets to and from the subaccounts or the variable account; and
o eliminate or close any subaccounts.
In the event of substitution or any of these changes, we may amend the contract
and take whatever action is necessary and appropriate without your consent or
approval. However, we will not make any substitution or change without the
necessary approval of the SEC and state insurance departments. We will notify
you of any substitution or change.
<PAGE>
About the Service Providers
PRINCIPAL UNDERWRITER
American Express Financial Advisors Inc. (AEFA) serves as the principal
underwriter for the contract. Its office are located at 200 AXP Financial
Center, Minneapolis, MN 55474. AEFA is a wholly-owned subsidiary of American
Express Financial Corporation (AEFC) which is a wholly-owned subsidiary of
American Express Company.
The contracts will be distributed by broker-dealers which have entered into
distribution agreements with AEFA and American Enterprise Life.
We pay commissions for sales of the contracts of up to 7% of purchase payments
to insurance agencies or broker-dealers that are also insurance agencies.
Sometimes we pay the commissions as a combination of a certain amount of the
commission at the time of sale and a trail commission (which, when totaled,
could exceed 7% of purchase payments). In addition, we may pay certain sellers
additional compensation for selling and distribution activities under certain
circumstances. From time to time, we will pay or permit other promotional
incentives, in cash or credit or other compensation.
Other contracts issued by American Enterprise Life that are not described in
this prospectus may be available through your sales representative. The
features, investment options, sales charges and expenses of the other contracts
are different than those of this contract. Therefore, the contract values under
the other contracts may be different than your contract value under this
contract. In addition, sales commissions for the other contracts may be higher
or lower than sales commissions for this contract.
ISSUER
American Enterprise Life issues the annuities. American Enterprise Life is a
wholly-owned subsidiary of IDS Life, which is a wholly-owned subsidiary of AEFC.
AEFC is a wholly-owned subsidiary of American Express Company. American Express
Company is a financial services company principally engaged through subsidiaries
(in addition to AEFC) in travel related services, investment services and
international banking services.
American Enterprise Life is a stock life insurance company organized in 1981
under the laws of the state of Indiana. Our administrative offices are located
at 829 AXP Financial Center, Minneapolis, MN 55474. Our statutory address is 100
Capitol Center South, 201 North Illinois Street, Indianapolis, IN 46204.
American Enterprise Life conducts a conventional life insurance business.
LEGAL PROCEEDINGS
A number of lawsuits have been filed against life and health insurers in
jurisdictions in which American Enterprise Life and its affiliates do business
involving insurers' sales practices, alleged agent misconduct, failure to
properly supervise agents and other matters. IDS Life is a defendant in three
class action lawsuits of this nature. American Enterprise Life is a named
defendant in one of those suits, Richard W. and Elizabeth J. Thoresen vs.
American Express Financial Corporation, American Centurion Life Assurance
Company, American Enterprise Life Insurance Company, American Partners Life
Insurance Company, IDS Life Insurance Company and IDS Life Insurance Company of
New York which was commenced in Minnesota State Court in October 1998. The
action was brought by individuals who purchased an annuity in a qualified plan.
The plaintiffs allege that the sale of annuities in tax-deferred contributory
retirement investment plans (e.g., IRAs) is never appropriate. The plaintiffs
purport to represent a class consisting of all persons who made similar
purchases. The plaintiffs seek damages in an unspecified amount.
American Enterprise Life is included as a party to preliminary settlement of all
three class action lawsuits. We believe this approach will put these cases
behind us and provide a fair outcome for our clients. Our decision to settle
does not include any admission of wrongdoing. We do not anticipate that this
proposed settlement, or any other lawsuits in which American Enterprise Life is
a defendant, will have a material adverse effect on our financial condition.
<PAGE>
Additional Information About American Enterprise Life
SELECTED FINANCIAL DATA
<TABLE>
<CAPTION>
The following selected financial data for American Enterprise Life should be
read in conjunction with the financial statements and notes.
<S> <C> <C> <C> <C> <C>
Years ended Dec. 31, (thousands) 1999 1998 1997 1996 1995
Net investment income $ 322,746 $ 340,219 $ 332,268 $ 271,719 $ 223,706
Net gain/loss on investments $ 6,565 (4,788) (509) (5,258) (1,154)
Other $ 8,338 7,662 6,329 5,753 4,214
Total revenues $ 337,649 $ 343,093 $ 338,088 $ 272,214 $ 226,766
Income before income taxes $ 50,662 $ 36,421 $ 44,958 $ 35,735 $ 33,440
Net income $ 33,987 $ 22,026 $ 28,313 $ 22,823 $ 21,748
Total assets $ 4,603,343 $ 4,885,621 $ 4,973,413 $ 4,425,837 $ 3,570,960
</TABLE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF CONSOLIDATED FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
1999 Compared to 1998:
Net income increased 54 percent to $34 million in 1999, compared to $22 million
in 1998. Earnings growth resulted primarily net realized gains of $6.6 million
in 1999, compared to net realized losses of $4.8 in 1998.
Income before income taxes totaled $51 million in 1999, compared with $36
million in 1998.
Total investment contract deposits received decreased to $336 million in 1999,
compared with $348 million in 1998. This decrease is primarily due to a decrease
in sales of variable annuities in 1999.
Total revenues decreased to $338 million in 1999, compared with $343 million in
1998. The decrease is primarily due to decreased net investment income which was
partially offset by an increase in realized gain on investments. Net investment
income, the largest component of revenues, decreased 5 percent from the prior
year, reflecting decreases in investments owned and investment yields.
Contractholder charges decreased 5 percent to $6.1 million in 1999, compared
with $6.4 million in 1998, reflecting a decrease in fixed annuities inforce. The
Company receives mortality and expense risk fees from the separate accounts.
Mortality and expense risk fees increased 77 percent to $2.3 million in 1999,
compared with $1.3 million in 1998, this reflects the increase in separate
account assets.
Net realized gain on investments was $6.6 million in 1999, compared to a net
realized loss on investments of $4.8 million in 1998. The net realized gains
were primarily due to the sale of available for sale fixed maturity investments
at a gain as well as a decrease in the allowance for mortgage loan losses based
on management's regular evaluation of allowance adequacy.
Total benefits and expenses decreased slightly to $287 million in 1999. The
largest component of expenses, interest credited on investment contracts,
decreased to $209 million, reflecting a decrease in fixed annuities in force and
lower interest rates. Amortization of deferred policy acquisition costs
decreased to $43 million, compared to $54 million in 1998. This decrease was due
primarily to decreased aggregate amounts in force, as well as the impact of
changing prospective assumptions in 1998 based on actual lapse experience on
certain fixed annuities.
Other operating expenses increased 46 percent to $35 million in 1999, compared
to $24 million in 1998. This increase is primarily reflects technology costs
related to growth initiatives.
<PAGE>
1998 Compared to 1997:
Net income decreased 22 percent to $22 million in 1998, compared to $28 million
in 1997. The decrease in earnings resulted primarily from increases in
amortization of deferred policy acquisition costs.
Income before income taxes totaled $36 million in 1998, compared with $45
million in 1997.
Total premiums and investment contract deposits received decreased to $348
million in 1998, compared with $802 million in 1997. This decrease is primarily
due to a decrease in sales of fixed annuities in 1998, reflecting the low
interest rate environment.
Total revenues increased to $343 million in 1998, compared with $338 million in
1997. The increase is primarily due to increases in net investment income and
contractholder charges. Net investment income, the largest component of
revenues, increased 2 percent from the prior year, reflecting increases in
investments owned and investment yields.
Contractholder charges, increased 12 percent to $6.4 million in 1998, compared
with $5.7 million in 1997. The Company receives mortality and expense risk fees
from the separate accounts.
Total benefits and expenses increased 4.6 percent to $307 million in 1998,
compared with 293 million in 1997. The largest component of expenses, interest
credited on contractholders investment contracts, decreased to $229 million,
reflecting a decrease in fixed annuities in force and lower interest rates.
Amortization of deferred policy acquisition costs increased to $54 million,
compared to $37 million in 1997. This increase was due primarily to the impact
of changing prospective assumptions based on actual lapse experience on certain
fixed annuities.
Risk Management
The sensitivity analysis of the test of market risk discussed below estimates
the effects of hypothetical sudden and sustained changes in the applicable
market conditions on the ensuing year's earnings based on year-end positions.
The market changes, assumed to occur as of year-end, is a 100 basis point
increase in market interest rates. Computations of the prospective effects of
hypothetical interest rate change based on numerous assumptions, including
relative levels of market interest rates as well as the levels of assets and
liabilities. The hypothetical changes and assumptions will be different from
what actually occurs in the future. Furthermore, the computations do not
anticipate actions that may be taken by management if the hypothetical market
changes actually occurred over time. As a result, actual earnings effects in the
future will differ from those quantified below.
The Company primarily invests in fixed income securities over a broad range of
maturities for the purpose of providing fixed annuity clients with a competitive
rate of return on their investments while minimizing risk, and to provide a
dependable and targeted spread between the interest rate earned on investments
and the interest rate credited to contractholders' accounts. The Company does
not invest in securities to generate trading profits.
The Company has an investment committee that holds regularly scheduled meetings
and, when necessary, special meetings. At these meetings, the committee reviews
models projecting different interest rate scenarios and their impact on
profitability. The objective of the committee is to structure the investment
security portfolio based upon the type and behavior of products in the liability
portfolio so as to achieve targeted levels of profitability.
Rates credited to contractholders' accounts are generally reset at shorter
intervals than the maturity of underlying investments. Therefore, margins may be
negatively impacted by increases in the general level of interest rates. Part of
the committee's strategy includes the purchase of some types of derivatives,
such as interest rate caps, swaps and floors, for hedging purposes. These
derivatives protect margins by increasing investment returns if there is a
sudden and severe rise in interest rates, thereby mitigating the impact of an
increase in rates credited to contractholders' accounts.
<PAGE>
The negative effect on the Company's pretax earnings of a 100 basis point
increase in interest rates, which assumes repricings and customer behavior based
on the application of proprietary models to the book of business at December 31,
1999, would be appoximately $4.2 million.
Liquidity and Capital Resources
The liquidity requirements of the Company are met by funds provided by annuity
considerations, investment income, proceeds from sales of investments as well as
maturities and periodic repayments of investment principal.
The primary uses of funds are policy benefits, commissions and operating
expenses, policy loans, and investment purchases.
The Company has an available line of credit with American Express Financial
Corporation aggregating $50 million. The line of credit is used strictly as a
short-term source of funds. No borrowings were outstanding under the agreement
at December 31, 1999. At December 31, 1999, outstanding reverse repurchase
agreements totaled $26 million.
At December 31, 1999, investments in fixed maturities comprised 81 percent of
the Company's total invested assets. Of the fixed maturity portfolio,
approximately 32 percent is invested in GNMA, FNMA and FHLMC mortgage-backed
securities which are considered AAA/Aaa quality.
At December 31, 1999, approximately 14 percent of the Company's investments in
fixed maturities were below investment grade bonds. These investments may be
subject to a higher degree of risk than the investment grade issues because of
the borrower's generally greater sensitivity to adverse economic conditions,
such as recession or increasing interest rates, and in certain instances, the
lack of an active secondary market. Expected returns on below investment grade
bonds reflect consideration of such factors. The Company has identified those
fixed maturities for which a decline in fair value is determined to be other
than temporary, and has written them down to fair value with a charge to
earnings.
At December 31, 1999, net unrealized appreciation on fixed maturities held to
maturity included $6.3 million of gross unrealized appreciation and $29 million
of gross unrealized depreciation. Net unrealized appreciation on fixed
maturities available for sale included $9.3 million of gross unrealized
appreciation and $117 million of gross unrealized depreciation.
At December 31, 1999, the Company had an allowance for losses for mortgage loans
totaling $6.7 million.
The economy and other factors have caused a number of insurance companies to go
under regulatory supervision. This circumstance has resulted in assessments by
state guaranty associations to cover losses to policyholders of insolvent or
rehabilitated companies. Some assessments can be partially recovered through a
reduction in future premium taxes in certain states. The Company established an
asset for guaranty association assessments paid to those states allowing a
reduction in future premium taxes over a reasonable period of time. The asset is
being amortized as premium taxes are reduced. The Company has also estimated the
potential effect of future assessments on the Company's financial position and
results of operations and has established a reserve for such potential
assessments. The Company has adopted Statement of Position 97-3 providing
guidance when an insurer should recognize a liability for guaranty fund
assessments. The SOP is effective for fiscal years beginning after December 15,
1998. Adoption did not have a material impact on the Company's results of
operations or financial condition.
The National Association of Insurance Commissioners has established risk-based
capital standards to determine the capital requirements of a life insurance
company based upon the risks inherent in its operations. These standards require
the computation of a risk-based capital amount which is then compared to a
company's actual total adjusted capital. The computation involves applying
factors to various statutory financial data to address four primary risks: asset
default, adverse insurance experience, interest rate risk and external events.
These standards provide for regulatory attention when the percentage of total
adjusted capital to authorized control level risk-based capital is below certain
levels. As of December 31, 1999, the Company's total adjusted capital was well
in excess of the levels requiring regulatory attention.
<PAGE>
YEAR 2000 ISSUE
The Year 2000 issue is the result of computer programs having been written using
two digits rather than four to define a year. Any programs that have
time-sensitive software may recognize a date using "00" as the year 1900 rather
than 2000. This could result in the failure of major systems or miscalculations,
which could have a material impact on the operations of American Enterprise Life
and the variable account. All of the major systems used by American Enterprise
Life and the variable account are maintained by AEFC and are utilized by
multiple subsidiaries and affiliates of AEFC. American Enterprise Life's and the
variable account's businesses are heavily dependent upon AEFC's computer systems
and have significant interactions with systems of third parties.
A comprehensive review of AEFC's computer systems and business processes,
including those specific to American Enterprise Life and the variable account,
was conducted to identify the major systems that could be affected by the Year
2000 issue. Steps were taken to resolve potential problems including
modification to existing software and the purchase of new software. As of Dec.
31, 1999, AEFC had completed its program of corrective measures on its internal
systems and applications, including Year 2000 compliance testing. As of Dec. 31,
1999, AEFC had also completed its evaluation of the Year 2000 readiness of other
third parties whose system failures could have an impact on the American
Enterprise Life's and variable account's operations.
AEFC's Year 2000 project also included establishing Year 2000 contingency plans
for all key business units. Business continuation plans, which address business
continuation in the event of a system disruption, are in place for all key
business units. As of Dec.
31, 1999, these plans had been amended to include specific Year 2000
considerations.
In assessing its Year 2000 initiatives and the results of actual production
since Jan. 1, 2000, management believes no material adverse consequences were
experienced, and there was no material effect on American Enterprise Life's and
the variable account's business, results of operations, or financial condition
as a result of the Year 2000 issue.
RESERVES
In accordance with the insurance laws and regulations under which we operate, we
are obligated to carry on our books, as liabilities, actuarially determined
reserves to meet our obligations on our outstanding annuity contracts. We base
our reserves for deferred annuity contracts on accumulation value and for fixed
annuity contracts in a benefit status on established industry mortality tables.
These reserves are computed amounts that will be sufficient to meet our policy
obligations at their maturities.
INVESTMENTS
Our total investments of $4,107,559 at Dec. 31, 1999, 28% was invested in
mortgage-backed securities, 53% in corporate and other bonds, 19% in primary
mortgage loans on real estate and the remaining less than 1% in other
investments.
COMPETITION
We are engaged in a business that is highly competitive due to the large number
of stock and mutual life insurance companies and other entities marketing
insurance products. There are over 1,600 stock, mutual and other types of
insurers in the life insurance business. Best's Insurance Reports, Life-Health
edition 1999, assigned us one of its highest classifications, A+ (Superior).
<PAGE>
EMPLOYEES
As of Dec. 31, 1999, we had no employees.
PROPERTIES
We occupy office space in Minneapolis, MN, which is rented by AEFC. We reimburse
AEFC for rent based on direct and indirect allocation methods. Facilities
occupied by us are believed to be adequate for the purposes for which they are
used and well maintained.
STATE REGULATION
American Enterprise Life is subject to the laws of the State of Indiana
governing insurance companies and to the regulations of the Indiana Department
of Insurance. An annual statement in the prescribed form is filed with the
Indiana Department of Insurance each year covering our operation for the
preceding year and its financial condition at the end of such year. Regulation
by the Indiana Department of Insurance includes periodic examination to
determine American Enterprise's contract liabilities and reserves so that the
Indiana Department of Insurance may certify that these items are correct. The
Company's books and accounts are subject to review by the Indiana Department of
Insurance at all times. Such regulation does not, however, involve any
supervision of the account's management or the company's investment practices or
policies. In addition, American Enterprise Life is subject to regulation under
the insurance laws of other jurisdictions in which it operates. A full
examination of American Enterprise Life's operations is conducted periodically
by the National Association of Insurance Commissioners.
Under insurance guaranty fund laws, in most states, insurers doing business
therein can be assessed up to prescribed limits for policyholder losses incurred
by insolvent companies. Most of these laws do provide however, that an
assessment may be excused or deferred if it would threaten an insurer's own
financial strength.
<PAGE>
Directors and Executive Officers*
The directors and principal executive officers of American Enterprise Life and
the principal occupation of each during the last five years is as follows:
Directors
James E. Choat
Born in 1947
Director, president and chief executive officer since 1996; Senior vice
president - Institutional Products Group, AEFA, 1994 to 1997.
Richard W. Kling
Born 1940
Director and chairman of the board since March 1989.
Paul S. Mannweiler**
Born in 1949
Director since 1986; Partner at Locke Reynolds Boyd & Weisell since 1980.
Paula R. Meyer
Born in 1954
Director and executive vice president since 1998; vice president, AEFC since
1998; Piper Capital Management (PCM) President from Oct. 1997 to May 1998; PCM
Director of Marketing from June 1995 to Oct. 1997; PCM Director of Retail
Marketing from Dec. 1993 to June 1995.
William A. Stoltzmann
Born in 1948
Director since Sept. 1989; vice president, general counsel and secretary since
1985.
Officers other than directors
Jeffrey S. Horton
Born 1961
Vice president and treasurer since Dec. 1997; vice president and corporate
treasurer, AEFC, since Dec. 1997; controller, American Express Technologies -
Financial Services, AEFC, from July 1997 to Dec. 1997; controller, Risk
Management Products, AEFC, from May 1994 to July 1997; director of finance and
analysis, Corporate Treasury, AEFC, from June 1990 to May 1994.
Philip C. Wentzel
Born in 1961
Vice president and controller since 1998; vice president - Finance, Risk
Management Products, AEFC since 1997; and director of financial reporting and
analysis from 1992 to 1997.
* The address for all of the directors and principal officers is: 200 AXP
Financial Center, Minneapolis, MN 55474 except for Mr. Mannweiler who is
an independent director.
** Mr. Mannweiler's address is: 201 No. Illinois Street, Indianapolis, IN 46204
<PAGE>
EXECUTIVE COMPENSATION
Our executive officers also may serve one or more affiliated companies. The
following table reflects cash compensation paid to the five most highly
compensated executive officers as a group for services rendered in the most
recent year to us and our affiliates. The table also shows the total cash
compensation paid to all our executive officers, as a group, who were executive
officers at any time during the most recent year.
<TABLE>
<CAPTION>
Name of individual or number in group Position held Cash compensation
<S> <C> <C>
Five most highly compensated executive
officers as a group: $7,960,888
Richard W. Kling Chairman of the Board
James E. Choat President and CEO
Stuart A. Sedlacek Executive Vice President
Lorraine R. Hart Vice President, Investments
Deborah L. Pederson Assistant Vice President, Investments
All executive officers as a group (11) $11,535,043
</TABLE>
SECURITY OWNERSHIP OF MANAGEMENT
Our directors and officers do not beneficially own any outstanding shares of
stock of the company. All of our outstanding shares of stock are beneficially
owned by IDS Life. The percentage of shares of IDS Life owned by any director,
and by all our directors and officers as a group, does not exceed 1% of the
class outstanding.
Experts
Ernst & Young LLP, independent auditors, have audited the financial statements
of American Enterprise Life Insurance Company at Dec. 31, 1999 and 1998, and for
each of the three years in the period ended Dec. 31, 1999, and the individual
and combined Financial Statements of the segregated asset subaccounts of the
American Enterprise Variable Annuity Account (comprised of subaccounts ECR, EIA,
EGD, ECA, EVA, ESR, ERE, EMU, JUS, JGL, JMC, EUT, EPL and EPT) as of Dec. 31,
1999 and for the periods indicated therein, as set forth in their reports. We've
included our financial statements in the prospectus and elsewhere in the
registration statement in reliance on Ernst & Young LLP's report, given on their
authority as experts in accounting and auditing.
<PAGE>
AMERICAN ENTERPRISE LIFE INSURANCE COMPANY FINANCIAL INFORMATION
REPORT OF INDEPENDENT AUDITORS
The Board of Directors
American Enterprise Life Insurance Company
We have audited the accompanying balance sheets of American Enterprise Life
Insurance Company (a wholly owned subsidiary of IDS Life Insurance Company) as
of December 31, 1999 and 1998, and the related statements of income,
stockholder's equity and cash flows for each of the three years in the period
ended December 31, 1999. These financial statements are the responsibility of
the Company's management. Our responsibility is to express an opinion on these
financial statements based on our audits.
We conducted our audits in accordance with auditing standards generally accepted
in the United States. Those standards require that we plan and perform the audit
to obtain reasonable assurance about whether the financial statements are free
of material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements. An audit
also includes assessing the accounting principles used and significant estimates
made by management, as well as evaluating the overall financial statement
presentation. We believe that our audits provide a reasonable basis for our
opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the financial position of American Enterprise Life
Insurance Company at December 31, 1999 and 1998, and the results of its
operations and its cash flows for each of the three years in the period ended
December 31, 1999, in conformity with accounting principles generally accepted
in the United States.
/s/ Ernst & Young LLP
Ernst & Young LLP
February 3, 2000
Minneapolis, Minnesota
<PAGE>
AMERICAN ENTERPRISE LIFE INSURANCE COMPANY
BALANCE SHEETS
December 31,
($ thousands, except share amounts)
<TABLE>
<S> <C> <C>
ASSETS 1999 1998
- ------ ----------- -----------
Investments:
Fixed maturities:
Held to maturity, at amortized cost (fair value:
1999, $984,103; 1998, $1,126,732) $1,006,349 $1,081,193
Available for sale, at fair value (amortized cost:
1999, $2,411,799; 1998, $2,526,712) 2,304,487 2,594,858
----------- -----------
3,310,836 3,676,051
Mortgage loans on real estate 785,253 815,806
Other investments 11,470 12,103
----------- -----------
Total investments 4,107,559 4,503,960
Accounts receivable 316 214
Accrued investment income 56,676 61,740
Deferred policy acquisition costs 180,288 196,479
Deferred income taxes 37,501 --
Other assets 9 43
Separate account assets 220,994 123,185
----------- -----------
Total assets $4,603,343 $4,885,621
========== ==========
LIABILITIES AND STOCKHOLDER'S EQUITY
Liabilities:
Future policy benefits for fixed annuities $3,921,513 $4,166,852
Policy claims and other policyholders' funds 12,097 7,389
Deferred income taxes -- 23,199
Amounts due to brokers 25,215 54,347
Other liabilities 17,436 24,500
Separate account liabilities 220,994 123,185
----------- -----------
Total liabilities 4,197,255 4,399,472
Stockholder's equity:
Capital stock, $100 par value per share;
100,000 shares authorized,
20,000 shares issued and outstanding 2,000 2,000
Additional paid-in capital 282,872 282,872
Accumulated other comprehensive (loss) income:
Net unrealized securities (losses) gains (69,753) 44,295
Retained earnings 190,969 156,982
----------- -----------
Total stockholder's equity 406,088 486,149
----------- -----------
Total liabilities and stockholder's equity $4,603,343 $4,885,621
========== ==========
</TABLE>
<PAGE>
AMERICAN ENTERPRISE LIFE INSURANCE COMPANY
STATEMENTS OF INCOME
Years ended December 31,
($ thousands)
<TABLE>
<S> <C> <C> <C>
1999 1998 1997
--------- --------- ---------
Revenues:
Net investment income $322,746 $340,219 $332,268
Contractholder charges 6,069 6,387 5,688
Mortality and expense risk fees 2,269 1,275 641
Net realized gain (loss) on investments 6,565 (4,788) (509)
--------- --------- ---------
Total revenues 337,649 343,093 338,088
--------- --------- ---------
Benefits and expenses:
Interest credited on investment contracts 208,583 228,533 231,437
Amortization of deferred policy acquisition costs 43,257 53,663 36,803
Other operating expenses 35,147 24,476 24,890
--------- --------- ---------
Total benefits and expenses 286,987 306,672 293,130
--------- --------- ---------
Income before income taxes 50,662 36,421 44,958
Income taxes 16,675 14,395 16,645
--------- --------- ---------
Net income $ 33,987 $ 22,026 $ 28,313
========= ========= =========
</TABLE>
<PAGE>
AMERICAN ENTERPRISE LIFE INSURANCE COMPANY
STATEMENTS OF STOCKHOLDER'S EQUITY
Three years ended December 31, 1999
($ thousands)
<TABLE>
<CAPTION>
Accumulated
Other
Total Additional Comprehensive
Stockholder's Capital Paid-In (Loss) Income, Retained
Equity Stock Capital Net of Tax Earnings
------------- -------- ------------ ------------ -------------
<S> <C> <C> <C> <C> <C>
Balance, December 31, 1996 $363,858 $2,000 $242,872 $ 12,343 $106,643
Comprehensive income:
Net income 28,313 -- -- -- 28,313
Unrealized holding gains arising
during the year, net of taxes of
($19,891) 36,940 -- -- 36,940 --
Reclassification adjustment for losses
included in net income, net of tax
of ($126) 233 -- -- 233 --
------------- ------------
Other comprehensive income 37,173 -- -- 37,173 --
-------------
Comprehensive income 65,486
Capital contribution from IDS Life 40,000 -- 40,000 -- --
------------- -------- ------------ ------------ -------------
Balance, December 31, 1997 469,344 2,000 282,872 49,516 134,956
Comprehensive income:
Net income 22,026 -- -- -- 22,026
Unrealized holding losses arising
during the year, net of taxes of $3,400 (6,314) -- -- (6,314) --
Reclassification adjustment for losses
included in net income, net of tax
of ($588) 1,093 -- -- 1,093 --
------------- ------------
Other comprehensive loss (5,221) -- -- (5,221) --
-------------
Comprehensive income 16,805
------------- -------- ------------ ------------ -------------
Balance, December 31, 1998 486,149 2,000 282,872 44,295 156,982
Comprehensive loss:
Net income 33,987 -- -- -- 33,987
Unrealized holding losses arising
during the year, net of taxes of $(59,231) (110,001) -- -- (110,001) --
Reclassification adjustment for gains
included in net income, net of tax (4,047) (4,047) --
of $(2,179) ------------- ------------
Other comprehensive loss (114,048) -- -- (114,048) --
-------------
Comprehensive loss (80,061)
------------- -------- ------------ ------------ -------------
Balance, December 31, 1999 $406,088 $2,000 $282,872 $(69,753) $190,969
============= ======== ============ ============ =============
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
See accompanying notes.
AMERICAN ENTERPRISE LIFE INSURANCE COMPANY
STATEMENTS OF CASH FLOWS
Years ended December 31,
($ thousands)
<S> <C> <C> <C>
1999 1998 1997
----------- ----------- -----------
Cash flows from operating activities:
Net income $ 33,987 $ 22,026 $ 28,313
Adjustments to reconcile net income to net cash
provided by (used in) operating activities:
Change in accrued investment income 5,064 (2,152) (8,017)
Change in accounts receivable (102) 349 9,304
Change in deferred policy acquisition costs, net 16,191 28,022 (21,276)
Change in other assets 34 74 4,840
Change in policy claims and other policyholders' funds 4,708 (3,939) (16,099)
Deferred income tax (benefit) provision 711 (9,591) (2,485)
Change in other liabilities (7,064) 7,595 1,255
Amortization of premium (accretion of discount), net 2,315 122 (2,316)
Net realized (gain) loss on investments (6,565) 4,788 509
Other, net (1,562) 2,544 959
----------- ----------- -----------
Net cash provided by (used in) operating activities 47,717 49,838 (5,013)
Cash flows from investing activities:
Fixed maturities held to maturity:
Purchases -- -- (1,996)
Maturities 65,705 73,601 41,221
Sales 8,466 31,117 30,601
Fixed maturities available for sale:
Purchases (593,888) (298,885) (688,050)
Maturities 248,317 335,357 231,419
Sales 469,126 48,492 73,366
Other investments:
Purchases (28,520) (161,252) (199,593)
Sales 57,548 78,681 29,139
Change in amounts due to brokers (29,132) 19,412 (53,796)
----------- ----------- ------------
Net cash provided by (used in) investing activities 197,622 126,523 (537,689)
Cash flows from financing activities:
Activity related to investment contracts:
Considerations received 299,899 302,158 783,339
Surrenders and other benefits (753,821) (707,052) (552,903)
Interest credited to account balances 208,583 228,533 231,437
Capital contribution from parent -- -- 40,000
----------- ----------- -----------
Net cash (used in) provided by financing activities (245,339) (176,361) 501,873
----------- ----------- -----------
Net decrease in cash and cash equivalents -- -- (40,829)
Cash and cash equivalents at beginning of year -- -- 40,829
----------- ----------- -----------
Cash and cash equivalents at end of year $ -- $ -- $ --
=========== =========== ==========
See accompanying notes.
</TABLE>
<PAGE>
1. Summary of significant accounting policies
Nature of business
American Enterprise Life Insurance Company (the Company) is a stock life
insurance company that is domiciled in Indiana and is licensed to transact
insurance business in 48 states. The Company's principal product is
deferred annuities, which are issued primarily to individuals. It offers
single premium and annual premium deferred annuities on both a fixed and
variable dollar basis.
Immediate annuities are offered as well.
Basis of presentation
The Company is a wholly-owned subsidiary of IDS Life Insurance Company (IDS
Life), which is a wholly owned subsidiary of American Express Financial
Corporation (AEFC). AEFC is a wholly owned subsidiary of American Express
Company. The accompanying financial statements have been prepared in
conformity with accounting principles generally accepted in the United
States which vary in certain respects from reporting practices prescribed
or permitted by the Indiana Department of Insurance (see Note 4).
The preparation of financial statements in conformity with accounting
principles generally accepted in the United States requires management to
make estimates and assumptions that affect the reported amounts of assets
and liabilities and disclosure of contingent assets and liabilities at the
date of the financial statements and the reported amounts of revenues and
expenses during the reporting period. Actual results could differ from
those estimates.
Investments
Fixed maturities that the Company has both the positive intent and the
ability to hold to maturity are classified as held to maturity and carried
at amortized cost. All other fixed maturities are classified as available
for sale and carried at fair value. Unrealized gains and losses on
securities classified as available for sale are reported as a separate
component of accumulated other comprehensive (loss) income, net of deferred
income taxes.
Realized investment gain or loss is determined on an identified cost basis.
Prepayments are anticipated on certain investments in mortgage-backed
securities in determining the constant effective yield used to recognize
interest income. Prepayment estimates are based on information received
from brokers who deal in mortgage-backed securities.
Mortgage loans on real estate are carried at amortized cost less an
allowance for mortgage loan losses. The estimated fair value of the
mortgage loans is determined by a discounted cash flow analysis using
mortgage interest rates currently offered for mortgages of similar
maturities.
<PAGE>
1. Summary of significant accounting policies (continued)
Impairment of mortgage loans is measured as the excess of the loan's
recorded investment over its present value of expected principal and
interest payments discounted at the loan's effective interest rate, or the
fair value of collateral. The amount of the impairment is recorded in an
allowance for mortgage loan losses. The allowance for mortgage loan losses
is maintained at a level that management believes is adequate to absorb
estimated losses in the portfolio. The level of the allowance account is
determined based on several factors, including historical experience,
expected future principal and interest payments, estimated collateral
values, and current and anticipated economic and political conditions.
Management regularly evaluates the adequacy of the allowance for mortgage
loan losses.
The Company generally stops accruing interest on mortgage loans for which
interest payments are delinquent more than three months. Based on
management's judgment as to the ultimate collectibility of principal,
interest payments received are either recognized as income or applied to
the recorded investment in the loan.
The cost of interest rate caps and floors is amortized to investment income
over the life of the contracts and payments received as a result of these
agreements are recorded as investment income when realized. The amortized
cost of interest rate caps and floors is included in other investments.
When evidence indicates a decline, which is other than temporary, in the
underlying value or earning power of individual investments, such
investments are written down to the fair value by a charge to income.
Statements of cash flows
The Company considers investments with a maturity at the date of their
acquisition of three months or less to be cash equivalents. These
securities are carried principally at amortized cost which approximates
fair value.
Supplementary information to the statements of cash flows for the years
ended December 31, is summarized as follows:
1999 1998 1997
---- ----- ----
Cash paid during the year for:
Income taxes $22,007 $19,035 $19,456
Interest on borrowings 2,187 5,437 1,832
Contractholder charges
Contractholder charges include surrender charges and fees collected
regarding the issue and administration of annuity contracts.
<PAGE>
1. Summary of significant accounting policies (continued)
Deferred policy acquisition costs
The costs of acquiring new business, principally sales compensation, policy
issue costs, and certain sales expenses, have been deferred on annuity
contracts. These costs are amortized using primarily the interest method.
Amortization of deferred policy acquisition costs requires the use of
assumptions including interest margins, mortality margins, persistency
rates, maintenance expense levels and, for variable products, separate
account performance. For universal life-type insurance and deferred
annuities, actual experience is reflected in the Company's amortization
models monthly. As actual experience differs from the current assumptions,
management considers the need to change key assumptions underlying the
amortization models prospectively. The impact of changing prospective
assumptions is reflected in the period that such changes are made and is
generally referred to as an unlocking adjustment. During 1998, unlocking
adjustments resulted in a net increase in amortization of $11 million. Net
unlocking adjustments in 1999 and 1997 were not significant.
Liabilities for future policy benefits
Liabilities for universal-life type insurance and fixed and variable
deferred annuities are accumulation values.
Federal income taxes
The Company's taxable income is included in the consolidated federal income
tax return of American Express Company. The Company provides for income
taxes on a separate return basis, except that, under an agreement between
AEFC and American Express Company, tax benefit is recognized for losses to
the extent they can be used on the consolidated tax return. It is the
policy of AEFC and its subsidiaries that AEFC will reimburse subsidiaries
for all tax benefits.
Included in other liabilities at December 31, 1999 and 1998 are $2,147 and
$3,504, respectively, payable to IDS Life for federal income taxes.
Separate account business
The separate account assets and liabilities represent funds held for the
exclusive benefit of the variable annuity contract owners. The Company
receives mortality and expense risk fees from the variable annuity separate
accounts.
<PAGE>
1. Summary of significant accounting policies (continued)
The Company makes contractual mortality assurances to the variable annuity
contract owners that the net assets of the separate accounts will not be
affected by future variations in the actual life expectancy experience of
the annuitants and beneficiaries from the mortality assumptions implicit in
the annuity contracts. The Company makes periodic fund transfers to, or
withdrawals from, the separate account assets for such actuarial
adjustments for variable annuities that are in the benefit payment period.
The Company also guarantees that the rates at which administrative fees are
deducted from contract funds will not exceed contractual maximums.
Accounting changes
American Institute of Certified Public Accountants (AICPA) Statement of
Position (SOP) 98-1, "Accounting for Costs of Computer Software Developed
or Obtained for Internal Use" became effective January 1, 1999. The SOP
requires the capitalization of certain costs incurred after the date of
adoption to develop or obtain software for internal use. Software utilized
by the Company is owned by AEFC and capitalized by AEFC. As a result, the
new rule did not have a material impact on the Company's results of
operations or financial condition.
Effective January 1, 1999, the Company adopted AICPA SOP 97-3, "Accounting
by Insurance and Other Enterprises for Insurance-Related Assessments,"
providing guidance for the timing of recognition of liabilities related to
guaranty fund assessments. The Company had historically carried balance in
other liabilities on the balance sheet for potential guaranty fund
assessment exposure. Adoption of the SOP did not have a material impact on
the Company's results of operations or financial condition.
In June 1998, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards No. 133, "Accounting for Derivative
Instruments and Hedging Activities," which is effective January 1, 2001.
This Statement establishes accounting and reporting standards for
derivative instruments, including certain derivative instruments embedded
in other contracts, and for hedging activities. It requires that an entity
recognize all derivatives as either assets or liabilities in the balance
sheet and measure those instruments at fair value. The accounting for
changes in the fair value of a derivative depends on the intended use of
the derivative and the resulting designation. The ultimate financial effect
of the new rule will be measured based on the derivatives in place at
adoption and cannot be estimated at this time.
<PAGE>
2. Investments
Fair values of investments in fixed maturities represent quoted market
prices and estimated values when quoted prices are not available. Estimated
values are determined by established procedures involving, among other
things, review of market indices, price levels of current offerings of
comparable issues, price estimates and market data from independent brokers
and financial files.
The amortized cost, gross unrealized gains and losses and fair value of
investments in fixed maturities at December 31, 1999 are as follows:
<TABLE>
<S> <C> <C> <C> <C>
Gross Gross
Amortized Unrealized Unrealized Fair
Held to maturity Cost Gains Losses Value
---------------- ---------- -------- -------- ----------
U.S. Government agency obligations $ 7,514 $ 23 $ 431 $ 7,106
State and municipal obligations 3,002 44 -- 3,046
Corporate bonds and obligations 816,826 5,966 23,311 799,482
Mortgage-backed securities 179,007 296 4,834 174,469
---------- -------- -------- ----------
$1,006,349 $ 6,329 $ 28,576 $ 984,103
========== ======== ======== ==========
Available for sale
U.S. Government agency obligations $ 2,047 $ -- $ 47 $ 1,999
State and municipal obligations 2,250 -- 190 2,060
Corporate bonds and obligations 1,419,150 7,445 90,703 1,335,892
Mortgage-backed securities 988,352 1,929 25,746 964,536
------------ -------- -------- ----------
$2,411,799 $ 9,374 $116,686 $2,304,487
========== ======== ======== ==========
The amortized cost, gross unrealized gains and losses and fair value of
investments in fixed maturities at December 31, 1998 are as follows:
Gross Gross
Amortized Unrealized Unrealized Fair
Held to maturity Cost Gains Losses Value
---------------- ---------- -------- -------- ----------
U.S. Government agency obligations $ 8,652 $ 423 $ -- $ 9,075
State and municipal obligations 3,003 149 -- 3,152
Corporate bonds and obligations 877,140 48,822 6,670 919,292
Mortgage-backed securities 192,398 2,844 29 195,213
---------- -------- -------- ----------
$1,081,193 $ 52,238 $ 6,699 $1,126,732
========== ======== ======== ==========
Available for sale
U.S. Government agency obligations $ 2,062 $ 116 $ -- $ 2,178
Corporate bonds and obligations 1,472,814 69,990 34,103 1,508,701
Mortgage-backed securities 1,051,836 32,232 89 1,083,979
---------- -------- -------- ----------
$2,526,712 $102,338 $34,192 $2,594,858
========== ======== ======= ==========
</TABLE>
<PAGE>
2. Investments (continued)
The amortized cost and fair value of investments in fixed maturities at
December 31, 1999 by contractual maturity are shown below. Expected
maturities will differ from contractual maturities because borrowers may
have the right to call or prepay obligations with or without call or
prepayment penalties.
Amortized Fair
Held to maturity Cost Value
Due in one year or less $ 26,214 $ 26,334
Due from one to five years 412,533 408,638
Due from five to ten years 331,187 320,146
Due in more than ten years 57,408 54,516
Mortgage-backed securities 179,007 174,469
------------- -------------
$ 1,006,349 $ 984,103
=========== ============
Amortized Fair
Available for sale Cost Value
Due in one year or less $ 46,937 $ 47,236
Due from one to five years 75,233 73,525
Due from five to ten years 1,037,001 980,633
Due in more than ten years 264,276 238,557
Mortgage-backed securities 988,352 964,536
------------ ------------
$2,411,799 $2,304,487
During the years ended December 31, 1999, 1998 and 1997, fixed maturities
classified as held to maturity were sold with amortized cost of $8,466,
$31,117 and $29,561, respectively. Net gains and losses on these sales were
not significant. The sales of these fixed maturities were due to
significant deterioration in the issuers' creditworthiness.
In addition, fixed maturities available for sale were sold during 1999 with
proceeds of $469,126 and gross realized gains and losses of $10,374 and
$4,147 respectively. Fixed maturities available for sale were sold during
1998 with proceeds of $48,492 and gross realized gains and losses of $2,835
and $4,516, respectively. Fixed maturities available for sale were sold
during 1997 with proceeds of $73,366 and gross realized gains and losses of
$1,081 and $1,440, respectively.
At December 31, 1999, bonds carried at $3,277 were on deposit with various
states as required by law.
<PAGE>
2. Investments (continued)
At December 31, 1999, investments in fixed maturities comprised 81 percent
of the Company's total invested assets. These securities are rated by
Moody's and Standard & Poor's (S&P), except for securities carried at
approximately $486 million which are rated by AEFC internal analysts using
criteria similar to Moody's and S&P. A summary of investments in fixed
maturities, at amortized cost, by rating on December 31 is as follows:
Rating 1999 1998
---------------------- ----------- -----------
Aaa/AAA $1,168,144 $1,242,301
Aa/AA 42,859 45,526
Aa/A 52,416 60,019
A/A 422,668 422,725
A/BBB 189,072 228,656
Baa/BBB 995,152 1,030,874
Baa/BB 64,137 79,687
Below investment grade 483,700 498,117
------------ ------------
$3,418,148 $3,607,905
At December 31, 1999, approximately 94 percent of the securities rated
Aaa/AAA were GNMA, FNMA and FHLMC mortgage-backed securities. No holdings
of any other issuer were greater than one percent of the Company's total
investments in fixed maturities.
At December 31, 1999, approximately 19 percent of the Company's invested
assets were mortgage loans on real estate. Summaries of mortgage loans by
region of the United States and by type of real estate are as follows:
<TABLE>
<CAPTION>
December 31, 1999 December 31, 1998
------------------------------- --------------------------------
<S> <C> <C> <C> <C>
On Balance Commitments On Balance Commitments
Region Sheet to Purchase Sheet to Purchase
---------------------------------- ----------- ----------- ---------- -----------
South Atlantic $194,325 $ -- $198,552 $ 651
Middle Atlantic 118,699 -- 129,284 520
East North Central 126,243 -- 134,165 2,211
Mountain 103,751 -- 113,581 --
West North Central 125,891 513 119,380 9,626
New England 43,345 802 46,103 --
Pacific 41,396 -- 43,706 --
West South Central 31,153 -- 32,086 --
East South Central 7,100 -- 7,449 --
----------- ------------ ----------- ------------
791,903 1,315 824,306 13,008
Less allowance for losses 6,650 -- 8,500 --
----------- ------------ ----------- ------------
$785,253 $ 1,315 $815,806 $13,008
======== ======== ======== =======
<PAGE>
2. Investments (continued)
December 31, 1999 December 31, 1998
------------------------------ ------------------------------
On Balance Commitments On Balance Commitments
Property type Sheet to Purchase Sheet to Purchase
---------- -------------- ---------- ------------
Department/retail stores $232,449 $ 1,315 $253,380 $ 781
Apartments 181,346 -- 186,030 2,211
Office buildings 202,132 -- 206,285 9,496
Industrial buildings 83,186 -- 82,857 520
Hotels/Motels 43,839 -- 45,552 --
Medical buildings 32,284 -- 33,103 --
Nursing/retirement homes 6,608 -- 6,731 --
Mixed Use 10,059 -- 10,368 --
---------- -------------- ---------- ------------
791,903 1,315 824,306 13,008
Less allowance for losses 6,650 -- 8,500 --
----------- -------------- ----------- ------------
$785,253 $ 1,315 $815,806 $13,008
======== ========== ======== =======
</TABLE>
Mortgage loan fundings are restricted by state insurance regulatory
authorities to 80 percent or less of the market value of the real estate at
the time of origination of the loan. The Company holds the mortgage
document, which gives it the right to take possession of the property if
the borrower fails to perform according to the terms of the agreement.
Commitments to purchase mortgages are made in the ordinary course of
business. The fair value of the mortgage commitments is $nil.
At December 31, 1999, the Company's recorded investment in impaired loans
was $5,200 with an allowance of $1,250. At December 31, 1998, the Company's
recorded investment in impaired loans was $1,932 with an allowance of $500.
During 1999 and 1998, the average recorded investment in impaired loans was
$5,399 and $2,736, respectively.
The Company recognized $136, $251 and $nil of interest income related to
impaired loans for the years ended December 31, 1999, 1998 and 1997,
respectively.
The following table presents changes in the allowance for investment losses
related to all loans:
<TABLE>
<S> <C> <C> <C>
1999 1998 1997
---- ---- ----
Balance, January 1 $8,500 $3,718 $2,370
Provision (reduction) for investment losses (1,850) 4,782 1,805
Loan payoffs -- -- (457)
------ --------- -------
Balance, December 31 $6,650 $8,500 $3,718
====== ====== ======
Net investment income for the years ended December 31 is summarized as
follows:
1999 1998 1997
----- ----- ----
Interest on fixed maturities $265,199 $285,260 $278,736
Interest on mortgage loans 63,721 65,351 55,085
Interest on cash equivalents 534 137 704
Other (1,755) (2,493) 1,544
---------- ---------- ----------
327,699 348,255 336,069
Less investment expenses 4,953 8,036 3,801
--------- ---------- ----------
$322,746 $340,219 $332,268
======== ======== ========
</TABLE>
<PAGE>
2. Investments (continued)
Net realized gain (loss) on investments for the years ended December 31 is
summarized as follows:
<TABLE>
<S> <C> <C> <C>
1999 1998 1997
---- ---- ----
Fixed maturities $ 6,534 $ 863 $ 1,638
Mortgage loans (1,650) (4,816) (1,348)
Other investments (1,819) (835) (799)
--------- -------- -------
$ 3,065 $(4,788) $ (509)
========= ======= =======
Changes in net unrealized appreciation (depreciation) of investments for
the years ended December 31 are summarized as follows:
1999 1998 1997
----- ----- ----
Fixed maturities available for sale $(175,458) $(8,032) $57,188
3. Income taxes
The Company qualifies as a life insurance company for federal income tax
purposes. As such, the Company is subject to the Internal Revenue Code
provisions applicable to life insurance companies.
The income tax expense (benefit) for the years ended December 31, consists
of the following:
1999 1998 1997
---- ---- ----
Federal income taxes:
Current $ 15,531 $ 23,227 $17,668
Deferred 711 (9,591) (2,485)
-------- -------- -------
16,242 13,636 15,183
State income taxes-current 433 759 1,462
-------- -------- -------
Income tax expense $ 16,675 $ 14,395 $16,645
======== ======== =======
</TABLE>
Increases (decreases) to the federal income tax provision applicable to
pretax income based on the statutory rate, for the years ended December 31,
are attributable to:
<TABLE>
<CAPTION>
1999 1998 1997
------------------ ------------------ ---------------------
Provision Rate Provision Rate Provision Rate
--------- ----- --------- ----- --------- -----
<S> <C> <C> <C> <C> <C> <C>
Federal income taxes based
on the statutory rate $17,731 35.0% $13,972 35.0% $15,735 35.0%
Increases (decreases) are
attributable to:
Tax-excluded interest (14) -- (35) (0.1) (41) (0.1)
State tax, net of federal benefit 281 0.5 493 1.2 956 2.1
Reduction of mortgage loss
reserve (1,225) (2.4) -- -- -- --
Other, net (98) (0.2) (35) -- (5) --
------ ----- -------- ------ ---- ------
Total income taxes $16,675 32.9 % $14,395 36.1% $16,645 37.0%
======= ===== ======= ==== ======= ====
</TABLE>
<PAGE>
3. Income taxes (continued)
Significant components of the Company's deferred income tax assets and
liabilities as of December 31 are as follows:
Deferred income tax assets: 1999 1998
------- -------
Policy reserves $46,243 $51,298
Unrealized losses on investments 39,678 --
Other 1,070 2,214
-------- --------
Total deferred income tax assets 86,991 53,512
-------- --------
Deferred income tax liabilities:
Deferred policy acquisition costs 49,490 52,908
Unrealized gains on investments -- 23,803
-------- --------
Total deferred income tax liabilities 49,490 76,711
-------- --------
Net deferred income tax assets (liabilities) $37,501 ($23,199)
======= ========
The Company is required to establish a valuation allowance for any portion
of the deferred income tax assets that management believes will not be
realized. In the opinion of management, it is more likely than not that the
Company will realize the benefit of the deferred income tax assets and,
therefore, no such valuation allowance has been established.
4. Stockholder's equity
Retained earnings available for distribution as dividends to IDS Life are
limited to the Company's surplus as determined in accordance with
accounting practices prescribed by state insurance regulatory authorities.
Statutory unassigned surplus aggregated $58,223 and $45,716 as of December
31, 1999 and 1998, respectively. In addition, dividends in excess of
$15,241 would require approval by the Insurance Department of the state of
Indiana.
Statutory net income and stockholder's equity as of December 31, are
summarized as follows:
1999 1998 1997
--------- --------- -------
Statutory net income $ 15,241 $ 37,902 $ 23,589
Statutory stockholder's equity 343,094 330,588 302,264
5. Related party transactions
The Company has purchased interest rate floors from IDS Life and entered
into an interest rate swap with IDS Life to manage its exposure to interest
rate risk. The interest rate floors had a carrying amount of $8,258 and
$6,651 at December 31, 1999 and 1998, respectively. The interest rate swap
is an off balance sheet transaction.
The Company has no employees. Charges by IDS Life for services and use of
other joint facilities aggregated $38,931, $28,482 and $24,535 for the
years ended December 31, 1999, 1998 and 1997, respectively. Certain of
these costs are included in deferred policy acquisition costs.
<PAGE>
6. Lines of credit
The Company has an available line of credit with AEFC aggregating $50,000.
The rate for the line of credit is established by reference to various
indices plus 20 to 45 basis points, depending on the term. There were no
borrowings outstanding under this agreement at December 31, 1999 or 1998.
7. Derivative financial instruments
The Company enters into transactions involving derivative financial
instruments to manage its exposure to interest rate risk, including hedging
specific transactions. The Company does not hold derivative instruments for
trading purposes. The Company manages risks associated with these
instruments as described below.
Market risk is the possibility that the value of the derivative financial
instruments will change due to fluctuations in a factor from which the
instrument derives its value, primarily an interest rate. The Company is
not impacted by market risk related to derivatives held for non-trading
purposes beyond that inherent in cash market transactions. Derivatives are
largely used to manage risk and, therefore, the cash flow and income
effects of the derivatives are inverse to the effects of the underlying
transactions.
Credit risk is the possibility that the counterparty will not fulfill the
terms of the contract. The Company monitors credit risk related to
derivative financial instruments through established approval procedures,
including setting concentration limits by counterparty, and requiring
collateral, where appropriate. A vast majority of the Company's
counterparties are rated A or better by Moody's and Standard & Poor's.
Credit risk related to interest rate caps and floors is measured by
replacement cost of the contracts. The replacement cost represents the fair
value of the instruments.
The notional or contract amount of a derivative financial instrument is
generally used to calculate the cash flows that are received or paid over
the life of the agreement. Notional amounts are not recorded on the balance
sheet. Notional amounts far exceed the related credit exposure.
The Company's holdings of derivative financial instruments are as follows:
<TABLE>
<CAPTION>
Notional Carrying Fair Total Credit
December 31, 1999 Amount Amount Value Exposure
----------------- -------- -------- ------ ------------
<S> <C> <C> <C> <C>
Assets:
Interest rate caps $ 900,000 $ 3,212 $ 4,437 $ 4,437
Interest rate floors 2,000,000 8,258 2,251 2,251
Off balance sheet assets:
Interest rate swaps 2,000,000 -- 18,274 18,274
--------- -------- --------
$11,470 $24,962 $24,962
======= ======= =======
<PAGE>
7. Derivative financial instruments (continued)
Notional Carrying Fair Total Credit
December 31, 1998 Amount Amount Value Exposure
----------------- -------- -------- ------ ------------
Assets:
Interest rate caps $ 900,000 $ 5,452 $ 1,518 $ 1,518
Interest rate floors 1,000,000 6,651 17,798 17,798
Off balance sheet liabilities:
Interest rate swaps 1,000,000 -- (33,500) --
--------- ---------- --------
$12,103 ($ 14,184) $19,316
======= =========== =======
</TABLE>
The fair values of derivative financial instruments are based on market
values, dealer quotes or pricing models. All interest rate caps, floors and
swaps will expire on various dates from 2000 to 2006.
Interest rate caps, floors and swaps are used to manage the Company's
exposure to interest rate risk. These instruments are used primarily to
protect the margin between interest rates earned on investments and the
interest rates credited to related annuity contract holders.
8. Fair values of financial instruments
The Company discloses fair value information for most on- and off-balance
sheet financial instruments for which it is practicable to estimate that
value. Fair value of life insurance obligations, receivables and all
non-financial instruments, such as deferred acquisition costs are excluded.
Off-balance sheet intangible assets are also excluded. Management believes
the value of excluded assets and liabilities is significant. The fair value
of the Company, therefore, cannot be estimated by aggregating the amounts
presented.
<TABLE>
<CAPTION>
December 31,
1999 1998
-------------------------- --------------------------
Carrying Fair Carrying Fair
Financial Assets Amount Value Amount Value
---------------- ---------- --------- ---------- ----------
<S> <C> <C> <C> <C>
Investments:
Fixed maturities (Note 2):
Held to maturity $1,006,349 $984,103 $1,081,193 $1,126,732
Available for sale 2,304,487 2,304,487 2,594,858 2,594,858
Mortgage loans on real estate (Note 2) 785,253 770,095 815,806 874,064
Derivative financial instruments (Note 7) 11,470 24,962 12,103 19,316
Separate account assets (Note 1) 220,994 220,994 123,185 123,185
Financial Liabilities
Future policy benefits for fixed annuities $3,905,849 $3,778,945 $4,152,059 $4,000,789
Separate account liabilities 220,994 209,942 123,185 115,879
Derivative financial instruments (Note 7) -- -- -- 33,500
</TABLE>
At December 31, 1999 and 1998, the carrying amount and fair value of future
policy benefits for fixed annuities exclude life insurance-related
contracts carried at $15,633 and $14,793, respectively. The fair value of
these benefits is based on the status of the annuities at December 31, 1999
and 1998.
<PAGE>
8. Fair values of financial instruments (continued)
The fair values of deferred annuities and separate account liabilities are
estimated as the carrying amount less applicable surrender charges. The
fair value for annuities in non-life contingent payout status is estimated
as the present value of projected benefit payments at rates appropriate for
contracts issued in 1999 and 1998.
9. Commitments and contingencies
In January 2000, AEFC reached an agreement in principle to settle three
class-action lawsuits. The Company had been named as a co-defendant in one
of these lawsuits. It is expected the settlement will provide $215 million
of benefits to more than 2 million participants. The agreement in principle
to settle also provides for release by class members of all insurance and
annuity market conduct claims dating back to 1985 and is subject to a
number of contingencies including a definitive agreement and court
approval. The portion of the settlement allocated to the Company did not
have a material impact on the Company's financial position or results from
operations.
10. YEAR 2000 ISSUE (unaudited)
The Year 2000 issue is the result of computer programs having been written
using two digits rather than four to define a year. Any programs that have
time-sensitive software may recognize a date using "00" as the year 1900
rather than 2000. This could result in the failure of major systems or
miscalculations, which could have a material impact on the operations of
the Company. All of the major systems used by the Company are maintained by
AEFC and are utilized by multiple subsidiaries and affiliates of AEFC. The
Company's businesses are heavily dependent upon AEFC's computer systems and
have significant interaction with systems of third parties.
A comprehensive review of AEFC's computer systems and business processes,
including those specific to the Company, was conducted to identify the
major systems that could be affected by the Year 2000 issue. Steps were
taken to resolve potential problems including modification to existing
software and the purchase of new software. As of December 31, 1999, AEFC
had completed its program of corrective measures on its internal systems
and applications, including Year 2000 compliance testing. As of December
31, 1999, AEFC had also completed an evaluation of the Year 2000 readiness
of other third parties whose system failures could have an impact on the
Company's operations.
AEFC's Year 2000 project also included establishing Year 2000 contingency
plans for all key business units. Business continuation plans, which
address business continuation in the event of a system disruption, are in
place for all key business units. At December 31, 1999, these plans had
been amended to include specific Year 2000 considerations.
In assessing its Year 2000 initiatives and the results of actual production
since January 1, 2000, management believes no material adverse consequences
were experienced, and there was no material effect on the Company's
business, results of operations, or financial condition as a result of the
Year 2000 issue.
<PAGE>
Table of Contents of the Statement of Additional Information
Performance Information p. 3
Calculating Annuity Payouts p. 15
Rating Agencies p. 17
Principal Underwriter p. 17
Independent Auditors p. 17
Financial Statements
<PAGE>
Please check the box to receive a copy of the Statement of Additional
Information for:
[ ] Wells Fargo Advantage(SM) Variable Annuity
[ ] American Express(R) Variable Portfolio Funds
[ ] AIM Variable Insurance Funds
[ ] The Dreyfus Socially Responsible Growth Fund, Inc.
[ ] Franklin Templeton Variable Insurance Products Trust
[ ] Goldman Sachs Variable Insurance Trust (VIT)
[ ] MFS(R) Variable Insurance Trust(SM)
[ ] Putnam Variable Trust
[ ] Wells Fargo Variable Trust Funds - Class IB Shares
Mail your request to:
American Enterprise Life Insurance Company
829 AXP Financial Center
Minneapolis, MN 55474
We will mail your request to:
Your name______________________________________________________________________
Address________________________________________________________________________
City________________________________ State _____________________ Zip__________
<PAGE>
Prospectus
May 1, 2000
Wells Fargo Advantage(SM) Builder Variable Annuity
INDIVIDUAL OR GROUP FLEXIBLE PREMIUM DEFERRED COMBINATION FIXED/VARIABLE ANNUITY
American Enterprise Variable Annuity Account
Issued by: American Enterprise Life Insurance Company (American Enterprise Life)
829 AXP Financial Center
Minneapolis, MN 55474
Telephone: 1-800-333-3437
This prospectus contains information that you should know before investing. You
also will receive the prospectuses for:
o American Express(R) Variable Portfolio Funds
o AIM Variable Insurance Funds
o The Dreyfus Socially Responsible Growth Fund, Inc.
o Franklin Templeton Variable Insurance Products Trust (FTVIPT)
o Goldman Sachs Variable Insurance Trust (VIT)
o MFS(R) Variable Insurance Trust(SM)
o Putnam Variable Trust - Class IB Shares
o Wells Fargo Variable Trust Funds
Please read the prospectuses carefully and keep them for future reference.
The contract provides for purchase payment credits which we may reverse up to
the maximum withdrawal charge under certain circumstances. Expense charges from
contracts with purchase payment credits may be higher than charges for contracts
without such credits. The amount of the credit may be more than offset by
additional fees and charges associated with the credit.
The Securities and Exchange Commission (SEC) has not approved or disapproved
these securities or passed upon the accuracy or adequacy of this prospectus. Any
representation to the contrary is a criminal offense.
An investment in this contract is not a deposit of a bank or financial
institution and is not insured or guaranteed by the Federal Deposit Insurance
Corporation or any other government agency. An investment in this contract
involves investment risk including the possible loss of principal.
A Statement of Additional Information (SAI), dated the same date as this
prospectus, is incorporated by reference into this prospectus. It is filed with
the SEC and is available without charge by contacting American Enterprise Life
at the telephone number above or by completing and sending the order form on the
last page of this prospectus. The table of contents of the SAI is on the last
page of this prospectus.
<PAGE>
Table of Contents
Key Terms...................................................................3
The Contract in Brief.......................................................5
Expense Summary.............................................................7
Condensed Financial Information (Unaudited)................................15
Financial Statements.......................................................17
Performance Information....................................................17
The Variable Account and the Funds.........................................19
The Fixed Accounts.........................................................25
Buying Your Contract.......................................................27
Charges....................................................................30
Valuing Your Investment....................................................36
Making the Most of Your Contract...........................................38
Withdrawals................................................................44
Changing Ownership.........................................................45
Benefits in Case of Death..................................................45
The Annuity Payout Period..................................................49
Taxes......................................................................52
Voting Rights..............................................................54
Substitution of Investments................................................55
About the Service Providers................................................56
Additional Information About American Enterprise Life......................57
Directors and Executive Officers...........................................62
Experts....................................................................63
American Enterprise Life Insurance Company Financial Information...........64
Table of Contents of the Statement of Additional Information...............81
<PAGE>
Key Terms
These terms can help you understand details about your contract.
Accumulation unit -- A measure of the value of each subaccount before annuity
payouts begin.
Annuitant -- The person on whose life or life expectancy the annuity payouts are
based.
Annuity payouts -- An amount paid at regular intervals under one of several
plans.
Beneficiary -- The person you designate to receive annuity benefits in case of
the owner's or annuitant's death while the contract is in force and before
annuity payouts begin.
Close of business -- When the New York Stock Exchange (NYSE) closes, normally 4
p.m. Eastern time.
Contract -- A deferred annuity contract, or a certificate showing your interest
under a group annuity contract, that permits you to accumulate money for
retirement by making one or more purchase payments. It provides for lifetime or
other forms of payouts beginning at a specified time in the future.
Contract value -- The total value of your contract before we deduct any
applicable charges.
Contract year -- A period of 12 months, starting on the effective date of your
contract and on each anniversary of the effective date.
Fixed accounts -- The one-year fixed account is an account to which you may
allocate purchase payments. Amounts you allocate to this account earn interest
at rates that we declare periodically. Guarantee Period Accounts are fixed
accounts to which you may also allocate purchase payments. These accounts have
guaranteed interest rates declared for periods ranging from two to ten years.
Withdrawals from these accounts prior to the end of the term specified will
receive a Market Value Adjustment, which may result in a gain or loss of
principal.
Funds -- Investment options under your contract. You may allocate your purchase
payments into subaccounts investing in shares of any or all of these funds.
Guarantee Period -- The number of years that a guaranteed interest rate is
credited.
Market Value Adjustment (MVA) -- A positive or negative adjustment assessed if
any portion of a Guarantee Period Account is withdrawn or transferred prior to
the end of its Guarantee Period.
<PAGE>
Owner (you, your) -- The person who controls the contract (decides on investment
allocations, transfers, payout options, etc.). Usually, but not always, the
owner is also the annuitant. The owner is responsible for taxes, regardless of
whether he or she receives the contract's benefits.
Purchase payment credits -- An addition we make to your contract value. We base
the amount of the credit on total net payments (total payments less total
withdrawals). We apply the credit to your contract based on your current
payment.
Qualified annuity -- A contract that you purchase to fund one of the following
tax-deferred retirement plans that is subject to applicable federal law and any
rules of the plan itself:
o Individual Retirement Annuities (IRAs) under Section 408(b) of the Internal
Revenue Code of 1986, as amended (the Code)
o Roth IRAs under Section 408A of the Code
o Simplified Employee Pension (SEP) plans under Section 408(k) of the Code
A qualified annuity will not provide any necessary or additional tax deferral if
it is used to fund a retirement plan that is already tax-deferred.
All other contracts are considered nonqualified annuities.
Retirement date -- The date when annuity payouts are scheduled to begin.
Valuation date -- Any normal business day, Monday through Friday, that the NYSE
is open. Each valuation date ends at the close of business. We calculate the
value of each subaccount at the close of business on each valuation date.
Variable account -- Consists of separate subaccounts to which you may allocate
purchase payments; each invests in shares of one fund. The value of your
investment in each subaccount changes with the performance of the particular
fund.
Withdrawal value -- The amount you are entitled to receive if you make a full
withdrawal from your contract. It is the contract value minus any applicable
charges.
<PAGE>
The Contract in Brief
Purpose: The purpose of the contract is to allow you to accumulate money for
retirement. You do this by making one or more purchase payments; you may
allocate your purchase payments to the fixed accounts and/or subaccounts under
the contract. These accounts in turn, may earn returns that increase the value
of the contract. Beginning at a specified time in the future called the
retirement date, the contract provides lifetime or other forms of payouts of
your contract value (less any applicable premium tax). As in the case of other
annuities, it may not be advantageous for you to purchase this contract as a
replacement for, or in addition to, an existing annuity.
A qualified annuity will not provide any necessary or additional tax deferral if
it is used to fund a retirement plan that is tax-deferred. However, the contract
has features other than tax deferral that may make it an appropriate investment
for your retirement plan. You should compare these features and their costs with
other investment options before deciding to purchase this contract.
Free look period: You may return your contract to your sales representative or
our office within the time stated on the first page of your contract and receive
a full refund of the contract value, less any purchase payment credits up to the
maximum withdrawal charges. (See "Buying Your Contract -- Purchase payment
credits.") However, you bear the investment risk from the time of purchase until
you return the contract; the refund amount may be more or less than the payment
you made. (Exception: If the law requires, we will refund all of your purchase
payments.)
Accounts: Currently, you may allocate your purchase payments among any or
all of:
o the subaccounts, each of which invests in a fund with a particular
investment objective. The value of each subaccount varies with the
performance of the particular fund in which it invests. We cannot guarantee
that the value at the retirement date will equal or exceed the total
purchase payments you allocate to the subaccounts. (p. 19 )
o the fixed accounts, which earn interest at rates that we adjust
periodically. Some states restrict the amount you can allocate to the fixed
accounts.(p. 25)
Buying your contract: Your sales representative will help you complete and
submit an application. Applications are subject to acceptance at our office. You
may buy only a nonqualified annuity (by rollover only) or a qualified annuity
from your Wells Fargo sales representative without prior approval. Contracts
sold through American Express Financial Advisors Inc. (AEFA) are only available
with an eight-year withdrawal charge schedule. You may buy a qualified annuity
or a nonqualified annuity through your AEFA sales representative. You can buy
another contract with the same underlying funds but with different mortality and
expense risk fees and withdrawal charges. For information on this contract,
please call us at the telephone number listed on the first page of this
prospectus or ask your sales representative. After your initial purchase
payment, you have the option of making additional purchase payments in the
future. (p. 27)
o Minimum initial purchase payment -- $100,000 for contracts sold through
AEFA; $5,000 for all other contracts sold in Texas, Washington and South
Carolina; and $2,000 for all other contracts sold in other states. The
$5,000 and $2,000 minimums do not apply if you enroll in a Systematic
Investment Plan (SIP).
o Minimum additional purchase payment -- $100 ($50 for SIPs).
o Maximum total purchase payments (without prior approval) -- $1,000,000.
Transfers: Subject to certain restrictions you currently may redistribute your
money among the accounts without charge at any time until annuity payouts begin,
and once per contract year among the subaccounts after annuity payouts begin.
Transfers out of the Guarantee Period Accounts before the end of the Guarantee
Period will be subject to a MVA. You may establish automated transfers among the
accounts. Fixed account transfers are subject to special restrictions. (p. 39)
<PAGE>
Withdrawals: You may withdraw all or part of your contract value at any time
before the retirement date. You also may establish automated partial
withdrawals. Withdrawals may be subject to charges and tax penalties (including
a 10% IRS penalty if you make withdrawals prior to your reaching age 591/2) and
may have other tax consequences; also, certain restrictions apply. (p. 44)
Changing ownership: You may change ownership of a nonqualified annuity by
written instruction, but this may have federal income tax consequences.
Restrictions apply to changing ownership of a qualified annuity. (p. 45)
Benefits in case of death: If you or the annuitant die before annuity payouts
begin, we will pay the beneficiary an amount at least equal to the contract
value. (p. 45)
Annuity payouts: You can apply your contract value to an annuity payout plan
that begins on the retirement date. You may choose from a variety of plans to
make sure that payouts continue as long as you like. If you purchased a
qualified annuity, the payout schedule must meet the requirements of the
qualified plan. We can make payouts on a fixed or variable basis, or both. Total
monthly payouts may include amounts from each subaccount and the one-year fixed
account. During the annuity payout period, your choices for subaccounts may be
limited. The Guarantee Period Accounts are not available during the payout
period. (p. 49)
Taxes: Generally, your contract grows tax-deferred until you make withdrawals
from it or begin to receive payouts. (Under certain circumstances, IRS penalty
taxes may apply.) Even if you direct payouts to someone else, you will be taxed
on the income if you are the owner. However, Roth IRAs may grow and be
distributed tax free if you meet certain distribution requirements. (p. 52)
Charges: We assess certain charges in connection with your contract (p. 30):
o $30 annual contract administrative charge;
o a 0.15% variable account administrative charge;
o a 1.35% mortality and expense risk fee applies (if you allocate money to
one or more subaccounts) with a six-year withdrawal charge schedule;
o a 1.10% mortality and expense risk fee applies (if you allocate money to
one or more subaccounts) with an eight-year withdrawal charge schedule;
o if you select the Enhanced Death Benefit Rider*, an additional 0.20%
mortality and expense risk fee (if you allocate money to one or more
subaccounts);
o if you select the Guaranteed Minimum Income Benefit Rider**, an annual fee
based on the Guaranteed Income Benefit Base (currently at 0.30%);
o withdrawal charge;
o any premium taxes that may be imposed on us by state or local governments
(currently, we deduct any applicable premium tax when you make a total
withdrawal or when annuity payouts begin, but we reserve the right to
deduct this tax at other times such as when you make purchase payments or
when you make a total withdrawal); and
o the operating expenses of the funds in which the subaccounts invest.
* Available if both you and the annuitant are 79 or younger. May not be
available in all states.
** This rider is only available at the time you purchase your contract if the
annuitant is 75 or younger and you also select the Enhanced Death Benefit
Rider option. Riders may not be available in all states.
<PAGE>
Expense Summary
The purpose of the following information is to help you understand the various
costs and expenses associated with your contract.
You pay no sales charge when you purchase your contract. We show all costs that
we deduct directly from your contract or indirectly from the subaccounts and
funds below. Some expenses may vary as we explain under "Charges." Please see
the funds' prospectuses for more information on the operating expenses of each
fund.
CONTRACT OWNER EXPENSES
Withdrawal charge: contingent deferred sales charge as a percentage of purchase
payment withdrawn. You select either a six-year or eight-year withdrawal charge
schedule* at the time of application.
<TABLE>
<CAPTION>
Six-year schedule Eight-year schedule
<S> <C> <C> <C>
Years from purchase Withdrawal charge Years from purchase Withdrawal charge
payment receipt percentage payment receipt percentage
1 8% 1 8%
2 8 2 8
3 8 3 8
4 6 4 8
5 4 5 8
6 2 6 6
Thereafter 0 7 4
8 2
Thereafter 0
</TABLE>
* Contracts sold through AEFA are only available with an eight-year
withdrawal charge schedule.
Withdrawal charge under Annuity Payout Plan E -- Payouts for a specified period:
The amount equal to the difference in the present value of remaining payments
using the assumed investment rate and such present value using the assumed
investment rate plus 1.82% if the original contract had a six-year withdrawal
charge schedule and 1.57% if the original contract had an eight-year withdrawal
charge schedule. In no event would your withdrawal charge exceed 9% of the
amount available for payouts under the plan.
Annual contract administrative charge $30**
** We will waive this charge when your contract value is $50,000 or more on
the current contract anniversary.
Guaranteed Minimum Income Benefit Rider*** fee: as a
percentage of the Guaranteed Income Benefit Base charged
annually. This is an optional expense. 0.30%
*** This rider is only available at the time you purchase your contract if the
annuitant is 75 or younger and you also select the Enhanced Death Benefit
Rider option. Riders may not be available in all states.
<PAGE>
ANNUAL VARIABLE ACCOUNT EXPENSES (as a percentage of average subaccount value)
You can choose the length of your contract's withdrawal charge schedule and the
death benefit guarantee provided. The combination you choose determines the fees
you pay. The table below shows the combinations available to you and their cost.
<TABLE>
<CAPTION>
<S> <C> <C>
Six-year withdrawal schedule Eight-year withdrawal schedule
Variable account administrative charge 0.15% 0.15%
Mortality and expense risk fee 1.35% 1.10%
Enhanced Death Benefit Rider* fee as part of the mortality
and expense risk fee. This is an optional expense. 0.20% 0.20%
Total annual variable account expenses without the
optional Enhanced Death Benefit Rider fee 1.50% 1.25%
Total annual variable account expenses with the
optional Enhanced Death Benefit Rider fee 1.70% 1.45%
</TABLE>
* Available if both you and the annuitant are 79 or younger. May not be
available in all states.
<PAGE>
Annual operating expenses of the funds (after fee waivers and/or expense
reimbursements, if applicable, as a percentage of average daily net assets)
<TABLE>
<CAPTION>
<S> <C> <C> <C> <C>
Management 12b-1 Other
Fees Fees Expenses Total
AXP(SM) Variable Portfolio -
Blue Chip Advantage Fund .56% .13 .26 .95%(1)
Capital Resource Fund .60% .13 .06 .79%(2)
Diversified Equity Income Fund .56% .13 .26 .95%(1)
Extra Income Fund .62% .13 .08 .83%(2)
Federal Income Fund .61% .13 .14 .88%(1)
New Dimensions Fund(R) .61% .13 .07 .81%(2)
Small Cap Advantage Fund .79% .13 .31 1.23%(1)
AIM V.I.
Capital Appreciation Fund .62% -- .11 .73%(3)
Value Fund .61% -- .15 .76%(3)
Dreyfus
The Dreyfus Socially Responsible Growth Fund, Inc. .75% -- .04 .79%(3)
FTVIPT
Franklin Income Securities Fund - Class 2 .48% .25 .02 .75%(4)
Franklin Real Estate Fund - Class 2 .56% .25 .02 .83%(5)
Franklin Small Cap Fund - Class 2 .55% .25 .27 1.07%(6)
Mutual Shares Securities Fund - Class 2 .60% .25 .19 1.04%(4,7)
Goldman Sachs VIT
CORE(SM) U.S. Equity Fund .70% -- .20 .90%(8)
Global Income Fund .90% -- .25 1.15%(8)
Internet Tollkeeper Fund 1.00% -- .25 1.25%(9)
Mid Cap Value Fund .80% -- .25 1.05%(8)
MFS(R)
Growth with Income Series .75% -- .13 .88%(10)
Utilities Series .75% -- .16 .91%(10)
Putnam Variable Trust
Putnam VT International Growth Fund
- Class IB Shares .80% .15 .22 1.17%(3)
Putnam VT Vista Fund - Class IB Shares .65% .15 .10 .90%(3)
Wells Fargo VT
Asset Allocation Fund .42% .25 .33 1.00%(11)
Corporate Bond Fund .10% .25 .55 .90%(11)
Equity Income Fund .38% .25 .37 1.00%(11)
Equity Value Fund --% .25 .75 1.00%(11)
Growth Fund .32% .25 .43 1.00%(11)
Large Company Growth Fund .12% .25 .63 1.00%(11)
Money Market Fund .10% .25 .50 .85%(11)
Small Cap Growth Fund --% .25 .95 1.20%(11)
</TABLE>
<PAGE>
1 Based on estimated expenses after fee waivers and expense reimbursements.
Without fee waivers and expense reimbursements "Other Expenses" and "Total"
would be 0.39% and 1.08% for AXP(SM) Variable Portfolio - Blue Chip
Advantage and AXP(SM) Variable Portfolio Diversified Equity Income Funds,
0.26% and 1.00% for AXP(SM) Variable Portfolio - Federal Income Fund, and
0.43% and 1.35% for AXP(SM) Variable Portfolio - Small Cap Advantage Fund.
2 The fund's expense figures are based on actual expenses for the fiscal year
ended Aug. 31, 1999 restated to include a Rule 12b-1 distribution fee of
0.125% that went into effect Sept. 21, 1999.
3 Figures in "Management Fees," "12b-1 Fees," "Other Expenses" and "Total"
are based on actual expenses for the fiscal year ended Dec. 31, 1999.
4 The fund's class 2 distribution plan or "Rule 12b-1 plan" is described in
the fund's prospectus. The fund administration fee is paid indirectly
through the management fee.
5 Previously Franklin Real Estate Securities Fund. The fund's class 2
distribution plan or "Rule 12b-1 plan" is described in the fund's
prospectus. The fund administration fee is paid indirectly through the
management fee.
6 On Feb. 8, 2000, a merger and reorganization was approved that combined the
assets of the fund with a similar fund of the Templeton Variable Products
Series Fund, effective May 1, 2000. On Feb. 8, 2000, fund shareholders
approved new management fees, which apply to the combined fund effective
May 1, 2000. The table shows restated total expenses based on the new fees
and assets of the fund as of Dec. 31, 1999, and not the assets of the
combined fund. However, if the table reflected both the new fees and the
combined assets, the fund's expenses after May 1, 2000 would be estimated
as: Management Fees 0.55%, 12b-1 Fees 0.25%, Other Expenses 0.27%, and
Total 1.07%. The fund's class 2 distribution plan or "Rule 12b-1 plan" is
described in the fund's prospectus.
7 On Feb. 8, 2000, a merger and reorganization was approved that combined the
fund with a similar fund of Templeton Variable Products Series Fund,
effective May 1, 2000. The table shows total expenses based on the fund's
assets as of Dec. 31, 1999, and not the assets of the combined fund.
However, if the table reflected combined assets, the fund's expenses after
May 1, 2000 would be estimated as: Management Fees 0.60%, 12-b-1 Fees
0.25%, Other Expenses 0.19% and Total 1.04%. The fund's class 2
distribution plan or "Rule 12b-1 plan" is described in the fund's
prospectus.
8 The fund's expenses are based on estimated expenses for the fiscal year
Dec. 31, 2000. Goldman Sachs Asset Management and Goldman Sachs Asset
Management International, the investment advisors, have voluntarily agreed
to reduce or limit certain other expenses (excluding management fees,
taxes, interest, brokerage fees, litigation, indemnification and other
extraordinary expenses) to the extent such expenses exceed the percentage
stated in the above table (as calculated per annum) of each fund's
respective average daily net assets. Without the limitations described
above, "Other expenses" and "Total" of the funds would be as follows: 1.78%
and 2.68% for Global Income Fund, 0.42% and 1.22% for Mid Cap Value Fund
(formerly the Mid Cap Equity Fund), and 0.20% and 0.90% for the CORE(SM)
U.S. Equity Fund. Core(SM) is a Service Mark of Goldman Sachs & Co..
9 Based on projected assets of $150 million, there will be no expense
reimbursement.
10 Each series has an expense offset arrangement which reduces the series'
custodian fee based upon the amount of cash maintained by the series with
its custodian and dividend disbursing agent. Each series may enter into
other such arrangements and directed brokerage arrangements, which would
also have the effect of reducing the series' expenses. "Other Expenses" do
not take into account these expense reductions, and are therefore higher
than the actual expenses of the series. Had these fee reductions been taken
into account, "Net Expenses" would be lower for certain series and would
equal: 0.87% for Growth with Income Series and 0.90% for Utilities Series.
11 Amounts represent expenses as of Dec. 31, 1999 and have been adjusted for
changes in contract rates that occurred during 1999. Expenses are shown
after fee waivers and expense reimbursements. Absent fee waivers
"Management Fees" and "Total" would have been 0.55% and 1.13% for Wells
Fargo VT Asset Allocation, 0.45% and 1.25% for Wells Fargo VT Corporate
Bond Fund, 0.55% and 1.17% for Wells Fargo VT Equity Income Fund, 0.55% and
1.57% for Wells Fargo VT Equity Value Fund, 0.55% and 1.23% for Wells Fargo
VT Growth Fund, 0.55% and 1.43% for Wells Fargo VT Large Company Growth
Fund, 0.40% and 1.15% for Wells Fargo VT Money Market Fund, and 0.75% and
2.41% for Wells Fargo VT Small Cap Growth Fund.
<PAGE>
Examples:*
You would pay the following expenses on a $1,000 investment if you selected a
six-year withdrawal charge schedule without any optional riders and assuming a
5% annual return and ....
<TABLE>
<CAPTION>
no withdrawal or selection
total withdrawal at the of an annuity payout plan at the
end of each time period end of each time period
<S> <C> <C> <C> <C> <C> <C> <C> <C>
1 year 3 years 5 years 10 years 1 year 3 years 5 years 10 years
AXP(SM) Variable Portfolio -
Blue Chip Advantage Fund $105.81 $159.32 $175.44 $288.08 $25.81 $79.32 $135.44 $288.08
Capital Resource Fund 104.17 154.40 167.25 271.81 24.17 74.40 127.25 271.81
Diversified Equity Income Fund 105.81 159.32 175.44 288.08 25.81 79.32 135.44 288.08
Extra Income Fund 104.58 155.63 169.31 275.91 24.58 75.63 129.31 275.91
Federal Income Fund 105.09 157.17 171.87 281.00 25.09 77.17 131.87 281.00
New Dimensions Fund(R) 104.37 155.01 168.28 273.86 24.37 75.01 128.28 273.86
Small Cap Advantage Fund 108.68 167.89 189.64 315.94 28.68 87.89 149.64 315.94
AIM V.I.
Capital Appreciation Fund 103.55 152.55 164.17 265.65 23.55 72.55 124.17 265.65
Value Fund 103.86 153.47 165.71 268.74 23.86 73.47 125.71 268.74
Dreyfus
The Dreyfus Socially Responsible
Growth Fund, Inc. 104.17 154.40 167.25 271.81 24.17 74.40 127.25 271.81
FTVIPT
Franklin Income Securities Fund
- - Class 2 103.76 153.17 165.20 267.71 23.76 73.17 125.20 267.71
Franklin Real Estate Fund
- - Class 2 104.58 155.63 169.31 275.91 24.58 75.63 129.31 275.91
Franklin Small Cap Fund
- - Class 2 107.04 163.00 181.55 300.11 27.04 83.00 141.55 300.11
Mutual Shares Securities Fund
- - Class 2 106.73 162.08 180.03 297.12 26.73 82.08 140.03 297.12
Goldman Sachs VIT
CORE(SM) U.S. Equity Fund 105.30 157.78 172.89 283.03 25.30 77.78 132.89 283.03
Global Income Fund 107.86 165.44 185.60 308.06 27.86 85.44 145.60 308.06
Internet Tollkeeper Fund 108.88 168.50 190.65 317.89 28.88 88.50 150.65 317.89
Mid Cap Value Fund 106.83 162.38 180.53 298.12 26.83 82.38 140.53 298.12
MFS(R)
Growth with Income Series 105.09 157.17 171.87 281.00 25.09 77.17 131.87 281.00
Utilities Series 105.40 158.09 173.40 284.04 25.40 78.09 133.40 284.04
Putnam Variable Trust
Putnam VT International Growth
Fund -
Class IB Shares 108.06 166.05 186.62 310.03 28.06 86.05 146.62 310.03
Putnam VT Vista Fund -
Class IB Shares 105.30 157.78 172.89 283.03 25.30 77.78 132.89 283.03
Wells Fargo VT
Asset Allocation Fund 106.32 160.85 177.99 293.11 26.32 80.85 137.99 293.11
Corporate Bond Fund 105.30 157.78 172.89 283.03 25.30 77.78 132.89 283.03
Equity Income Fund 106.32 160.85 177.99 293.11 26.32 80.85 137.99 293.11
Equity Value Fund 106.32 160.85 177.99 293.11 26.32 80.85 137.99 293.11
Growth Fund 106.32 160.85 177.99 293.11 26.32 80.85 137.99 293.11
Large Company Growth Fund 106.32 160.85 177.99 293.11 26.32 80.85 137.99 293.11
Money Market Fund 104.78 156.24 170.33 277.94 24.78 76.24 130.33 277.94
Small Cap Growth Fund 108.37 166.97 188.13 312.99 28.37 86.97 148.13 312.99
</TABLE>
<PAGE>
You would pay the following expenses on a $1,000 investment if you selected a
six-year withdrawal charge schedule with the optional 0.20% Enhanced Death
Benefit Rider and the 0.30% Guaranteed Minimum Income Benefit Rider and assuming
a 5% annual return and....
<TABLE>
<CAPTION>
no withdrawal or selection
total withdrawal at the of an annuity payout plan at the
end of each time period end of each time period
<S> <C> <C> <C> <C> <C> <C> <C> <C>
1 year 3 years 5 years 10 years 1 year 3 years 5 years 10 years
AXP(SM) Variable Portfolio -
Blue Chip Advantage Fund $111.01 $175.37 $193.08 $337.75 $31.01 $95.37 $153.08 $337.75
Capital Resource Fund 109.37 170.47 184.96 321.80 29.37 90.47 144.96 321.80
Diversified Equity Income Fund 111.01 175.37 193.08 337.75 31.01 95.37 153.08 337.75
Extra Income Fund 109.78 171.70 186.99 325.81 29.78 91.70 146.99 325.81
Federal Income Fund 110.29 173.23 189.53 330.80 30.29 93.23 149.53 330.80
New Dimensions Fund(R) 109.57 171.09 185.98 323.81 29.57 91.09 145.98 323.81
Small Cap Advantage Fund 113.88 183.91 207.16 365.05 33.88 103.91 167.16 365.05
AIM V.I.
Capital Appreciation Fund 108.75 168.63 181.90 315.75 28.75 88.63 141.90 315.75
Value Fund 109.06 169.55 183.43 318.78 29.06 89.55 143.43 318.78
Dreyfus
The Dreyfus Socially Responsible
Growth Fund, Inc. 109.37 170.47 184.96 321.80 29.37 90.47 144.96 321.80
FTVIPT
Franklin Income Securities Fund
- - Class 2 108.96 169.25 182.92 317.77 28.96 89.25 142.92 317.77
Franklin Real Estate Fund - Class 2 109.78 171.70 186.99 325.81 29.78 91.70 146.99 325.81
Franklin Small Cap Fund - Class 2 112.24 179.04 199.13 349.54 32.24 99.04 159.13 349.54
Mutual Shares Securities Fund - Class 2 111.93 178.12 197.62 346.61 31.93 98.12 157.62 346.61
Goldman Sachs VIT
CORE(SM) U.S. Equity Fund 110.50 173.84 190.55 332.79 30.50 93.84 150.55 332.79
Global Income Fund 113.06 181.47 203.15 357.33 33.06 101.47 163.15 357.33
Internet Tollkeeper Fund 114.08 184.51 208.16 366.97 34.08 104.51 168.16 366.97
Mid Cap Value Fund 112.03 178.43 198.13 347.58 32.03 98.43 158.13 347.58
MFS(R)
Growth with Income Series 110.29 173.23 189.53 330.80 30.29 93.23 149.53 330.80
Utilities Series 110.60 174.15 191.05 333.78 30.60 94.15 151.05 333.78
Putnam Variable Trust
Putnam VT International Growth Fund -
Class IB Shares 113.26 182.08 204.16 359.26 33.26 102.08 164.16 359.26
Putnam VT Vista Fund - Class IB Shares 110.50 173.84 190.55 332.79 30.50 93.84 150.55 332.79
Wells Fargo VT
Asset Allocation Fund 111.52 176.90 195.61 342.68 31.52 96.90 155.61 342.68
Corporate Bond Fund 110.50 173.84 190.55 332.79 30.50 93.84 150.55 332.79
Equity Income Fund 111.52 176.90 195.61 342.68 31.52 96.90 155.61 342.68
Equity Value Fund 111.52 176.90 195.61 342.68 31.52 96.90 155.61 342.68
Growth Fund 111.52 176.90 195.61 342.68 31.52 96.90 155.61 342.68
Large Company Growth Fund 111.52 176.90 195.61 342.68 31.52 96.90 155.61 342.68
Money Market Fund 109.98 172.31 188.01 327.81 29.98 92.31 148.01 327.81
Small Cap Growth Fund 113.57 182.99 205.66 362.16 33.57 102.99 165.66 362.16
</TABLE>
<PAGE>
You would pay the following expenses on a $1,000 investment if you selected an
eight-year withdrawal charge schedule without any optional riders and assuming a
5% annual return and ....
<TABLE>
<CAPTION>
no withdrawal or selection
total withdrawal at the of an annuity payout plan at the
end of each time period end of each time period
<S> <C> <C> <C> <C> <C> <C> <C> <C>
1 year 3 years 5 years 10 years 1 year 3 years 5 years 10 years
AXP(SM) Variable Portfolio -
Blue Chip Advantage Fund $103.25 $151.62 $202.62 $262.55 $23.25 $71.62 $122.62 $262.55
Capital Resource Fund 101.61 146.68 194.35 245.87 21.61 66.68 114.35 245.87
Diversified Equity Income Fund 103.25 151.62 202.62 262.55 23.25 71.62 122.62 262.55
Extra Income Fund 102.02 147.92 196.42 250.07 22.02 67.92 116.42 250.07
Federal Income Fund 102.53 149.46 199.01 255.29 22.53 69.46 119.01 255.29
New Dimensions Fund(R) 101.81 147.30 195.38 247.97 21.81 67.30 115.38 247.97
Small Cap Advantage Fund 106.12 160.24 216.97 291.10 26.12 80.24 136.97 291.10
AIM V.I.
Capital Appreciation Fund 100.99 144.82 191.23 239.55 20.99 64.82 111.23 239.55
Value Fund 101.30 145.75 192.79 242.72 21.30 65.75 112.79 242.72
Dreyfus
The Dreyfus Socially Responsible
Growth Fund, Inc. 101.61 146.68 194.35 245.87 21.61 66.68 114.35 245.87
FTVIPT
Franklin Income Securities Fund-Class 2 101.20 145.44 192.27 241.66 21.20 65.44 112.27 241.66
Franklin Real Estate Fund - Class 2 102.02 147.92 196.42 250.07 22.02 67.92 116.42 250.07
Franklin Small Cap Fund - Class 2 104.48 155.32 208.79 274.88 24.48 75.32 128.79 274.88
Mutual Shares Securities Fund - Class 2 104.17 154.40 207.25 271.81 24.17 74.40 127.25 271.81
Goldman Sachs VIT
CORE(SM) U.S. Equity Fund 102.73 150.08 200.04 257.37 22.73 70.08 120.04 257.37
Global Income Fund 105.30 157.78 212.89 283.03 25.30 77.78 132.89 283.03
Internet Tollkeeper Fund 106.32 160.85 217.99 293.11 26.32 80.85 137.99 293.11
Mid Cap Value Fund 104.27 154.71 207.77 272.84 24.27 74.71 127.77 272.84
MFS(R)
Growth with Income Series 102.53 149.46 199.01 255.29 22.53 69.46 119.01 255.29
Utilities Series 102.84 150.39 200.56 258.41 22.84 70.39 120.56 258.41
Putnam Variable Trust
Putnam VT International Growth Fund -
Class IB Shares 105.50 158.40 213.91 285.05 25.50 78.40 133.91 285.05
Putnam VT Vista Fund - Class IB Shares 102.73 150.08 200.04 257.37 22.73 70.08 120.04 257.37
Wells Fargo VT
Asset Allocation Fund 103.76 153.17 205.20 267.71 23.76 73.17 125.20 267.71
Corporate Bond Fund 102.73 150.08 200.04 257.37 22.73 70.08 120.04 257.37
Equity Income Fund 103.76 153.17 205.20 267.71 23.76 73.17 125.20 267.71
Equity Value Fund 103.76 153.17 205.20 267.71 23.76 73.17 125.20 267.71
Growth Fund 103.76 153.17 205.20 267.71 23.76 73.17 125.20 267.71
Large Company Growth Fund 103.76 153.17 205.20 267.71 23.76 73.17 125.20 267.71
Money Market Fund 102.22 148.53 197.46 252.16 22.22 68.53 117.46 252.16
Small Cap Growth Fund 105.81 159.32 215.44 288.08 25.81 79.32 135.44 288.08
</TABLE>
<PAGE>
You would pay the following expenses on a $1,000 investment if you selected an
eight-year withdrawal charge schedule with the optional 0.20% Enhanced Death
Benefit Rider and the 0.30% Guaranteed Minimum Income Benefit Rider and assuming
a 5% annual return and....
<TABLE>
<CAPTION>
no withdrawal or selection
total withdrawal at the of an annuity payout plan at the
end of each time period end of each time period
<S> <C> <C> <C> <C> <C> <C> <C> <C>
1 year 3 years 5 years 10 years 1 year 3 years 5 years 10 years
AXP(SM) Variable Portfolio -
Blue Chip Advantage Fund $108.45 $167.71 $230.30 $322.65 $28.45 $87.71 $150.30 $322.65
Capital Resource Fund 106.81 162.79 222.09 306.30 26.81 82.79 142.09 306.30
Diversified Equity Income Fund 108.45 167.71 230.30 322.65 28.45 87.71 150.30 322.65
Extra Income Fund 107.22 164.02 224.15 310.41 27.22 84.02 144.15 310.41
Federal Income Fund 107.73 165.56 226.71 315.53 27.73 85.56 146.71 315.53
New Dimensions Fund(R) 107.01 163.40 223.12 308.36 27.01 83.40 143.12 308.36
Small Cap Advantage Fund 111.32 176.29 244.53 350.64 31.32 96.29 164.53 350.64
AIM V.I.
Capital Appreciation Fund 106.19 160.94 219.00 300.10 26.19 80.94 139.00 300.10
Value Fund 106.50 161.86 220.54 303.20 26.50 81.86 140.54 303.20
Dreyfus
The Dreyfus Socially Responsible
Growth Fund, Inc. 106.81 162.79 222.09 306.30 26.81 82.79 142.09 306.30
FTVIPT
Franklin Income Securities Fund-Class 2 106.40 161.55 220.03 302.17 26.40 81.55 140.03 302.17
Franklin Real Estate Fund - Class 2 107.22 164.02 224.15 310.41 27.22 84.02 144.15 310.41
Franklin Small Cap Fund - Class 2 109.68 171.39 236.42 334.74 29.68 91.39 156.42 334.74
Mutual Shares Securities Fund - Class 2 109.37 170.47 234.89 331.73 29.37 90.47 154.89 331.73
Goldman Sachs VIT
CORE(SM) U.S. Equity Fund 107.93 166.17 227.74 317.57 27.93 86.17 147.74 317.57
Global Income Fund 110.50 173.84 240.48 342.72 30.50 93.84 160.48 342.72
Internet Tollkeeper Fund 111.52 176.90 245.54 352.61 31.52 96.90 165.54 352.61
Mid Cap Value Fund 109.47 170.78 235.40 332.73 29.47 90.78 155.40 332.73
MFS(R)
Growth with Income Series 107.73 165.56 226.71 315.53 27.73 85.56 146.71 315.53
Utilities Series 108.04 166.48 228.25 318.58 28.04 86.48 148.25 318.58
Putnam Variable Trust
Putnam VT International Growth Fund -
Class IB Shares 110.70 174.46 241.49 344.71 30.70 94.46 161.49 344.71
Putnam VT Vista Fund - Class IB Shares 107.93 166.17 227.74 317.57 27.93 86.17 147.74 317.57
Wells Fargo VT
Asset Allocation Fund 108.96 169.25 232.85 327.70 28.96 89.25 152.85 327.70
Corporate Bond Fund 107.93 166.17 227.74 317.57 27.93 86.17 147.74 317.57
Equity Income Fund 108.96 169.25 232.85 327.70 28.96 89.25 152.85 327.70
Equity Value Fund 108.96 169.25 232.85 327.70 28.96 89.25 152.85 327.70
Growth Fund 108.96 169.25 232.85 327.70 28.96 89.25 152.85 327.70
Large Company Growth Fund 108.96 169.25 232.85 327.70 28.96 89.25 152.85 327.70
Money Market Fund 107.42 164.64 225.17 312.46 27.42 84.64 145.17 312.46
Small Cap Growth Fund 111.01 175.37 243.01 347.68 31.01 95.37 163.01 347.68
</TABLE>
*In these examples, the $30 contract administrative charge is approximated as a
0.068% charge based on our estimated average contract size. Premium taxes
imposed by some state and local governments are not reflected in this table. We
entered into certain arrangements under which we are compensated by the funds'
advisors and/or distributors for the administrative services we provide to the
funds.
You should not consider these examples as representations of past or future
expenses. Actual expenses may be more or less than those shown.
<PAGE>
Condensed Financial Information (Unaudited)
The following tables give per-unit information about the financial history of
each subaccount. We have not provided this information for some subaccounts
because they are new and do not have any history.
<TABLE>
<CAPTION>
<S> <C>
Year ended Dec. 31, 1999
Subaccount PBCA1(1) (Investing in shares of AXP(SM) Variable Portfolio - Blue Chip
Advantage Fund)
Accumulation unit value at beginning of period $1.00
Accumulation unit value at end of period $1.09
Number of accumulation units outstanding at end of period 259
Ratio of operating expense to average net assets 1.25%
____________________________________________________________________________________________________________________
Subaccount PDEI1(1) (Investing in shares of AXP(SM) Variable Portfolio - Diversified
Equity Income Fund)
Accumulation unit value at beginning of period $1.00
Accumulation unit value at end of period $1.02
Number of accumulation units outstanding at end of period 262
Ratio of operating expense to average net assets 1.25%
____________________________________________________________________________________________________________________
Subaccount PEXI1(1) (Investing in shares of AXP(SM) Variable Portfolio - Extra Income Fund)
Accumulation unit value at beginning of period $1.00
Accumulation unit value at end of period $1.03
Number of accumulation units outstanding at end of period 259
Ratio of operating expense to average net assets 1.25%
____________________________________________________________________________________________________________________
Subaccount PNDM1(1) (Investing in shares of AXP(SM) Variable Portfolio - New Dimensions Fund(R))
Accumulation unit value at beginning of period $1.00
Accumulation unit value at end of period $1.15
Number of accumulation units outstanding at end of period 257
Ratio of operating expense to average net assets 1.25%
____________________________________________________________________________________________________________________
Subaccount PSCA1(1) (Investing in shares of AXP(SM) Variable Portfolio - Small Cap Advantage Fund)
Accumulation unit value at beginning of period $1.00
Accumulation unit value at end of period $1.11
Number of accumulation units outstanding at end of period 254
Ratio of operating expense to average net assets 1.25%
____________________________________________________________________________________________________________________
Subaccount PCAP1(2) (Investing in shares of AIM V.I. Capital Appreciation Fund)
Accumulation unit value at beginning of period $1.00
Accumulation unit value at end of period $1.26
Number of accumulation units outstanding at end of period 251
Ratio of operating expense to average net assets 1.25%
____________________________________________________________________________________________________________________
Subaccount PVAL1(2) (Investing in shares of AIM V.I. Value Fund)
Accumulation unit value at beginning of period $1.00
Accumulation unit value at end of period $1.11
Number of accumulation units outstanding at end of period 258
Ratio of operating expense to average net assets 1.25%
____________________________________________________________________________________________________________________
<PAGE>
Year ended Dec. 31,
1999
Subaccount PSMC1(2) (Investing in shares of FTVIPT Franklin Small Cap Fund -
Class 2)
Accumulation unit value at beginning of period $1.00
Accumulation unit value at end of period $1.43
Number of accumulation units outstanding at end of period 243
Ratio of operating expense to average net assets 1.25%
____________________________________________________________________________________________________________________
Subaccount PGIS1(2) (Investing in shares of MFS(R) Growth with Income Series)
Accumulation unit value at beginning of period $1.00
Accumulation unit value at end of period $1.05
Number of accumulation units outstanding at end of period 261
Ratio of operating expense to average net assets 1.25%
____________________________________________________________________________________________________________________
Subaccount PUTS1(2) (Investing in shares of MFS(R) Utilities Series)
Accumulation unit value at beginning of period $1.00
Accumulation unit value at end of period $1.14
Number of accumulation units outstanding at end of period 255
Ratio of operating expense to average net assets 1.25%
____________________________________________________________________________________________________________________
Subaccount PIGR1(2) (Investing in shares of Putnam VT International Growth Fund - Class IB Shares)
Accumulation unit value at beginning of period $1.00
Accumulation unit value at end of period $1.29
Number of accumulation units outstanding at end of period 252
Ratio of operating expense to average net assets 1.25%
____________________________________________________________________________________________________________________
Subaccount PVIS1(2) (Investing in shares of Putnam VT Vista Fund - Class IB
Shares)
Accumulation unit value at beginning of period $1.00
Accumulation unit value at end of period $1.30
Number of accumulation units outstanding at end of period 253
Ratio of operating expense to average net assets 1.25%
____________________________________________________________________________________________________________________
1 Operations commenced on Nov. 10, 1999.
2 Operations commenced on Nov. 9, 1999.
</TABLE>
<PAGE>
Financial Statements
You can find the audited financial statements of the subaccounts with financial
history in the SAI. The SAI does not include the audited financial statements
for some of the subaccounts because they are new and do not have any assets. You
can find our audited financial statements later in this prospectus.
Performance Information
Performance information for the subaccounts may appear from time to time in
advertisements or sales literature. This information reflects the performance of
a hypothetical investment in a particular subaccount during a specified time
period. We show actual performance from the date the subaccounts began investing
in the funds. Currently, we do not provide any performance information because
they are new and have not had any activity to date. However, we show performance
from the commencement date of the funds as if the contract existed at that time,
which it did not. Although we base performance figures on historical earnings,
past performance does not guarantee future results.
We include non-recurring charges (such as withdrawal charges) in total return
figures, but not in yield quotations. Excluding non-recurring charges in yield
calculations increases the reported value.
Total return figures reflect deduction of all applicable charges, including the:
o contract administrative charge,
o variable account administrative charge,
o Enhanced Death Benefit Rider* fee,
o Guaranteed Minimum Income Benefit Rider** fee,
o mortality and expense risk fee, and
o withdrawal charge (assuming a withdrawal at the end of the illustrated
period).
* Available if both you and the annuitant are 79 or younger. May not be
available in all states.
** This rider is only available at the time you purchase your contract if the
annuitant is 75 or younger and you also select the Enhanced Death Benefit
Rider option. Riders may not be available in all states.
We also may make optional total return quotations that do not reflect deduction
of the withdrawal charge (assuming no withdrawal), the Enhanced Death Benefit
Rider fee and the Guaranteed Minimum Income Benefit Rider fee. We may show total
return quotations by means of schedules, charts or graphs.
Average annual total return is the average annual compounded rate of return of
the investment over a period of one, five and ten years (or up to the life of
the subaccount if it is less than ten years old).
Cumulative total return is the cumulative change in the value of an investment
over a specified time period. We assume that income earned by the investment is
reinvested. Cumulative total return generally will be higher than average annual
total return.
Annualized simple yield (for subaccounts investing in money market funds)
"annualizes" the income generated by the investment over a given seven-day
period. That is, we assume the amount of income generated by the investment
during the period will be generated each seven-day period for a year. We show
this as a percentage of the investment.
Annualized compound yield (for subaccounts investing in money market funds) is
calculated like simple yield except that we assume the income is reinvested when
we annualize it. Compound yield will be higher than the simple yield because of
the compounding effect of the assumed reinvestment.
<PAGE>
Annualized yield (for subaccounts investing in income funds) divides the net
investment income (income less expenses) for each accumulation unit during a
given 30-day period by the value of the unit on the last day of the period. We
then convert the result to an annual percentage.
You should consider performance information in light of the investment
objectives, policies, characteristics and quality of the fund in which the
subaccount invests and the market conditions during the specified time period.
Advertised yields and total return figures include charges that reduce
advertised performance. Therefore, you should not compare subaccount performance
to that of mutual funds that sell their shares directly to the public. (See the
SAI for a further description of methods used to determine total return and
yield.)
If you would like additional information about actual performance, please
contact us at the address or telephone number on the first page of this
prospectus.
<PAGE>
The Variable Account and the Funds
You may allocate payments to any or all of the subaccounts of the variable
account that invest in shares of the following funds:
<TABLE>
<CAPTION>
<S> <C> <C> <C>
__________________________________________________________________________________________________________________________________
Subaccount Investing In Investment Objectives and Policies Investment Advisor or Manager
__________________________________________________________________________________________________________________________________
PBCA1 AXP(SM) Variable Objective: long-term total return exceeding that IDS Life Insurance Company
WBCA1 Portfolio - Blue Chip of the U.S. stock market. Invests primarily in (IDS Life), investment
WBCA3 Advantage Fund common stocks of companies included in the manager; American Express
WBCA4 unmanaged S&P 500 Index. Financial Corporation
(AEFC), investment advisor.
WCAR1 AXP(SM) Variable Objective: capital appreciation. Invests primarily IDS Life, investment
WCAR3 Portfolio - Capital in U.S. common stocks and other securities manager; AEFC, investment
WCAR4 Resource Fund convertible into common stocks. advisor.
WCAR6
PDEI1 AXP(SM) Variable Objective: a high level of current income and, as IDS Life, investment
WDEI1 Portfolio - a secondary goal, steady growth of capital. manager; AEFC, investment
WDEI3 Diversified Equity Invests primarily in dividend-paying common and advisor.
WDEI4 Income Fund preferred stocks.
PEXI1 AXP(SM) Variable Objective: high current income, with capital IDS Life, investment
WEXI1 Portfolio - Extra growth as a secondary objective. Invests primarily manager; AEFC, investment
WEXI3 Income Fund in high-yielding, high-risk corporate bonds advisor.
WEXI4 issued by U.S. and foreign corporations, companies
and governments.
WFDI1 AXP(SM) Variable Objective: a high level of current income and IDS Life, investment
WFDI3 Portfolio - Federal safety of principal consistent with an investment manager; AEFC, investment
WFDI4 Income Fund in U.S. government and government agency advisor.
WFDI6 securities. Invests primarily in debt obligations
issued or guaranteed as to principal and interest
by the U.S. government, its agencies or
instrumentalities.
PNDM1 AXP(SM) Variable Objective: long-term growth of capital. Invests IDS Life, investment
WNDM1 Portfolio - New primarily in common stocks of U.S. and foreign manager; AEFC, investment
WNDM3 Dimensions Fund (R) companies showing potential for significant advisor.
WNDM4 growth.
PSCA1 AXP(SM) Variable Objective: long-term capital growth. Invests IDS Life, investment
WSCA1 Portfolio - Small Cap primarily in equity stocks of small companies that manager; AEFC, investment
WSCA3 Advantage Fund are often included in the S&P SmallCap 600 Index advisor; Kenwood Capital
WSCA4 or the Russell 2000 Index. Management LLC,
sub-investment advisor.
<PAGE>
____________________________________________________________________________________________________________________________________
Subaccount Investing In Investment Objectives and Policies Investment Advisor or Manager
____________________________________________________________________________________________________________________________________
PCAP1 AIM V.I. Capital Objective: growth of capital. Invests primarily in A I M Advisors, Inc.
WCAP1 Appreciation Fund common stocks, with emphasis on medium- and
WCAP3 small-sized growth companies.
WCAP4
PVAL1 AIM V.I. Value Fund Objective: long-term growth of capital with income A I M Advisors, Inc.
WVAL1 as a secondary objective. Invests primarily in
WVAL3 equity securities judged to be undervalued
WVAL4 relative to the investment advisor's appraisal of
the current or projected earnings of the companies
issuing the securities, or relative to current
market values of assets owned by the companies
issuing the securities, or relative to the equity
market generally.
WSRG1 The Dreyfus Socially Objective: capital growth, with current income as The Dreyfus Corporation,
WSRG3 Responsible Growth a secondary objective. Invests primarily in the investment advisor; NCM
WSRG4 Fund, Inc. common stock of companies that, in the opinion Capital Management Group, Inc.,
WSRG6 of the fund's management, meet traditional sub-investment advisor.
investment standards and conduct their business
in a manner that contributes to the enhancement
of the quality of life in America.
WISE1 FTVIPT Franklin Objective: maximize income while maintaining Franklin Advisers, Inc.
WISE3 Income Securities prospects for capital appreciation. Invests
WISE4 Fund - Class 2 primarily in a diversified portfolio of debt and
WISE6 equity securities, including high yield,
lower-rated "junk bonds."
WRES1 FTVIPT Franklin Real Objective: capital appreciation with a secondary Franklin Advisers, Inc.
WRES3 Estate Fund - Class 2 goal to earn current income. Invests primarily in
WRES4 (previously Franklin securities of companies operating in the real
WRES6 Real Estate Securities estate industry, primarily equity real estate
Fund) investment trusts (REITS).
PSMC1 FTVIPT Franklin Objective: long-term capital growth. Invests Franklin Advisers, Inc.
WSMC1 Small Cap Fund - primarily in equity securities of U.S. small
WSMC3 Class 2 capitalization (small cap) growth companies.
WSMC4
<PAGE>
____________________________________________________________________________________________________________________________________
Subaccount Investing In Investment Objectives and Policies Investment Advisor or Manager
____________________________________________________________________________________________________________________________________
WMSI1 FTVIPT Mutual Objective: capital appreciation with income as a Franklin Mutual Advisers,
WMSI3 Shares Securities secondary goal. Invests primarily in equity LLC
WMSI4 Fund - Class 2 securities of companies that the manager believes
WMSI6 are available at market prices less than their
value based on certain recognized or objective
criteria (intrinsic value).
WUSE1 Goldman Sachs VIT Objective: long-term growth of capital and Goldman Sachs Asset
WUSE3 CORE(SM) U.S. Equity dividend income. Primarily invests in a broadly Management
WUSE4 Fund diversified portfolio of large-cap and blue chip
WUSE6 equity securities representing all major sectors
of the U.S. economy.
WGLI1 Goldman Sachs VIT Objective: high total return, emphasizing current Goldman Sachs Asset
WGLI6 Global Income Fund income, and, to a lesser extent, providing Management International
WGLI4 opportunities for capital appreciation. Invests
WGLI6 primarily in a portfolio of high quality
fixed-income securities of U.S. and foreign
issuers and enters into transactions in foreign
currencies.
SITO2 Goldman Sachs VIT Objective: long-term growth of capital. Invests Goldman Sachs Asset
WITO1 Internet Tollkeeper primarily in equity securities of companies that Management
WIT04 Fund the Investment Advisor believes will benefit from
WIT06 the growth of the Internet by providing access,
infrastructure, content and services to Internet
companies and customers.
WMCE1 Goldman Sachs VIT Mid Objective: long-term capital appreciation. Invests Goldman Sachs Asset
WMCE3 Cap Value Fund primarily in mid-capitalization companies within Management
WMCE4 the range of the market capitalization of
WMCE6 companies constituting the Russell Mid Cap Value
Index at the time of investment.
PGIS1 MFS(R) Growth with Objective: reasonable current income and long-term MFS Investment Management(R)
WGIS1 Income Series growth of capital and income. Invests primarily in
WGIS3 common stocks and related securities, such as
WGIS4 preferred stocks, convertible securities and
depositary receipts for those securities.
PUTS1 MFS (R) Utilities Objective: capital growth and current income. MFS Investment Management(R)
WUTS1 Series Invests primarily in equity and debt securities of
WUTS3 domestic and foreign companies in the utilities
WUTS4 industry.
<PAGE>
____________________________________________________________________________________________________________________________________
Subaccount Investing In Investment Objectives and Policies Investment Advisor or Manager
____________________________________________________________________________________________________________________________________
PIGR1 Putnam VT Objective: capital appreciation. Invests primarily Putnam Investment
WIGR1 International Growth in equity securities of companies located in a Management, Inc.
WIGR3 Fund - Class IB Shares country other than the U.S.
WIGR4
PVIS1 Putnam VT Vista Fund Objective: capital appreciation. Invests primarily Putnam Investment
WVIS1 - Class IB Shares in a diversified portfolio of common stocks that Management, Inc.
WVIS3 Putnam Management believes have above-average
WVIS4 potential for capital appreciation.
WAAL1 Wells Fargo VT Asset Objective: long-term total return, consistent with Wells Fargo Bank, N.A.,
WAAL3 Allocation Fund reasonable risk. Invests primarily in the advisor; Barclays Global
WAAL4 securities of various indexes to replicate the Fund Advisors, sub-advisor.
WAAL6 total return of the index. We use an asset
allocation model to allocate and reallocate assets
among common stocks (S&P 500 Index), U.S. Treasury
bonds (Lehman Brothers 20+ Bond Index) and money
market instruments, assuming a "normal" allocation
of 60% stocks and 40% bonds.
WCBD1 Wells Fargo VT Objective: high level of current income consistent Wells Fargo Bank, N.A.,
WCBD6 Corporate Bond Fund with reasonable risk. Invests primarily in advisor; Wells Capital
WCBD4 corporate debt securities of any maturity. Management Incorporated,
WCBD6 sub-advisor.
WEQI1 Wells Fargo VT Objective: long-term capital appreciation and Wells Fargo Bank, N.A.,
WEQI3 Equity Income Fund above-average dividend income. Invests primarily advisor; Wells Capital
WEQI4 in common stock of large, high-quality domestic Management Incorporated,
WEQI6 companies with above-average return potential and sub-advisor.
above-average dividend income.
WEQV1 Wells Fargo VT Objective: long-term capital appreciation. Invests Wells Fargo Bank, N.A.,
WEQV2 Equity Value Fund primarily in equity securities that we believe are advisor; Wells Capital
WEQV4 undervalued in relation to the overall stock Management Incorporated,
WEQV6 markets. sub-advisor.
<PAGE>
____________________________________________________________________________________________________________________________________
Subaccount Investing In Investment Objectives and Policies Investment Advisor or Manager
____________________________________________________________________________________________________________________________________
WGRO1 Wells Fargo VT Growth Objective: long-term capital appreciation. Invests Wells Fargo Bank, N.A.,
WGRO3 Fund primarily in common stocks and other equity advisor; Wells Capital
WGRO4 securities. We look for companies that have a Management Incorporated,
WGRO6 strong earnings growth trend that we believe have sub-advisor.
above-average prospects for future growth.
WLCG1 Wells Fargo VT Large Objective: long-term capital appreciation. Invests Wells Fargo Bank, N.A.,
WLCG3 Company Growth Fund primarily in common stock of large, high-quality advisor; Peregrine Capital
WLCG4 domestic companies that have superior growth Management, Inc.,
WLCG6 potential. sub-advisor.
WMMK1 Wells Fargo VT Money Objective: current income, while preserving Wells Fargo Bank, N.A.,
WMMK3 Market Fund capital and liquidity. Invests primarily in advisor; Wells Capital
WMMK4 high-quality, U.S. dollar-denominated money market Management Incorporated,
WMMk6 instruments, including debt obligations. sub-advisor.
WSCG1 Wells Fargo VT Small Objective: long-term capital appreciation. Invests Wells Fargo Bank, N.A.,
WSCG3 Cap Growth Fund primarily in common stocks issued by companies advisor; Wells Capital
WSCG4 whose market capitalization falls within the range Management Incorporated,
WSCG6 of the Russell 2000 Index, which is considered a sub-advisor.
small capitalization index.
__________________________________________________________________________________________________________________________________
</TABLE>
The investment objectives and policies of some of the funds are similar to the
investment objectives and policies of other mutual funds that an investment
advisor or its affiliates manage. Although the objectives and policies may be
similar, each fund will have its own portfolio holdings and its own fees and
expenses. Accordingly, each fund will have its own investment results, and those
results may differ significantly from other funds with similar investment
objectives and policies.
The investment managers and advisors cannot guarantee that the funds will meet
their investment objectives. Please read the funds' prospectuses for facts you
should know before investing. These prospectuses are also available by
contacting us at the address or telephone number on the first page of this
prospectus.
All funds are available to serve as the underlying investments for variable
annuities. Some funds also are available to serve as investment options for
variable life insurance policies and tax-deferred retirement plans. It is
possible that in the future, it may be disadvantageous for variable annuity
accounts and variable life insurance accounts and/or tax-deferred retirement
plans to invest in the available funds simultaneously.
<PAGE>
Although the insurance company and the funds do not currently foresee any such
disadvantages, the boards of directors or trustees of the appropriate funds will
monitor events in order to identify any material conflicts between annuity
owners, policy owners and tax-deferred retirement plans and to determine what
action, if any, should be taken in response to a conflict. If a board were to
conclude that it should establish separate funds for the variable annuity,
variable life insurance and tax-deferred retirement plan accounts, you would not
bear any expenses associated with establishing separate funds. Please refer to
the funds' prospectuses for risk disclosure regarding simultaneous investments
by variable annuity, variable life insurance and tax-deferred retirement plan
accounts.
The Internal Revenue Service (IRS) issued final regulations relating to the
diversification requirements under Section 817(h) of the Code. Each fund intends
to comply with these requirements.
The variable account was established under Indiana law on July 15, 1987, and the
subaccounts are registered together as a single unit investment trust under the
Investment Company Act of 1940 (the 1940 Act). This registration does not
involve any supervision of our management or investment practices and policies
by the SEC. All obligations arising under the contracts are general obligations
of American Enterprise Life.
The variable account meets the definition of a separate account under federal
securities laws. We credit or charge income, capital gains and capital losses of
each subaccount only to that subaccount. State insurance law prohibits us from
charging a subaccount with liabilities of any other subaccount or of our general
business. The variable account includes other subaccounts that are available
under contracts that are not described in this prospectus.
The U.S. Treasury and the IRS indicated that they may provide additional
guidance on investment control. This concerns how many variable subaccounts an
insurance company may offer and how many exchanges among subaccounts it may
allow before the contract owner would be currently taxed on income earned within
subaccount assets. At this time, we do not know what the additional guidance
will be or when action will be taken. We reserve the right to modify the
contract, as necessary, so that the owner will not be subject to current
taxation as the owner of the subaccount assets.
We intend to comply with all federal tax laws so that the contract continues to
qualify as an annuity for federal income tax purposes. We reserve the right to
modify the contract as necessary to comply with any new tax laws.
<PAGE>
The Fixed Accounts
GUARANTEE PERIOD ACCOUNTS
You may allocate purchase payments to one or more of the Guarantee Period
Accounts with Guarantee Periods ranging from two to ten years. These accounts
are not available in all states and are not offered after annuity payouts begin.
Some states also restrict the amount you can allocate to these accounts. Each
Guarantee Period Account pays an interest rate that is declared when you
allocate money to that account. That interest rate is then fixed for the
Guarantee Period that you chose. We will periodically change the declared
interest rate for any future allocations to these accounts, but we will not
change the rate paid on money currently in a Guarantee Period Account.
The interest rates that we will declare as guaranteed rates in the future are
determined by us at our discretion. We will determine these rates based on
various factors including, but not limited to, the interest rate environment,
returns available on investments backing these annuities, product design,
competition and American Enterprise Life's revenues and other expenses.
You may transfer money out of the Guarantee Period Accounts within 30 days
before the end of the Guarantee Period without receiving a MVA (see "Market
Value Adjustment (MVA)" below.) At that time you may choose to start a new
Guarantee Period of the same length, transfer the money to another Guarantee
Period Account, transfer the money to any of the subaccounts, or withdraw the
money from the contract (subject to applicable withdrawal provisions). If we do
not receive any instructions at the end of your Guarantee Period, we will
automatically transfer the money into the one-year fixed account.
We hold amounts you allocate to the Guarantee Period Accounts in a "nonunitized"
separate account we have established under the Indiana Insurance Code. This
separate account provides an additional measure of assurance that we will make
full payment of amounts due under the Guarantee Period Accounts. State insurance
law prohibits us from charging this separate account with liabilities of any
other separate account or of our general business. We own the assets of this
separate account as well as any favorable investment performance of those
assets. You do not participate in the performance of the assets held in this
separate account. We guarantee all benefits relating to your value in the
Guarantee Period Accounts.
We intend to construct and manage the investment portfolio relating to the
separate account using a strategy known as "immunization." Immunization seeks to
lock in a defined return on the pool of assets versus the pool of liabilities
over a specified time horizon. Since the return on the assets versus the
liabilities is locked in, it is "immune" to any potential fluctuations in
interest rates during the given time. We achieve immunization by constructing a
portfolio of assets with a price sensitivity to interest rate changes (i.e.,
price duration) that is essentially equal to the price duration of the
corresponding portfolio of liabilities. Portfolio immunization provides us with
flexibility and efficiency in creating and managing the asset portfolio, while
still assuring safety and soundness for funding liability obligations.
We must invest this portfolio of assets in accordance with requirements
established by applicable state laws regarding the nature and quality of
investments that life insurance companies may make and the percentage of their
assets that they may commit to any particular type of investment. Our investment
strategy will incorporate the use of a variety of debt instruments having price
durations tending to match the applicable Guarantee Periods. These instruments
include, but are not necessarily limited to, the following:
o Securities issued by the U.S. government or its agencies or
instrumentalities, which issues may or may not be guaranteed by the U.S.
government;
o Debt securities that have an investment grade, at the time of purchase,
within the four highest grades assigned by any of three nationally
recognized rating agencies -- Standard & Poor's, Moody's Investors Service
or Duff and Phelp's -- or are rated in the two highest grades by the
National Association of Insurance Commissioners;
<PAGE>
o Other debt instruments which are unrated or rated below investment grade,
limited to 10% of assets at the time of purchase; and
o Real estate mortgages, limited to 45% of portfolio assets at the time of
acquisition.
In addition, options and futures contracts on fixed income securities will be
used from time to time to achieve and maintain appropriate investment and
liquidity characteristics on the overall asset portfolio.
While this information generally describes our investment strategy, we are not
obligated to follow any particular strategy except as may be required by federal
law and Indiana and other state insurance laws.
MARKET VALUE ADJUSTMENT (MVA)
You may choose to transfer or withdraw money out of the Guarantee Period
Accounts prior to the end of the Guarantee Period. The amount transferred or
withdrawn will receive a MVA which will increase or decrease the actual amount
transferred or withdrawn. We calculate the MVA using the formula shown below and
we base it on the current level of interest rates compared to the rate of your
Guarantee Period Account.
Amount transferred x ( l + i ) n/12
( l + j + .001 )
Where: i = rate earned in the account from which funds are
being transferred
j = current rate for a new Guarantee Period equal
to the remaining term in the current Guarantee
Period
n = number of months remaining in the current
Guarantee Period (rounded up)
We will not make MVAs for amounts withdrawn for withdrawal charges, the annual
contract administrative charge or paid out as a death claim. We also will not
make MVAs on automatic transfers from the two-year Guarantee Period Account. We
determine any applicable withdrawal charges based on the market value adjusted
withdrawals. In some states the MVA is limited.
THE ONE-YEAR FIXED ACCOUNT
You may also allocate purchase payments to the one-year fixed account. Some
states restrict the amount you can allocate to this account. We back the
principal and interest guarantees relating to the one-year fixed account. The
value of the one-year fixed account increases as we credit interest to the
account. Purchase payments and transfers to the one-year fixed account become
part of our general account. We credit interest daily and compound it annually.
We will change the interest rates from time to time at our discretion. These
rates will be based on various factors including, but not limited to, the
interest rate environment, returns earned on investments backing annuities, the
interest rates currently in effect for new and existing company annuities,
product design, competition, and the company's revenues and expenses.
Interest in the one-year fixed account is not required to be registered with the
SEC. However, the Market Value Adjustment interests under the contracts are
registered with the SEC. The SEC staff does not review the disclosures in this
prospectus on the one-year fixed account (but the SEC does review the
disclosures in this prospectus on the Market Value Adjustment interests).
Disclosures regarding the one-year fixed account, however, may be subject to
certain generally applicable provisions of the federal securities laws relating
to the accuracy and completeness of statements made in prospectuses. (See
"Making the Most of Your Contract -- Transfer policies" for restrictions on
transfers involving the one-year fixed account.)
<PAGE>
Buying Your Contract
You can fill out an application and send it along with your initial purchase
payment to our office. As the owner, you have all rights and may receive all
benefits under the contract. You may buy only a nonqualified annuity (by
rollover only) or a qualified annuity from your Wells Fargo sales representative
without prior approval. You may buy a qualified annuity or a nonqualified
annuity through your AEFA sales representative. You can buy another contract
with the same underlying funds but with different mortality and expense risk
fees and withdrawal charges. For information on this contract, please call us at
the telephone number listed on the first page of this prospectus or ask your
sales representative.
You can own a nonqualified annuity in joint tenancy with rights of survivorship
only in spousal situations. You cannot own a qualified annuity in joint tenancy.
You can buy a contract or become an annuitant if you are 85 or younger. (The age
limit may be younger for qualified annuities in some states.)
When you apply, you may select:
o the length of the withdrawal charge period (six or eight years)*;
o the optional Enhanced Death Benefit Rider**;
o the optional Guaranteed Minimum Income Benefit Rider***;
o the one-year fixed account, Guarantee Period Accounts and/or subaccounts in
which you want to invest****;
o how you want to make purchase payments; and
o a beneficiary.
* Contracts sold through AEFA are only available with an eight-year withdrawal
charge schedule.
** Available if both you and the annuitant are 79 or younger. May not be
available in all states.
*** This rider is only available at the time you purchase your contract if the
annuitant is 75 or younger and you also select the Enhanced Death Benefit
Rider option. Riders may not be available in all states.
****Some states restrict the amount you can allocate to the fixed accounts.
The contract provides for allocation of purchase payments to the subaccounts of
the variable account and/or to the fixed accounts in even 1% increments.
If your application is complete, we will process it and apply your purchase
payment to the fixed accounts and subaccounts you selected within two business
days after we receive it at our office. If we accept your application, we will
send you a contract. If we cannot accept your application within five business
days, we will decline it and return your payment. We will credit additional
purchase payments you make to your accounts on the valuation date we receive
them. We will value the additional payments at the next accumulation unit value
calculated after we receive your payments at our office.
You may make monthly payments to your contract under a Systematic Investment
Plan (SIP). To begin the SIP, you will complete and send a form and your first
SIP payment along with your application. There is no charge for SIP. You can
stop your SIP payments at any time.
In most states, you may make additional purchase payments to nonqualified and
qualified annuities until the retirement date.
<PAGE>
THE RETIREMENT DATE
Annuity payouts are scheduled to begin on the retirement date. When we process
your application, we will establish the retirement date to the maximum age or
date described below. You can also select a date within the maximum limits. You
can align this date with your actual retirement from a job, or it can be a
different future date, depending on your needs and goals and on certain
restrictions. You also can change the date, provided you send us written
instructions at least 30 days before annuity payouts begin.
For nonqualified annuities and Roth IRAs, the retirement date must be:
o no earlier than the 60th day after the contract's effective date; and
o no later than the annuitant's 85th birthday or the tenth contract
anniversary, if purchased after age 75.
For qualified annuities (except Roth IRAs), to avoid IRS penalty taxes, the
retirement date generally must be:
o on or after the date the annuitant reaches age 591/2; and
o for IRAs and SEPs, by April 1 of the year following the calendar year when
the annuitant reaches age 701/2.
If you take the minimum IRA distribution as required by the Code from another
tax-qualified investment, or in the form of partial withdrawals from this
contract, annuity payouts can start as late as the annuitant's 85th birthday or
the tenth contract anniversary, if later.
BENEFICIARY
We will pay your named beneficiary the death benefit if it becomes payable
before the retirement date (while the contract is in force and before annuity
payouts begin). If there is no named beneficiary, then you or your estate will
be the beneficiary. (See "Benefits in Case of Death" for more about
beneficiaries.)
PURCHASE PAYMENTS
Minimum initial purchase payment: $100,000 for contracts sold through AEFA
(including SIPs)
$5,000 for all other contracts sold in
Texas, Washington and South Carolina
(not including SIPs)
$2,000 for all other contracts sold in
other states (not including SIPs)
Minimum additional purchase payments:
If paying by SIP*: If paying by any other method:
$50 $100
*Payments made using SIP must total $2,000 before you can make partial
withdrawals.
Maximum total allowable purchase payments**
(without prior approval): $1,000,000
**This limit applies in total to all American Enterprise Life annuities you
own. We reserve the right to increase the maximum limit. For qualified
annuities, the tax-deferred retirement plan's limits on annual contributions
also apply.
<PAGE>
HOW TO MAKE PURCHASE PAYMENTS
1 By letter:
Send your check along with your name and contract number to:
American Enterprise Life Insurance Company
829 AXP Financial Center
Minneapolis, MN 55474
2 By SIP:
Contact your sales representative to complete the necessary SIP paperwork.
PURCHASE PAYMENT CREDITS
You will generally receive a purchase payment credit with every payment you make
to your contract. We apply this credit immediately. We allocate the credit to
the fixed accounts and subaccounts in the same proportions as your purchase
payment. We apply the credit as a percentage of your current payment based on
the following schedule:
If total net payments* made during then the purchase payment
the life of the contract equals....... credit percentage equals...
Less than $10,000 1%
$10,000 to less than 1 million 2
$1 million to less than 5 million 3
$5 million and over 4
*Net payments equal total payments less total withdrawals.
If you make any future payments which cause the contract to become eligible for
a higher percentage credit, we will add credits to increase the credit
percentage on prior payments (less total withdrawals). We allocate credits
according to the purchase payment allocation on the date we add the credits to
the contract.
We fund the credit from our general account. We do not consider credits to be
"investments" for income tax purposes. (See "Taxes.")
We will reverse credits from the contract value for any purchase payment that is
not honored (if, for example, your purchase payment check is returned for
insufficient funds).
To the extent a death benefit or withdrawal payment includes purchase payment
credits applied within twelve months preceding: (1) the date of death that
results in a lump sum death benefit under this contract; or (2) a request for
withdrawal charge waiver due to "Contingent events" (see "Charges -- Contingent
events"), we will assess a charge, similar to a withdrawal charge, equal to the
amount of the purchase payment credits. The amount we pay to you under these
circumstances will always equal or exceed your withdrawal value. The amount
returned to you under the free look provision also will not include any credits
applied to your contract.
<PAGE>
Because of these higher charges, there may be circumstances where you are worse
off for having received the credit than in other contracts. All things being
equal, (such as guarantee availability or fund performance and availability),
this may occur if you hold your contract for 40 years or more or if you make a
full withdrawal in the fourth to eighth years of the withdrawal charge schedule.
You should consider these higher charges and other relevant factors before you
buy this contract or before you exchange a contract you currently own for this
contract.
This credit is available because of lower distribution costs associated with
this contract and through revenue from a higher and longer withdrawal charge
schedule and a higher mortality and expense risk fee. In general, we do not
profit from the higher charges assessed to cover the cost of the purchase
payment credit. We use all the revenue from these higher charges to pay for the
cost of the credits. However, we could profit from the higher charges if market
appreciation is higher than expected or if contract owners hold their contracts
for longer than expected.
Charges
CONTRACT ADMINISTRATIVE CHARGE
We charge this fee for establishing and maintaining your records. We deduct $30
from the contract value on your contract anniversary at the end of each contract
year. We prorate this charge among the subaccounts and the fixed accounts in the
same proportion your interest in each account bears to your total contract
value.
We will waive this charge when your contract value is $50,000 or more on the
current contract anniversary.
If you take a full withdrawal from your contract, we will deduct this charge at
the time of withdrawal regardless of the contract value. We cannot increase the
annual contract administrative charge and it does not apply after annuity
payouts begin or when we pay death benefits.
VARIABLE ACCOUNT ADMINISTRATIVE CHARGE
We apply this charge daily to the subaccounts. It is reflected in the unit
values of your subaccounts and it totals 0.15% of their average daily net assets
on an annual basis. It covers certain administrative and operating expenses of
the subaccounts such as accounting, legal and data processing fees and expenses
involved in the preparation and distribution of reports and prospectuses. We
cannot increase the variable account administrative charge.
MORTALITY AND EXPENSE RISK FEE
We charge this fee daily to the subaccounts. The unit values of your subaccounts
reflect this fee. For contracts with a six-year withdrawal charge schedule, this
fee totals 1.35% of their average daily net assets on an annual basis. For
contracts with an eight-year withdrawal charge schedule, this fee totals 1.10%
of their average daily net assets on an annual basis. This fee covers the
mortality and expense risk that we assume. Approximately two-thirds of this
amount is for our assumption of mortality risk, and one-third is for our
assumption of expense risk. If you choose the optional Enhanced Death Benefit
Rider, we will charge an additional 0.20% of the average daily net assets on
annual basis (see "Enhanced Death Benefit Rider fee" below). These fees do not
apply to the fixed accounts. We cannot increase these fees.
<PAGE>
Mortality risk arises because of our guarantee to pay a death benefit and our
guarantee to make annuity payouts according to the terms of the contract, no
matter how long a specific annuitant lives and no matter how long our entire
group of annuitants live. If, as a group, annuitants outlive the life expectancy
we assumed in our actuarial tables, then we must take money from our general
assets to meet our obligations. If, as a group, annuitants do not live as long
as expected, we could profit from the mortality risk fee.
Expense risk arises because we cannot increase the contract administrative
charge or the variable account administrative charge and these charges may not
cover our expenses. We would have to make up any deficit from our general
assets. We could profit from the expense risk fee if future expenses are less
than expected.
The subaccounts pay us the mortality and expense risk fee they accrued as
follows:
o first, to the extent possible, the subaccounts pay this fee from any
dividends distributed from the funds in which they invest;
o then, if necessary, the funds redeem shares to cover any remaining fees
payable.
We may use any profits we realize from the subaccounts' payment to us of the
mortality and expense risk fee for any proper corporate purpose, including,
among others, payment of distribution (selling) expenses. We do not expect that
the withdrawal charge, discussed in the following paragraphs, will cover sales
and distribution expenses.
ENHANCED DEATH BENEFIT RIDER FEE
We charge a fee for this optional feature only if you choose this option. If
selected, we apply this fee daily to the subaccounts as part of the mortality
and expense risk fee. It is reflected in the unit values of the subaccounts and
it totals 0.20% of their average daily net assets on an annual basis. We cannot
increase the Enhanced Death Benefit Rider fee.
GUARANTEED MINIMUM INCOME BENEFIT RIDER FEE
We charge a fee based on the Guaranteed Income Benefit Base for this optional
feature only if you choose this option. If selected, we deduct the fee
(currently 0.30%) from the contract value on your contract anniversary at the
end of each contract year. We prorate this fee among the subaccounts and fixed
accounts in the same proportion your interest in each account bears to your
total contract value.
We apply the fee on an adjusted benefit base calculated as the result of
(a) +(b) - (c), where:
(a) is the Guaranteed Income Benefit Base,
(b) is the adjusted transfers from the subaccounts to the fixed accounts made
in the last six months, and
(c) is the total contract value in the fixed accounts.
The result of (b) minus (c) cannot be greater than zero. It allows us to base
the charge largely on the subaccounts, and not on the fixed accounts.
We will deduct the fee, adjusted for the number of calendar days coverage was in
place if the contract is terminated for any reason or when annuity payouts
begin. We cannot increase the Guaranteed Minimum Income Benefit Rider fee after
the rider effective date and it does not apply after annuity payouts begin. We
can increase the Guaranteed Minimum Income Benefit Rider fee on new contracts up
to a maximum of 0.75%.
<PAGE>
WITHDRAWAL CHARGE
If you withdraw all or part of your contract, you may be subject to a withdrawal
charge. A withdrawal charge applies if all or part of the withdrawal amount is
from purchase payments we received within six or eight years before withdrawal.
You select the withdrawal charge period at the time of your application for the
contract. The withdrawal charge percentages that apply to you are shown in your
contract. In addition, amounts withdrawn from a Guarantee Period Account prior
to the end of the applicable Guarantee Period will be subject to a MVA. (See
"The Fixed Accounts -- Market Value Adjustments (MVA).")
For purposes of calculating any withdrawal charge, we treat amounts withdrawn
from your contract value in the following order:
1. First, in each contract year, we withdraw amounts totaling up to 10% of
your prior anniversary contract value. (We consider your initial purchase
payment to be the prior anniversary contract value during the first
contract year.) We do not assess a withdrawal charge on this amount.
2. Next, we withdraw contract earnings, if any, that are greater than the
annual 10% free withdrawal amount described in number one above. Contract
earnings equal contract value less purchase payments received and not
previously withdrawn. We do not assess a withdrawal charge on contract
earnings.
NOTE: We determine contract earnings by looking at the entire contract value,
not the earnings of any particular subaccount or the fixed accounts.
3. Next we withdraw purchase payments received prior to the withdrawal charge
period you selected and shown in your contract. We do not assess a
withdrawal charge on these purchase payments.
4. Finally, if necessary, we withdraw purchase payments received that are
still within the withdrawal charge period you selected and shown in your
contract. We withdraw these payments on a first-in, first-out (FIFO) basis.
We do assess a withdrawal charge on these payments.
We determine your withdrawal charge by multiplying each of your payments
withdrawn by the applicable withdrawal charge percentage, and then adding the
total withdrawal charges.
The withdrawal charge percentage depends on the number of years since you made
the payments that are withdrawn, depending on the schedule you selected:
Six-year schedule Eight-year schedule
Years from purchase Withdrawal charge Years from purchase Withdrawal charge
payment receipt percentage payment receipt percentage
1 8% 1 8%
2 8 2 8
3 8 3 8
4 6 4 8
5 4 5 8
6 2 6 6
Thereafter 0 7 4
8 2
Thereafter 0
<PAGE>
For a partial withdrawal that is subject to a withdrawal charge, the amount
deducted for the withdrawal charge will be a percentage of the total amount
withdrawn. We will deduct the charge from the value remaining after we pay you
the amount you requested. Example: Assume you request a withdrawal of $1,000 and
there is a 7% withdrawal charge. The withdrawal charge is $75.26 for a total
withdrawal amount of $1,075.26. This charge represents 7% of the total amount
withdrawn and we deduct it from the contract value remaining after we pay you
the $1,000 you requested. If you make a full withdrawal of your contract, we
also will deduct the applicable contract administrative charge.
Withdrawal charge under Annuity Payout Plan E -- Payouts for a specified period.
Under this payout plan, you can choose to take a withdrawal. The amount that you
can withdraw is the present value of any remaining variable payouts. If the
original contract had a six-year withdrawal charge schedule, the discount rate
we use in the calculation will be 5.32% if the assumed investment rate is 3.5%
and 6.82% if the assumed investment rate is 5%. If the original contract had an
eight-year withdrawal charge schedule, the discount rate we use in the
calculation will be 5.07% if the assumed investment rate is 3.5% and 6.57% if
the assumed investment rate is 5%. The withdrawal charge is equal to the
difference in discount values using the above discount rates and the assumed
investment rate. In no event would your withdrawal charge exceed 9% of the
amount available for payouts under the plan.
Withdrawal charge calculation example:
The following is an example of the calculation we would make to determine the
withdrawal charge on a contract with an eight-year withdrawal charge schedule
with this history:
o The contract date is Nov. 1, 2000 with a contract year of Nov. 1 through
Oct. 30 and with an anniversary date of Nov. 1 each year; and
o We received these payments
-- $10,000 Nov. 1, 2000;
-- $8,000 Dec. 31, 2006; and
-- $6,000 Feb. 20, 2008; and
o The owner withdraws the contract for its total withdrawal value of $38,101
on Aug. 5, 2010 and had not made any other withdrawals during that contract
year; and
o The prior anniversary Nov. 1, 2009 contract value was $38,488.
Withdrawal Explanation
Charge
$0 $3,848.80 is 10% of the prior anniversary contract value
withdrawn without withdrawal charge; and
0 $10,252.20 is contract earnings in excess of the 10% free
withdrawal amount withdrawn without withdrawal charge; and
0 $10,000 Nov. 1, 2000 payment was received nine or more years
before withdrawal and is withdrawn without withdrawal charge; and
640 $8,000 Dec. 31, 2006 payment is in its fourth year from receipt,
withdrawn with an 8% withdrawal charge; and
480 $6,000 Feb. 20, 2008 payment is in its third year from receipt
withdrawn with an 8% withdrawal charge.
$1,120
<PAGE>
Waiver of withdrawal charges
We do not assess withdrawal charges for:
o withdrawals of any contract earnings;
o withdrawals of amounts totaling up to 10% of your prior contract
anniversary contract value to the extent it exceeds contract earnings;
o required minimum distributions from a qualified annuity (for those amounts
required to be distributed from the contract described in this prospectus);
o contracts settled using an annuity payout plan;
o withdrawals made as a result of one of the "Contingent events"* described
below to the extent permitted by state law (see your contract for
additional conditions and restrictions);
o amounts we refund to you during the free look period*; and
o death benefits.*
*However, we will reverse certain purchase payment credits up to the maximum
withdrawal charge. (See "Buying Your Contract -- Purchase payment credits.")
Contingent events
o Withdrawals you make if you or the annuitant are confined to a hospital or
nursing home and have been for the prior 60 days. Your contract will
include this provision when the owner and annuitant are under age 76 on the
date we issue the contract. You must provide proof satisfactory to us of
the confinement as of the date you request the withdrawal.
o To the extent permitted by state law, withdrawals you make if you or the
annuitant are diagnosed in the second or later contract years as disabled
with a medical condition that with reasonable medical certainty will result
in death within 12 months or less from the date of the licensed physician's
statement. You must provide us with a licensed physician's statement
containing the terminal illness diagnosis and the date the terminal illness
was initially diagnosed.
o Withdrawals you make if you or the annuitant become disabled within the
meaning of IRC Section 72(m)(7) after your contract date. The disabled
person must also be receiving Social Security disability or state long term
disability benefits. The disabled person must be age 70 or younger at the
time of withdrawal. You must provide us with a signed letter from the
disabled person stating that he or she meets the above criteria, a legible
photocopy of Social Security disability or state long term disability
benefit payments and the application for such payments.
o Withdrawals you make once a year if you or the annuitant become unemployed
at least one year after your contract's date, up to the following amounts
each year:
(a) 25% of your prior anniversary contract value (or $10,000 if greater) if the
unemployment condition is met for at least 30 straight days; or
(b) 50% of your prior anniversary contract value (or $10,000 if greater) if the
unemployment condition is met for at least 180 straight days.
The unemployment condition is met if the unemployed person is currently
receiving unemployment compensation from a government unit of the United States,
whether federal or state. You must provide us with a signed letter from the
unemployed person stating that he or she meets the above criteria with a legible
photocopy of the unemployment benefit payments meeting the above criteria with
regard to dates.
<PAGE>
Possible group reductions: In some cases we may incur lower sales and
administrative expenses due to the size of the group, the average contribution
and the use of group enrollment procedures. In such cases, we may be able to
reduce or eliminate the contract administrative and withdrawal charges. However,
we expect this to occur infrequently.
PREMIUM TAXES
Certain state and local governments impose premium taxes on us (up to 3.5%).
These taxes depend upon your state of residence or the state in which the
contract was sold. Currently, we deduct any applicable premium taxes when
annuity payouts begin, but we reserve the right to deduct this tax at other
times such as when you make purchase payments or when you make a full withdrawal
from your contract.
<PAGE>
Valuing Your Investment
We value your accounts as follows:
FIXED ACCOUNTS
We value the amounts you allocated to the fixed accounts directly in dollars.
The value of a fixed account equals:
o the sum of your purchase payments and transfer amounts allocated to the
one-year fixed account and the Guarantee Period Accounts;
o plus any purchase payment credits allocated to the fixed accounts;
o plus interest credited;
o minus the sum of amounts withdrawn after any applicable MVA (including any
applicable withdrawal charges) and amounts transferred out;
o minus any prorated contract administrative charge; and
o minus any prorated portion of the Guaranteed Minimum Income Benefit Rider
fee (if applicable).
SUBACCOUNTS
We convert amounts you allocated to the subaccounts into accumulation units.
Each time you make a purchase payment or transfer amounts into one of the
subaccounts or we apply any purchase payment credits, we credit a certain number
of accumulation units to your contract for that subaccount. Conversely, each
time you take a partial withdrawal, transfer amounts out of a subaccount, or we
assess a contract administrative charge or the Guaranteed Minimum Income Benefit
Rider fee, we subtract a certain number of accumulation units from your
contract.
The accumulation units are the true measure of investment value in each
subaccount during the accumulation period. They are related to, but not the same
as, the net asset value of the fund in which the subaccount invests. The dollar
value of each accumulation unit can rise or fall daily depending on the variable
account expenses, performance of the fund and on certain fund expenses.
Here is how we calculate accumulation unit values:
Number of units: to calculate the number of accumulation units for a particular
subaccount, we divide your investment by the current accumulation unit value.
Accumulation unit value: the current accumulation unit value for each subaccount
equals the last value times the subaccount's current net investment factor.
<PAGE>
We determine the net investment factor by:
o adding the fund's current net asset value per share, plus the per share
amount of any accrued income or capital gain dividends to obtain a current
adjusted net asset value per share; then
o dividing that sum by the previous adjusted net asset value per share; and
o subtracting the percentage factor representing the mortality and expense
risk fee, the variable account administrative charge and the Enhanced Death
Benefit Rider fee (if selected) from the result.
Because the net asset value of the fund may fluctuate, the accumulation unit
value may increase or decrease. You bear all the investment risk in a
subaccount.
Factors that affect subaccount accumulation units: accumulation units may change
in two ways -- in number and in value.
The number of accumulation units you own may fluctuate due to:
o additional purchase payments you allocate to the subaccounts;
o any purchase payment credits allocated to the subaccounts;
o transfers into or out of the subaccounts;
o partial withdrawals;
o withdrawal charges;
o prorated portions of the contract administrative charge; and/or
o prorated portions of the Guaranteed Minimum Income Benefit Rider fee (if
selected).
Accumulation unit values will fluctuate due to:
o changes in funds' net asset value;
o dividends distributed to the subaccounts;
o capital gains or losses of funds;
o fund operating expenses; and/or
o mortality and expense risk fee, the variable account administrative charge
and the Enhanced Death Benefit Rider fee (if selected).
<PAGE>
Making the Most of Your Contract
AUTOMATED DOLLAR COST AVERAGING
Currently, you can use automated transfers to take advantage of dollar-cost
averaging (investing a fixed amount at regular intervals). For example, you
might transfer a set amount monthly from a relatively conservative subaccount to
a more aggressive one, or to several others, or from the one-year fixed account
or the two-year Guarantee Period Account to one or more subaccounts. The three
to ten year Guarantee Period Accounts are not available for automated transfers.
You can also obtain the benefits of dollar-cost averaging by setting up regular
automatic SIP payments. There is no charge for dollar-cost averaging.
This systematic approach can help you benefit from fluctuations in accumulation
unit values caused by fluctuations in the market values of the funds. Since you
invest the same amount each period, you automatically acquire more units when
the market value falls and fewer units when it rises. The potential effect is to
lower your average cost per unit.
<TABLE>
<CAPTION>
How dollar-cost averaging works
<S> <C> <C> <C> <C>
Month Amount Accumulation Number of units
invested unit value purchased
By investing an Jan $100 $20 5.00
equal number of
dollars each month ... Feb 100 18 5.56
Mar 100 17 5.88
you automatically Apr 100 15 6.67
buy more units
when the per unit May 100 16 6.25
market price is low ...
Jun 100 18 5.56
Jul 100 17 5.88
Aug 100 19 5.26
and fewer units Sep 100 21 4.76
when the per unit
market price is high. Oct 100 20 5.00
</TABLE>
You paid an average price of only $17.91 per unit over the 10 months, while the
average market price actually was $18.10.
Dollar-cost averaging does not guarantee that any subaccount will gain in value
nor will it protect against a decline in value if market prices fall. Because
dollar-cost averaging involves continuous investing, your success will depend
upon your willingness to continue to invest regularly through periods of low
price levels. Dollar-cost averaging can be an effective way to help meet your
long-term goals. For specific features contact your sales representative.
ASSET REBALANCING
You can ask us in writing to automatically rebalance the subaccount portion of
your contract value either quarterly, semi-annually or annually. The period you
select will start to run on the date we record your request. On the first
valuation date of each of these periods, we automatically will rebalance your
contract value so that the value in each subaccount matches your current
subaccount percentage allocations. These percentage allocations must be in whole
numbers. Asset rebalancing does not apply to the fixed accounts. There is no
charge for asset rebalancing. The contract value must be at least $2,000.
You can change your percentage allocations or your rebalancing period at any
time by contacting us in writing. We will restart the rebalancing period you
selected as of the date we record your change. You also can ask us in writing to
stop rebalancing your contract value. You must allow 30 days for us to change
any instructions that currently are in place. For more information on asset
rebalancing, contact your sales representative.
<PAGE>
TRANSFERRING MONEY BETWEEN ACCOUNTS
You may transfer money from any one subaccount, or the fixed accounts, to
another subaccount before annuity payouts begin. (Certain restrictions apply to
transfers involving the one-year fixed account.) We will process your transfer
on the valuation date we receive your request. We will value your transfer at
the next accumulation unit value calculated after we receive your request. There
is no charge for transfers. Before making a transfer, you should consider the
risks involved in switching investments. Transfers out of the Guarantee Period
Accounts will be subject to a MVA if done more than 30 days before the end of
the Guarantee Period.
We may suspend or modify transfer privileges at any time. Excessive trading
activity can disrupt fund management strategy and increase expenses, which are
borne by all contract owners who allocated purchase payments to the fund
regardless of their transfer activity. We may apply modifications or
restrictions in any reasonable manner to prevent transfers we believe will
disadvantage other contract owners.
These modifications could include, but not be limited to:
o requiring a minimum time period between each transfer;
o not accepting transfer requests of an agent acting under power of attorney
on behalf of more than one contract owner; or
o limiting the dollar amount that a contract owner may transfer at any one
time.
For information on transfers after annuity payouts begin, see "Transfer
policies" below.
Transfer policies
o Before annuity payouts begin, you may transfer contract values between the
subaccounts, or from the subaccounts to the fixed accounts at any time.
However, if you made a transfer from the one-year fixed account to the
subaccounts, you may not make a transfer from any subaccount back to the
one-year fixed account for six months following that transfer.
o You may transfer contract values from the one-year fixed account to the
subaccounts or the Guarantee Period Accounts once a year on or within 30
days before or after the contract anniversary (except for automated
transfers, which can be set up at any time for certain transfer periods
subject to certain minimums). Transfers from the one-year fixed account are
not subject to a MVA.
o You may transfer contract values from the Guarantee Period Accounts at any
time. Transfers made before the end of the Guarantee Period will receive a
MVA, which may result in a gain or loss of contract value.
o If we receive your request on or within 30 days before or after the
contract anniversary date, the transfer from the one-year fixed account to
the subaccounts or the Guarantee Period Accounts will be effective on the
valuation date we receive it.
o We will not accept requests for transfers from the one-year fixed account
at any other time.
o Once annuity payouts begin, you may not make transfers to or from the
one-year fixed account, but you may make transfers once per contract year
among the subaccounts. During the annuity payout period, we reserve the
right to limit the number of subaccounts in which you may invest.
o Once annuity payouts begin, you may not make any transfers to the Guarantee
Period Accounts.
<PAGE>
HOW TO REQUEST A WITHDRAWAL
1 By letter:
Send your name, contract number, Social Security Number or Taxpayer
Identification Number and signed request for a transfer or withdrawal to:
American Enterprise Life Insurance Company
829 AXP Financial Center
Minneapolis, MN 55474
Minimum amount
Transfers or withdrawals: $500 or entire account balance
Maximum amount
Transfers or withdrawals: Contract value or entire account balance
2 By automated transfers and automated partial withdrawals:
Your sales representative can help you set up automated transfers or partial
withdrawals among your subaccounts or fixed accounts.
You can start or stop this service by written request or other method acceptable
to us. You must allow 30 days for us to change any instructions that are
currently in place.
o Automated transfers from the one-year fixed account to any one of the
subaccounts may not exceed an amount that, if continued, would deplete the
one-year fixed account within 12 months.
o Automated withdrawals may be restricted by applicable law under some
contracts.
o You may not make additional purchase payments if automated partial
withdrawals are in effect.
o Automated partial withdrawals may result in IRS taxes and penalties on all
or part of the amount withdrawn.
Minimum amount
Transfers or withdrawals: $100 monthly
$250 quarterly, semi-annually or annually
<PAGE>
3 By phone:
Call between 8 a.m. and 6 p.m. Central time:
1-800-333-3437
Minimum amount
Transfers or withdrawals: $500 or entire account balance
Maximum amount
Transfers: Contract value or entire account balance
Withdrawals: $25,000
We answer telephone requests promptly, but you may experience delays when the
call volume is unusually high. If you are unable to get through, use the mail
procedure as an alternative.
We will honor any telephone transfer or withdrawal requests that we believe are
authentic and we will use reasonable procedures to confirm that they are. This
includes asking identifying questions and tape recording calls. We will not
allow a telephone withdrawal within 30 days of a phoned-in address change. As
long as we follow the procedures, we (and our affiliates) will not be liable for
any loss resulting from fraudulent requests.
Telephone transfers and withdrawals are automatically available. You may request
that telephone transfers and withdrawals not be authorized from your account by
writing to us.
GUARANTEED MINIMUM INCOME BENEFIT RIDER
An optional Guaranteed Minimum Income Benefit Rider may be available in many
jurisdictions for a separate annual charge, (see "Charges -- Guaranteed Minimum
Income Rider fee"). The rider guarantees a minimum amount of fixed annuity
lifetime income during the annuity payout period if your contract has been in
force for at least ten years, subject to the conditions described below. The
rider also provides you the option of variable annuity payouts, with a
guaranteed minimum initial payment. This rider is only available at the time you
purchase your contract if you also select the Enhanced Death Benefit Rider
option.
In some instances, we may allow you to add this rider if it was not available
when you initially purchased your contract. In these instances, we would add
this rider at the next contract anniversary and all conditions of the rider
would use this date as the effective date.
This rider does not create contract value or guarantee the performance of any
investment option. Fixed annuity payouts under the terms of this rider will
occur at the guaranteed annuity purchase rates stated in the contract. We base
first year payments from the variable annuity payout option offered under this
rider on the same factors as the fixed annuity payout option. We base subsequent
payments on the initial payment and an assumed annual return of 5%. Because this
rider is based on guaranteed actuarial factors for the fixed option, the level
of fixed lifetime income it guarantees may be less than the level that would be
provided by applying the then current annuity factors. Likewise, for the
variable annuity payout option, we base the rider on more conservative factors
resulting in a lower initial payment and lower lifetime payments than those
provided otherwise if the same benefit base were used. However, the Guaranteed
Income Benefit Base described below establishes a floor, which when higher than
the contract value, can result in a higher annuity payout level. Thus, the rider
is a guarantee of a minimum amount of annuity income.
<PAGE>
The Guaranteed Income Benefit Base is equal to the Enhanced Death Benefit if:
o the Guaranteed Minimum Income Rider became effective on the contract date,
and
o all payments are recognized in the benefit base.
The Guaranteed Income Benefit Base, less any applicable premium tax, is the
value that will be used to determine minimum annuity payouts if the rider is
exercised.
We reserve the right to exclude subsequent payments and purchase payment credits
paid in the last five years before exercise of the benefit, in the calculation
of the Guaranteed Income Benefit Base. We would do so only if such payments and
credits total $50,000 or more or if they are 25% or more of total payments and
credits paid into the contract.
If we exclude such payments and credits, the Guaranteed Income Benefit Base
would be calculated as the greatest of:
(a) contract value less "market value adjusted prior five years of payments and
purchase payment credits";
(b) total payments and purchase payment credits less prior five years of
payments and purchase payment credits, less adjusted partial withdrawals;
(c) Maximum anniversary value immediately preceding the date of settlement,
plus payments and minus adjusted partial withdrawals since that
anniversary, less the "market value adjusted prior five years of payments
and purchase payment credits"; or
(d) the Variable account 5% floor, less the 5% adjusted prior five years of
payments and purchase payment credits.
"Market value adjusted prior five years of payments and purchase payment
credits" are calculated as the sum of each such payment or credit, multiplied by
the ratio of the current contract value over the estimated contract value on the
anniversary prior to such payment or credit. The estimated contract value at
such anniversary is calculated by assuming that payments, credits and partial
withdrawals occurring in a contract year take place at the beginning of the year
for that anniversary and every year after that to the current contract year.
"5% Adjusted prior five years of payments and purchase payment credits" are
calculated as the sum of each payment or payment credit accumulated at 5% for
the number of full contract years they have been in the contract.
Conditions on election of the rider:
o you must elect the rider at the time you purchase your contract along with
the Enhanced Death Benefit Rider option, and
o the annuitant must be age 75 or younger on the contract date.
Fund selection to continue the rider: You may allocate your purchase payments to
any of the subaccounts or the fixed accounts. However, we reserve the right to
limit the amount in the Wells Fargo Money Market Fund to 10% of the total amount
in the subaccounts. If we are required to activate this restriction, and you
have more than 10% of your subaccount value in this fund, we will send you
notice and ask that you reallocate your contract value so that the limitation is
satisfied within 60 days. If after 60 days the limitation is not satisfied, we
will terminate the rider.
<PAGE>
Exercising the rider:
o you may only exercise the rider within 30 days after any contract
anniversary following the expiration of a ten-year waiting period from the
effective date of the rider, and
o the annuitant on the retirement date must be between 50 and 86 years old,
and
o you can only take an annuity payout in one of the following annuity payout
plans:
-- Plan A -- Life Annuity - no refund
-- Plan B -- Life Annuity with ten years certain
-- Plan D -- Joint and last survivor life annuity - no refund
Contingent event benefits: If the annuitant satisfies the conditions for the
waiver of withdrawal charges in the event of disability, terminal illness or a
confinement in a nursing home or hospital (see "Charges -- Waiver of withdrawal
charges") you can exercise the rider at any time. In this event, you can take up
to 50% of the Guaranteed Income Benefit Base in cash. You can use the balance of
the Guaranteed Income Benefit Base for annuity payouts under the terms above
with regard to annuitant age at retirement date, the annuity payout plans and
the more conservative annuity factors. You can also change the annuitant for the
payouts.
Terminating the rider:
o You may terminate the rider within 30 days after the first and fifth
anniversary of the effective date of the rider.
o You may terminate the rider any time after the tenth anniversary of the
effective date of the rider.
o The rider will terminate on the date you make a full withdrawal from the
contract, or annuity payouts begin, or on the date that a death benefit is
payable.
o The rider will terminate on the contract anniversary after the annuitant's
86th birthday.
Example:
o You purchase the contract with a payment of $100,000 on Jan. 1, 2000, and
we add a $2,000 purchase payment credit to the contract.
o There are no additional purchase payments and no partial withdrawals.
o The money is fully allocated to the subaccounts.
o The annuitant is male and age 55 on the contract date. For the joint and
last survivor option (annuity payout Plan D), the joint annuitant is female
and age 55 on the contract date.
o The Guaranteed Income Benefit Base is based on the Variable account 5%
floor.
o The contract is within 30 days after contract anniversary.
If the Guaranteed Minimum Income Benefit Rider is exercised, the minimum fixed
annuity monthly payout or the first year variable annuity monthly payout would
be:
<TABLE>
<CAPTION>
Fixed Annuity Payout Options
Minimum Guaranteed Annual Income
<S> <C> <C> <C> <C>
Plan A -- Plan B -- Plan D --
Contract Minimum Joint and last survivor
Anniversary Guaranteed Life Annuity - Life Annuity with life annuity -
At Exercise Benefit Base no refund ten years certain no refund
10 $166,147 $856.63 $842.37 $689.51
15 $212,051 $1,263.82 $1,204.45 $977.55
</TABLE>
After the first year payments, lifetime income payments on a variable annuity
payout option will depend on the investment performance of the subaccounts you
select. The payments will be higher if investment performance is greater than a
5% annual return and lower if investment performance is less than a 5% annual
return.
<PAGE>
Withdrawals
You may withdraw all or part of your contract at any time before annuity payouts
begin by sending us a written request or calling us. We will process your
withdrawal request on the valuation date we receive it. For total withdrawals,
we will compute the value of your contract at the next accumulation unit value
calculated after we receive your request. We may ask you to return the contract.
You may have to pay charges (see "Charges -- Withdrawal charge") and IRS taxes
and penalties (see "Taxes"). You cannot make withdrawals after annuity payouts
begin except under Plan E (see "The Annuity Payout Period -- Annuity payout
plans").
WITDRAWAL POLICIES
If you have a balance in more than one account and you request a partial
withdrawal, we will withdraw money from all your subaccounts and/or the fixed
accounts in the same proportion as your value in each account correlates to your
total contract value, unless you request otherwise.
RECEIVING PAYMENT
By regular or express mail:
o payable to owner;
o mailed to address of record.
NOTE: We will charge you a fee if you request express mail delivery.
Normally, we will send the payment within seven days after receiving your
request. However, we may postpone the payment if:
- -- the withdrawal amount includes a purchase payment check that has not
cleared;
- -- the NYSE is closed, except for normal holiday and weekend closings;
- -- trading on the NYSE is restricted, according to SEC rules;
- -- an emergency, as defined by SEC rules, makes it impractical to sell
securities or value the net assets of the accounts; or
- -- the SEC permits us to delay payment for the protection of security holders.
<PAGE>
Changing Ownership
You may change ownership of your nonqualified annuity at any time by completing
a change of ownership form we approve and sending it to our office. The change
will become binding upon us when we receive and record it. We will honor any
change of ownership request that we believe is authentic and we will use
reasonable procedures to confirm authenticity. If we follow these procedures, we
will not take any responsibility for the validity of the change.
If you have a nonqualified annuity, you may incur income tax liability by
transferring, assigning or pledging any part of it. (See "Taxes.")
If you have a qualified annuity, you may not sell, assign, transfer, discount or
pledge your contract as collateral for a loan, or as security for the
performance of an obligation or for any other purpose except as required or
permitted by the Code. However, if the owner is a trust or custodian, or an
employer acting in a similar capacity, ownership of a contract may be
transferred to the annuitant.
Benefits in Case of Death
We will pay the death benefit to your beneficiary upon the earlier of your death
or the annuitant's death. We will base the benefit paid on the death benefit
coverage you selected when you purchased the contract. If a contract has more
than one person as the owner, we will pay benefits upon the first to die of any
owner or the annuitant.
If you or the annuitant die before annuity payouts begin while this contract is
in force, we will pay the beneficiary the greatest of the following less any
purchase payment credits added to the contract in the last 12 months:
1. the contract value; or
2. the total purchase payments paid plus purchase payment credits and less any
"adjusted partial withdrawals"; or
3. the "maximum anniversary value" immediately preceding the date of death
plus the dollar amount of any payments since that anniversary plus purchase
payment credits and minus any "adjusted partial withdrawals" since that
anniversary.
If you own the contract in joint tenancy with rights of survivorship, we will
pay benefits upon the first to die of either you or the annuitant.
Adjusted partial withdrawals: We calculate an "adjusted partial withdrawal" for
each partial withdrawal as the product of (a) times (b) where:
(a) is the ratio of the amount of the partial withdrawal (including any
applicable withdrawal charge) to the contract value on the date of (but
prior to) the partial withdrawal; and
(b) is the death benefit on the date of (but prior to) the partial withdrawal.
Maximum anniversary value: Each contract anniversary prior to the earlier of
your or the annuitant's 81st birthday, we calculate the anniversary value which
is the greater of:
(a) the contract value on that anniversary; or
(b) total purchase payments made to the contract plus purchase payment credits
and minus any "adjusted partial withdrawals."
The "maximum anniversary value" is equal to the greatest of these anniversary
values.
After your or the annuitant's 81st birthday, the death benefit continues to be
the death benefit value as of that date, plus any subsequent payments and
purchase payment credits and minus any "adjusted partial withdrawals."
<PAGE>
Example:
o You purchase the contract with a payment of $20,000 on Jan. 1, 2000. We add
purchase a payment credit of $400 to the contract.
o On Jan. 1, 2001 (the first contract anniversary) the contract value grows
to $24,000.
o On March 1, 2001 the contract value falls to $22,000, at which point you
take a $1,500 partial withdrawal, leaving a contract value of $20,500.
We calculate the death benefit on March 1, 2001 as follows:
The "maximum anniversary value:" $24,000.00
(the greatest of the anniversary values which
was the contract value on Jan. 1, 2001)
plus any purchase payments paid since that anniversary: + 0.00
minus any "adjusted partial withdrawal" taken since that
anniversary, calculated as: 1,500 x 24,000 = - 1,636.36
22,000
for a death benefit of: $22,363.64
ENHANCED DEATH BENEFIT RIDER
If this rider is available in your state and both you and the annuitant are age
79 or younger on the contract date, you may choose to add this benefit to you
contract. This rider provides that if you or the annuitant die before annuity
payouts begin while this contract is in force, we will pay the beneficiary the
greatest of the following amounts less any purchase payment credits added in the
last 12 months:
1. the contract value; or
2. the total purchase payments paid plus purchase payment credits and less any
"adjusted partial withdrawals"; or
3. the "maximum anniversary value" immediately preceding the date of death
plus the dollar amount of any payments since that anniversary plus purchase
payment credits and minus any "adjusted partial withdrawals" since that
anniversary; or
4. the Variable account 5% floor
The variable account 5% floor
The Variable account 5% floor is the sum of the value in the fixed accounts plus
the variable account floor. On each contract anniversary prior to the earlier of
your or the annuitant's 81st birthday, we increase the variable account floor by
accumulating the prior anniversary's floor at 5%. On the first contract
anniversary, the floor is increased by 5% of the accumulated initial purchase
payments plus purchase payment credits allocated to the subaccounts. On any day
that you allocate additional amounts to, or withdraw or transfer from the
subaccounts, we adjust the floor by adding the additional amounts and
subtracting the "adjusted partial withdrawals" or "adjusted transfers."
After the contract anniversary immediately following either your or the
annuitant's 81st birthday, the Variable account floor is the floor on that
anniversary increased by additional purchase payments made since that
anniversary plus purchase payment credits and reduced by any "adjusted partial
withdrawals" since that anniversary.
<PAGE>
For the Variable account 5% floor, we calculate the "adjusted partial
withdrawals" or "adjusted transfers" as the result of (a) times (b) where:
(a) is the ratio of the amount of withdrawal (including any withdrawal charges)
or transfer from the subaccounts to the total value in the subaccounts on
the date of (but prior to) the withdrawal or transfer.
(b) is the variable account floor on the date of (but prior to) the withdrawal
or transfer.
Example:
o You purchase the contract with a payment of $20,000 on Jan. 1, 2000 and we
add a $400 purchase payment credit to the contract with $5,100 allocated to
the one-year fixed account and $15,300 allocated to the subaccounts.
o On Jan. 1, 2001 (the first contract anniversary), the one-year fixed
account value is $5,200 and the subaccount value is $12,000. Total contract
value is $17,200.
o On March 1, 2001, the one-year fixed account value is $5,300 and the
subaccount value is $14,000. Total contract value is $19,300. You take a
$1,500 partial withdrawal all from the subaccounts, leaving the contract
value at $17,800.
We calculate the death benefit on March 1, 2001 as follows:
The "maximum anniversary value"
(the purchase payment plus purchase payment credits): $20,400.00
plus any purchase payment paid since that anniversary: + 0.00
minus any "adjusted partial withdrawal" taken since that anniversary,
calculated as: (1,500 x 20,400)
19,300 = - 1,585.49
Maximum anniversary value benefit $18,814.51
The variable account floor on Jan. 1, 2001,
calculated as:
1.05 x 15,300 = $16,065.00
plus any purchase payments paid since that anniversary: + 0.00
minus any "adjusted partial withdrawals" from the subaccounts,
calculated as: 1,500 x 16,065 =
14,000 - $1,721.25
Variable account floor benefit $14,343.75
plus the one-year fixed account value + 5,300.00
Variable account 5% floor,
calculated as the one-year fixed account plus the
Variable account floor benefit $19,643.75
Enhanced Death Benefit, calculated as the greater
of the Maximum anniversary value benefit and the
Variable account 5% floor, minus any purchase payment
credits made in the last 12 months ($0) $19,643.75
<PAGE>
If your spouse is sole beneficiary and you die before the retirement date, your
spouse may keep the contract as owner with the contract value equal to the death
benefit that would have otherwise been paid. To do this your spouse must, within
60 days after we receive proof of death, give us written instructions to keep
the contract in force. There will be no withdrawal charges on the contract from
that point forward unless additional purchase payments are made. The Guaranteed
Minimum Income Benefit Rider, if selected, is then terminated.
Payments: Under a nonqualified annuity, we will pay the beneficiary in a single
sum unless you give us other written instructions. We must fully distribute the
death benefit within five years of your death. However, the beneficiary may
receive payouts under any annuity payout plan available under this contract if:
o the beneficiary asks us in writing within 60 days after we receive proof of
death; and
o payouts begin no later than one year after your death, or other date as
permitted by the Code; and
o the payout period does not extend beyond the beneficiary's life or life
expectancy.
When paying the beneficiary, we will process the death claim on the valuation
date our death claim requirements are fulfilled. We will determine the
contract's value at the next accumulation unit value calculated after our death
claim requirements are fulfilled. We pay interest, if any, from the date of
death at a rate no less than required by law. We will mail payment to the
beneficiary within seven days after our death claim requirements are fulfilled.
Other rules may apply to qualified annuities. (See "Taxes.")
<PAGE>
The Annuity Payout Period
As owner of the contract, you have the right to decide how and to whom annuity
payouts will be made starting at the retirement date. You may select one of the
annuity payout plans outlined below, or we may mutually agree on other payout
arrangements. We do not deduct any withdrawal charges under the payout plans
listed below.
You also decide whether we will make annuity payouts on a fixed or variable
basis, or a combination of fixed and variable. The amounts available to purchase
payouts under the plan you select is the contract value on your retirement date
(less any applicable premium tax). You may reallocate this contract value to the
one-year fixed account to provide fixed dollar payouts and/or among the
subaccounts to provide variable annuity payouts. During the annuity payout
period, we reserve the right to limit the number of subaccounts in which you may
invest. The Guarantee Period Accounts are not available during this payout
period.
Amounts of fixed and variable payouts depend on:
o the annuity payout plan you select;
o the annuitant's age and, in most cases, sex;
o the annuity table in the contract; and
o the amounts you allocated to the accounts at settlement.
In addition, for variable payouts only, amounts depend on the investment
performance of the subaccounts you select. These payouts will vary from month to
month because the performance of the funds will fluctuate. (In the case of fixed
annuities, payouts remain the same from month to month.)
For information with respect to transfers between accounts after annuity payouts
begin, see "Making the Most of Your Contract -- Transfer policies."
<PAGE>
ANNUITY TABLE
The annuity table in your contract shows the amount of the first monthly payment
for each $1,000 of contract value according to the age and, when applicable, the
sex of the annuitant. (Where required by law, we will use a unisex table of
settlement rates.) The table assumes that the contract value is invested at the
beginning of the annuity payout period and earns a 5% rate of return, which is
reinvested and helps to support future payouts.
SUBSTITUTION OF 3.5% TABLE
If you ask us at least 30 days before the retirement date, we will substitute an
annuity table based on an assumed 3.5% investment rate for the 5% table in the
contract. The assumed investment rate affects both the amount of the first
payout and the extent to which subsequent payouts increase or decrease. Using
the 5% table results in a higher initial payment, but later payouts will
increase more slowly when annuity unit values rise and decrease more rapidly
when they decline.
ANNUITY PAYOUT PLANS
You may choose any one of these annuity payout plans by giving us written
instructions at least 30 days before contract values are used to purchase the
payout plan:
o Plan A -- Life annuity - no refund: We make monthly payouts until the
annuitant's death. Payouts end with the last payout before the annuitant's
death. We will not make any further payouts. This means that if the
annuitant dies after we made only one monthly payout, we will not make any
more payouts.
o Plan B -- Life annuity with five, ten or 15 years certain: We make monthly
payouts for a guaranteed payout period of five, ten or 15 years that you
elect. This election will determine the length of the payout period to the
beneficiary if the annuitant should die before the elected period expires.
We calculate the guaranteed payout period from the retirement date. If the
annuitant outlives the elected guaranteed payout period, we will continue
to make payouts until the annuitant's death.
o Plan C -- Life annuity - installment refund: We make monthly payouts until
the annuitant's death, with our guarantee that payouts will continue for
some period of time. We will make payouts for at least the number of months
determined by dividing the amount applied under this option by the first
monthly payout, whether or not the annuitant is living.
o Plan D -- Joint and last survivor life annuity - no refund: We make monthly
payouts while both the annuitant and a joint annuitant are living. If
either annuitant dies, we will continue to make monthly payouts at the full
amount until the death of the surviving annuitant. Payouts end with the
death of the second annuitant.
o Plan E -- Payouts for a specified period: We make monthly payouts for a
specific payout period of ten to 30 years that you elect. We will make
payouts only for the number of years specified whether the annuitant is
living or not. Depending on the selected time period, it is foreseeable
that an annuitant can outlive the payout period selected. During the payout
period, you can elect to have us determine the present value of any
remaining variable payouts and pay it to you in a lump sum. We determine
the present value of the remaining annuity payouts which are assumed to
remain level at the initial payment. If the initial contract had a six-year
withdrawal charge schedule, the discount rate we use in the calculation
will vary between 5.32% and 6.82% depending on the applicable assumed
investment rate. If the original contract had an eight-year withdrawal
charge schedule, the discount rate we use in the calculation will vary
between 5.07% and 6.57% depending on the applicable assumed investment
rate. (See "Charges -- Withdrawal charge under Annuity Payout Plan E.") You
can also take a portion of the discounted value once a year. If you do so,
your monthly payouts will be reduced by the proportion of your withdrawal
to the full discounted value. A 10% IRS penalty tax could apply if you take
a withdrawal. (See "Taxes.")
<PAGE>
Restrictions for some tax-deferred retirement plans: If you purchased a
qualified annuity, you may be required to select a payout plan that provides for
payouts:
o over the life of the annuitant;
o over the joint lives of the annuitant and a designated beneficiary;
o for a period not exceeding the life expectancy of the annuitant; or
o for a period not exceeding the joint life expectancies of the annuitant and
a designated beneficiary.
You have the responsibility for electing a payout plan that complies with your
contract and with applicable law.
If we do not receive instructions: You must give us written instructions for the
annuity payouts at least 30 days before the annuitant's retirement date. If you
do not, we will make payouts under Plan B, with 120 monthly payouts guaranteed.
Contract values that you allocated to the one-year fixed account will provide
fixed dollar payouts and contract values that you allocated among the
subaccounts will provide variable annuity payouts.
If monthly payouts would be less than $20: We will calculate the amount of
monthly payouts at the time the contract value is used to purchase a payout
plan. If the calculations show that monthly payouts would be less than $20, we
have the right to pay the contract value to you in a lump sum or to change the
frequency of the payouts.
DEATH AFTER ANNUITY PAYOUTS BEGIN
If you or the annuitant die after annuity payouts begin, we will pay any amount
payable to the beneficiary as provided in the annuity payout plan in effect.
<PAGE>
Taxes
Generally, under current law, your contract has a tax deferral feature. This
means any increase in the value of the fixed accounts and/or subaccounts in
which you invest is taxable to you only when you receive a payout or withdrawal
(see detailed discussion below). Any portion of the annuity payouts and any
withdrawals you request that represent ordinary income normally are taxable. We
will send you a tax information reporting form for any year in which we made a
taxable distribution according to our records. Roth IRAs may grow and be
distributed tax free if you meet certain distribution requirements.
Annuity payouts under nonqualified annuities: A portion of each payout will be
ordinary income and subject to tax, and a portion of each payout will be
considered a return of part of your investment and will not be taxed. All
amounts you receive after your investment in the contract is fully recovered
will be subject to tax.
Tax law requires that all nonqualified deferred annuity contracts issued by the
same company (and possibly its affiliates) to the same owner during a calendar
year be taxed as a single, unified contract when you take distributions from any
one of those contracts.
Qualified annuities: Your contract may be used to fund a tax-deferred retirement
plan that is already tax-deferred under the Code. The contract will not provide
any necessary or additional tax deferral if it is used to fund a retirement plan
that is tax-deferred. Special rules apply to these retirement plans. Your rights
to benefits may be subject to the terms and conditions of these retirement plans
regardless of the terms of the contract.
Adverse tax consequences may result if you do not ensure that contributions,
distributions and other transactions under the contract comply with the law.
Qualified annuities have minimum distribution rules that govern the timing and
amount of distributions during your life (except for Roth IRAs) and after your
death. You should refer to your retirement plan or adoption agreement or consult
a tax advisor for more information about your distribution rules.
Annuity payouts under qualified annuities (except Roth IRAs): Under a qualified
annuity, the entire payout generally is includable as ordinary income and is
subject to tax except to the extent that contributions were made with after-tax
dollars. If you or your employer invested in your contract with deductible or
pre-tax dollars as part of a tax-deferred retirement plan, such amounts are not
considered to be part of your investment in the contract and will be taxed when
paid to you.
Purchase payment credits: These are considered earnings and are taxed
accordingly.
Withdrawals: If you withdraw part or all of your contract before your annuity
payouts begin, your withdrawal payment will be taxed to the extent that the
value of your contract immediately before the withdrawal exceeds your
investment. You also may have to pay a 10% IRS penalty for withdrawals you make
before reaching age 591/2 unless certain exceptions apply. For qualified
annuities, other penalties may apply if you withdraw your contract before your
plan specifies that you can receive payouts.
Death benefits to beneficiaries: The death benefit under a contract (except a
Roth IRA) is not tax-exempt. Any amount your beneficiary receives that
represents previously deferred earnings within the contract is taxable as
ordinary income to the beneficiary in the years he or she receives the payments.
The death benefit under a Roth IRA generally is not taxable as ordinary income
to the beneficiary if certain distribution requirements are met.
Annuities owned by corporations, partnerships or trusts: For nonqualified
annuities any annual increase in the value of annuities held by such entities
generally will be treated as ordinary income received during that year. This
provision is effective for purchase payments made after Feb. 28, 1986. However,
if the trust was set up for the benefit of a natural person only, the income
will remain tax-deferred.
<PAGE>
Penalties: If you receive amounts from your contract before reaching age 59 1/2,
you may have to pay a 10% IRS penalty on the amount includable in your ordinary
income. However, this penalty will not apply to any amount received by you or
your beneficiary:
o because of your death;
o because you become disabled (as defined in the Code);
o if the distribution is part of a series of substantially equal periodic
payments, made at least annually, over your life or life expectancy (or
joint lives or life expectancies of you and your beneficiary); or
o if it is allocable to an investment before Aug. 14, 1982 (except for
qualified annuities).
For a qualified annuity, other penalties or exceptions may apply if you make
withdrawals from your contract before your plan specifies that payouts can be
made.
Withholding, generally: If you receive all or part of the contract value, we may
deduct withholding against the taxable income portion of the payment. Any
withholding represents a prepayment of your tax due for the year. You take
credit for these amounts on your annual tax return.
If the payment is part of an annuity payout plan, we generally compute the
amount of withholding using payroll tables. You may provide us with a statement
of how many exemptions to use in calculating the withholding. As long as you've
provided us with a valid Social Security Number or Taxpayer Identification
Number, you can elect not to have any withholding occur.
If the distribution is any other type of payment (such as a partial or full
withdrawal), we compute withholding using 10% of the taxable portion. Similar to
above, as long as you have provided us with a valid Social Security Number or
Taxpayer Identification Number, you can elect not to have this withholding
occur.
Some states also impose withholding requirements similar to the federal
withholding described above. If this should be the case, we may deduct state
withholding from any payment from which we deduct federal withholding. The
withholding requirements may differ if we are making payment to a non-U.S.
citizen or if we deliver the payment outside the United States.
Transfer of ownership of a nonqualified annuity: If you transfer a nonqualified
annuity without receiving adequate consideration, the transfer is a gift and
also may be a withdrawal for federal income tax purposes. If the gift is a
currently taxable event for income tax purposes, the original owner will be
taxed on the amount of deferred earnings at the time of the transfer and also
may be subject to the 10% IRS penalty discussed earlier. In this case, the new
owner's investment in the contract will be the value of the contract at the time
of the transfer.
Collateral assignment of a nonqualified annuity: If you collaterally assign or
pledge your contract, earnings on purchase payments you made after Aug. 13, 1982
will be taxed to you like a withdrawal.
Important: Our discussion of federal tax laws is based upon our understanding of
current interpretations of these laws. Federal tax laws or current
interpretations of them may change. For this reason and because tax consequences
are complex and highly individual and cannot always be anticipated, you should
consult a tax advisor if you have any questions about taxation of your contract.
Tax qualification: We intend that the contract qualify as an annuity for federal
income tax purposes. To that end, the provisions of the contract are to be
interpreted to ensure or maintain such tax qualification, in spite of any other
provisions of the contract. We reserve the right to amend the contract to
reflect any clarifications that may be needed or are appropriate to maintain
such qualification or to conform the contract to any applicable changes in the
tax qualification requirements. We will send you a copy of any amendments.
<PAGE>
Voting Rights
As a contract owner with investments in the subaccounts, you may vote on
important fund policies until annuity payouts begin. Once they begin, the person
receiving them has voting rights. We will vote fund shares according to the
instructions of the person with voting rights.
Before annuity payouts begin, the number of votes you have is determined by
applying your percentage interest in each subaccount to the total number of
votes allowed to the subaccount.
After annuity payouts begin, the number of votes you have is equal to:
o the reserve held in each subaccount for your contract;
o divided by the net asset value of one share of the applicable fund.
As we make annuity payouts, the reserve for the contract decreases; therefore,
the number of votes also will decrease.
We calculate votes separately for each subaccount. We will send notice of
shareholders' meetings, proxy materials and a statement of the number of votes
to which the voter is entitled. We will vote shares for which we have not
received instructions in the same proportion as the votes for which we received
instructions. We also will vote the shares for which we have voting rights in
the same proportion as the votes for which we received instructions.
<PAGE>
Substitution of Investments
We may substitute the funds in which the subaccounts invest if:
o laws or regulations change,
o existing funds become unavailable, or
o in our judgment, the funds no longer are suitable for the subaccounts.
If any of these situations occur and if we believe it is in the best interest of
persons having voting rights under the contract, we have the right to substitute
funds other than those currently listed in this prospectus for other funds.
We may also:
o add new subaccounts;
o combine any two or more subaccounts;
o add subaccounts investing in additional funds;
o transfer assets to and from the subaccounts or the variable account; and
o eliminate or close any subaccounts.
In the event of substitution or any of these changes, we may amend the contract
and take whatever action is necessary and appropriate without your consent or
approval. However, we will not make any substitution or change without the
necessary approval of the SEC and state insurance departments. We will notify
you of any substitution or change.
<PAGE>
About the Service Providers
PRINCIPAL UNDERWRITER
American Express Financial Advisors Inc. (AEFA) serves as the principal
underwriter for the contract. Its office are located at 200 AXP Financial
Center, Minneapolis, MN 55474. AEFA is a wholly-owned subsidiary of American
Express Financial Corporation (AEFC) which is a wholly-owned subsidiary of
American Express Company.
The contracts will be distributed by broker-dealers which have entered into
distribution agreements with AEFA and American Enterprise Life.
We pay commissions for sales of the contracts of up to 7% of purchase payments
to insurance agencies or broker-dealers that are also insurance agencies.
Sometimes we pay the commissions as a combination of a certain amount of the
commission at the time of sale and a trail commission (which, when totaled,
could exceed 7% of purchase payments). In addition, we may pay certain sellers
additional compensation for selling and distribution activities under certain
circumstances. From time to time, we will pay or permit other promotional
incentives, in cash or credit or other compensation.
Other contracts issued by American Enterprise Life that are not described in
this prospectus may be available through your sales representative. The
features, investment options, sales charges and expenses of the other contracts
are different than those of this contract. Therefore, the contract values under
the other contracts may be different than your contract value under this
contract. In addition, sales commissions for the other contracts may be higher
or lower than sales commissions for this contract.
ISSUER
American Enterprise Life issues the annuities. American Enterprise Life is a
wholly-owned subsidiary of IDS Life, which is a wholly-owned subsidiary of AEFC.
AEFC is a wholly-owned subsidiary of American Express Company. American Express
Company is a financial services company principally engaged through subsidiaries
(in addition to AEFC) in travel related services, investment services and
international banking services.
American Enterprise Life is a stock life insurance company organized in 1981
under the laws of the state of Indiana. Our administrative offices are located
at 829 AXP Financial Center, Minneapolis, MN 55474. Our statutory address is 100
Capitol Center South, 201 North Illinois Street, Indianapolis, IN 46204.
American Enterprise Life conducts a conventional life insurance business.
LEGAL PROCEEDINGS
A number of lawsuits have been filed against life and health insurers in
jurisdictions in which American Enterprise Life and its affiliates do business
involving insurers' sales practices, alleged agent misconduct, failure to
properly supervise agents and other matters. IDS Life is a defendant in three
class action lawsuits of this nature. American Enterprise Life is a named
defendant in one of these suits, Richard W. and Elizabeth J. Thoresen vs.
American Express Financial Corporation, American Centurion Life Assurance
Company, American Enterprise Life Insurance Company, American Partners Life
Insurance Company, IDS Life Insurance Company and IDS Life Insurance Company of
New York which was commenced in Minnesota State Court in October 1998. The
action was brought by individuals who purchased an annuity in a qualified plan.
The plaintiffs allege that the sale of annuities in tax-deferred contributory
retirement investment plans (e.g., IRAs) is never appropriate. The plaintiffs
purport to represent a class consisting of all persons who made similar
purchases. The plaintiffs seek damages in an unspecified amount.
American Enterprise Life is included as a party to preliminary settlement of all
three class action lawsuits. We believe this approach will put these cases
behind us and provide a fair outcome for our clients. Our decision to settle
does not include any admission of wrongdoing. We do not anticipate that this
proposed settlement, or any other lawsuits in which American Enterprise Life is
a defendant, will have a material adverse effect on our financial condition.
<PAGE>
Additional Information About American Enterprise Life
SELECTED FINANCIAL DATA
<TABLE>
<CAPTION>
The following selected financial data for American Enterprise Life should be
read in conjunction with the financial statements and notes.
<S> <C> <C> <C> <C> <C>
Years ended Dec. 31, (thousands) 1999 1998 1997 1996 1995
Net investment income $ 322,746 $ 340,219 $ 332,268 $ 271,719 $ 223,706
Net gain/loss on investments $ 6,565 (4,788) (509) (5,258) (1,154)
Other $ 8,338 7,662 6,329 5,753 4,214
Total revenues $ 337,649 $ 343,093 $ 338,088 $ 272,214 $ 226,766
Income before income taxes $ 50,662 $ 36,421 $ 44,958 $ 35,735 $ 33,440
Net income $ 33,987 $ 22,026 $ 28,313 $ 22,823 $ 21,748
Total assets $ 4,603,343 $ 4,885,621 $ 4,973,413 $ 4,425,837 $ 3,570,960
</TABLE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF CONSOLIDATED FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
1999 Compared to 1998:
Net income increased 54 percent to $34 million in 1999, compared to $22 million
in 1998. Earnings growth resulted primarily net realized gains of $6.6 million
in 1999, compared to net realized losses of $4.8 in 1998.
Income before income taxes totaled $51 million in 1999, compared with $36
million in 1998.
Total investment contract deposits received decreased to $336 million in 1999,
compared with $348 million in 1998. This decrease is primarily due to a decrease
in sales of variable annuities in 1999.
Total revenues decreased to $338 million in 1999, compared with $343 million in
1998. The decrease is primarily due to decreased net investment income which was
partially offset by an increase in realized gain on investments. Net investment
income, the largest component of revenues, decreased 5 percent from the prior
year, reflecting decreases in investments owned and investment yields.
Contractholder charges decreased 5 percent to $6.1 million in 1999, compared
with $6.4 million in 1998, reflecting a decrease in fixed annuities inforce. The
Company receives mortality and expense risk fees from the separate accounts.
Mortality and expense risk fees increased 77 percent to $2.3 million in 1999,
compared with $1.3 million in 1998, this reflects the increase in separate
account assets.
Net realized gain on investments was $6.6 million in 1999, compared to a net
realized loss on investments of $4.8 million in 1998. The net realized gains
were primarily due to the sale of available for sale fixed maturity investments
at a gain as well as a decrease in the allowance for mortgage loan losses based
on management's regular evaluation of allowance adequacy.
Total benefits and expenses decreased slightly to $287 million in 1999. The
largest component of expenses, interest credited on investment contracts,
decreased to $209 million, reflecting a decrease in fixed annuities in force and
lower interest rates. Amortization of deferred policy acquisition costs
decreased to $43 million, compared to $54 million in 1998. This decrease was due
primarily to decreased aggregate amounts in force, as well as the impact of
changing prospective assumptions in 1998 based on actual lapse experience on
certain fixed annuities.
Other operating expenses increased 46 percent to $35 million in 1999, compared
to $24 million in 1998. This increase is primarily reflects technology costs
related to growth initiatives.
<PAGE>
1998 Compared to 1997:
Net income decreased 22 percent to $22 million in 1998, compared to $28 million
in 1997. The decrease in earnings resulted primarily from increases in
amortization of deferred policy acquisition costs.
Income before income taxes totaled $36 million in 1998, compared with $45
million in 1997.
Total premiums and investment contract deposits received decreased to $348
million in 1998, compared with $802 million in 1997. This decrease is primarily
due to a decrease in sales of fixed annuities in 1998, reflecting the low
interest rate environment.
Total revenues increased to $343 million in 1998, compared with $338 million in
1997. The increase is primarily due to increases in net investment income and
contractholder charges. Net investment income, the largest component of
revenues, increased 2 percent from the prior year, reflecting increases in
investments owned and investment yields.
Contractholder charges, increased 12 percent to $6.4 million in 1998, compared
with $5.7 million in 1997. The Company receives mortality and expense risk fees
from the separate accounts.
Total benefits and expenses increased 4.6 percent to $307 million in 1998,
compared with 293 million in 1997. The largest component of expenses, interest
credited on contractholders investment contracts, decreased to $229 million,
reflecting a decrease in fixed annuities in force and lower interest rates.
Amortization of deferred policy acquisition costs increased to $54 million,
compared to $37 million in 1997. This increase was due primarily to the impact
of changing prospective assumptions based on actual lapse experience on certain
fixed annuities.
Risk Management
The sensitivity analysis of the test of market risk discussed below estimates
the effects of hypothetical sudden and sustained changes in the applicable
market conditions on the ensuing year's earnings based on year-end positions.
The market changes, assumed to occur as of year-end, is a 100 basis point
increase in market interest rates. Computations of the prospective effects of
hypothetical interest rate change based on numerous assumptions, including
relative levels of market interest rates as well as the levels of assets and
liabilities. The hypothetical changes and assumptions will be different from
what actually occurs in the future. Furthermore, the computations do not
anticipate actions that may be taken by management if the hypothetical market
changes actually occurred over time. As a result, actual earnings effects in the
future will differ from those quantified below.
The Company primarily invests in fixed income securities over a broad range of
maturities for the purpose of providing fixed annuity clients with a competitive
rate of return on their investments while minimizing risk, and to provide a
dependable and targeted spread between the interest rate earned on investments
and the interest rate credited to contractholders' accounts. The Company does
not invest in securities to generate trading profits.
The Company has an investment committee that holds regularly scheduled meetings
and, when necessary, special meetings. At these meetings, the committee reviews
models projecting different interest rate scenarios and their impact on
profitability. The objective of the committee is to structure the investment
security portfolio based upon the type and behavior of products in the liability
portfolio so as to achieve targeted levels of profitability.
Rates credited to contractholders' accounts are generally reset at shorter
intervals than the maturity of underlying investments. Therefore, margins may be
negatively impacted by increases in the general level of interest rates. Part of
the committee's strategy includes the purchase of some types of derivatives,
such as interest rate caps, swaps and floors, for hedging purposes. These
derivatives protect margins by increasing investment returns if there is a
sudden and severe rise in interest rates, thereby mitigating the impact of an
increase in rates credited to contractholders' accounts.
<PAGE>
The negative effect on the Company's pretax earnings of a 100 basis point
increase in interest rates, which assumes repricings and customer behavior based
on the application of proprietary models to the book of business at December 31,
1999, would be appoximately $4.2 million.
Liquidity and Capital Resources
The liquidity requirements of the Company are met by funds provided by annuity
considerations, investment income, proceeds from sales of investments as well as
maturities and periodic repayments of investment principal.
The primary uses of funds are policy benefits, commissions and operating
expenses, policy loans, and investment purchases.
The Company has an available line of credit with American Express Financial
Corporation aggregating $50 million. The line of credit is used strictly as a
short-term source of funds. No borrowings were outstanding under the agreement
at December 31, 1999. At December 31, 1999, outstanding reverse repurchase
agreements totaled $26 million.
At December 31, 1999, investments in fixed maturities comprised 81 percent of
the Company's total invested assets. Of the fixed maturity portfolio,
approximately 32 percent is invested in GNMA, FNMA and FHLMC mortgage-backed
securities which are considered AAA/Aaa quality.
At December 31, 1999, approximately 14 percent of the Company's investments in
fixed maturities were below investment grade bonds. These investments may be
subject to a higher degree of risk than the investment grade issues because of
the borrower's generally greater sensitivity to adverse economic conditions,
such as recession or increasing interest rates, and in certain instances, the
lack of an active secondary market. Expected returns on below investment grade
bonds reflect consideration of such factors. The Company has identified those
fixed maturities for which a decline in fair value is determined to be other
than temporary, and has written them down to fair value with a charge to
earnings.
At December 31, 1999, net unrealized appreciation on fixed maturities held to
maturity included $6.3 million of gross unrealized appreciation and $29 million
of gross unrealized depreciation. Net unrealized appreciation on fixed
maturities available for sale included $9.3 million of gross unrealized
appreciation and $117 million of gross unrealized depreciation.
At December 31, 1999, the Company had an allowance for losses for mortgage loans
totaling $6.7 million.
The economy and other factors have caused a number of insurance companies to go
under regulatory supervision. This circumstance has resulted in assessments by
state guaranty associations to cover losses to policyholders of insolvent or
rehabilitated companies. Some assessments can be partially recovered through a
reduction in future premium taxes in certain states. The Company established an
asset for guaranty association assessments paid to those states allowing a
reduction in future premium taxes over a reasonable period of time. The asset is
being amortized as premium taxes are reduced. The Company has also estimated the
potential effect of future assessments on the Company's financial position and
results of operations and has established a reserve for such potential
assessments. The Company has adopted Statement of Position 97-3 providing
guidance when an insurer should recognize a liability for guaranty fund
assessments. The SOP is effective for fiscal years beginning after December 15,
1998. Adoption did not have a material impact on the Company's results of
operations or financial condition.
<PAGE>
The National Association of Insurance Commissioners has established risk-based
capital standards to determine the capital requirements of a life insurance
company based upon the risks inherent in its operations. These standards require
the computation of a risk-based capital amount which is then compared to a
company's actual total adjusted capital. The computation involves applying
factors to various statutory financial data to address four primary risks: asset
default, adverse insurance experience, interest rate risk and external events.
These standards provide for regulatory attention when the percentage of total
adjusted capital to authorized control level risk-based capital is below certain
levels. As of December 31, 1999, the Company's total adjusted capital was well
in excess of the levels requiring regulatory attention.
YEAR 2000 ISSUE
The Year 2000 issue is the result of computer programs having been written using
two digits rather than four to define a year. Any programs that have
time-sensitive software may recognize a date using "00" as the year 1900 rather
than 2000. This could result in the failure of major systems or miscalculations,
which could have a material impact on the operations of American Enterprise Life
and the variable account. All of the major systems used by American Enterprise
Life and the variable account are maintained by AEFC and are utilized by
multiple subsidiaries and affiliates of AEFC. American Enterprise Life's and the
variable account's businesses are heavily dependent upon AEFC's computer systems
and have significant interaction with systems of third parties.
A comprehensive review of AEFC's computer systems and business processes,
including those specific to American Enterprise Life and the variable account,
was conducted to identify the major systems that could be affected by the Year
2000 issue. Steps were taken to resolve potential problems including
modification to existing software and the purchase of new software. As of Dec.
31, 1999, AEFC had completed its program of corrective measures on its internal
systems and applications, including Year 2000 compliance testing. As of Dec. 31,
1999, AEFC had also completed an evaluation of the Year 2000 readiness of other
third parties whose system failures could have an impact on American Enterprise
Life's and the variable account's operations.
AEFC's Year 2000 project also included establishing Year 2000 contingency plans
for all key business units. Business continuation plans, which address business
continuation in the event of a system disruption, are in place for all key
business units. As of Dec.31, 1999, these plans had been amended to include
specific Year 2000 considerations.
In assessing its Year 2000 initiatives and the results of actual production
since Jan. 1, 2000, management believes no material adverse consequences were
experienced, and there was no material effect on American Enterprise Life's and
the variable account's business, results of operations, or financial condition
as a result of the Year 2000 issue.
RESERVES
In accordance with the insurance laws and regulations under which we operate, we
are obligated to carry on our books, as liabilities, actuarially determined
reserves to meet our obligations on our outstanding annuity contracts. We base
our reserves for deferred annuity contracts on accumulation value and for fixed
annuity contracts in a benefit status on established industry mortality tables.
These reserves are computed amounts that will be sufficient to meet our policy
obligations at their maturities.
INVESTMENTS
Our total investments of $4,107,559 at Dec. 31, 1999, 28% was invested in
mortgage-backed securities, 53% in corporate and other bonds, 19% in primary
mortgage loans on real estate and the remaining less than 1% in other
investments.
<PAGE>
COMPETITION
We are engaged in a business that is highly competitive due to the large number
of stock and mutual life insurance companies and other entities marketing
insurance products. There are over 1,600 stock, mutual and other types of
insurers in the life insurance business. Best's Insurance Reports, Life-Health
edition 1999, assigned us one of its highest classifications, A+ (Superior).
EMPLOYEES
As of Dec. 31, 1999, we had no employees.
PROPERTIES
We occupy office space in Minneapolis, MN, which is rented by AEFC. We reimburse
AEFC for rent based on direct and indirect allocation methods. Facilities
occupied by us are believed to be adequate for the purposes for which they are
used and well maintained.
STATE REGULATION
American Enterprise Life is subject to the laws of the State of Indiana
governing insurance companies and to the regulations of the Indiana Department
of Insurance. An annual statement in the prescribed form is filed with the
Indiana Department of Insurance each year covering our operation for the
preceding year and its financial condition at the end of such year. Regulation
by the Indiana Department of Insurance includes periodic examination to
determine American Enterprise's contract liabilities and reserves so that the
Indiana Department of Insurance may certify that these items are correct. The
Company's books and accounts are subject to review by the Indiana Department of
Insurance at all times. Such regulation does not, however, involve any
supervision of the account's management or the company's investment practices or
policies. In addition, American Enterprise Life is subject to regulation under
the insurance laws of other jurisdictions in which it operates. A full
examination of American Enterprise Life's operations is conducted periodically
by the National Association of Insurance Commissioners.
Under insurance guaranty fund laws, in most states, insurers doing business
therein can be assessed up to prescribed limits for policyholder losses incurred
by insolvent companies. Most of these laws do provide however, that an
assessment may be excused or deferred if it would threaten an insurer's own
financial strength.
<PAGE>
Directors and Executive Officers*
The directors and principal executive officers of American Enterprise Life and
the principal occupation of each during the last five years is as follows:
Directors
James E. Choat
Born in 1947
Director, president and chief executive officer since 1996; Senior vice
president - Institutional Products Group, AEFA, 1994 to 1997.
Richard W. Kling
Born 1940
Director and chairman of the board since March 1989.
Paul S. Mannweiler**
Born in 1949
Director since 1986; Partner at Locke Reynolds Boyd & Weisell since 1980.
Paula R. Meyer
Born in 1954
Director and executive vice president, assured assets since 1998; vice
president, AEFC since 1998; Piper Capital Management (PCM) President from Oct.
1997 to May 1998; PCM Director of Marketing from June 1995 to Oct. 1997; PCM
Director of Retail Marketing from Dec. 1993 to June 1995.
William A. Stoltzmann
Born in 1948
Director since Sept. 1989; vice president, general counsel and secretary since
1985.
Officers other than directors
Jeffrey S. Horton
Born 1961
Vice president and treasurer since Dec. 1997; vice president and corporate
treasurer, AEFC, since Dec. 1997; controller, American Express Technologies -
Financial Services, AEFC, from July 1997 to Dec. 1997; controller, Risk
Management Products, AEFC, from May 1994 to July 1997; director of finance and
analysis, Corporate Treasury, AEFC, from June 1990 to May 1994.
Philip C. Wentzel
Born in 1961
Vice president and controller since 1998; vice president - Finance, Risk
Management Products, AEFC since 1997; and director of financial reporting and
analysis from 1992 to 1997.
*The address for all of the directors and principal officers is:
200 AXP Financial Center, Minneapolis, MN 55474 except for Mr. Mannweiler
who is an independent director.
**Mr. Mannweiler's address is: 201 No. Illinois Street, Indianapolis, IN 46204
<PAGE>
EXECUTIVE COMPENSATION
Our executive officers also may serve one or more affiliated companies. The
following table reflects cash compensation paid to the five most highly
compensated executive officers as a group for services rendered in the most
recent year to us and our affiliates. The table also shows the total cash
compensation paid to all our executive officers, as a group, who were executive
officers at any time during the most recent year.
Name of individual or Number in group Position held Cash
compensation
Five most highly compensated
executive officers as a group: $7,960,888
Richard W. Kling Chairman of the Board
James E. Choat President and CEO
Stuart A. Sedlacek Executive Vice President
Lorraine R. Hart Vice President, Investments
Deborah L. Pederson Assistant Vice President,
Investments
All executive officers as a group (11) $11,535,043
SECURITY OWNERSHIP OF MANAGEMENT
Our directors and officers do not beneficially own any outstanding shares of
stock of the company. All of our outstanding shares of stock are beneficially
owned by IDS Life. The percentage of shares of IDS Life owned by any director,
and by all our directors and officers as a group, does not exceed 1% of the
class outstanding.
Experts
Ernst & Young LLP, independent auditors, have audited the financial statements
of American Enterprise Life Insurance Company at Dec. 31, 1999 and 1998, and for
each of the three years in the period ended Dec. 31, 1999, and the individual
and combined financial statements of the segregated asset subaccounts of the
American Enterprise Variable Annuity Account (comprised of subaccounts PBCA1,
PDEI1, PEXI1, PNDM1, PSCA1, PCAP1, PVAL1, PSMC1, PGIS1, PUTS1, PIGR1 and PVIS1)
as of Dec. 31, 1999 and for the periods indicated therein, as set forth in their
reports. We've included our financial statements in the prospectus and elsewhere
in the registration statement in reliance on Ernst & Young LLP's report, given
on their authority as experts in accounting and auditing.
<PAGE>
AMERICAN ENTERPRISE LIFE INSURANCE COMPANY FINANCIAL INFORMATION
REPORT OF INDEPENDENT AUDITORS
The Board of Directors
American Enterprise Life Insurance Company
We have audited the accompanying balance sheets of American Enterprise Life
Insurance Company (a wholly owned subsidiary of IDS Life Insurance Company) as
of December 31, 1999 and 1998, and the related statements of income,
stockholder's equity and cash flows for each of the three years in the period
ended December 31, 1999. These financial statements are the responsibility of
the Company's management. Our responsibility is to express an opinion on these
financial statements based on our audits.
We conducted our audits in accordance with auditing standards generally accepted
in the United States. Those standards require that we plan and perform the audit
to obtain reasonable assurance about whether the financial statements are free
of material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements. An audit
also includes assessing the accounting principles used and significant estimates
made by management, as well as evaluating the overall financial statement
presentation. We believe that our audits provide a reasonable basis for our
opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the financial position of American Enterprise Life
Insurance Company at December 31, 1999 and 1998, and the results of its
operations and its cash flows for each of the three years in the period ended
December 31, 1999, in conformity with accounting principles generally accepted
in the United States.
/s/ Ernst & Young LLP
Ernst & Young LLP
February 3, 2000
Minneapolis, Minnesota
<PAGE>
AMERICAN ENTERPRISE LIFE INSURANCE COMPANY
BALANCE SHEETS
December 31,
($ thousands, except share amounts)
<TABLE>
<S> <C> <C>
ASSETS 1999 1998
- ------ ----------- -----------
Investments:
Fixed maturities:
Held to maturity, at amortized cost (fair value:
1999, $984,103; 1998, $1,126,732) $1,006,349 $1,081,193
Available for sale, at fair value (amortized cost:
1999, $2,411,799; 1998, $2,526,712) 2,304,487 2,594,858
----------- -----------
3,310,836 3,676,051
Mortgage loans on real estate 785,253 815,806
Other investments 11,470 12,103
----------- -----------
Total investments 4,107,559 4,503,960
Accounts receivable 316 214
Accrued investment income 56,676 61,740
Deferred policy acquisition costs 180,288 196,479
Deferred income taxes 37,501 --
Other assets 9 43
Separate account assets 220,994 123,185
----------- -----------
Total assets $4,603,343 $4,885,621
========== ==========
LIABILITIES AND STOCKHOLDER'S EQUITY
Liabilities:
Future policy benefits for fixed annuities $3,921,513 $4,166,852
Policy claims and other policyholders' funds 12,097 7,389
Deferred income taxes -- 23,199
Amounts due to brokers 25,215 54,347
Other liabilities 17,436 24,500
Separate account liabilities 220,994 123,185
----------- -----------
Total liabilities 4,197,255 4,399,472
Stockholder's equity:
Capital stock, $100 par value per share;
100,000 shares authorized,
20,000 shares issued and outstanding 2,000 2,000
Additional paid-in capital 282,872 282,872
Accumulated other comprehensive (loss) income:
Net unrealized securities (losses) gains (69,753) 44,295
Retained earnings 190,969 156,982
----------- -----------
Total stockholder's equity 406,088 486,149
----------- -----------
Total liabilities and stockholder's equity $4,603,343 $4,885,621
========== ==========
</TABLE>
<PAGE>
AMERICAN ENTERPRISE LIFE INSURANCE COMPANY
STATEMENTS OF INCOME
Years ended December 31,
($ thousands)
<TABLE>
<S> <C> <C> <C>
1999 1998 1997
--------- --------- ---------
Revenues:
Net investment income $322,746 $340,219 $332,268
Contractholder charges 6,069 6,387 5,688
Mortality and expense risk fees 2,269 1,275 641
Net realized gain (loss) on investments 6,565 (4,788) (509)
--------- --------- ---------
Total revenues 337,649 343,093 338,088
--------- --------- ---------
Benefits and expenses:
Interest credited on investment contracts 208,583 228,533 231,437
Amortization of deferred policy acquisition costs 43,257 53,663 36,803
Other operating expenses 35,147 24,476 24,890
--------- --------- ---------
Total benefits and expenses 286,987 306,672 293,130
--------- --------- ---------
Income before income taxes 50,662 36,421 44,958
Income taxes 16,675 14,395 16,645
--------- --------- ---------
Net income $ 33,987 $ 22,026 $ 28,313
========= ========= =========
</TABLE>
<PAGE>
AMERICAN ENTERPRISE LIFE INSURANCE COMPANY
STATEMENTS OF STOCKHOLDER'S EQUITY
Three years ended December 31, 1999
($ thousands)
<TABLE>
<CAPTION>
Accumulated
Other
Total Additional Comprehensive
Stockholder's Capital Paid-In (Loss) Income, Retained
Equity Stock Capital Net of Tax Earnings
------------- -------- ------------ ------------ -------------
<S> <C> <C> <C> <C> <C>
Balance, December 31, 1996 $363,858 $2,000 $242,872 $ 12,343 $106,643
Comprehensive income:
Net income 28,313 -- -- -- 28,313
Unrealized holding gains arising
during the year, net of taxes of
($19,891) 36,940 -- -- 36,940 --
Reclassification adjustment for losses
included in net income, net of tax
of ($126) 233 -- -- 233 --
------------- ------------
Other comprehensive income 37,173 -- -- 37,173 --
-------------
Comprehensive income 65,486
Capital contribution from IDS Life 40,000 -- 40,000 -- --
------------- -------- ------------ ------------ -------------
Balance, December 31, 1997 469,344 2,000 282,872 49,516 134,956
Comprehensive income:
Net income 22,026 -- -- -- 22,026
Unrealized holding losses arising
during the year, net of taxes of $3,400 (6,314) -- -- (6,314) --
Reclassification adjustment for losses
included in net income, net of tax
of ($588) 1,093 -- -- 1,093 --
------------- ------------
Other comprehensive loss (5,221) -- -- (5,221) --
-------------
Comprehensive income 16,805
------------- -------- ------------ ------------ -------------
Balance, December 31, 1998 486,149 2,000 282,872 44,295 156,982
Comprehensive loss:
Net income 33,987 -- -- -- 33,987
Unrealized holding losses arising
during the year, net of taxes of $(59,231) (110,001) -- -- (110,001) --
Reclassification adjustment for gains
included in net income, net of tax (4,047) (4,047) --
of $(2,179) ------------- ------------
Other comprehensive loss (114,048) -- -- (114,048) --
-------------
Comprehensive loss (80,061)
------------- -------- ------------ ------------ -------------
Balance, December 31, 1999 $406,088 $2,000 $282,872 $(69,753) $190,969
============= ======== ============ ============ =============
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
See accompanying notes.
AMERICAN ENTERPRISE LIFE INSURANCE COMPANY
STATEMENTS OF CASH FLOWS
Years ended December 31,
($ thousands)
<S> <C> <C> <C>
1999 1998 1997
----------- ----------- -----------
Cash flows from operating activities:
Net income $ 33,987 $ 22,026 $ 28,313
Adjustments to reconcile net income to net cash
provided by (used in) operating activities:
Change in accrued investment income 5,064 (2,152) (8,017)
Change in accounts receivable (102) 349 9,304
Change in deferred policy acquisition costs, net 16,191 28,022 (21,276)
Change in other assets 34 74 4,840
Change in policy claims and other policyholders' funds 4,708 (3,939) (16,099)
Deferred income tax (benefit) provision 711 (9,591) (2,485)
Change in other liabilities (7,064) 7,595 1,255
Amortization of premium (accretion of discount), net 2,315 122 (2,316)
Net realized (gain) loss on investments (6,565) 4,788 509
Other, net (1,562) 2,544 959
----------- ----------- -----------
Net cash provided by (used in) operating activities 47,717 49,838 (5,013)
Cash flows from investing activities:
Fixed maturities held to maturity:
Purchases -- -- (1,996)
Maturities 65,705 73,601 41,221
Sales 8,466 31,117 30,601
Fixed maturities available for sale:
Purchases (593,888) (298,885) (688,050)
Maturities 248,317 335,357 231,419
Sales 469,126 48,492 73,366
Other investments:
Purchases (28,520) (161,252) (199,593)
Sales 57,548 78,681 29,139
Change in amounts due to brokers (29,132) 19,412 (53,796)
----------- ----------- ------------
Net cash provided by (used in) investing activities 197,622 126,523 (537,689)
Cash flows from financing activities:
Activity related to investment contracts:
Considerations received 299,899 302,158 783,339
Surrenders and other benefits (753,821) (707,052) (552,903)
Interest credited to account balances 208,583 228,533 231,437
Capital contribution from parent -- -- 40,000
----------- ----------- -----------
Net cash (used in) provided by financing activities (245,339) (176,361) 501,873
----------- ----------- -----------
Net decrease in cash and cash equivalents -- -- (40,829)
Cash and cash equivalents at beginning of year -- -- 40,829
----------- ----------- -----------
Cash and cash equivalents at end of year $ -- $ -- $ --
=========== =========== ==========
See accompanying notes.
</TABLE>
<PAGE>
1. Summary of significant accounting policies
Nature of business
American Enterprise Life Insurance Company (the Company) is a stock life
insurance company that is domiciled in Indiana and is licensed to transact
insurance business in 48 states. The Company's principal product is
deferred annuities, which are issued primarily to individuals. It offers
single premium and annual premium deferred annuities on both a fixed and
variable dollar basis.
Immediate annuities are offered as well.
Basis of presentation
The Company is a wholly-owned subsidiary of IDS Life Insurance Company (IDS
Life), which is a wholly owned subsidiary of American Express Financial
Corporation (AEFC). AEFC is a wholly owned subsidiary of American Express
Company. The accompanying financial statements have been prepared in
conformity with accounting principles generally accepted in the United
States which vary in certain respects from reporting practices prescribed
or permitted by the Indiana Department of Insurance (see Note 4).
The preparation of financial statements in conformity with accounting
principles generally accepted in the United States requires management to
make estimates and assumptions that affect the reported amounts of assets
and liabilities and disclosure of contingent assets and liabilities at the
date of the financial statements and the reported amounts of revenues and
expenses during the reporting period. Actual results could differ from
those estimates.
Investments
Fixed maturities that the Company has both the positive intent and the
ability to hold to maturity are classified as held to maturity and carried
at amortized cost. All other fixed maturities are classified as available
for sale and carried at fair value. Unrealized gains and losses on
securities classified as available for sale are reported as a separate
component of accumulated other comprehensive (loss) income, net of deferred
income taxes.
Realized investment gain or loss is determined on an identified cost basis.
Prepayments are anticipated on certain investments in mortgage-backed
securities in determining the constant effective yield used to recognize
interest income. Prepayment estimates are based on information received
from brokers who deal in mortgage-backed securities.
Mortgage loans on real estate are carried at amortized cost less an
allowance for mortgage loan losses. The estimated fair value of the
mortgage loans is determined by a discounted cash flow analysis using
mortgage interest rates currently offered for mortgages of similar
maturities.
<PAGE>
1. Summary of significant accounting policies (continued)
Impairment of mortgage loans is measured as the excess of the loan's
recorded investment over its present value of expected principal and
interest payments discounted at the loan's effective interest rate, or the
fair value of collateral. The amount of the impairment is recorded in an
allowance for mortgage loan losses. The allowance for mortgage loan losses
is maintained at a level that management believes is adequate to absorb
estimated losses in the portfolio. The level of the allowance account is
determined based on several factors, including historical experience,
expected future principal and interest payments, estimated collateral
values, and current and anticipated economic and political conditions.
Management regularly evaluates the adequacy of the allowance for mortgage
loan losses.
The Company generally stops accruing interest on mortgage loans for which
interest payments are delinquent more than three months. Based on
management's judgment as to the ultimate collectibility of principal,
interest payments received are either recognized as income or applied to
the recorded investment in the loan.
The cost of interest rate caps and floors is amortized to investment income
over the life of the contracts and payments received as a result of these
agreements are recorded as investment income when realized. The amortized
cost of interest rate caps and floors is included in other investments.
When evidence indicates a decline, which is other than temporary, in the
underlying value or earning power of individual investments, such
investments are written down to the fair value by a charge to income.
Statements of cash flows
The Company considers investments with a maturity at the date of their
acquisition of three months or less to be cash equivalents. These
securities are carried principally at amortized cost which approximates
fair value.
Supplementary information to the statements of cash flows for the years
ended December 31, is summarized as follows:
1999 1998 1997
---- ----- ----
Cash paid during the year for:
Income taxes $22,007 $19,035 $19,456
Interest on borrowings 2,187 5,437 1,832
Contractholder charges
Contractholder charges include surrender charges and fees collected
regarding the issue and administration of annuity contracts.
<PAGE>
1. Summary of significant accounting policies (continued)
Deferred policy acquisition costs
The costs of acquiring new business, principally sales compensation, policy
issue costs, and certain sales expenses, have been deferred on annuity
contracts. These costs are amortized using primarily the interest method.
Amortization of deferred policy acquisition costs requires the use of
assumptions including interest margins, mortality margins, persistency
rates, maintenance expense levels and, for variable products, separate
account performance. For universal life-type insurance and deferred
annuities, actual experience is reflected in the Company's amortization
models monthly. As actual experience differs from the current assumptions,
management considers the need to change key assumptions underlying the
amortization models prospectively. The impact of changing prospective
assumptions is reflected in the period that such changes are made and is
generally referred to as an unlocking adjustment. During 1998, unlocking
adjustments resulted in a net increase in amortization of $11 million. Net
unlocking adjustments in 1999 and 1997 were not significant.
Liabilities for future policy benefits
Liabilities for universal-life type insurance and fixed and variable
deferred annuities are accumulation values.
Federal income taxes
The Company's taxable income is included in the consolidated federal income
tax return of American Express Company. The Company provides for income
taxes on a separate return basis, except that, under an agreement between
AEFC and American Express Company, tax benefit is recognized for losses to
the extent they can be used on the consolidated tax return. It is the
policy of AEFC and its subsidiaries that AEFC will reimburse subsidiaries
for all tax benefits.
Included in other liabilities at December 31, 1999 and 1998 are $2,147 and
$3,504, respectively, payable to IDS Life for federal income taxes.
Separate account business
The separate account assets and liabilities represent funds held for the
exclusive benefit of the variable annuity contract owners. The Company
receives mortality and expense risk fees from the variable annuity separate
accounts.
<PAGE>
1. Summary of significant accounting policies (continued)
The Company makes contractual mortality assurances to the variable annuity
contract owners that the net assets of the separate accounts will not be
affected by future variations in the actual life expectancy experience of
the annuitants and beneficiaries from the mortality assumptions implicit in
the annuity contracts. The Company makes periodic fund transfers to, or
withdrawals from, the separate account assets for such actuarial
adjustments for variable annuities that are in the benefit payment period.
The Company also guarantees that the rates at which administrative fees are
deducted from contract funds will not exceed contractual maximums.
Accounting changes
American Institute of Certified Public Accountants (AICPA) Statement of
Position (SOP) 98-1, "Accounting for Costs of Computer Software Developed
or Obtained for Internal Use" became effective January 1, 1999. The SOP
requires the capitalization of certain costs incurred after the date of
adoption to develop or obtain software for internal use. Software utilized
by the Company is owned by AEFC and capitalized by AEFC. As a result, the
new rule did not have a material impact on the Company's results of
operations or financial condition.
Effective January 1, 1999, the Company adopted AICPA SOP 97-3, "Accounting
by Insurance and Other Enterprises for Insurance-Related Assessments,"
providing guidance for the timing of recognition of liabilities related to
guaranty fund assessments. The Company had historically carried balance in
other liabilities on the balance sheet for potential guaranty fund
assessment exposure. Adoption of the SOP did not have a material impact on
the Company's results of operations or financial condition.
In June 1998, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards No. 133, "Accounting for Derivative
Instruments and Hedging Activities," which is effective January 1, 2001.
This Statement establishes accounting and reporting standards for
derivative instruments, including certain derivative instruments embedded
in other contracts, and for hedging activities. It requires that an entity
recognize all derivatives as either assets or liabilities in the balance
sheet and measure those instruments at fair value. The accounting for
changes in the fair value of a derivative depends on the intended use of
the derivative and the resulting designation. The ultimate financial effect
of the new rule will be measured based on the derivatives in place at
adoption and cannot be estimated at this time.
<PAGE>
2. Investments
Fair values of investments in fixed maturities represent quoted market
prices and estimated values when quoted prices are not available. Estimated
values are determined by established procedures involving, among other
things, review of market indices, price levels of current offerings of
comparable issues, price estimates and market data from independent brokers
and financial files.
The amortized cost, gross unrealized gains and losses and fair value of
investments in fixed maturities at December 31, 1999 are as follows:
<TABLE>
<S> <C> <C> <C> <C>
Gross Gross
Amortized Unrealized Unrealized Fair
Held to maturity Cost Gains Losses Value
---------------- ---------- -------- -------- ----------
U.S. Government agency obligations $ 7,514 $ 23 $ 431 $ 7,106
State and municipal obligations 3,002 44 -- 3,046
Corporate bonds and obligations 816,826 5,966 23,311 799,482
Mortgage-backed securities 179,007 296 4,834 174,469
---------- -------- -------- ----------
$1,006,349 $ 6,329 $ 28,576 $ 984,103
========== ======== ======== ==========
Available for sale
U.S. Government agency obligations $ 2,047 $ -- $ 47 $ 1,999
State and municipal obligations 2,250 -- 190 2,060
Corporate bonds and obligations 1,419,150 7,445 90,703 1,335,892
Mortgage-backed securities 988,352 1,929 25,746 964,536
------------ -------- -------- ----------
$2,411,799 $ 9,374 $116,686 $2,304,487
========== ======== ======== ==========
The amortized cost, gross unrealized gains and losses and fair value of
investments in fixed maturities at December 31, 1998 are as follows:
Gross Gross
Amortized Unrealized Unrealized Fair
Held to maturity Cost Gains Losses Value
---------------- ---------- -------- -------- ----------
U.S. Government agency obligations $ 8,652 $ 423 $ -- $ 9,075
State and municipal obligations 3,003 149 -- 3,152
Corporate bonds and obligations 877,140 48,822 6,670 919,292
Mortgage-backed securities 192,398 2,844 29 195,213
---------- -------- -------- ----------
$1,081,193 $ 52,238 $ 6,699 $1,126,732
========== ======== ======== ==========
Available for sale
U.S. Government agency obligations $ 2,062 $ 116 $ -- $ 2,178
Corporate bonds and obligations 1,472,814 69,990 34,103 1,508,701
Mortgage-backed securities 1,051,836 32,232 89 1,083,979
---------- -------- -------- ----------
$2,526,712 $102,338 $34,192 $2,594,858
========== ======== ======= ==========
</TABLE>
<PAGE>
2. Investments (continued)
The amortized cost and fair value of investments in fixed maturities at
December 31, 1999 by contractual maturity are shown below. Expected
maturities will differ from contractual maturities because borrowers may
have the right to call or prepay obligations with or without call or
prepayment penalties.
Amortized Fair
Held to maturity Cost Value
Due in one year or less $ 26,214 $ 26,334
Due from one to five years 412,533 408,638
Due from five to ten years 331,187 320,146
Due in more than ten years 57,408 54,516
Mortgage-backed securities 179,007 174,469
------------- -------------
$ 1,006,349 $ 984,103
=========== ============
Amortized Fair
Available for sale Cost Value
Due in one year or less $ 46,937 $ 47,236
Due from one to five years 75,233 73,525
Due from five to ten years 1,037,001 980,633
Due in more than ten years 264,276 238,557
Mortgage-backed securities 988,352 964,536
------------ ------------
$2,411,799 $2,304,487
During the years ended December 31, 1999, 1998 and 1997, fixed maturities
classified as held to maturity were sold with amortized cost of $8,466,
$31,117 and $29,561, respectively. Net gains and losses on these sales were
not significant. The sales of these fixed maturities were due to
significant deterioration in the issuers' creditworthiness.
In addition, fixed maturities available for sale were sold during 1999 with
proceeds of $469,126 and gross realized gains and losses of $10,374 and
$4,147 respectively. Fixed maturities available for sale were sold during
1998 with proceeds of $48,492 and gross realized gains and losses of $2,835
and $4,516, respectively. Fixed maturities available for sale were sold
during 1997 with proceeds of $73,366 and gross realized gains and losses of
$1,081 and $1,440, respectively.
At December 31, 1999, bonds carried at $3,277 were on deposit with various
states as required by law.
<PAGE>
2. Investments (continued)
At December 31, 1999, investments in fixed maturities comprised 81 percent
of the Company's total invested assets. These securities are rated by
Moody's and Standard & Poor's (S&P), except for securities carried at
approximately $486 million which are rated by AEFC internal analysts using
criteria similar to Moody's and S&P. A summary of investments in fixed
maturities, at amortized cost, by rating on December 31 is as follows:
Rating 1999 1998
---------------------- ----------- -----------
Aaa/AAA $1,168,144 $1,242,301
Aa/AA 42,859 45,526
Aa/A 52,416 60,019
A/A 422,668 422,725
A/BBB 189,072 228,656
Baa/BBB 995,152 1,030,874
Baa/BB 64,137 79,687
Below investment grade 483,700 498,117
------------ ------------
$3,418,148 $3,607,905
At December 31, 1999, approximately 94 percent of the securities rated
Aaa/AAA were GNMA, FNMA and FHLMC mortgage-backed securities. No holdings
of any other issuer were greater than one percent of the Company's total
investments in fixed maturities.
At December 31, 1999, approximately 19 percent of the Company's invested
assets were mortgage loans on real estate. Summaries of mortgage loans by
region of the United States and by type of real estate are as follows:
<TABLE>
<CAPTION>
December 31, 1999 December 31, 1998
------------------------------- --------------------------------
<S> <C> <C> <C> <C>
On Balance Commitments On Balance Commitments
Region Sheet to Purchase Sheet to Purchase
---------------------------------- ----------- ----------- ---------- -----------
South Atlantic $194,325 $ -- $198,552 $ 651
Middle Atlantic 118,699 -- 129,284 520
East North Central 126,243 -- 134,165 2,211
Mountain 103,751 -- 113,581 --
West North Central 125,891 513 119,380 9,626
New England 43,345 802 46,103 --
Pacific 41,396 -- 43,706 --
West South Central 31,153 -- 32,086 --
East South Central 7,100 -- 7,449 --
----------- ------------ ----------- ------------
791,903 1,315 824,306 13,008
Less allowance for losses 6,650 -- 8,500 --
----------- ------------ ----------- ------------
$785,253 $ 1,315 $815,806 $13,008
======== ======== ======== =======
<PAGE>
2. Investments (continued)
December 31, 1999 December 31, 1998
------------------------------ ------------------------------
On Balance Commitments On Balance Commitments
Property type Sheet to Purchase Sheet to Purchase
---------- -------------- ---------- ------------
Department/retail stores $232,449 $ 1,315 $253,380 $ 781
Apartments 181,346 -- 186,030 2,211
Office buildings 202,132 -- 206,285 9,496
Industrial buildings 83,186 -- 82,857 520
Hotels/Motels 43,839 -- 45,552 --
Medical buildings 32,284 -- 33,103 --
Nursing/retirement homes 6,608 -- 6,731 --
Mixed Use 10,059 -- 10,368 --
---------- -------------- ---------- ------------
791,903 1,315 824,306 13,008
Less allowance for losses 6,650 -- 8,500 --
----------- -------------- ----------- ------------
$785,253 $ 1,315 $815,806 $13,008
======== ========== ======== =======
</TABLE>
Mortgage loan fundings are restricted by state insurance regulatory
authorities to 80 percent or less of the market value of the real estate at
the time of origination of the loan. The Company holds the mortgage
document, which gives it the right to take possession of the property if
the borrower fails to perform according to the terms of the agreement.
Commitments to purchase mortgages are made in the ordinary course of
business. The fair value of the mortgage commitments is $nil.
At December 31, 1999, the Company's recorded investment in impaired loans
was $5,200 with an allowance of $1,250. At December 31, 1998, the Company's
recorded investment in impaired loans was $1,932 with an allowance of $500.
During 1999 and 1998, the average recorded investment in impaired loans was
$5,399 and $2,736, respectively.
The Company recognized $136, $251 and $nil of interest income related to
impaired loans for the years ended December 31, 1999, 1998 and 1997,
respectively.
The following table presents changes in the allowance for investment losses
related to all loans:
<TABLE>
<S> <C> <C> <C>
1999 1998 1997
---- ---- ----
Balance, January 1 $8,500 $3,718 $2,370
Provision (reduction) for investment losses (1,850) 4,782 1,805
Loan payoffs -- -- (457)
------ --------- -------
Balance, December 31 $6,650 $8,500 $3,718
====== ====== ======
Net investment income for the years ended December 31 is summarized as
follows:
1999 1998 1997
----- ----- ----
Interest on fixed maturities $265,199 $285,260 $278,736
Interest on mortgage loans 63,721 65,351 55,085
Interest on cash equivalents 534 137 704
Other (1,755) (2,493) 1,544
---------- ---------- ----------
327,699 348,255 336,069
Less investment expenses 4,953 8,036 3,801
--------- ---------- ----------
$322,746 $340,219 $332,268
======== ======== ========
</TABLE>
<PAGE>
2. Investments (continued)
Net realized gain (loss) on investments for the years ended December 31 is
summarized as follows:
<TABLE>
<S> <C> <C> <C>
1999 1998 1997
---- ---- ----
Fixed maturities $ 6,534 $ 863 $ 1,638
Mortgage loans (1,650) (4,816) (1,348)
Other investments (1,819) (835) (799)
--------- -------- -------
$ 3,065 $(4,788) $ (509)
========= ======= =======
Changes in net unrealized appreciation (depreciation) of investments for
the years ended December 31 are summarized as follows:
1999 1998 1997
----- ----- ----
Fixed maturities available for sale $(175,458) $(8,032) $57,188
3. Income taxes
The Company qualifies as a life insurance company for federal income tax
purposes. As such, the Company is subject to the Internal Revenue Code
provisions applicable to life insurance companies.
The income tax expense (benefit) for the years ended December 31, consists
of the following:
1999 1998 1997
---- ---- ----
Federal income taxes:
Current $ 15,531 $ 23,227 $17,668
Deferred 711 (9,591) (2,485)
-------- -------- -------
16,242 13,636 15,183
State income taxes-current 433 759 1,462
-------- -------- -------
Income tax expense $ 16,675 $ 14,395 $16,645
======== ======== =======
</TABLE>
Increases (decreases) to the federal income tax provision applicable to
pretax income based on the statutory rate, for the years ended December 31,
are attributable to:
<TABLE>
<CAPTION>
1999 1998 1997
------------------ ------------------ ---------------------
Provision Rate Provision Rate Provision Rate
--------- ----- --------- ----- --------- -----
<S> <C> <C> <C> <C> <C> <C>
Federal income taxes based
on the statutory rate $17,731 35.0% $13,972 35.0% $15,735 35.0%
Increases (decreases) are
attributable to:
Tax-excluded interest (14) -- (35) (0.1) (41) (0.1)
State tax, net of federal benefit 281 0.5 493 1.2 956 2.1
Reduction of mortgage loss
reserve (1,225) (2.4) -- -- -- --
Other, net (98) (0.2) (35) -- (5) --
------ ----- -------- ------ ---- ------
Total income taxes $16,675 32.9 % $14,395 36.1% $16,645 37.0%
======= ===== ======= ==== ======= ====
</TABLE>
<PAGE>
3. Income taxes (continued)
Significant components of the Company's deferred income tax assets and
liabilities as of December 31 are as follows:
Deferred income tax assets: 1999 1998
------- -------
Policy reserves $46,243 $51,298
Unrealized losses on investments 39,678 --
Other 1,070 2,214
-------- --------
Total deferred income tax assets 86,991 53,512
-------- --------
Deferred income tax liabilities:
Deferred policy acquisition costs 49,490 52,908
Unrealized gains on investments -- 23,803
-------- --------
Total deferred income tax liabilities 49,490 76,711
-------- --------
Net deferred income tax assets (liabilities) $37,501 ($23,199)
======= ========
The Company is required to establish a valuation allowance for any portion
of the deferred income tax assets that management believes will not be
realized. In the opinion of management, it is more likely than not that the
Company will realize the benefit of the deferred income tax assets and,
therefore, no such valuation allowance has been established.
4. Stockholder's equity
Retained earnings available for distribution as dividends to IDS Life are
limited to the Company's surplus as determined in accordance with
accounting practices prescribed by state insurance regulatory authorities.
Statutory unassigned surplus aggregated $58,223 and $45,716 as of December
31, 1999 and 1998, respectively. In addition, dividends in excess of
$15,241 would require approval by the Insurance Department of the state of
Indiana.
Statutory net income and stockholder's equity as of December 31, are
summarized as follows:
1999 1998 1997
--------- --------- -------
Statutory net income $ 15,241 $ 37,902 $ 23,589
Statutory stockholder's equity 343,094 330,588 302,264
5. Related party transactions
The Company has purchased interest rate floors from IDS Life and entered
into an interest rate swap with IDS Life to manage its exposure to interest
rate risk. The interest rate floors had a carrying amount of $8,258 and
$6,651 at December 31, 1999 and 1998, respectively. The interest rate swap
is an off balance sheet transaction.
The Company has no employees. Charges by IDS Life for services and use of
other joint facilities aggregated $38,931, $28,482 and $24,535 for the
years ended December 31, 1999, 1998 and 1997, respectively. Certain of
these costs are included in deferred policy acquisition costs.
<PAGE>
6. Lines of credit
The Company has an available line of credit with AEFC aggregating $50,000.
The rate for the line of credit is established by reference to various
indices plus 20 to 45 basis points, depending on the term. There were no
borrowings outstanding under this agreement at December 31, 1999 or 1998.
7. Derivative financial instruments
The Company enters into transactions involving derivative financial
instruments to manage its exposure to interest rate risk, including hedging
specific transactions. The Company does not hold derivative instruments for
trading purposes. The Company manages risks associated with these
instruments as described below.
Market risk is the possibility that the value of the derivative financial
instruments will change due to fluctuations in a factor from which the
instrument derives its value, primarily an interest rate. The Company is
not impacted by market risk related to derivatives held for non-trading
purposes beyond that inherent in cash market transactions. Derivatives are
largely used to manage risk and, therefore, the cash flow and income
effects of the derivatives are inverse to the effects of the underlying
transactions.
Credit risk is the possibility that the counterparty will not fulfill the
terms of the contract. The Company monitors credit risk related to
derivative financial instruments through established approval procedures,
including setting concentration limits by counterparty, and requiring
collateral, where appropriate. A vast majority of the Company's
counterparties are rated A or better by Moody's and Standard & Poor's.
Credit risk related to interest rate caps and floors is measured by
replacement cost of the contracts. The replacement cost represents the fair
value of the instruments.
The notional or contract amount of a derivative financial instrument is
generally used to calculate the cash flows that are received or paid over
the life of the agreement. Notional amounts are not recorded on the balance
sheet. Notional amounts far exceed the related credit exposure.
The Company's holdings of derivative financial instruments are as follows:
<TABLE>
<CAPTION>
Notional Carrying Fair Total Credit
December 31, 1999 Amount Amount Value Exposure
----------------- -------- -------- ------ ------------
<S> <C> <C> <C> <C>
Assets:
Interest rate caps $ 900,000 $ 3,212 $ 4,437 $ 4,437
Interest rate floors 2,000,000 8,258 2,251 2,251
Off balance sheet assets:
Interest rate swaps 2,000,000 -- 18,274 18,274
--------- -------- --------
$11,470 $24,962 $24,962
======= ======= =======
<PAGE>
7. Derivative financial instruments (continued)
Notional Carrying Fair Total Credit
December 31, 1998 Amount Amount Value Exposure
----------------- -------- -------- ------ ------------
Assets:
Interest rate caps $ 900,000 $ 5,452 $ 1,518 $ 1,518
Interest rate floors 1,000,000 6,651 17,798 17,798
Off balance sheet liabilities:
Interest rate swaps 1,000,000 -- (33,500) --
--------- ---------- --------
$12,103 ($ 14,184) $19,316
======= =========== =======
</TABLE>
The fair values of derivative financial instruments are based on market
values, dealer quotes or pricing models. All interest rate caps, floors and
swaps will expire on various dates from 2000 to 2006.
Interest rate caps, floors and swaps are used to manage the Company's
exposure to interest rate risk. These instruments are used primarily to
protect the margin between interest rates earned on investments and the
interest rates credited to related annuity contract holders.
8. Fair values of financial instruments
The Company discloses fair value information for most on- and off-balance
sheet financial instruments for which it is practicable to estimate that
value. Fair value of life insurance obligations, receivables and all
non-financial instruments, such as deferred acquisition costs are excluded.
Off-balance sheet intangible assets are also excluded. Management believes
the value of excluded assets and liabilities is significant. The fair value
of the Company, therefore, cannot be estimated by aggregating the amounts
presented.
<TABLE>
<CAPTION>
December 31,
1999 1998
-------------------------- --------------------------
Carrying Fair Carrying Fair
Financial Assets Amount Value Amount Value
---------------- ---------- --------- ---------- ----------
<S> <C> <C> <C> <C>
Investments:
Fixed maturities (Note 2):
Held to maturity $1,006,349 $984,103 $1,081,193 $1,126,732
Available for sale 2,304,487 2,304,487 2,594,858 2,594,858
Mortgage loans on real estate (Note 2) 785,253 770,095 815,806 874,064
Derivative financial instruments (Note 7) 11,470 24,962 12,103 19,316
Separate account assets (Note 1) 220,994 220,994 123,185 123,185
Financial Liabilities
Future policy benefits for fixed annuities $3,905,849 $3,778,945 $4,152,059 $4,000,789
Separate account liabilities 220,994 209,942 123,185 115,879
Derivative financial instruments (Note 7) -- -- -- 33,500
</TABLE>
At December 31, 1999 and 1998, the carrying amount and fair value of future
policy benefits for fixed annuities exclude life insurance-related
contracts carried at $15,633 and $14,793, respectively. The fair value of
these benefits is based on the status of the annuities at December 31, 1999
and 1998.
<PAGE>
8. Fair values of financial instruments (continued)
The fair values of deferred annuities and separate account liabilities are
estimated as the carrying amount less applicable surrender charges. The
fair value for annuities in non-life contingent payout status is estimated
as the present value of projected benefit payments at rates appropriate for
contracts issued in 1999 and 1998.
9. Commitments and contingencies
In January 2000, AEFC reached an agreement in principle to settle three
class-action lawsuits. The Company had been named as a co-defendant in one
of these lawsuits. It is expected the settlement will provide $215 million
of benefits to more than 2 million participants. The agreement in principle
to settle also provides for release by class members of all insurance and
annuity market conduct claims dating back to 1985 and is subject to a
number of contingencies including a definitive agreement and court
approval. The portion of the settlement allocated to the Company did not
have a material impact on the Company's financial position or results from
operations.
10. YEAR 2000 ISSUE (unaudited)
The Year 2000 issue is the result of computer programs having been written
using two digits rather than four to define a year. Any programs that have
time-sensitive software may recognize a date using "00" as the year 1900
rather than 2000. This could result in the failure of major systems or
miscalculations, which could have a material impact on the operations of
the Company. All of the major systems used by the Company are maintained by
AEFC and are utilized by multiple subsidiaries and affiliates of AEFC. The
Company's businesses are heavily dependent upon AEFC's computer systems and
have significant interaction with systems of third parties.
A comprehensive review of AEFC's computer systems and business processes,
including those specific to the Company, was conducted to identify the
major systems that could be affected by the Year 2000 issue. Steps were
taken to resolve potential problems including modification to existing
software and the purchase of new software. As of December 31, 1999, AEFC
had completed its program of corrective measures on its internal systems
and applications, including Year 2000 compliance testing. As of December
31, 1999, AEFC had also completed an evaluation of the Year 2000 readiness
of other third parties whose system failures could have an impact on the
Company's operations.
AEFC's Year 2000 project also included establishing Year 2000 contingency
plans for all key business units. Business continuation plans, which
address business continuation in the event of a system disruption, are in
place for all key business units. At December 31, 1999, these plans had
been amended to include specific Year 2000 considerations.
In assessing its Year 2000 initiatives and the results of actual production
since January 1, 2000, management believes no material adverse consequences
were experienced, and there was no material effect on the Company's
business, results of operations, or financial condition as a result of the
Year 2000 issue.
<PAGE>
Table of Contents of the Statement of Additional Information
Performance Information p. 3
Calculating Annuity Payouts p. 13
Rating Agencies p. 15
Principal Underwriter p. 15
Independent Auditors p. 15
Financial Statements
<PAGE>
Please check the box to receive a copy of the Statement of Additional
Information for:
[ ] Wells Fargo Advantage(SM) Builder Variable Annuity
[ ] American Express(R) Variable Portfolio Funds
[ ] AIM Variable Insurance Funds
[ ] The Dreyfus Socially Responsible Growth Fund, Inc.
[ ] Franklin Templeton Variable Insurance Products Trust
[ ] Goldman Sachs Variable Insurance Trust (VIT)
[ ] MFS(R) Variable Insurance Trust(SM)
[ ] Putnam Variable Trust - Class IB Shares
[ ] Wells Fargo Variable Trust Funds
Mail your request to:
American Enterprise Life Insurance Company
829 AXP Financial Center
Minneapolis, MN 55474
We will mail your request to:
Your name______________________________________________________________________
Address________________________________________________________________________
City________________________________ State _____________________ Zip__________
<PAGE>
Prospectus
May 1, 2000
American Express Signature One Variable Annuity
Individual or group flexible premium deferred combination fixed/variable annuity
American Enterprise Variable Annuity Account
Issued by: American Enterprise Life Insurance Company (American Enterprise Life)
829 AXP Financial Center
Minneapolis, MN 55474
Telephone: 1-800-333-3437
This prospectus contains information that you should know before investing. You
also will receive the prospectuses for:
<TABLE>
<CAPTION>
<S> <C>
o American Express(R) Variable Portfolio Funds o J. P. Morgan Series Trust II
o AIM Variable Insurance Funds o Lazard Retirement Series, Inc.
o Alliance Variable Products Series Fund o MFS(R) Variable Insurance Trust(SM)
o Baron Capital Funds o Royce Capital Fund
o Fidelity Variable Insurance Products - Service Class o Third Avenue Variable Series Trust
o Franklin Templeton Variable Insurance Products Trust (FTVIPT) o Wanger Advisors Trust
o Goldman Sachs Variable Insurance Trust (VIT) o Warburg Pincus Trust
o Janus Aspen Series: Service Shares o Wells Fargo Variable Trust Funds
</TABLE>
Please read the prospectuses carefully and keep them for future reference.
The contract provides for purchase payment credits which we may reverse up to
the maximum withdrawal charge under certain circumstances. Expense charges from
contracts with purchase payment credits may be higher than charges for contracts
without such credits. The amount of the credit may be more than offset by
additional fees and charges associated with the credit.
The Securities and Exchange Commission (SEC) has not approved or disapproved
these securities or passed upon the adequacy or accuracy of this prospectus. Any
representation to the contrary is a criminal offense.
An investment in this contract is not a deposit of a bank or financial
institution and is not insured or guaranteed by the Federal Deposit Insurance
Corporation or any other government agency. An investment in this contract
involves investment risk including the possible loss of principal.
A Statement of Additional Information (SAI), dated the same date as this
prospectus, is incorporated by reference into this prospectus. It is filed with
the SEC and is available without charge by contacting American Enterprise Life
at the telephone number above or by completing and sending the order form on the
last page of this prospectus. The table of contents of the SAI is on the last
page of this prospectus.
<PAGE>
Table of Contents
Key Terms 3
The Contract in Brief 5
Expense Summary 7
Condensed Financial Information (Unaudited) 16
Financial Statements 16
Performance Information 16
The Variable Account and the Funds 18
The Fixed Accounts 24
Buying Your Contract 27
Charges 30
Valuing Your Investment 35
Making the Most of Your Contract 37
Withdrawals 45
Changing Ownership 45
Benefits in Case of Death 46
The Annuity Payout Period 50
Taxes 52
Voting Rights 55
Substitution of Investments 55
About the Service Providers 56
Additional Information About American Enterprise Life 57
Directors and Executive Officers 62
Experts 63
American Enterprise Life Insurance Company Financial Information 64
Table of Contents of the Statement of Additional Information 80
<PAGE>
Key Terms
These terms can help you understand details about your contract.
Accumulation unit -- A measure of the value of each subaccount before annuity
payouts begin.
Annuitant -- The person on whose life or life expectancy the annuity payouts are
based.
Annuity payouts -- An amount paid at regular intervals under one of several
plans.
Beneficiary -- The person you designate to receive annuity benefits in case of
the owner's or annuitant's death while the contract is in force and before
annuity payouts begin.
Close of business -- When the New York Stock Exchange (NYSE) closes, normally 4
p.m. Eastern time.
Contract -- An individual deferred annuity contract or a certificate showing
your interest under a group annuity contract, that permits you to accumulate
money for retirement by making one or more purchase payments. It provides for
lifetime or other forms of payouts beginning at a specified time in the future.
Contract value -- The total value of your contract before we deduct any
applicable charges.
Contract year -- A period of 12 months, starting on the effective date of your
contract and on each anniversary of the effective date.
Fixed accounts -- The one-year fixed account is an account to which you may
allocate purchase payments. Amounts you allocate to this account earn interest
at rates that we declare periodically. Guarantee Period Accounts are fixed
accounts to which you may also allocate purchase payments. These accounts have
guaranteed interest rates declared for periods ranging from two to ten years.
Withdrawals from these accounts prior to the end of the term specified will
receive a Market Value Adjustment, which may result in a gain or loss of
principal.
Funds -- Mutual funds and/or portfolios that are investment options under your
contract, each with a different investment objective. You may allocate your
purchase payments into subaccounts investing in shares of any or all of these
funds.
Guarantee Period -- The number of years that a guaranteed interest rate is
credited.
Market Value Adjustment (MVA) -- A positive or negative adjustment assessed if
any portion of a Guarantee Period Account is withdrawn or transferred prior to
the end of its Guarantee Period.
<PAGE>
Owner (you, your) -- The person who controls the contract (decides on investment
allocations, transfers, payout options, etc.). Usually, but not always, the
owner is also the annuitant. The owner is responsible for taxes, regardless of
whether he or she receives the contract's benefits.
Purchase payment credits -- An addition we make to your contract value. We base
the amount of the credit on total net payments (total payments less total
withdrawals). We apply the credit based on your current payment.
Qualified annuity -- A contract that you purchase to fund one of the following
tax-deferred retirement plans that is subject to applicable federal law and any
rules of the plan itself:
o Individual Retirement Annuities (IRAs) under Section 408(b) of the Internal
Revenue Code of 1986, as amended (the Code)
o Roth IRAs under Section 408A of the Code
o Simplified Employee Pension (SEP) plans under Section 408(k) of the Code
A qualified annuity will not provide any necessary or additional tax deferral if
it is used to fund a retirement plan that is already tax-deferred.
All other contracts are considered nonqualified annuities.
Retirement date -- The date when annuity payouts are scheduled to begin.
Valuation date -- Any normal business day, Monday through Friday, that the NYSE
is open. Each valuation date ends at the close of business. We calculate the
value of each subaccount at the close of business on each valuation date.
Variable account -- Consists of separate subaccounts to which you may allocate
purchase payments; each invests in shares of one fund. The value of your
investment in each subaccount changes with the performance of the particular
fund.
Withdrawal value -- The amount you are entitled to receive if you make a full
withdrawal from your contract. It is the contract value minus any applicable
charges.
<PAGE>
The Contract in Brief
Purpose: The purpose of the contract is to allow you to accumulate money for
retirement. You do this by making one or more purchase payments; you may
allocate your purchase payments to the fixed accounts and/or subaccounts under
the contract. These accounts, in turn, may earn returns that increase the value
of the contract. Beginning at a specified time in the future called the
retirement date, the contract provides lifetime or other forms of payouts of
your contract value (less any applicable premium tax). As in the case of other
annuities, it may not be advantageous for you to purchase this contract as a
replacement for, in addition to an existing contract.
A qualified annuity will not provide any necessary or additional tax deferral if
it is used to fund a retirement plan that is tax-deferred. However, the contract
has features other than tax deferral that may make it an appropriate investment
for your retirement plan. You should compare these features and their costs with
other investment options before deciding to purchase this contract.
Free look period: You may return your contract to our office within 10 days
after it is delivered to you and receive a full refund of the contract value,
less any purchase payment credits up to the maximum withdrawal charges. (See
"Buying Your Contract -- Purchase payment credits.") However, you bear the
investment risk from the time of purchase until you return the contract; the
refund amount may be more or less than the payment you made. (Exception: If the
law requires, we will refund all of your purchase payments.)
Accounts: Currently, you may allocate your purchase payments among any or all
of:
o the subaccounts, each of which invests in a fund with a particular
investment objective. The value of each subaccount varies with the
performance of the particular fund in which it invests. We cannot guarantee
that the value at the retirement date will equal or exceed the total
purchase payments you allocate to the subaccounts. (p. 18)
o the fixed accounts, which earn interest at rates that we adjust
periodically. Some states restrict the amount you can allocate to the fixed
accounts. (p. 24)
Buying your contract: Your sales representative will help you complete and
submit an application. Applications are subject to acceptance at our office. You
may buy a nonqualified annuity or a qualified annuity. After your initial
purchase payment, you have the option of making additional purchase payments in
the future. (p. 27)
o Minimum initial purchase payment (including Systematic Investment Plans
(SIPs)) -- $25,000.
o Minimum additional purchase payment -- $100 ($50 for (SIPs)).
o Maximum total purchase payments
(without prior approval) -- $1,000,000 for issue ages up to 85
$100,000 for issue ages 86 to 90.
Transfers: Subject to certain restrictions you currently may redistribute your
money among the subaccounts and the fixed accounts without charge at any time
until annuity payouts begin, and once per contract year among the subaccounts
after annuity payouts begin. Transfers out of the Guarantee Period Accounts
before the end of the Guarantee Period will be subject to a MVA. You may
establish automated transfers among the fixed accounts and subaccounts. Fixed
account transfers are subject to special restrictions. (p. 38)
<PAGE>
Withdrawals: You may withdraw all or part of your contract value at any time
before the retirement date. You also may establish automated partial
withdrawals. Withdrawals may be subject to charges and tax penalties (including
a 10% IRS penalty if you make withdrawals prior to your reaching age 591/2) and
may have other tax consequences; also, certain restrictions apply. (p. 45)
Changing ownership: You may change ownership of a nonqualified annuity by
written instruction, but this may have federal income tax consequences.
Restrictions apply to changing ownership of a qualified annuity. (p. 45)
Benefits in case of death: If you or the annuitant die before annuity payouts
begin, we will pay the beneficiary an amount at least equal to the contract
value. (p. 46)
Annuity payouts: You can apply your contract value to an annuity payout plan
that begins on the retirement date. You may choose from a variety of plans to
make sure that payouts continue as long as you like. If you purchased a
qualified annuity, the payout schedule must meet the requirements of the
qualified plan. We can make payouts on a fixed or variable basis, or both. Total
monthly payouts may include amounts from each subaccount and the one-year fixed
account. During the annuity payout period, your choices for subaccounts may be
limited. The Guarantee Period Accounts are not available during the payout
period. (p. 50)
Taxes: Generally, your contract grows tax-deferred until you make withdrawals
from it or begin to receive payouts. (Under certain circumstances, IRS penalty
taxes may apply.) Even if you direct payouts to someone else, you will be taxed
on the income if you are the owner. Roth IRAs, however, may grow and be
distributed tax free if you meet certain distribution requirements. (p. 52)
Charges: We assess certain charges in connection with your contract (p. 30):
o $40 annual contract administrative charge;
o a 0.15% variable account administrative charge;
o a 1.45% mortality and expense risk fee (if you allocate money to one or
more subaccounts);
o if you select Option B - the Value option return of purchase payment death
benefit* rider, a reduction of 0.10% in the mortality and expense risk fee
(if you allocate money to one or more subaccounts);
o if you select the Guaranteed Minimum Income Benefit Rider (6% Accumulation
Benefit Base)**, an annual fee based on an adjusted contract value
(currently at 0.35%);
o if you select the 8% Performance Credit Rider**, an annual fee of 0.25% of
the contract anniversary contract value;
o withdrawal charge;
o any premium taxes that may be imposed on us by state or local governments
(currently, we deduct any applicable premium tax when you make a total
withdrawal or when annuity payouts begin, but we reserve the right to
deduct this tax at other times such as when you make purchase payments);
and
o the operating expenses of the funds in which the subaccounts invest.
* Available if both you and the annuitant are age 79 or younger. May not be
available in all states.
**You may select either the Guaranteed Minimum Income Benefit Rider (6%
Accumulation Benefit Base) or the 8% Performance Credit Rider, but not both.
Riders may not be available in all states. The Guaranteed Minimum Income Benefit
Rider (6% Accumulation Benefit Base) is only available to annuitants age 75 or
younger.
<PAGE>
Expense Summary
The purpose of the following information is to help you understand the various
costs and expenses associated with your contract.
You pay no sales charge when you purchase your contract. We show all costs that
we deduct directly from your contract or indirectly from the subaccounts and
funds below. Some expenses may vary as we explain under "Charges." Please see
the funds' prospectuses for more information on the operating expenses of each
fund.
CONTRACT OWNER EXPENSES
Withdrawal charge: contingent deferred sales charge as a percentage of purchase
payment withdrawn.
Years from purchase Withdrawal charge
payment receipt percentage
1 8%
2 8
3 8
4 8
5 7
6 6
7 6
8 4
9 2
Thereafter 0
Withdrawal charge under Annuity Payout Plan E -- Payouts for a specified period:
The amount equal to the difference in the present value of remaining payments
using the assumed investment rate and such present value using the assumed
investment rate plus 1.86%. In no event would your withdrawal charge exceed 9%
of the amount available for payouts under the plan.
Annual contract administrative charge $40*
*We will waive this charge when your contract value is $100,000 or more on the
current contract anniversary
Guaranteed Minimum Income Benefit Rider (6% Accumulation Benefit Base) fee:**
as a percentage of an adjusted contract value charged annually.
This is an optional expense. 0.35%
8% Performance Credit Rider fee:**
as a percentage of the contract value at contract anniversary
charged annually. This is an optional expense. 0.25%
**You may select either the Guaranteed Minimum Income Benefit Rider (6%
Accumulation Benefit Base) or the 8% Performance Credit Rider, but not both.
Riders may not be available in all states. The Guaranteed Minimum Income Benefit
Rider (6% Accumulation Benefit Base) is only available to annuitants age 75 or
younger.
<PAGE>
ANNUAL VARIABLE ACCOUNT EXPENSES (as a percentage of average subaccount value)
You can choose the death benefit guarantee provided.
<TABLE>
<CAPTION>
Death Benefit
Option A -- Maximum Option B -- Value
anniversary value or option return of
Option C-- 5% Accumulation purchase payment*
<S> <C> <C>
Variable account administrative charge 0.15% 0.15%
Mortality and expense risk fee 1.45% 1.35%
Total annual variable account expenses 1.60% 1.50%
* Available if both you and the annuitant are age 79 or younger. May not be available in all states.
</TABLE>
<PAGE>
Annual operating expenses of the funds (after fee waivers and/or expense
reimbursements, if applicable, as a percentage of average daily net assets)
<TABLE>
<CAPTION>
Management 12b-1 Other
Fees Fees Expenses Total
<S> <C> <C> <C> <C>
AXP(SM) Variable Portfolio -
Blue Chip Advantage Fund .56% .13 .26 .95%(1)
Bond Fund .60% .13 .08 .81%(2)
Capital Resource Fund .60% .13 .06 .79%(2)
Cash Management Fund .51% .13 .05 .69%(2)
Diversified Equity Income Fund .56% .13 .26 .95%(1)
Extra Income Fund .62% .13 .08 .83%(2)
Federal Income Fund .61% .13 .14 .88%(1)
Growth Fund .63% .13 .19 .95%(1)
Managed Fund .59% .13 .04 .76%(2)
New Dimensions Fund(R) .61% .13 .07 .81%(2)
Small Cap Advantage Fund .79% .13 .31 1.23%(1)
AIM V.I.
Capital Appreciation Fund .62% -- .11 .73%(3)
Capital Development Fund --% -- 1.23 1.23%(3,4)
Value Fund .61% -- .15 .76%(3)
Alliance VP
Premier Growth Portfolio (Class B) 1.00% .25 .04 1.29%(5)
Technology Portfolio (Class B) .71% .25 .24 1.20%(5)
U.S. Government/High Grade Securities Portfolio (Class B) .60% .25 .30 1.15%(5)
Baron Funds
Baron Capital Asset Fund 1.00% .25 .25 1.50%(6)
Fidelity VIP
III Growth & Income Portfolio (Service Class) .48% .10 .12 .70%(7)
III Mid Cap Portfolio (Service Class) .57% .10 .40 1.07%(8)
Overseas Portfolio (Service Class) .73% .10 .18 1.01%(7)
FTVIPT
Franklin Real Estate Fund - Class 2 .56% .25 .02 .83%(9)
Mutual Shares Securities Fund - Class 2 .60% .25 .19 1.04%(10)
Templeton International Smaller Companies Fund - Class 2 .85% .25 .26 1.36%(11)
Goldman Sachs VIT
Capital Growth Fund .75% -- .25 1.00%(12)
CORE(SM) U.S. Equity Fund .70% -- .20 .90%(12)
Global Income Fund .90% -- .25 1.15%(12)
International Equity Fund 1.00% -- .35 1.35%(12)
Internet Tollkeeper Fund 1.00% -- .25 1.25%(13)
Janus Aspen Series
Aggressive Growth Portfolio: Service Shares .65% .25 .02 .92%(14)
Global Technology Portfolio : Service Shares .65% .25 .13 1.03%(14)
Growth Portfolio: Service Shares .65% .25 .02 .92%(14)
International Growth Portfolio: Service Shares .65% .25 .11 1.01%(14)
J.P. Morgan
U.S. Disciplined Equity Portfolio .35% -- .50 .85%(15)
Lazard Retirement Series
Equity Portfolio .75% .25 .25 1.25%(16)
International Equity Portfolio .75% .25 .25 1.25%(16)
<PAGE>
Annual operating expenses of the funds (after fee waivers and/or expense
reimbursements, if applicable, as a percentage of average daily net assets)
Management 12b-1 Other
Fees Fees Expenses Total
MFS(R)
New Discovery Series .90% -- .17 1.07%(17,18)
Research Series .75% -- .11 .86%(17)
Utilities Series .75% -- .16 .91%(17)
Royce
Micro-Cap Portfolio 1.25% -- .10 1.35%(19)
Premier Portfolio 1.00% -- .35 1.35%(19)
Third Avenue
Value Portfolio .90% -- .40 1.30%(20)
Wanger
International Small Cap 1.25% -- .24 1.49%(21)
U.S. Small Cap .95% -- .07 1.02%(21)
Warburg Pincus Trust -
Emerging Growth Portfolio --% -- 1.40 1.40% (22)
Wells Fargo VT
Equity Income Fund .38% .25 .37 1.00%(23)
</TABLE>
<PAGE>
1 Based on estimated expenses after fee waivers and expense reimbursements.
Without fee waivers and expense reimbursements "Other Expenses" and "Total"
would be: 0.39% and 1.08% for AXP(SM) Variable Portfolio - Blue Chip
Advantage and AXP(SM) Variable Portfolio - Diversified Equity Income Funds,
0.26% and 1.00% for AXP(SM) Variable Portfolio - Federal Income Fund, 0.32%
and 1.08% for AXP(SM) Variable Portfolio - Growth Fund, and 0.43% and 1.35%
for AXP(SM) Variable Portfolio - Small Cap Advantage Fund.
2 The fund's expense figures are based on actual expenses for the fiscal year
ended Aug. 31, 1999 restated to include a Rule 12b-1 distribution fee of
0.125% that went into effect Sept. 21, 1999.
3 Figures in "Management Fees," "Other Expenses" and "Total" are based on
actual expenses for the fiscal year ended Dec. 31, 1999.
4 Had there been no fee waivers or expense reimbursements, expenses would
have been: 0.75%, 0.00%, 2.67% and 3.42%, respectively.
5 Figures in "Management Fee," "12b-1 Fees," "Other Expenses" and "Total" are
based on actual expenses for the fiscal period ended Dec. 31, 1999. Absent
fee waivers and expense reimbursements "Management Fees", "12b-1 Fees",
"Other Expenses" and "Total" would be, respectively, 1.00%, 0.25%, 0.27%
and 1.52% for Alliance Technology Portfolio.
6 The adviser is contractually obligated to reduce its fee to the extent
required to limit Baron Capital Asset Fund's total operating expenses to
1.50% for the first $250 million of assets in the Fund, 1.35% for the Fund
assets over $250 million and 1.25% for Fund assets over $500 million. With
the expense limitations, total operating expenses for the Fund for the
period Jan. 1, 1999 through Dec. 31, 1999 would have been and 1.88%.
7 A portion of the brokerage commissions that certain funds pay was used to
reduce fund expenses. In addition, through arrangements with certain funds'
custodians, credits realized as a result of uninvested cash balances were
used to reduce a portion of each applicable funds' expenses. With these
reductions, "Other Expenses," and "Total" presented in the table would have
been 0.11% and 0.69% for Growth & Income Portfolio and 0.15% and 0.98% for
Overseas Portfolio.
8 FMR agreed to reimburse a portion of Mid Cap Portfolio's expenses during
the period. Without this reimbursement, the Portfolio's management fee,
distribution & service fee (12b-1), other expenses and total expenses would
have been 0.57%, 0.10%, 2.74% and 3.41% respectively.
9 Previously Franklin Real Estate Securities Fund. The fund administration
fee is paid indirectly through the management fee. The fund's Class 2
distribution plan or "Rule 12b-1 plan" is described in the fund's
prospectus.
10 On Feb. 8, 2000, a merger and reorganization was approved that combined the
fund with a similar fund of Templeton Variable Products Series Fund,
effective May 1, 2000. The table shows total expenses based on the fund's
assets as of Dec.31, 1999, and not the assets of the combined fund.
However, if the table reflected combined assets, the fund's expenses after
May 1, 2000 would be estimated as:"Management Fees" 0.60%, "12b-1 Fees"
0.25%, "Other Expenses" 0.19%, and "Total" 1.04%. The fund's Class 2
distribution plan or "Rule 12b-1 plan" is described in the fund's
prospectus. The fund's Class 2 distribution plan or "Rule 12-b-1 plan" is
described in the fund's prospectus.
11 The funds' Class 2 distribution plan or "Rule 12b-1 plan" is described in
the fund's prospectus.
12 The fund's expenses are based on estimated expenses for the fiscal year
ended Dec. 31, 2000. Goldman Sachs Asset Management and Goldman Sachs Asset
Management International, the investment advisers, have voluntarily agreed
to reduce or limit certain other expenses (excluding management fees,
taxes, interest, brokerage fee, litigation, indemnification and other
extraordinary expenses) to the extent such expenses exceed the percentage
stated in the above table (as calculated per annum) of each fund's
respective average daily net assets. Without the limitations described
above, "Other expenses" and "Total" of the funds would be as follows: 0.94%
and 1.69% for Capital Growth Fund, 1.78% and 2.68% for Global Income Fund,
0.77% and 1.77% for International Equity Fund, and 0.20% and 0.90% for
CORE(sm) U.S. Equity Fund. CORE(SM) is a service mark of Goldman, Sachs &
Co.
13 Based on projected assets of $150 million, there will be no expense
reimbursement.
14 Expenses are based on the estimated expenses that the new Service Shares
Class of each portfolio expects to incur in its initial fiscal year. All
expenses are shown without the effect of expenses offset arrangements.
15 Fees are stated net of waivers and/or reimbursements. Absent fee waivers
and/or reimbursements, the Management Fee, Other Expenses and Total
Expenses as a percentage of average net assets for J.P. Morgan U.S.
Disciplined Equity Portfolio would be (0.35%, 1.08% and 1.43%). Effective
July 1, 1999 current expenses were lowered to 0.85%.
16 Effective May 1, 1999, the investment adviser agreed to waive its fees
and/or reimburse the Funds through Dec. 31, 2000 to the extent that total
Fund expenses exceed 1.25% for Equity and 1.25% for International Equity of
the Funds' average net assets. Absent fee waivers and/or reimbursements,
"Other Expenses" and "Total Expenses" for the year ended Dec. 31, 1999
would have been 4.63% and 5.63% for Equity, and 11.94% and 12.94% for
International Equity.
17 Each series has an expense offset arrangement which reduces the series'
custodian fees based upon the amount of cash maintained by the series with
its custodian and dividend disbursing agent. Each series may enter into
other such arrangements and directed brokerage arrangements, which would
also have the effect of reducing the series' expenses. "Other Expenses" do
not take into account these expense reductions, and are therefore higher
than the actual expenses of the series. Had these fee reductions been taken
into account, "Net Expenses" would be lower for certain series and would
equal: 1.05% for New Discovery Series, 0.85% for Research Series, and 0.90%
for Utilities Series.
18 MFS has contractually agreed, subject to reimbursement, to bear expenses
for these series such that each such series' "Other Expenses" (after taking
into account the expense offset arrangement described above), do not exceed
the following percentages of the average daily net assets of the series
during the current fiscal year 0.15% for the new Discovery Series. Without
this agreement, "Other" and "Total Expenses" would have been 1.59% and
2.49%. These contractual fee arrangements will continue until at least May
1, 2001, unless changed with the consent of the board of trustees which
oversees the series.
19 Royce has contractually agreed to waive its fees and reimburse expenses to
the extent necessary to maintain the Funds Net Annual Operating Expense
ratio at or below 1.35% through Dec. 31, 1999 and 1.99% through Dec. 31,
2008. Absent fee waivers "Other Expenses" and "Total" would be 0.99% and
2.24% for Royce Micro-Cap Portfolio and 4.63% and 5.63% for Royce Premier
Portfolio.
20 These expenses reflect reimbursements by the Adviser. The Adviser
reimbursed the Fund for all expenses incurred by the Fund in excess of
1.30% of Fund assets. The Fund will repay the Adviser the amount of its
reimbursement for up to three years following the reimbursement to the
extent Fund expenses drop below 1.30%. The Adviser expects to continue to
reimburse the Fund for these expenses for the foreseeable future. Either
the Fund or the Advisor can terminate this arrangement at any time. Without
this reimbursement, the Fund's "Other Expenses" and "Total" would have been
2.05% and 2.95%. Other expenses are based on estimated amounts for the
current fiscal year.
21 Actual operating expenses of funds at Dec. 31, 1999.
22 Expense ratios are shown after fee waivers and expense reimbursements by
the investment advisor. The total expense ratio before the waiver and
reimbursement would have been 11.16% for Emerging Growth Portfolio of the
Warburg Pincus Trust.
23 Amounts represent expenses as of Dec. 31, 1999 and have been adjusted for
changes in contract rates that occurred during 1999. Expenses are shown
after fee waivers and expense reimbursements. Absent fee waivers
"Management Fees" and "Total" would have been 0.55% and 1.17% for Wells
Fargo VT Equity Income.
<PAGE>
Examples: *
You would pay the following expenses on a $1,000 investment if you selected the
value option return of purchase payment death benefit rider and assuming a 5%
annual return and....
<TABLE>
<CAPTION>
no withdrawal or selection
a total withdrawal at the of an annuity payout plan at the
end of each time period end of each time period
1 year 3 years 1 year 3 years
<S> <C> <C> <C> <C>
AXP(SM) Variable Portfolio -
Blue Chip Advantage Fund $106.14 $160.30 $26.14 $80.30
Bond Fund 104.70 156.00 24.70 76.00
Capital Resource Fund 104.50 155.38 24.50 75.38
Cash Management Fund 103.47 152.30 23.47 72.30
Diversified Equity Income Fund 106.14 160.30 26.14 80.30
Extra Income Fund 104.91 156.61 24.91 76.61
Federal Income Fund 105.42 158.15 25.42 78.15
Growth Fund 106.14 160.30 26.14 80.30
Managed Fund 104.19 154.46 24.19 74.46
New Dimensions Fund(R) 104.70 156.00 24.70 76.00
Small Cap Advantage Fund 109.01 168.86 29.01 88.86
AIM V.I.
Capital Appreciation Fund 103.88 153.54 23.88 73.54
Capital Development Fund 109.01 168.86 29.01 88.86
Value Fund 104.19 154.46 24.19 74.46
Alliance VP
Premier Growth Portfolio (Class B) 109.62 170.69 29.62 90.69
Technology Portfolio (Class B) 108.70 167.95 28.70 87.95
U.S. Government/High Grade Securities Portfolio (Class B) 108.19 166.42 28.19 86.42
Baron Funds
Baron Capital Asset Fund 111.78 177.07 31.78 97.07
Fidelity VIP
III Growth & Income Portfolio (Service Class) 103.58 152.61 23.58 72.61
III Mid Cap Portfolio (Service Class) 107.37 163.97 27.37 83.97
Overseas Portfolio (Service Class) 106.75 162.41 26.75 82.14
FTVIPT
Franklin Real Estate Fund - Class 2 104.91 156.61 24.91 76.61
Mutual Shares Securities Fund - Class 2 107.06 163.06 27.06 83.06
Templeton International Smaller Companies Fund - Class 2 110.34 172.82 30.34 92.82
Goldman Sachs VIT
Capital Growth Fund 106.65 161.83 26.65 81.83
CORE(SM) U.S. Equity Fund 105.63 158.76 25.63 78.76
Global Income Fund 108.19 166.42 28.19 86.42
International Equity Fund 110.24 172.52 30.24 92.52
Internet Tollkeeper Fund 109.21 169.47 29.21 89.47
Janus Aspen Series
Aggressive Growth Portfolio: Service Shares $105.83 $159.38 $25.83 $79.38
Global Technology Portfolio:Service Shares 106.96 162.75 26.96 82.75
Growth Portfolio: Service Shares 105.83 159.38 25.83 79.38
International Growth Portfolio: Service Shares 106.75 162.14 26.75 82.14
<PAGE>
You would pay the following expenses on a $1,000 investment if you selected the
value option return of purchase payment death benefit rider and assuming a 5%
annual return and....
no withdrawal or selection
a total withdrawal at the of an annuity payout plan at the
end of each time period end of each time period
1 year 3 years 1 year 3 years
J.P. Morgan
U.S. Disciplined Equity Portfolio 105.11 157.23 25.11 77.23
Lazard Retirement Series
Equity Portfolio 109.21 169.47 29.21 89.47
International Equity Portfolio 109.21 169.47 29.21 89.47
MFS(R)
New Discovery Series 107.37 163.97 27.37 83.97
Research Series 105.22 157.54 25.22 77.54
Utilities Series 105.73 159.07 25.73 79.07
Royce
Micro-Cap Portfolio 110.24 172.52 30.24 92.52
Premier Portfolio 110.24 172.52 30.24 92.52
Third Avenue
Value Portfolio 109.73 171.00 29.73 91.00
Wanger
International Small Cap 111.67 176.77 31.67 96.77
U.S. Small Cap 106.86 162.44 26.86 82.44
Warburg Pincus Trust -
Emerging Growth Portfolio 110.75 174.04 30.75 94.04
Wells Fargo VT
Equity Income Fund 106.65 161.83 26.65 81.83
<PAGE>
You would pay the following expenses on a $1,000 investment if you selected the
0.35% Guaranteed Minimum Income Benefit Rider (6% Accumulation Benefit Base) and
assuming a 5% annual return and....
no withdrawal or selection
a total withdrawal at the of an annuity payout plan at the
end of each time period end of each time period
1 year 3 years 1 year 3 years
AXP(SM) Variable Portfolio -
Blue Chip Advantage Fund $110.75 $174.04 $30.75 $94.04
Bond Fund 109.32 169.78 29.32 89.78
Capital Resource Fund 109.11 169.17 29.11 89.17
Cash Management Fund 108.09 166.11 28.09 86.11
Diversified Equity Income Fund 110.75 174.04 30.75 94.04
Extra Income Fund 109.52 170.39 29.52 90.39
Federal Income Fund 110.03 171.91 30.03 91.91
Growth Fund 110.75 174.04 30.75 94.04
Managed Fund 108.80 168.25 28.80 88.25
New Dimensions Fund(R) 109.32 169.78 29.32 89.78
Small Cap Advantage Fund 113.62 182.52 33.62 102.52
AIM V.I.
Capital Appreciation Fund 108.50 167.34 28.50 87.34
Capital Development Fund 113.62 182.52 33.62 102.52
Value Fund 108.80 168.25 28.80 88.25
Alliance VP
Premier Growth Portfolio (Class B) 114.24 184.33 34.24 104.33
Technology Portfolio (Class B) 113.31 181.61 33.31 101.61
U.S. Government/High Grade Securities Portfolio (Class B) 112.80 180.10 32.80 100.10
Baron Funds
Baron Capital Asset Fund 116.39 190.66 36.39 110.66
Fidelity VIP
III Growth & Income Portfolio (Service Class) 108.19 166.42 28.19 86.42
III Mid Cap Portfolio (Service Class) 111.98 177.68 31.98 97.68
Overseas Portfolio (Service Class) 111.37 175.86 31.37 94.86
FTVIPT
Franklin Real Estate Fund - Class 2 109.52 170.39 29.52 90.39
Mutual Shares Securities Fund - Class 2 111.67 176.77 31.67 96.77
Templeton International Smaller Companies Fund - Class 2 114.95 186.44 34.95 106.44
Goldman Sachs VIT
Capital Growth Fund 111.26 175.56 31.26 95.56
CORE(SM) U.S. Equity Fund 110.24 172.52 30.24 92.52
Global Income Fund 112.80 180.10 32.80 100.10
International Equity Fund 114.85 186.14 34.85 106.14
Internet Tollkeeper Fund 113.83 183.13 33.83 103.13
Janus Aspen Series
Aggressive Growth Portfolio: Service Shares 110.44 173.13 30.44 93.13
Global Technology Portfolio: Service Shares 111.57 176.47 31.57 96.47
Growth Portfolio: Service Shares 110.44 173.13 30.44 93.13
International Growth Portfolio: Service Shares 111.37 175.86 31.37 95.86
<PAGE>
You would pay the following expenses on a $1,000 investment if you selected the
0.35% Guaranteed Minimum Income Benefit Rider (6% Accumulation Benefit Base) and
assuming a 5% annual return and....
no withdrawal or selection
a total withdrawal at the of an annuity payout plan at the
end of each time period end of each time period
1 year 3 years 1 year 3 years
J.P. Morgan
U.S. Disciplined Equity Portfolio 109.73 171.00 29.73 91.00
Lazard Retirement Series
Equity Portfolio 113.83 183.13 33.83 103.13
International Equity Portfolio 113.83 183.13 33.83 103.13
MFS(R)
New Discovery Series 111.98 177.68 31.98 97.68
Research Series 109.83 171.30 29.83 91.30
Utilities Series 110.34 172.82 30.34 92.82
Royce
Micro-Cap Portfolio 114.85 186.14 34.85 106.14
Premier Portfolio 114.85 186.14 34.85 106.14
Third Avenue
Value Portfolio 114.34 184.63 34.34 104.63
Wanger
International Small Cap 116.29 190.35 36.29 110.35
U.S. Small Cap 111.47 176.16 31.47 96.16
Warburg Pincus Trust -
Emerging Growth Portfolio 115.36 187.65 35.36 107.65
Wells Fargo VT
Equity Income Fund 111.26 175.56 31.26 95.56
</TABLE>
* In these examples, the $40 contract administrative charge is approximated as a
0.100% charge based on our estimated average contract size. Premium taxes
imposed by some state and local governments are not reflected in these examples.
We entered into certain arrangements under which we are compensated by the
funds' advisors and/or distributors for the administrative services we provide
to the funds.
You should not consider these examples as representations of past or future
expenses. Actual expenses may be more or less than those shown.
<PAGE>
Condensed Financial Information (Unaudited)
We have not provided any condensed financial information for the subaccounts
because they are new and do not have any history.
Financial Statements
You can find our audited financial statements later in this prospectus. The SAI
does not include the audited financial statements of the subaccounts because
they are new and do not have any assets.
Performance Information
Performance information for the subaccounts may appear from time to time in
advertisements or sales literature. This information reflects the performance of
a hypothetical investment in a particular subaccount during a specified time
period. We show actual performance from the date the subaccounts began investing
in the funds. Currently, we do not provide any performance information because
they are new and have not had any activity to date. However, we show performance
from the commencement date of the funds as if the contract existed at that time,
which it did not. Although we base performance figures on historical earnings,
past performance does not guarantee future results.
We include non-recurring charges (such as withdrawal charges) in total return
figures, but not in yield quotations. Excluding non-recurring charges in yield
calculations increases the reported value.
Total return figures reflect deduction of all applicable charges, including:
o the contract administrative charge,
o the variable account administrative charge,
o the Guaranteed Minimum Income Benefit Rider (6% Accumulation Benefit Base)
* fee,
o the 8% Performance Credit Rider* fee,
o mortality and expense risk fee and
o withdrawal charge (assuming a withdrawal at the end of the illustrated
period).
*You may select either the Guaranteed Minimum Income Benefit Rider (6%
Accumulation Benefit Base) or the 8% Performance Credit Rider, but not both.
Riders may not be available in all states. The Guaranteed Minimum Income Benefit
Rider (6% Accumulation Benefit Base) is only available to annuitants age 75 or
younger.
We may make optional total return quotations that do not reflect deduction of
the withdrawal charge (assuming no withdrawal), the Guaranteed Minimum Income
Benefit Rider (6% Accumulation Benefit Base) fee and the 8% Performance Credit
Rider fee. We also may make optional total return quotations that reflect the
reduced mortality and expense risk fee associated with the Value option return
of purchase payment death benefit. Total return quotations may be shown by means
of schedules, charts or graphs.
Average annual total return is the average annual compounded rate of return of
the investment over a period of one, five and ten years (or up to the life of
the subaccount if it is less than ten years old).
Cumulative total return is the cumulative change in the value of an investment
over a specified time period. We assume that income earned by the investment is
reinvested. Cumulative total return generally will be higher than average annual
total return.
<PAGE>
Annualized simple yield (for subaccounts investing in money market funds)
"annualizes" the income generated by the investment over a given seven-day
period. That is, we assume the amount of income generated by the investment
during the period will be generated each seven-day period for a year. We show
this as a percentage of the investment.
Annualized compound yield (for subaccounts investing in money market funds) is
calculated like simple yield except that we assume the income is reinvested when
we annualize it. Compound yield will be higher than the simple yield because of
the compounding effect of the assumed reinvestment.
Annualized yield (for subaccounts investing in income funds) divides the net
investment income (income less expenses) for each accumulation unit during a
given 30-day period by the value of the unit on the last day of the period. We
then convert the result to an annual percentage.
You should consider performance information in light of the investment
objectives, policies, characteristics and quality of the fund in which the
subaccount invests and the market conditions during the specified time period.
Advertised yields and total return figures include charges that reduce
advertised performance. Therefore, you should not compare subaccount performance
to that of mutual funds that sell their shares directly to the public. (See the
SAI for a further description of methods used to determine total return and
yield.)
If you would like additional information about actual performance, please
contact us at the address or telephone number on the first page of this
prospectus.
<PAGE>
The Variable Account and the Funds
You may allocate payments to any or all of the subaccounts of the variable
account that invest in shares of the following funds:
<TABLE>
<CAPTION>
<S> <C> <C> <C>
__________________________________________________________________________________________________________________
Subaccount Investing In Investment Objectives and Investment
Policies: Advisor or
Manager
__________________________________________________________________________________________________________________
SBCA1 AXP(SM) Variable Portfolio - Blue Chip Objective: long-term total IDS Life,
WBCA3 Advantage Fund return exceeding that of the investment
U.S. stock market. Invests manager;
primarily in common stocks of American
companies included in the Express
unmanaged S&P 500 Index. Financial
Corporation
(AEFC)
investment
advisor.
SBND1 AXP(SM) Variable Portfolio - Bond Fund Objective: high level of current IDS Life,
SBND2 income while conserving the investment
value of the investment and manager;
continuing a high level of AEFC,
income for the longest time investment
period. Invests primarily in advisor.
bonds and other debt obligations.
SCAR1 AXP(SM) Variable Portfolio - Capital Objective: capital appreciation. IDS Life,
WCAR3 Resource Fund Invests primarily in U.S. common investment
stocks and other securities manager;
convertible into common stocks. AEFC,
investment
advisor.
SCMG1 AXP(SM) Variable Portfolio-Cash Management Objective: maximum current income IDS Life,
SCMG2 Fund consistent with liquidity and investment
conservation of capital. Invests manager; AEFC,
in money market securities. investment
advisor.
SDEI1 AXP(SM) Variable Portfolio - Diversified Objective: a high level of IDS Life,
WDEI3 Equity Income Fund current income and, as a investment
secondary goal, steady growth of manager;
capital. Invests primarily in AEFC
dividend-paying common and investment
preferred stocks. advisor.
SEXI1 AXP(SM) Variable Portfolio - Extra Objective: high current income, IDS Life,
WEXI3 Income Fund with capital growth as a investment
secondary objective. Invests manager;
primarily in high-yielding, AEFC,
high-risk corporate bonds issued investment
by U.S. and foreign companies advisor.
and governments.
SFDI1 AXP(SM) Variable Portfolio - Federal Objective: a high level of IDS Life,
WFDI3 Income Fund current income and safety of investment
principal consistent with an manager;
investment in U.S. government AEFC
and government agency investment
securities. Invests primarily in advisor.
debt obligations issued or
guaranteed as to principal and
interest by the U.S. government,
its agencies or
instrumentalities.
SGRO1 AXP(SM) Variable Portfolio - Growth Fund Objective: long-term capital IDS Life,
SGRO2 growth. Invests primarily in investment
common stocks and securities manager;
convertible into common stocks AEFC
that appear to offer growth investment
opportunities. advisor.
SMGD1 AXP(SM) Variable Portfolio - Managed Fund Objective: maximum total IDS Life,
SMGD2 investment return through a investment
combination of capital growth manager;
and current income. Invests AEFC,
primarily in a combination of investment
common and preferred stocks, advisor.
convertible securities, bonds
and other debt securities.
<PAGE>
__________________________________________________________________________________________________________________
Subaccount Investing In Investment Objectives and Investment
Policies: Advisor or
Manager
__________________________________________________________________________________________________________________
SNDM1 AXP(SM) Variable Portfolio - Objective: long-term growth of IDS Life,
WNDM3 New Dimensions Fund(R) capital. Invests primarily in investment
common stocks of U.S. and manager;
foreign companies showing AEFC,
potential for significant growth. investment
advisor.
SSCA1 AXP(SM) Variable Portfolio - Objective: long-term capital IDS Life,
WSCA3 Small Cap Advantage Fund growth. Invests primarily in investment
equity stocks of small companies manager;
that are often included in the AEFC
S&P SmallCap 600 Index or the investment
Russell 2000 Index. advisor.
SCAP1 AIM V.I. Capital Appreciation Fund Objective: growth of capital. A I M
WCAP3 Invests primarily in common Advisors,
stocks, with emphasis on medium- Inc.
and small-sized growth companies.
SCDV1 AIM V.I. Capital Development Fund Objective: long term growth of A I M
SCDV2 capital. Invests primarily in Advisors,
securities (including common Inc.
stocks, convertible securities
and bonds) of small- and
medium-sized companies.
SVAL1 AIM V.I. Value Fund Objective: long-term growth of A I M
WVAL3 capital with income as a Advisors,
secondary objective. Invests Inc.
primarily in equity securities
judged to be undervalued
relative to the investment
advisor's appraisal of the
current or projected earnings of
the companies issuing the
securities, or relative to
current market values of assets
owned by the companies issuing
the securities, or relative to
the equity market generally.
SPGR1 Alliance VP Premier Growth Portfolio Objective: growth of capital by Alliance
SPGR2 (Class B) pursuing aggressive investment Capital
policies. Invests primarily in Management,
equity securities of a limited L.P.
number of large, carefully
selected, high-quality U.S.
companies that are judged likely
to achieve superior earnings
growth. As a matter of
fundamental policy, the
Portfolio normally invests at
least 85% of its total assets in
the equity securities of U.S.
companies.
STEC1 Alliance VP Technology Portfolio (Class B) Objective: growth of capital. Alliance
STEC2 Current income is only an Capital
incidental consideration. Management,
Invests primarily in securities L.P.
of companies expected to benefit
from technological advances and
improvements. The Portfolio's
policy is to invest in any
company and industry and in any
type of security with potential
for capital appreciation. It
invests in well-known and
established companies and new
and unseasoned companies.
<PAGE>
__________________________________________________________________________________________________________________
Subaccount Investing In Investment Objectives and Investment
Policies: Advisor or
Manager
__________________________________________________________________________________________________________________
SUGH1 Alliance VP U.S. Government/ High Grade Objective: high level of current Alliance
SUGH2 Securities Portfolio (Class B) income consistent with Capital
preservation of capital. Invest Management,
primarily in (1) U.S. Government L.P.
securities and (2) other
high-grade debt securities rated
AAA, AA or A by Standard &
Poor's, Duff and Phelps or
Fitch, or rated Aaa, Aa or A by
Moody's Investors Service or, if
unrated, of equivalent quality.
As a matter of fundamental
policy, the Portfolio invests at
least 65% of its total assets in
investment grade corporate debt
securities and CMOs.
SCAS1 Baron Capital Asset Fund Objective: capital appreciation. BAMCO, Inc.
SCAS2 Invests primarily in securities
of small and medium sized
companies with undervalued
assets or favorable growth
prospects.
SGRI1 Fidelity VIP III Growth & Income Objective: high total return Fidelity Management
SGRI2 Portfolio (Service Class) through a combination of current & Research Company
income and capital appreciation. (FMR), investment
Invests primarily in common manager; FMR U.K.
stocks with a focus on those and FMR Far East,
that pay current dividends and sub-investment
show potential for capital advisors.
appreciation.
SMDC1 Fidelity VIP III Mid Cap Portfolio Objective: long-term growth of FMR, investment
SMDC2 (Service Class) capital. Invests primarily in manager; FMR U.K. and
medium market capitalization and FMR Far East,
common stocks. sub-investment
advisors.
SOVS1 Fidelity VIP Overseas Portfolio (Service Objective: long-term growth of FMR, investment
SOVS2 Class) capital. Invests primarily in manager; FMR U.K.,
common stocks of foreign FMR Far East,
securities. Fidelity International
Investment Advisors (FIIA)
and FIIA U.K.,
sub-investment advisors.
SRES1 FTVIPT Franklin Real Estate Fund - Class Objective: capital appreciation Franklin
WRES3 2 (previously Franklin Real Estate with a secondary goal to earn Advisers,
Securities Fund) current income. Invests Inc.
primarily in securities of
companies operating in the
real estate industry,
primarily equity real estate
investment trusts (REITS).
SMSS1 FTVIPT Mutual Shares Securities Fund - Objective: capital appreciation Franklin Mutual
WMSS3 Class 2 with income as a secondary goal. Advisers, LLC
Invests primarily in equity
securities of companies that
the manager believes are
available at market prices
less than their value based on
certain recognized or objective
criteria (intrinsic value).
SISC1 FTVIPT Templeton International Smaller Objective: long-term capital Templeton
SISC2 Companies Fund - Class 2 appreciation. Invests primarily Investment
in equity securities of smaller Counsel, Inc.
companies located outside the
U.S., including in emerging
markets.
<PAGE>
__________________________________________________________________________________________________________________
Subaccount Investing In Investment Objectives and Investment
Policies: Advisor or
Manager
__________________________________________________________________________________________________________________
SCGR1 Goldman Sachs VIT Capital Growth Fund Objective: long-term growth of Goldman
SCGR2 capital. Invest primarily in Sachs Asset
equity securities considered by Management
the Investment Advisor to have
long-term capital appreciation
potential.
SUSE1 Goldman Sachs VIT CORE(SM) U.S. Equity Objective: long-term growth of Goldman
WUSE3 Fund capital and dividend income. Sachs Asset
Invests primarily in a broadly Management
diversified portfolio of
large-cap and blue chip equity
securities representing all
major sectors of the U.S.
economy.
SGLI1 Goldman Sachs VIT Global Income Fund Objective: high total return, Goldman
WGLI3 emphasizing current income, and, Sachs Asset
to a lesser extent, providing Management
opportunities for capital International
appreciation. Invests primarily
in a portfolio of high quality
fixed-income securities of U.S.
and foreign issuers and enters
into transactions in foreign
currencies.
SIEQ1 Goldman Sachs VIT International Equity Objective: long-term capital Goldman
SIEQ2 Fund appreciation. Invests primarily Sachs Asset
in equity securities of Management
companies that are organized International
outside the U.S., or whose
securities are principally
traded outside the U.S.
SITO1 Goldman Sachs VIT Internet Tollkeeper Fund Objective: long-term growth of Goldman
SITO2 capital. Invests primarily in Sachs Asset
equity securities of companies Management
the Investment Advisor believes
will benefit from the growth of
the Internet by providing
access, infrastructure, content
and services to Internet
companies and customers.
SAGP1 Janus Aspen Series Aggressive Growth Objective: long-term growth of Janus Capital
SAGP2 Portfolio: Service Shares capital. Invests primarily in
common stocks selected for
their growth potential and
normally invests at least 50%
of its equity assets in
medium-sized companies.
SGLT1 Janus Aspen Series Global Technology Objective: long-term growth of Janus Capital
SGLT2 Portfolio: Service Shares capital. Invests primarily in
equity securities of
U.S. and foreign companies
selected for their growth
potential. Normally invests
at least 65% of assets in
securities of companies that
the manager believes will
benefit significantly from
advancements or improvements in
technology.
SGIP1 Janus Aspen Series Growth Portfolio: Objective: long-term growth of Janus Capital
SGIP2 Service Shares capital in a manner consistent
with the preservation of
capital. Invests primarily in
common stocks selected for their
growth potential.
SINT1 Janus Aspen Series International Growth Objective: long-term growth of Janus Capital
SINT2 Portfolio: Service Shares capital. Invests at least 65% of
its total assets in securities of
issuers from at least five different
countries, excluding the U.S. It may
at times invest all of its assets in
fewer than five countries or
even a single country.
<PAGE>
__________________________________________________________________________________________________________________
Subaccount Investing In Investment Objectives and Investment
Policies: Advisor or
Manager
__________________________________________________________________________________________________________________
SUDE1 J.P. Morgan U.S. Disciplined Equity Objective: seeks to provide a J.P. Morgan
SUDE2 Portfolio high total return from a
portfolio comprised of
selected equity securities. The
portfolio invests primarily in the
common stocks of U.S. corporations
with market capitalizations above
$1.5 billion. The portfolio is
designed for investors who
want an actively managed
portfolio of selected equity
securities that seeks to
outperform the S&P 500 Index.
SREQ1 Lazard Retirement Series Equity Portfolio Objective: long-term capital Lazard Asset
SREQ2 appreciation. Invests primarily Management
in equity securities,
principally common stocks
of relatively large U.S.companies
(those whose total market
value is more than $1 billion)
that the Investment Manager
believes are undervalued
based on their earnings, cash
flow or asset values.
SRIE1 Lazard Retirement Series International Objective: long-term capital Lazard Asset
SRIE2 Equity Portfolio appreciation. Invests primarily Management
in equity securities, principally
common stocks of relatively large
non-U.S. companies (those
whose total market value is
more than $1 billion) that
the Investment Manager believes
are undervalued based on their
earnings, cash flow or asset
values.
SNDS1 MFS(R)New Discovery Series Objective: capital appreciation. MFS
SNDS2 Invests primarily in equity Investment
securities of emerging growth Management(R)
companies.
SRSS1 MFS(R)Research Series Objective: long-term growth of MFS
SRSS2 capital and future income. Investment
Invests primarily in common Management(R)
stocks and related securities
that have favorable prospects
for long-term growth, attractive
valuations based on current and
expected earnings or cash flow,
dominant or growing market
share, and superior management.
SUTS1 MFS(R)Utilities Series Objective: capital growth and MFS
WUTS3 current income. Invests Investment
primarily in equity and debt Management (R)
securities of domestic and
foreign companies in the
utilities industry.
SMCC1 Royce Micro-Cap Portfolio Objective: long-term growth of Royce &
SMCC2 capital. Invests primarily in a Associates,
broadly diversified portfolio of Inc.
equity securities issued by
micro-cap companies (companies
with stock market
capitalizations below $300
million).
<PAGE>
__________________________________________________________________________________________________________________
Subaccount Investing In Investment Objectives and Investment
Policies: Advisor or
Manager
__________________________________________________________________________________________________________________
SPRM1 Royce Premier Portfolio Objective: long-term growth of Royce &
SPRM2 capital with current income as a Associates,
secondary objective. Invests Inc.
primarily in a limited number of
equity securities issued by
small companies with stock
market capitalization between
$300 million and $1.5 billion.
SVLU1 Third Avenue Value Portfolio Objective: long-term capital EQSF
SVLU2 appreciation. Invests primarily Advisers,
in common stocks of Inc.
well-financed companies at a
substantial discount to what the
Advisor believes is their true
value.
SISM1 Wanger International Small Cap Objective: long-term growth of Wanger Asset
SISM2 capital. Invests primarily in Management,
stocks of small- and medium-size L.P.
non-U.S. companies.
SUSC1 Wanger U.S. Small Cap Objective: long-term growth of Wanger Asset
SUSC2 capital. Invests primarily in Management,
stocks of small- and medium-size L.P.
U.S. companies.
SEGR1 Warburg Pincus Trust - Emerging Growth Objective: maximum capital Credit
SEGR2 Portfolio appreciation. Invests primarily Suisse
in equity securities of small- Asset
or medium-sized U.S. Management,
emerging-growth companies. LLC.
SEQI1 Wells Fargo VT Equity Income Fund Objective: long-term capital Wells Fargo
WEQI3 appreciation and above-average Bank, N.A.,
dividend income. Invests advisor;
primarily in common stocks of Wells
large, high-quality domestic Capital
companies with above-average Management
return potential and Incorporated,
above-average dividend income. sub-advisor.
</TABLE>
The investment objectives and policies of some of the funds are similar to the
investment objectives and policies of other mutual funds that an investment
advisor or its affiliates manage. Although the objectives and policies may be
similar, each fund will have its own portfolio holdings and its own fees and
expenses. Accordingly, each fund will have its own investment results, and those
results may differ significantly from other funds with similar investment
objectives and policies.
The investment managers and advisors cannot guarantee that the funds will meet
their investment objectives. Please read the funds' prospectuses for facts you
should know before investing. These prospectuses are also available by
contacting us at the address or telephone number on the first page of this
prospectus.
All funds are available to serve as the underlying investments for variable
annuities. Some funds also are available to serve as investment options for
variable life insurance policies and tax-deferred retirement plans. It is
possible that in the future, it may be disadvantageous for variable annuity
accounts and variable life insurance accounts and/or tax-deferred retirement
plans to invest in the available funds simultaneously.
<PAGE>
Although the insurance company and the funds do not currently foresee any such
disadvantages, the boards of directors or trustees of the appropriate funds will
monitor events in order to identify any material conflicts between annuity
owners, policy owners and tax-deferred retirement plans and to determine what
action, if any, should be taken in response to a conflict. If a board were to
conclude that it should establish separate funds for the variable annuity,
variable life insurance and tax-deferred retirement plan accounts, you would not
bear any expenses associated with establishing separate funds. Please refer to
the fund's prospectuses for risk disclosure regarding simultaneous investments
by variable annuity, variable life insurance and tax-deferred retirement plan
accounts.
The Internal Revenue Service (IRS) issued final regulations relating to the
diversification requirements under Section 817(h) of the Code. Each fund intends
to comply with these requirements.
The variable account was established under Indiana law on July 15, 1987, and the
subaccounts are registered together as a single unit investment trust under the
Investment Company Act of 1940 (the 1940 Act). This registration does not
involve any supervision of our management or investment practices and policies
by the SEC. All obligations arising under the contracts are general obligations
of American Enterprise Life.
The variable account meets the definition of a separate account under federal
securities laws. We credit or charge income, capital gains and capital losses of
each subaccount only to that subaccount. State insurance law prohibits us from
charging a subaccount with liabilities of any other subaccount or of our general
business. The variable account includes other subaccounts that are available
under contracts that are not described in this prospectus.
The U.S. Treasury and the IRS indicated that they may provide additional
guidance on investment control. This concerns how many variable subaccounts an
insurance company may offer and how many exchanges among subaccounts it may
allow before the contract owner would be currently taxed on income earned within
subaccount assets. At this time, we do not know what the additional guidance
will be or when action will be taken. We reserve the right to modify the
contract, as necessary, so that the owner will not be subject to current
taxation as the owner of the subaccount assets.
We intend to comply with all federal tax laws so that the contract continues to
qualify as an annuity for federal income tax purposes. We reserve the right to
modify the contract as necessary to comply with any new tax laws.
The Fixed Accounts
Guarantee Period Accounts
You may allocate purchase payments to one or more of the Guarantee Period
Accounts with Guarantee Periods ranging from two to ten years. These accounts
are not available in all states and are not offered after annuity payouts begin.
Some states also restrict the amount you can allocate to these accounts. Each
Guarantee Period Account pays an interest rate that is declared when you
allocate money to that account. That interest rate is then fixed for the
Guarantee Period that you chose. We will periodically change the declared
interest rate for any future allocations to these accounts, but we will not
change the rate paid on money currently in a Guarantee Period Account.
The interest rates that we will declare as guaranteed rates in the future are
determined by us at our discretion. We will determine these rates based on
various factors including, but not limited to, the interest rate environment,
returns available on investments backing these annuities, product design,
competition and American Enterprise Life's revenues and other expenses.
<PAGE>
You may transfer money out of the Guarantee Period Accounts within 30 days
before the end of the Guarantee Period without receiving a MVA (see "Market
Value Adjustment (MVA)" below.) At that time you may choose to start a new
Guarantee Period of the same length, transfer the money to another Guarantee
Period Account, transfer the money to any of the subaccounts, or withdraw the
money from the contract (subject to applicable withdrawal provisions). If we do
not receive any instructions at the end of your Guarantee Period, we will
automatically transfer the money into the one-year fixed account.
We hold amounts you allocate to the Guarantee Period Accounts in a "nonunitized"
separate account we have established under the Indiana Insurance Code. This
separate account provides an additional measure of assurance that we will make
full payment of amounts due under the Guarantee Period Accounts. State insurance
law prohibits us from charging this separate account with liabilities of any
other separate account or of our general business. We own the assets of this
separate account as well as any favorable investment performance of those
assets. You do not participate in the performance of the assets held in this
separate account. We guarantee all benefits relating to your value in the
Guarantee Period Accounts.
We intend to construct and manage the investment portfolio relating to the
separate account using a strategy known as "immunization." Immunization seeks to
lock in a defined return on the pool of assets versus the pool of liabilities
over a specified time horizon. Since the return on the assets versus the
liabilities is locked in, it is "immune" to any potential fluctuations in
interest rates during the given time. We achieve immunization by constructing a
portfolio of assets with a price sensitivity to interest rate changes (i.e.,
price duration) that is essentially equal to the price duration of the
corresponding portfolio of liabilities. Portfolio immunization provides us with
flexibility and efficiency in creating and managing the asset portfolio, while
still assuring safety and soundness for funding liability obligations.
We must invest this portfolio of assets in accordance with requirements
established by applicable state laws regarding the nature and quality of
investments that life insurance companies may make and the percentage of their
assets that they may commit to any particular type of investment. Our investment
strategy will incorporate the use of a variety of debt instruments having price
durations tending to match the applicable Guarantee Periods. These instruments
include, but are not necessarily limited to, the following:
o Securities issued by the U.S. government or its agencies or
instrumentalities, which issues may or may not be guaranteed by the U.S.
government;
o Debt securities that have an investment grade, at the time of purchase,
within the four highest grades assigned by any of three nationally
recognized rating agencies -- Standard & Poor's, Moody's Investors Service
or Duff and Phelp's -- or are rated in the two highest grades by the
National Association of Insurance Commissioners;
o Other debt instruments which are unrated or rated below investment grade,
limited to 10% of assets at the time of purchase; and
o Real estate mortgages, limited to 45% of portfolio assets at the time of
acquisition.
In addition, options and futures contracts on fixed income securities will be
used from time to time to achieve and maintain appropriate investment and
liquidity characteristics on the overall asset portfolio.
While this information generally describes our investment strategy, we are not
obligated to follow any particular strategy except as may be required by federal
law and Indiana and other state insurance laws.
<PAGE>
MARKET VALUE ADJUSTMENT (MVA)
You may choose to transfer money out of a Guarantee Period Account at any time
after 60 days of transfer or payment allocation into the account. The amount
transferred or withdrawn will receive a MVA which will increase or decrease the
actual amount transferred or withdrawn. We calculate the MVA using the formula
shown below and we base it on the current level of interest rates compared to
the rate of your Guarantee Period Account.
Amount transferred x ( l + i ) n/12
--------------
(l + j + .001)
Where: i = rate earned in the account from which funds are
being transferred
j = current rate for a new Guarantee Period equal to
the remaining term in the current Guarantee
Period
n = number of months remaining in the current
Guarantee Period (rounded up)
We will not make MVAs for amounts withdrawn for withdrawal charges, the annual
contract administrative charge or paid out as a death claim. We also will not
make MVAs on automatic transfers from the two-year Guarantee Period Account. We
determine any applicable withdrawal charges based on the market value adjusted
withdrawals. In some states the MVA is limited.
THE ONE-YEAR FIXED ACCOUNT
You may also allocate purchase payments to the one-year fixed account. Some
states restrict the amount you can allocate to this account. We back the
principal and interest guarantees relating to the one-year fixed account. The
value of the one-year fixed account increases as we credit interest to the
account. Purchase payments and transfers to the one-year fixed account become
part of our general account. We credit interest daily and compound it annually.
We will change the interest rates from time to time at our discretion. These
rates will be based on various factors including, but not limited to, interest
rate environment, returns earned on investments backing these annuities, the
rates currently in effect for new and existing company annuities, product
design, competition, and the company's revenues and expenses.
Interest in the one-year fixed account is not required to be registered with the
SEC. However, the Market Value Adjustment interests under the contracts are
registered with the SEC. The SEC staff does not review the disclosures in this
prospectus on the one-year fixed account (but the SEC does review the
disclosures in this prospectus on the Market Value Adjustment interests).
Disclosures regarding the one-year fixed account, however, may be subject to
certain generally applicable provisions of the federal securities laws relating
to the accuracy and completeness of statements made in prospectuses. (See
"Making the Most of Your Contract -- Transfer policies" for restrictions on
transfers involving the one-year fixed account.)
<PAGE>
Buying Your Contract
You or your sales representative will send an application along with your
initial purchase payment to our office. As the owner, you have all rights and
may receive all benefits under the contract. You can own a nonqualified annuity
in joint tenancy with rights of survivorship only in spousal situations. You
cannot own a qualified annuity in joint tenancy. You can buy a contract or
become an annuitant if you are 90 or younger. (The age limit may be younger for
qualified annuities in some states.)
When you apply, you may select:
o one of three death benefit options if both you and the annuitant are age 79
or younger*: Option A -- Maximum anniversary value death benefit, Option B
-- Value option return of purchase payment death benefit rider, or Option C
-- 5% accumulation death benefit rider**;
o the optional Guaranteed Minimum Income Benefit Rider (6% Accumulation
Benefit Base)***;
o the optional 8% Performance Credit Rider***;
o the one-year fixed account, Guarantee Period Accounts and/or subaccounts in
which you want to invest****;
o how you want to make purchase payments; and
o a beneficiary.
* If either you or the annuitant are age 80 or older Option B will apply.
** May not be available in all states.
*** You may select either the Guaranteed Minimum Income Benefit Rider (6%
Accumulation Benefit Base) or the 8% Performance Credit Rider, but not
both. Riders may not be available in all states. The Guaranteed Minimum
Income Benefit Rider (6% Accumulation Benefit Base) is only available to
annuitants 75 or younger.
**** Some states restrict the amount you can allocate to the fixed accounts.
The contract provides for allocation of purchase payments to the subaccounts of
the variable account and/or to the fixed accounts in even 1% increments.
If your application is complete, we will process it and apply your purchase
payment to the fixed accounts and subaccounts you selected within two business
days after we receive it at our office. If we accept your application, we will
send you a contract. If we cannot accept your application within five business
days, we will decline it and return your payment. We will credit additional
purchase payments you make to your accounts on the valuation date we receive
them. We will value the additional payments at the next accumulation unit value
calculated after we receive your payments at our office.
You may make monthly payments to your contract under a Systematic Investment
Plan (SIP). You must make an initial purchase payment of $25,000. Then, to begin
the SIP, you will complete and send a form and your first SIP payment along with
your application. There is no charge for SIP. You can stop your SIP payments at
any time.
In most states, you may make additional purchase payments to nonqualified and
qualified annuities until the retirement date.
THE RETIREMENT DATE
Annuity payouts are scheduled to begin on the retirement date. When we process
your application, we will establish the retirement date to the maximum age or
date described below. You can also select a date within the maximum limits. You
can align this date with your actual retirement from a job, or it can be a
different future date, depending on your needs and goals and on certain
restrictions. You also can change the date, provided you send us written
instructions at least 30 days before annuity payouts begin.
<PAGE>
For nonqualified annuities and Roth IRAs, the retirement date must be:
o no earlier than the 60th day after the contract's effective date; and
o no later than the annuitant's 85th birthday or the tenth contract
anniversary, if purchased after age 75.
For qualified annuities (except Roth IRAs), to avoid IRS penalty taxes, the
retirement date generally must be:
o on or after the date the annuitant reaches age 59 1/2; and
o for IRAs and SEPs, by April 1 of the year following the calendar year when
the annuitant reaches age 70 1/2.
If you take the minimum IRA distribution as required by the Code from another
tax-qualified investment, or in the form of partial withdrawals from this
contract, annuity payouts can start as late as the annuitant's 85th birthday or
the tenth contract anniversary, if later.
BENEFICIARY
We will pay your named beneficiary the death benefit if it becomes payable
before the retirement date (while the contract is in force and before annuity
payouts begin). If there is no named beneficiary, then you or your estate will
be the beneficiary. (See "Benefits in Case of Death" for more about
beneficiaries.)
PURCHASE PAYMENTS
Minimum initial purchase payment (including SIPs): $25,000
Minimum additional purchase payments:
If paying by SIP: $50
If paying by any other method: $100
Maximum total allowable purchase payments*
(without prior approval): $1,000,000 for issue
ages up to 85
$100,000 for issue
ages 86 to 90
*This limit applies in total to all American Enterprise Life annuities you own.
We reserve the right to increase the maximum limit. For qualified annuities, the
tax-deferred retirement plan's limits on annual contributions also apply.
<PAGE>
HOW TO MAKE PURCHASE PAYMENTS
1 By letter:
Send your check along with your name and contract number to:
American Enterprise Life Insurance Company
829 AXP Financial Center
Minneapolis, MN 55474
2 By SIP:
Contact your sales representative to complete the necessary SIP paperwork.
PURCHASE PAYMENT CREDITS
You will generally receive a purchase payment credit with every payment you make
to your contract. We apply this credit immediately. We allocate the credit to
the fixed accounts and subaccounts in the same proportions as your purchase
payment. We apply the credit as a percentage of your current payment based on
the following schedule:
If total net payments* made during then the purchase payment
the life of the contract equals....... credit percentage equals...
$25,000 to less than $100,000 3%
$100,000 to less than $1 million 4
$1 million and over 5
*Net payments equal total payments less total withdrawals.
If you make any future payments which cause the contract to become eligible for
a higher percentage credit, we will add credits to increase the credit
percentage on prior payments (less total withdrawals). We allocate credits
according to the purchase payment allocation on the date we add the credits to
the contract.
We fund the credit from our general account. We do not consider credits to be
"investments" for income tax purposes. (See "Taxes.")
We will reverse credits from the contract value for any purchase payment that is
not honored (if, for example, your purchase payment check is returned for
insufficient funds).
To the extent a death benefit or withdrawal payment includes purchase payment
credits applied within twelve months preceding: (1) the date of death that
results in a lump sum death benefit under this contract; or (2) a request for
withdrawal charge waiver due to "Contingent events" (see "Charges -- Contingent
events"), we will assess a charge, similar to a withdrawal charge, equal to the
amount of the purchase payment credits. The amount we pay to you under these
circumstances will always equal or exceed your withdrawal value. The amount
returned to you under the free look provision also will not include any credits
applied to your contract.
<PAGE>
Because of these higher charges, there may be circumstances where you may be
worse off for having received the credit than in other contracts. All things
being equal (such as guarantee availability or fund performance and
availability), this may occur if you hold your contract for 15 years or more.
For contracts less than $100,000, this may also occur if you make a full
withdrawal in the fifth to ninth contract years. You should consider these
higher charges and other relevant factors before you buy this contract or before
you exchange a contract you currently own for this contract.
This credit is available because of lower costs associated with larger sized
contracts and through revenue from a higher and longer withdrawal charge
schedule, a higher contract administrative charge and a higher mortality and
expense risk fee. In general, we do not profit from the higher charges assessed
to cover the cost of the purchase payment credit. We use all the revenue from
these higher charges to pay for the cost of the credits. However, we could
profit from the higher charges if market appreciation is higher than expected or
if contract owners hold their contracts for longer than expected.
We reserve the right to increase the amount of the credit for certain groups of
contract owners. The increase will not be greater than 8% of total net payments.
Increases in credit amounts are funded by reduced expenses expected from such
groups.
Charges
CONTRACT ADMINISTRATIVE CHARGE
We charge this fee for establishing and maintaining your records. We deduct $40
from the contract value on your contract anniversary at the end of each contract
year. We prorate this charge among the subaccounts and the fixed accounts in the
same proportion your interest in each account bears to your total contract
value.
We will waive this charge when your contract value is $100,000 or more on the
current contract anniversary.
If you take a full withdrawal from your contract, we will deduct the charge at
the time of withdrawal regardless of the contract value. We cannot increase the
annual contract administrative charge and it does not apply after annuity
payouts begin or when we pay death benefits.
VARIABLE ACCOUNT ADMINISTRATIVE CHARGE
We apply this charge daily to the subaccounts. It is reflected in the unit
values of the subaccounts and it totals 0.15% of their average daily net assets
on an annual basis. It covers certain administrative and operating expenses of
the subaccounts such as accounting, legal and data processing fees and expenses
involved in the preparation and distribution of reports and prospectuses. We
cannot increase the variable account administrative charge.
MORTALITY AND EXPENSE RISK FEE
We charge this fee daily to the subaccounts. The unit values of your subaccounts
reflect this fee and it totals 1.45% of their average daily net assets on an
annual basis. This fee includes coverage in the contract under either the
Maximum anniversary value death benefit or the 5% Accumulation death benefit.
The fee would be 1.35% if you choose the Value option return of purchase payment
death benefit rider. We cannot increase this fee. These fees cover the mortality
and expense risk that we assume. Approximately two-thirds of this amount is for
our assumption of mortality risk, and one-third is for our assumption of expense
risk. These fees do not apply to the fixed accounts.
Mortality risk arises because of our guarantee to pay a death benefit and our
guarantee to make annuity payouts according to the terms of the contract, no
matter how long a specific annuitant lives and no matter how long our entire
group of annuitants live. If, as a group, annuitants outlive the life expectancy
we assumed in our actuarial tables, then we must take money from our general
assets to meet our obligations. If, as a group, annuitants do not live as long
as expected, we could profit from the mortality risk fee.
<PAGE>
Expense risk arises because we cannot increase the contract administrative
charge or the variable account administrative charge and these charges may not
cover our expenses. We would have to make up any deficit from our general
assets. We could profit from the expense risk fee if future expenses are less
than expected.
The subaccounts pay us the mortality and expense risk fee they accrued as
follows:
o first, to the extent possible, the subaccounts pay this fee from any
dividends distributed from the funds in which they invest;
o then, if necessary, the funds redeem shares to cover any remaining fees
payable.
We may use any profits we realize from the subaccounts' payment to us of the
mortality and expense risk fee for any proper corporate purpose, including,
among others, payment of distribution (selling) expenses. We do not expect that
the withdrawal charge, discussed in the following paragraphs, will cover sales
and distribution expenses.
GUARANTEED MINIMUM INCOME BENEFIT RIDER (6% ACCUMULATION BENEFIT BASE) FEE
We charge a fee based on an adjusted contract value for this optional feature
only if you choose this option.* If selected, we deduct the fee (currently
0.35%) from the contract value on your contract anniversary at the end of each
contract year. We prorate this fee among the subaccounts and fixed accounts in
the same proportion your interest in each account bears to your total contract
value.
We apply the fee on an adjusted contract value calculated as the contract value
plus the lesser of zero or (a) - (b), where:
(a) is the transfers from the subaccounts to the fixed accounts in the last
six months, and
(b) is the total contract value in the fixed accounts.
This adjustment to the contract value allows us to base the charge largely on
the subaccounts, and not on the fixed accounts. We will deduct the fee, adjusted
for the number of calendar days coverage was in place, if the contract is
terminated for any reason or when annuity payouts begin. We cannot increase this
fee after the rider effective date and it does not apply after annuity payouts
begin. We can increase this fee on new contracts up to a maximum of 0.75%.
8% PERFORMANCE CREDIT RIDER FEE
We charge a fee for this optional feature only if you choose this option.* If
selected, we deduct the fee of 0.25% of your contract value on your contract
anniversary at the end of each contract year. We prorate this fee among the
subaccounts and fixed accounts in the same proportion as your interest in each
account bears to your total contract value.
We will deduct this fee, adjusted for the number of calendar days coverage was
in place, if the contract is terminated for any reason or when annuity payouts
begin. We cannot increase the 8% Performance Credit Rider fee.
*You may select either the Guaranteed Minimum Income Benefit Rider (6%
Accumulation Benefit Base) or the 8% Performance Credit Rider, but not both.
WITHDRAWAL CHARGE
If you withdraw all or part of your contract, you may be subject to a withdrawal
charge. A withdrawal charge applies if all or part of the withdrawal amount is
from purchase payments we received within nine years before withdrawal. The
withdrawal charge percentages that apply to you are shown in your contract. In
addition, amounts withdrawn from a Guarantee Period Account prior to the end of
the applicable Guarantee Period will be subject to a MVA. (See "The Fixed
Accounts -- Market Value Adjustments (MVA).")
<PAGE>
For purposes of calculating any withdrawal charge, we treat amounts withdrawn
from your contract value in the following order:
1. First, in each contract year, we withdraw amounts totaling up to 10% of
your prior anniversary contract value. (Your initial purchase payment is
considered the prior anniversary contract value during the first contract
year.) We do not assess a withdrawal charge on this amount.
2. Next we withdraw contract earnings, if any, that are greater than the
annual 10% free withdrawal amount described in number one above. Contract
earnings equal contract value less purchase payments received and not
previously withdrawn. We do not assess a withdrawal charge on contract
earnings.
NOTE: We determine contract earnings by looking at the entire contract value,
not the earnings of any particular subaccount or the fixed accounts.
3. Next we withdraw purchase payments received prior to the withdrawal charge
period shown in your contract. We do not assess a withdrawal charge on
these purchase payments.
4. Finally, if necessary, we withdraw purchase payments received that are
still within the withdrawal charge period shown in your contract. We
withdraw these payments on a first-in, first-out (FIFO) basis. We do assess
a withdrawal charge on these payments.
We determine your withdrawal charge by multiplying each of your payments
withdrawn by the applicable withdrawal charge percentage, and then adding the
total withdrawal charges.
The withdrawal charge percentage depends on the number of years since you made
the payments that are withdrawn:
Years from purchase Withdrawal charge
payment receipt percentage
1 8%
2 8
3 8
4 8
5 7
6 6
7 6
8 4
9 2
Thereafter 0
For a partial withdrawal that is subject to a withdrawal charge, the amount
deducted for the withdrawal charge will be a percentage of the total amount
withdrawn. We will deduct the charge from the value remaining after we pay you
the amount you requested. Example: Assume you request a withdrawal of $1,000 and
there is a 7% withdrawal charge. The withdrawal charge is $75.26 for a total
withdrawal amount of $1,075.26. This charge represents 7% of the total amount
withdrawn and we deduct it form the contract value remaining after we pay you
the $1,000 you requested. If you make a full withdrawal of your contract, we
also will deduct the applicable contract administrative charge.
Withdrawal charge under Annuity Payout Plan E -- Payouts for a specified period.
Under this payout plan, you can choose to take a withdrawal. The amount that you
can withdraw is the present value of any remaining variable payouts. The
discount rate we use in the calculation will be 5.36% if the assumed investment
rate is 3.5% and 6.86% if the assumed investment rate is 5%. The withdrawal
charge is equal to the difference in discount values using the above discount
rates and the assumed investment rate. In no event would your withdrawal charge
exceed 9% of the amount available for payouts under the plan.
<PAGE>
Withdrawal charge calculation example:
The following is an example of the calculation we would make to determine the
withdrawal charge on a contract with this history:
o The contract date is Nov. 1, 2000 with a contract year of Nov. 1 through
Oct. 30 and with an anniversary date of Nov. 1 each year; and
o We received these payments
-- $10,000 Nov. 1, 2000;
-- $8,000 Dec. 31, 2006; and
-- $6,000 Feb. 20, 2008; and
o The owner withdraws the contract for its total withdrawal value of $38,101
on Aug. 5, 2010 and had not made any other withdrawals during that contract
year; and
o The prior anniversary Nov. 1, 2009 contract value was $38,488.
Withdrawal Charge Explanation
$0 $3,848.80 is 10% of the prior anniversary contract
value withdrawn without withdrawal charge; and
0 $10,252.20 is contract earnings in excess of the 10%
free withdrawal amount withdrawn without withdrawal
charge; and
0 $10,000 Nov. 1, 2000 payment was received more than
nine years before withdrawal and is withdrawn without
withdrawal charge; and
640 $8,000 Dec. 31, 2006 payment is in its fourth year
from receipt, withdrawn with an 8% withdrawal charge;
and
480 $6,000 Feb. 20, 2008 payment is in its third year
from receipt withdrawn with an 8% withdrawal charge.
___________
$1,120
<PAGE>
Waiver of withdrawal charges
We do not assess withdrawal charges for:
o withdrawals of any contract earnings;
o withdrawals of amounts totaling up to 10% of your prior contract
anniversary contract value to the extent that it exceeds contract earnings;
o required minimum distributions from a qualified annuity (for those amounts
required to be distributed from the contract described in this prospectus);
o contracts settled using an annuity payout plan;
o withdrawals made as a result of one of the "Contingent events"* described
below to the extent permitted by state law (see your contract for
additional conditions and restrictions);
o amounts we refund to you during the free look period*; and
o death benefits.*
*However, we will reverse certain purchase payment credits up to the maximum
withdrawal charge. (See "Buying Your Contract -- Purchase payment credits.")
Contingent events
o Withdrawals you make if you or the annuitant are confined to a hospital or
nursing home and have been for the prior 60 days. Your contract will
include this provision when the owner and annuitant are under age 76 on the
date we issue the contract. You must provide proof satisfactory to us of
the confinement as of the date you request withdrawal.
o To the extent permitted by state law, withdrawals you make if you or the
annuitant are diagnosed in the second or later contract years as disabled
with a medical condition that with reasonable medical certainty will result
in death within 12 months or less from the date of the licensed physician's
statement. You must provide us with a licensed physician's statement
containing the terminal illness diagnosis and the date the terminal illness
was initially diagnosed.
Possible group reductions: In some cases we may incur lower sales and
administrative expenses due to the size of the group, the average contribution
and the use of group enrollment procedures. In such cases, we may be able to
reduce or eliminate the contract administrative and withdrawal charges. However,
we expect this to occur infrequently.
PREMIUM TAXES
Certain state and local governments impose premium taxes on us (up to 3.5%).
These taxes depend upon your state of residence or the state in which the
contract was sold. Currently, we deduct any applicable premium tax when annuity
payouts begin but we reserve the right to deduct this tax at other times, such
as when you make purchase payments or when you make a full withdrawal from your
contract.
<PAGE>
Valuing Your Investment
We value your fixed accounts and subaccounts as follows:
FIXED ACCOUNTS
We value the amounts you allocated to the fixed accounts directly in dollars.
The value of a fixed account equals:
o the sum of your purchase payments and transfer amounts allocated to the
one-year fixed account and the Guarantee Period Accounts;
o plus any purchase payment credits allocated to the fixed accounts;
o plus interest credited;
o minus the sum of amounts withdrawn after any applicable MVA (including any
applicable withdrawal charges) and amounts transferred out;
o minus any prorated contract administrative charge;
o minus any prorated portion of the Guaranteed Minimum Income Benefit Rider
(6% Accumulation Benefit Base) fee (if applicable); and
o minus any prorated portion of the 8% Performance Credit Rider fee (if
applicable).
SUBACCOUNTS
We convert amounts you allocated to the subaccounts into accumulation units.
Each time you make a purchase payment or transfer amounts into one of the
subaccounts or we apply any purchase payment credits, we credit a certain number
of accumulation units to your contract for that subaccount. Conversely, each
time you take a partial withdrawal, transfer amounts out of a subaccount, or we
assess a contract administrative charge, or the 8% Performance Credit Rider fee,
or the Guaranteed Minimum Income Benefit Rider (6% Accumulation Benefit Base)
fee, we subtract a certain number of accumulation units from your contract.
The accumulation units are the true measure of investment value in each
subaccount during the accumulation period. They are related to, but not the same
as, the net asset value of the fund in which the subaccount invests. The dollar
value of each accumulation unit can rise or fall daily depending on the variable
account expenses, performance of the fund and on certain fund expenses.
Here is how we calculate accumulation unit values:
Number of units: to calculate the number of accumulation units for a particular
subaccount, we divide your investment by the current accumulation unit value.
Accumulation unit value: the current accumulation unit value for each subaccount
equals the last value times the subaccount's current net investment factor.
<PAGE>
We determine the net investment factor by:
o adding the fund's current net asset value per share, plus the per share
amount of any accrued income or capital gain dividends to obtain a current
adjusted net asset value per share; then
o dividing that sum by the previous adjusted net asset value per share; and
o subtracting the percentage factor representing the mortality and expense
risk fee and the variable account administrative charge from the result.
Because the net asset value of the fund may fluctuate, the accumulation unit
value may increase or decrease. You bear all the investment risk in a
subaccount.
Factors that affect subaccount accumulation units: accumulation units may change
in two ways -- in number and in value.
The number of accumulation units you own may fluctuate due to:
o additional purchase payments you allocate to the subaccounts;
o any purchase payment credits allocated to the subaccounts;
o transfers into or out of the subaccounts;
o partial withdrawals;
o withdrawal charges;
o prorated portions of the contract administrative charge;
o prorated portions of the Guaranteed Minimum Income Benefit Rider (6%
Accumulation Benefit Base) fee (if selected); and/or
o prorated portions of the 8% Performance Credit Rider fee (if selected).
Accumulation unit values will fluctuate due to:
o changes in funds' net asset value;
o dividends distributed to the subaccounts;
o capital gains or losses of funds;
o fund operating expenses; and/or
o mortality and expense risk fee and the variable account administrative
charge.
<PAGE>
Making the Most of Your Contract
AUTOMATED DOLLAR-COST AVERAGING
Currently, you can use automated transfers to take advantage of dollar-cost
averaging (investing a fixed amount at regular intervals). For example, you
might transfer a set amount monthly from a relatively conservative subaccount to
a more aggressive one, or to several others, or from the one-year fixed account
or the two-year Guarantee Period Account to one or more subaccounts. The three
to ten year Guarantee Period Accounts are not available for automated transfers.
You can also obtain the benefits of dollar-cost averaging by setting up regular
automatic SIP payments. There is no charge for dollar-cost averaging.
This systematic approach can help you benefit from fluctuations in accumulation
unit values caused by fluctuations in the market values of the funds. Since you
invest the same amount each period, you automatically acquire more units when
the market value falls and fewer units when it rises. The potential effect is to
lower your average cost per unit.
How dollar-cost averaging works
Month Amount Accumulation Number of units
invested unit value purchased
By investing an equal number Jan $100 $20 5.00
of dollars each month...
Feb 100 18 5.56
Mar 100 17 5.88
you automatically buy Apr 100 15 6.67
more units when the per unit
market price is low... May 100 16 6.25
Jun 100 18 5.56
Jul 100 17 5.88
Aug 100 19 5.26
and fewer units when the Sep 100 21 4.76
per unit market price is
high. Oct 100 20 5.00
You paid an average price of only $17.91 per unit over the 10 months, while the
average market price actually was $18.10.
Dollar-cost averaging does not guarantee that any subaccount will gain in value
nor will it protect against a decline in value if market prices fall. Because
dollar-cost averaging involves continuous investing, your success will depend
upon your willingness to continue to invest regularly through periods of low
price levels. Dollar-cost averaging can be an effective way to help meet your
long-term goals. For specific features contact us.
ASSET REBALANCING
You can ask us in writing to automatically rebalance the subaccount portion of
your contract value either quarterly, semi-annually or annually. The period you
select will start to run on the date we record your request. On the first
valuation date of each of these periods, we automatically will rebalance your
contract value so that the value in each subaccount matches your current
subaccount percentage allocations. These percentage allocations must be in whole
numbers. Asset rebalancing does not apply to the fixed accounts. There is no
charge for asset rebalancing.
You can change your percentage allocations or your rebalancing period at any
time by contacting us in writing. We will restart the rebalancing period you
selected as of the date we record your change. You also can ask us in writing to
stop rebalancing your contract value. You must allow 30 days for us to change
any instructions that currently are in place. For more information on asset
rebalancing, contact your sales representative.
<PAGE>
TRANSFERRING MONEY BETWEEN ACCOUNTS
You may transfer money from any one subaccount, or the fixed accounts, to
another subaccount before annuity payouts begin. (Certain restrictions apply to
transfers involving the fixed accounts.) We will process your transfer on the
valuation date we receive your request. We will value your transfer at the next
accumulation unit value calculated after we receive your request. There is no
charge for transfers. Before making a transfer, you should consider the risks
involved in switching investments. Transfers out of the Guarantee Period
Accounts will be subject to a MVA if done more than 30 days before the end of
the Guarantee Period.
We may suspend or modify transfer privileges at any time. Excessive trading
activity can disrupt fund management strategy and increase expenses, which are
borne by all contract owners who allocated purchase payments to the fund
regardless of their transfer activity. We may apply modifications or
restrictions in any reasonable manner to prevent transfers we believe will
disadvantage other contract owners.
These modifications could include, but not be limited to:
o requiring a minimum time period between each transfer;
o not accepting transfer requests of an agent acting under power of attorney
on behalf of more than one contract owner; or
o limiting the dollar amount that a contract owner may transfer at any one
time.
For information on transfers after annuity payouts begin, see "Transfer
policies" below.
Transfer policies
o Before annuity payouts begin, you may transfer contract values between the
subaccounts, or from the subaccounts to the fixed accounts at any time.
However, if you made a transfer from the one-year fixed account to the
subaccounts, you may not make a transfer from any subaccount back to the
one-year fixed account for six months following that transfer.
o You may transfer contract values from the one-year fixed account to the
subaccounts or the Guarantee Period Accounts once a year on or within 30
days before or after the contract anniversary (except for automated
transfers, which can be set up at any time for certain transfer periods
subject to certain minimums). Transfers from the one-year fixed account are
not subject to a MVA.
o You may transfer contract values from a Guarantee Period Account any time
after 60 days of transfer or payment allocation to the account. Transfers
made before the end of the Guarantee Period will receive a MVA, which may
result in a gain or loss of contract value.
o If we receive your request on or within 30 days before or after the
contract anniversary date, the transfer from the one-year fixed account to
the subaccounts or the Guarantee Period Accounts will be effective on the
valuation date we receive it.
o We will not accept requests for transfers from the one-year fixed account
at any other time.
o Once annuity payouts begin, you may not make transfers to or from the
one-year fixed account, but you may make transfers once per contract year
among the subaccounts. During the annuity payout period, your choices of
subaccounts may be limited.
o Once annuity payouts begin, you may not make any transfers to the Guarantee
Period Accounts.
<PAGE>
How to request a transfer or withdrawal
1 By letter:
Send your name, contract number, Social Security Number or Taxpayer
Identification Number and signed request for a transfer or withdrawal to:
American Enterprise Life Insurance Company
829 AXP Financial Center
Minneapolis, MN 55474
Minimum amount
Transfers or withdrawals: $500 or entire account balance
Maximum amount
Transfers or withdrawals: Contract value or entire account
balance
2 By automated transfers and automated partial withdrawals:
Your sales representative can help you set up automated transfers or partial
withdrawals among your subaccounts or fixed accounts.
You can start or stop this service by written request or other method acceptable
to us. You must allow 30 days for us to change any instructions that are
currently in place.
o Automated transfers from the one-year fixed account to any one of the
subaccounts may not exceed an amount that, if continued, would deplete the
one-year fixed account within 12 months.
o Automated withdrawals may be restricted by applicable law under some
contracts.
o You may not make additional purchase payments if automated partial
withdrawals are in effect.
o Automated partial withdrawals may result in IRS taxes and penalties on all
or part of the amount withdrawn.
Minimum amount
Transfers or withdrawals: $100 monthly
$250 quarterly, semi-annually or annually
<PAGE>
3 By phone:
Call between 8 a.m. and 6 p.m. Central time:
1-800-333-3437
Minimum amount
Transfers or withdrawals: $500 or entire account balance
Maximum amount
Transfers: Contract value or entire account balance
Withdrawals: $25,000
We answer telephone requests promptly, but you may experience delays when the
call volume is unusually high. If you are unable to get through, use the mail
procedure as an alternative.
We will honor any telephone transfer or withdrawal requests that we believe are
authentic and we will use reasonable procedures to confirm that they are. This
includes asking identifying questions and tape recording calls. We will not
allow a telephone withdrawal within 30 days of a phoned-in address change. As
long as we follow the procedures, we (and our affiliates) will not be liable for
any loss resulting from fraudulent requests.
Telephone transfers and withdrawals are automatically available. You may request
that telephone transfers and withdrawals not be authorized from your account by
writing to us.
GUARANTEED MINIMUM INCOME BENEFIT RIDER (6% ACCUMULATION BENEFIT BASE)
This optional Guaranteed Minimum Income Benefit Rider may be available in many
jurisdictions for a separate annual charge, (see "Charges -- Guaranteed Minimum
Income Rider (6% Accumulation Benefit Base) fee"). You cannot select this rider
if you select the 8% Performance Credit Rider. The rider guarantees a minimum
amount of fixed annuity lifetime income during the annuity payout period if your
contract has been in force for at least seven years, subject to the conditions
described below. The rider also provides you the option of variable annuity
payouts, with a guaranteed minimum initial payment. This rider is only available
at the time you purchase your contract.
In some instances, we may allow you to add this rider if it was not available
when you initially purchased your contract. In these instances we would add this
rider at the next contract anniversary with the contract value at that
anniversary reflected as the premium. All conditions of the rider would use this
date as the effective date.
This rider does not create contract value or guarantee the performance of any
investment option. Fixed annuity payouts under the terms of this rider will
occur at the guaranteed annuity purchase rates based on the guaranteed annuitant
mortality table in your contract and a 2.5% interest rate. We base first year
payments from the variable annuity payout option offered under this rider on the
same factors as the fixed annuity payout option. We base subsequent payments on
the initial payment and an assumed annual return of 5%. Because this rider is
based on guaranteed actuarial factors for the fixed option, the level of fixed
lifetime income it guarantees may be less than the level that would be provided
by applying the then current annuity factors. Likewise, for the variable annuity
payout option, we base the rider on more conservative factors resulting in a
lower initial payment and lower lifetime payments than those provided otherwise
if the same benefit base were used. However, the Guaranteed Income Benefit Base
described below establishes a floor, which when higher than the contract value,
can result in a higher annuity payout level. Thus, the rider is a guarantee of a
minimum amount of annuity income.
<PAGE>
The Guaranteed Income Benefit Base uses the same calculation as the Variable
account 5% floor but uses a 6% accumulation rate.
The Guaranteed Income Benefit Base, less any applicable premium tax, is the
value that will be used to determine minimum annuity payouts if the rider is
exercised.
We reserve the right to exclude subsequent payments and purchase payment credits
paid in the last five years before exercise of the benefit in the calculation of
the Guaranteed Income Benefit Base. We would do so only if such payments and
credits total $50,000 or more or if they are 25% or more of total payments paid
into the contract.
If we exclude such payments and credits, the Guaranteed Income Benefit Base
would be calculated as the greatest of:
(a) contract value less "market value adjusted prior 5 years of payments and
purchase payment credits"
(b) total payments and purchase payment credits less prior 5 years of payments
and purchase payment credits, less adjusted partial withdrawals
(c) the Variable Account 6% Floor, less the "6% adjusted prior 5 years of
payments and purchase payment credits"
"Market value adjusted prior 5 years of payments and purchase payment credits"
are calculated as the sum of each such payment or credit, multiplied by the
ratio of the current contract value over the estimated contract value on the
anniversary prior to such payment or credit. We calculate the estimated contract
value at such anniversary by assuming that payments, credits and partial
withdrawals occurring in a contract year take place at the beginning of the year
for that anniversary and every year after that to the current contract year.
"6% Adjusted prior 5 years of payments and purchase payment credits" are
calculated as the sum of each payment or payment credit accumulated at 6% for
the number of full contract years they have been in the contract.
Conditions on election of the rider:
o you must elect the rider at the time you purchase your contract,
o you must elect either the Maximum anniversary value death benefit or the 5%
Accumulation death benefit and
o the annuitant must be age 75 or younger on the contract date.
Fund selection to continue the rider: You may allocate your purchase payments to
any of the subaccounts or the fixed accounts. However, we reserve the right to
limit the amount in the AXP(SM) Variable Portfolio -- Cash Management Fund to
10% of the total amount in the subaccounts. If we are required to activate this
restriction, and you have more than 10% of your subaccount value in this fund,
we will send you notice and ask that you reallocate your contract value so that
the limitation is satisfied within 60 days. If after 60 days the limitation is
not satisfied, the rider will be terminated.
Exercising the rider:
o you may only exercise the rider within 30 days after any contract
anniversary following the expiration of a seven-year waiting period from
the effective date of the rider, and
o the annuitant on the retirement date must be between 50 and 86 years old,
and
o you can only take an annuity payout in one of the following annuity payout
plans:
-- Plan A -- Life Annuity -- no refund
-- Plan B -- Life Annuity with ten years certain
-- Plan D -- Joint and last survivor life annuity -- no refund
<PAGE>
Terminating the rider:
o You may terminate the rider within 30 days after the first anniversary of
the effective date of the rider.
o You may terminate the rider any time after the seventh anniversary of the
effective date of the rider.
o The rider will terminate on the date you make a full withdrawal from the
contract, or annuity payouts begin, or on the date that a death benefit is
payable.
o The rider will terminate on the contract anniversary after the annuitant's
86th birthday.
Example:
o The contract is purchased with a payment of $100,000 on Jan. 1, 2000, and a
$4,000 purchase payment credit is added to the contract.
o There are no additional purchase payments and no partial withdrawals.
o The money is fully allocated to the subaccounts.
o The annuitant is male and age 55 on the contract date. For the joint and
last survivor option (annuity payout Plan D), the joint annuitant is female
and age 55 on the contract date.
o The contract is within 30 days after contract anniversary.
If the Guaranteed Minimum Income Benefit Rider (6% Accumulation Benefit Base) is
exercised, the minimum fixed annuity monthly payout or the first year variable
annuity monthly payout would be:
<TABLE>
<CAPTION>
Fixed Annuity Payout Options
Minimum Guaranteed Annual Income
Plan A -- Plan B -- Plan D --
Life Annuity - Life Annuity with Joint and last survivor
Contract Anniversary At Exercise Guaranteed Income Benefit Base no refund ten years certain life annuity - no refund
<S> <C> <C> <C> <C>
10 $186,248 $970.35 $944.28 $772.93
15 $249,242 $1,485.48 $1,415.69 $1,149.00
</TABLE>
After the first year payments, lifetime income payments on a variable annuity
payout option will depend on the investment performance of the subaccounts you
select. The payments will be higher if investment performance is greater than a
5% annual return and lower if investment performance is less than a 5% annual
return.
8% PERFORMANCE CREDIT RIDER
If this rider is available in your state, you may choose to add this benefit to
your contract at issue. You cannot select this rider if you select the
Guaranteed Minimum Income Benefit Rider (6% Accumulation Benefit Base). This
feature provides certain benefits if your contract value has not reached or
exceeded a target value (as defined below) on the seventh and tenth rider
anniversaries.
Your benefits under this rider are as follows:
(a) if on the seventh rider anniversary, your contract value has not met or
exceeded the target value, we will make a credit to your contract equal to
3% of your purchase payments and purchase payment credits less adjusted
partial withdrawals, purchase payments and purchase payment credits made in
the prior five years; and
(b) if on the tenth rider anniversary, your contract value has not met or
exceeded the target value, we will make an additional credit to your
contract equal to 5% of your purchase payments and purchase payment credits
less adjusted partial withdrawals, purchase payments and purchase payment
credits made in the prior five years.
<PAGE>
On the tenth rider anniversary and every ten years thereafter while you have the
contract, the ten year calculation period restarts. We use the contract value
(after any credits) on that contract anniversary as the initial purchase payment
for the calculation of the target value and any credit. Additional credits may
then be made at the end of each ten year period as described above.
In some instances, we may allow you to add this rider if it was not available
when you initially purchased your contract. In these instances we would add this
rider at the next contract anniversary with the contract value at that
anniversary reflected as the initial purchase payment for the calculation of the
target value and any credit.
Target value: The target value accumulates purchase payments and purchase
payment credits at an annual interest rate of 8% until the tenth rider
anniversary less adjusted partial withdrawals also accumulated at 8% until the
tenth rider anniversary.
Adjusted partial withdrawals: We calculate the adjusted partial withdrawals for
the 8% Performance Credit Rider for each partial withdrawal as the product of
(a) times (b) where:
(a) is the ratio of the amount of partial withdrawal (including any
applicable withdrawal charge) to the contract value on the date of
(but prior to) the partial withdrawal, and
(b) is the Target Value on the date of (but prior to) the partial
withdrawal.
Reset option: You can elect to lock in the growth in your contract by restarting
the ten-year period on any contract anniversary. If you elect to restart the
calculation period, the contract value on the restart date is used as the
initial purchase payment for the calculation of the target value and any credit.
The next ten year calculation period will then restart at the end of the new ten
year period from the most recent restart date. We must receive your request to
restart the calculation period within 30 days after a contract anniversary.
Fund selection to continue the rider: You may allocate your purchase payments to
any of the subaccounts or the fixed accounts. However, we reserve the right to
limit the amount in the fixed accounts and the AXP(SM) Variable Portfolio Cash
Management Fund to 10% of the contract value. If we are required to activate
this restriction and you have more than 10% of your contract value in these
accounts, we will send you notice and ask you that you reallocate your contract
value so that the limitation is satisfied in 60 days. If after 60 days the
limitation is not satisfied, we will terminate the rider.
Terminating the rider:
o You may terminate the rider within 30 days following the first anniversary
after the effective date of the rider.
o You may terminate the rider within 30 days following the tenth anniversary
of the latest of the effective date of the rider or the last reset date.
o The rider will terminate on the date you make a full withdrawal from the
contract, or annuity payouts begin, or on the date that a death benefit is
payable.
<PAGE>
Example:
o The contract is purchased with a payment of $100,000 on January 1, 2000 and
a $4,000 purchase payment credit is added to the contract.
o There are no additional purchase payments and no partial withdrawals.
o On January 1, 2007, the contract value is $150,000.
o The credit on January 1, 2007 is determined as:
Target Value on January 1, 2007 =
104,000 x (1.08)^7 = 104,000 x 1.71382 = $178,237.72
As the target value of $178,237.72 is greater than the contract value of
$150,000, a credit is made to the contract equal to $3,120 (or 3% of the
purchase payment and credits of $104,000). Your total contract value on
that date is $153,120.
o On January 1, 2010, the contract value is $220,000.
o The credit on January 1, 2010 is determined as:
Target Value on January 1, 2010 =
$104,000 x (1.08)^10 = $104,000 x 2.158924 = $224,528.20
As the target value of $224,528.20 is greater than the contract value of
$220,000, a credit is made to the contract equal to $5,200 (or 5% of the
purchase payment and credits of $104,000). Your total contract value on
that date is $225,200.
o The benefit automatically restarts on January 1, 2010 with the "initial
payment" equal to $225,200 and the credit determination made on January 1,
2017 and January 1, 2020.
<PAGE>
Withdrawals
You may withdraw all or part of your contract at any time before annuity payouts
begin by sending us a written request or calling us. We will process your
withdrawal request on the valuation date we receive it. For total withdrawals,
we will compute the value of your contract at the next accumulation unit value
calculated after we receive your request. We may ask you to return the contract.
You may have to pay charges (see "Charges") and IRS taxes and penalties (see
"Taxes"). You cannot make withdrawals after annuity payouts begin except under
Plan E (see "The Annuity Payout Period -- Annuity payout plans").
WITHDRAWAL POLICIES
If you have a balance in more than one account and you request a partial
withdrawal, we will withdraw money from all your subaccounts and/or the fixed
accounts in the same proportion as your value in each account correlates to your
total contract value, unless you request otherwise.
RECEIVING PAYMENT
By regular or express mail:
o payable to owner;
o mailed to address of record.
NOTE: We will charge you a fee if you request express mail delivery.
Normally, we will send the payment within seven days after receiving your
request. However, we may postpone the payment if:
- -- the withdrawal amount includes a purchase payment check that has not cleared;
- -- the NYSE is closed, except for normal holiday and weekend closings;
- -- trading on the NYSE is restricted, according to SEC rules;
- -- an emergency, as defined by SEC rules, makes it impractical to sell
securities or value the net assets of the accounts; or
- -- the SEC permits us to delay payment for the protection of security holders.
Changing Ownership
You may change ownership of your nonqualified annuity at any time by completing
a change of ownership form we approve and sending it to our office. The change
will become binding upon us when we receive and record it. We will honor any
change of ownership request that we believe is authentic and we will use
reasonable procedures to confirm authenticity. If we follow these procedures, we
will not take any responsibility for the validity of the change.
If you have a nonqualified annuity, you may incur income tax liability by
transferring, assigning or pledging any part of it. (See "Taxes.")
If you have a qualified annuity, you may not sell, assign, transfer, discount or
pledge your contract as collateral for a loan, or as security for the
performance of an obligation or for any other purpose except as required or
permitted by the Code. However, if the owner is a trust or custodian, or an
employer acting in a similar capacity, ownership of a contract may be
transferred to the annuitant.
<PAGE>
Benefits in Case of Death
There are three death benefit options under this contract: Option A - Maximum
anniversary value death benefit, Option B - Value option return of purchase
payment death benefit rider, and Option C - 5% Accumulation death benefit rider.
If either you or the annuitant are age 80 or older (in most states) on the
contract date, Option B will apply. If both you and the annuitant are age 79 or
younger (in most states) on the contract date, you can elect Option A, Option B
or Option C on your application. Once you elect an option, you cannot change it.
We show the option that applies in your contract.
Under all options we will pay the death benefit to your beneficiary upon the
earlier of your death or the annuitant's death. The benefit paid will be based
on the death benefit coverage you select when you purchased the contract. If a
contract has more than one person as the owner, we will pay benefits upon the
first to die of any owner or the annuitant. If you own the contract in joint
tenancy with rights of survivorship, we will pay benefits upon the first to die
of either you or the annuitant.
OPTION A -- MAXIMUM ANNIVERSARY VALUE DEATH BENEFIT
Available if you and the annuitant are age 79 or younger on the contract date.
If you or the annuitant die before annuity payouts begin while this contract is
in force, we will pay the beneficiary the greatest of the following amounts less
any purchase payment credits added in the last 12 months:
1. the contract value; or
2. the total purchase payments paid plus purchase payment credits and less any
"adjusted partial withdrawals"; or
3. the "maximum anniversary value" immediately preceding the date of death
plus the dollar amount of any payments since that anniversary plus purchase
payment credits and minus any "adjusted partial withdrawals" since that
anniversary.
Maximum anniversary value: Each contract anniversary prior to the earlier of
your or the annuitant's 81st birthday, we calculate the anniversary value which
is the greater of:
(a) the contract value on that anniversary; or
(b) total purchase payments made to the contract plus purchase payment
credits and minus any "adjusted partial withdrawals".
The "maximum anniversary value" is equal to the greatest of these anniversary
values.
Adjusted partial withdrawals: We calculate an "adjusted partial withdrawal " for
each partial withdrawal as the product of (a) times (b) where:
(a) is the ratio of the amount of the partial withdrawal (including any
applicable withdrawal charge) to the contract value on the date of (but
prior to) the partial withdrawal; and
(b) is the death benefit on the date of (but prior to) the partial withdrawal.
After your or the annuitant's 81st birthday, the death benefit continues to be
the death benefit value as of that date, plus any subsequent payments and
purchase payment credits and minus any "adjusted partial withdrawals."
<PAGE>
Example:
o You purchase the contract with a payment of $25,000 on Jan. 1, 2000. We add
a purchase payment credit of $750 to the contract.
o On Jan. 1, 2001 (the first contract anniversary) the contract value grows
to $29,000.
o On March 1, 2001 the contract value falls to $27,000, at which point you
take a $1,500 partial withdrawal, leaving a contract value of $25,500.
We calculate the death benefit on March 1, 2001 as follows:
The "maximum anniversary value": $29,000.00
(the greatest of the anniversary values which was
the contract value on Jan. 1, 2001)
plus any purchase payments paid since that anniversary: + 0.00
minus any "adjusted partial withdrawal" taken since that
anniversary, calculated as: 1,500 x 29,000 = - 1,611.11
27,000
for a death benefit of: $27,388.89
OPTION B -- VALUE OPTION RETURN OF PURCHASE PAYMENT DEATH BENEFIT RIDER
If you and the annuitant are age 79 or younger on the contract date, you may
choose to add this benefit to your contract. If you or the annuitant are age 80
or older on the contract date you will automatically receive this death benefit.
This rider provides that if you or the annuitant dies before annuity payouts
begin while this contract is in force, we will pay the beneficiary the greatest
of the following amounts:
1. the contract value; or
2. the total purchase payments paid minus "adjusted partial withdrawals".
Example:
o You purchase the contract with a payment of $100,000.
o On January 1, 2001, you make an additional payment of $20,000.
o On March 1, 2001, the contract value is $110,000 and you take a $10,000
withdrawal.
o On March, 1, 2002, the contract value is $105,000.
We calculate the death benefit on March 1, 2002, as follows:
Total purchase payments paid: $120,000.00
Minus "adjusted partial withdrawals"
calculated as: 10,000 x 120,000 = - 10,909.09
_________________
110,000
for a death benefit of: $109,090.91
<PAGE>
Option C -- 5% ACCUMULATION DEATH BENEFIT RIDER
If this optional rider is available in your state and both you and the annuitant
are age 79 or younger on the contract date, you may choose to add this benefit
to you contract. This optional rider provides that if you or the annuitant die
before annuity payouts begin while this contract is in force, we will pay the
beneficiary the greatest of the following amounts less any purchase payment
credits added in the last 12 months:
1. the contract value; or
2. the total purchase payments paid plus purchase payment credits and less any
"adjusted partial withdrawals"; or
3. the Variable account 5% floor
We calculate the "adjusted partial withdrawals" as described above except that
only the benefit in number two is taken into account.
The Variable account 5% floor
The Variable account 5% floor is the sum of the value in the fixed accounts plus
the variable account floor. On each contract anniversary prior to the earlier of
your or the annuitant's 81st birthday, we increase the variable account floor by
accumulating the prior anniversary's floor at 5%. On the first contract
anniversary, the floor is increased by 5% of the accumulated initial purchase
payments plus purchase payment credits allocated to the subaccounts. On any day
that you allocate additional amounts to, or withdraw or transfer from the
subaccounts, we adjust the floor by adding the additional amounts and
subtracting the "adjusted partial withdrawals" or "adjusted transfers."
After the contract anniversary immediately following either your or the
annuitant's 81st birthday, the Variable account floor is the floor on that
anniversary increased by additional amounts allocated to the subaccounts since
that anniversary plus purchase payment credits and reduced by any "adjusted
partial withdrawals" since that anniversary.
For the Variable account 5% floor, we calculate the "adjusted partial
withdrawals" or "adjusted transfers" as the result of (a) times (b) where:
(a) is the ratio of the amount of withdrawal (including any withdrawal charges)
or transfer from the subaccounts to the total value in the subaccounts on
the date of (but prior to) the withdrawal or transfer.
(b) is the variable account floor on the date of (but prior to) the withdrawal
or transfer.
Example:
o You purchase the contract with a payment of $25,000 on Jan. 1, 2000 and we
add a $750 purchase payment credit to the contract with $5,100 allocated to
the one-year fixed account and $20,650 allocated to the subaccounts.
o On Jan. 1, 2001 (the first contract anniversary), the one-year fixed
account value is $5,200 and the subaccount value is $17,000. Total contract
value is $23, 200.
o On March 1, 2001, the one-year fixed account value is $5,300 and the
subaccount value is $19,000. Total contract value is $24,300. You take a
$1,500 partial withdrawal all from the subaccounts, leaving the contract
value at $22,800.
<PAGE>
We calculate the death benefit on March 1, 2001 as follows:
The variable account floor on Jan. 1, 2001,
calculated as: 1.05 x 20,650 = $21,682.50
plus any purchase payments paid since that anniversary: + 0.00
minus any "adjusted partial withdrawals" from the
subaccounts, calculated as: 1,500 x 21,682.50 =
--------------------
19,000 - $1,711.78
-----------
Variable account floor benefit $19,970.72
plus the one-year fixed account value + 5,300.00
-----------
for a death benefit of: $ 25,270.72
===========
If your spouse is sole beneficiary and you die before the retirement date, your
spouse may keep the contract as owner with the contract value equal to the death
benefit that would have otherwise been paid. To do this your spouse must, within
60 days after we receive proof of death, give us written instructions to keep
the contract in force. There will be no withdrawal charges on the contract from
that point forward unless additional purchase payments are made. The Guaranteed
Minimum Income Benefit Rider (6% Accumulation Benefit Base), if selected, is
then terminated.
Payments: Under a nonqualified annuity, we will pay the beneficiary in a single
sum unless you give us other written instructions. We must fully distribute the
death benefit within five years of your death. However, the beneficiary may
receive payouts under any annuity payout plan available under this contract if:
o the beneficiary asks us in writing within 60 days after we receive proof of
death; and
o payouts begin no later than one year after your death, or other date as
permitted by the Code; and
o the payout period does not extend beyond the beneficiary's life or life
expectancy.
When paying the beneficiary, we will process the death claim on the valuation
date our death claim requirements are fulfilled. We will determine the
contract's value at the next accumulation unit value calculated after our death
claim requirements are fulfilled. We pay interest, if any, from the date of
death at a rate no less than required by law. We will mail payment to the
beneficiary within seven days after our death claim requirements are fulfilled.
Other rules may apply to qualified annuities. (See "Taxes.")
<PAGE>
The Annuity Payout Period
As owner of the contract, you have the right to decide how and to whom annuity
payouts will be made starting at the retirement date. You may select one of the
annuity payout plans outlined below, or we may mutually agree on other payout
arrangements. We do not deduct any withdrawal charges under the payout plans
listed below.
You also decide whether we will make annuity payouts on a fixed or variable
basis, or a combination of fixed and variable. The amounts available to purchase
payouts under the plan you select is the contract value on your retirement date
(less any applicable premium tax). You may reallocate this contract value to the
one-year fixed account to provide fixed dollar payouts and/or among the
subaccounts to provide variable annuity payouts. During the annuity payout
period, we reserve the right to limit the number of subaccounts in which you may
invest. The Guarantee Period Accounts are not available during this payout
period.
Amounts of fixed and variable payouts depend on:
o the annuity payout plan you select;
o the annuitant's age and, in most cases, sex;
o the annuity table in the contract; and
o the amounts you allocated to the accounts at the settlement.
In addition, for variable payouts only, amounts depend on the investment
performance of the subaccounts you select. These payouts will vary from month to
month because the performance of the funds will fluctuate. (In the case of fixed
annuities, payouts remain the same from month to month.)
For information with respect to transfers between accounts after annuity payouts
begin, see "Making the Most of Your Contract -- Transfer policies."
ANNUITY TABLE
The annuity table in your contract shows the amount of the first monthly payment
for each $1,000 of contract value according to the age and, when applicable, the
sex of the annuitant. (Where required by law, we will use a unisex table of
settlement rates.) The table assumes that the contract value is invested at the
beginning of the annuity payout period and earns a 5% rate of return, which is
reinvested and helps to support future payouts.
SUBSTITUTION OF 3.5% TABLE
If you ask us at least 30 days before the retirement date, we will substitute an
annuity table based on an assumed 3.5% investment rate for the 5% table in the
contract. The assumed investment rate affects both the amount of the first
payout and the extent to which subsequent payouts increase or decrease. Using
the 5% table results in a higher initial payment, but later payouts will
increase more slowly when annuity unit values rise and decrease more rapidly
when they decline.
<PAGE>
ANNUITY PAYOUT PLANS
You may choose any one of these annuity payout plans by giving us written
instructions at least 30 days before contract values are used to purchase the
payout plan:
o Plan A -- Life annuity -- no refund: We make monthly payouts until the
annuitant's death. Payouts end with the last payout before the annuitant's
death. We will not make any further payouts. This means that if the
annuitant dies after we made only one monthly payout, we will not make any
more payouts.
o Plan B -- Life annuity with five, ten or 15 years certain: We make monthly
payouts for a guaranteed payout period of five, ten or 15 years that you
elect. This election will determine the length of the payout period to the
beneficiary if the annuitant should die before the elected period expires.
We calculate the guaranteed payout period from the retirement date. If the
annuitant outlives the elected guaranteed payout period, we will continue
to make payouts until the annuitant's death.
o Plan C -- Life annuity -- installment refund: We make monthly payouts until
the annuitant's death, with our guarantee that payouts will continue for
some period of time. We will make payouts for at least the number of months
determined by dividing the amount applied under this option by the first
monthly payout, whether or not the annuitant is living.
o Plan D -- Joint and last survivor life annuity -- no refund: We make
monthly payouts while both the annuitant and a joint annuitant are living.
If either annuitant dies, we will continue to make monthly payouts at the
full amount until the death of the surviving annuitant. Payouts end with
the death of the second annuitant.
o Plan E -- Payouts for a specified period: We make monthly payouts for a
specific payout period of ten to 30 years that you elect. We will make
payouts only for the number of years specified whether the annuitant is
living or not. Depending on the selected time period, it is foreseeable
that an annuitant can outlive the payout period selected. During the payout
period, you can elect to have us determine the present value of any
remaining variable payouts and pay it to you in a lump sum. We determine
the present value of the remaining annuity payouts which are assumed to
remain level at the initial payment. The discount rate we use in the
calculation will vary between 5.36% and 6.86% depending on the applicable
assumed investment rate. (See "Charges -- Withdrawal charge under Annuity
Payout Plan E"). You can also take a portion of the discounted value once a
year. If you do so, your monthly payouts will be reduced by the proportion
of your withdrawal to the full discounted value. A 10% IRS penalty tax
could apply if you take a withdrawal. (See "Taxes").
Restrictions for some tax-deferred retirement plans: If you purchased a
qualified annuity, you may be required to select a payout plan that provides for
payouts:
o over the life of the annuitant;
o over the joint lives of the annuitant and a designated beneficiary;
o for a period not exceeding the life expectancy of the annuitant; or
o for a period not exceeding the joint life expectancies of the annuitant and a
designated beneficiary.
You have the responsibility for electing a payout plan that complies with your
contract and with applicable law.
<PAGE>
If we do not receive instructions: You must give us written instructions for the
annuity payouts at least 30 days before the annuitant's retirement date. If you
do not, we will make payouts under Plan B, with 120 monthly payouts guaranteed.
Contract values that you allocated to the one-year fixed account will provide
fixed dollar payouts and contract values that you allocated among the
subaccounts will provide variable annuity payouts.
If monthly payouts would be less than $20: We will calculate the amount of
monthly payouts at the time the contract value is used to purchase a payout
plan. If the calculations show that monthly payouts would be less than $20, we
have the right to pay the contract value to you in a lump sum or to change the
frequency of the payouts.
DEATH AFTER ANNUITY PAYOUTS BEGIN
If you or the annuitant die after annuity payouts begin, we will pay any amount
payable to the beneficiary as provided in the annuity payout plan in effect.
Taxes
Generally, under current law, your contract has a tax deferral feature. That is
any increase in the value of the fixed accounts and/or subaccounts in which you
invest is taxable to you only when you receive a payout or withdrawal (see
detailed discussion below). Any portion of the annuity payouts and any
withdrawals you request that represent ordinary income are normally taxable. We
will send you a tax information reporting form for any year in which we made a
taxable distribution according to our records. Roth IRAs may grow and be
distributed tax free if you meet certain distribution requirements.
Qualified annuities: Your contract may be used to fund a tax-deferred retirement
plan that is already tax-deferred under the Code. The contract will not provide
any necessary or additional tax deferral if it is used to fund a retirement plan
that is tax-deferred. Special rules apply to these retirement plans. Your rights
to benefits may be subject to the terms and conditions of these retirement plans
regardless of the terms of the contract.
Adverse tax consequences may result if you do not ensure that contributions,
distributions and other transactions under the contract comply with the law.
Qualified annuities have minimum distribution rules that govern the timing and
amount of distributions during your life (except for Roth IRAs) and after your
death. You should refer to your retirement plan or adoption agreement or consult
a tax advisor for more information about your distribution rules.
Annuity payouts under nonqualified annuities: A portion of each payout will be
ordinary income and subject to tax, and a portion of each payout will be
considered a return of part of your investment and will not be taxed. All
amounts you receive after your investment in the contract is fully recovered
will be subject to tax.
Tax law requires that all nonqualified deferred annuities issued by the same
company (and possibly its affiliates) to the same owner during a calendar year
be taxed as a single, unified contract when you take distributions from any one
of those contracts.
<PAGE>
Annuity payouts under qualified annuities (except Roth IRAs): Under a qualified
annuity, the entire payout generally is includable as ordinary income and is
subject to tax except to the extent that contributions were made with after-tax
dollars. If you or your employer invested in your contract with deductible or
pre-tax dollars as part of a tax-deferred retirement plan, such amounts are not
considered to be part of your investment in the contract and will be taxed when
paid to you.
Purchase payment credits and 8% Performance Credit Rider credits: These are
considered earnings and are taxed accordingly.
Withdrawals: If you withdraw part or all of your contract before your annuity
payouts begin, your withdrawal payment will be taxed to the extent that the
value of your contract immediately before the withdrawal exceeds your
investment. You also may have to pay a 10% IRS penalty for withdrawals you make
before reaching age 591/2 unless certain exceptions apply. For qualified
annuities, other penalties may apply if you withdraw your contract before your
plan specifies that you can receive payouts.
Death benefits to beneficiaries: The death benefit under a contract (except a
Roth IRA) is not tax-exempt. Any amount your beneficiary receives that
represents previously deferred earnings within the contract is taxable as
ordinary income to the beneficiary in the years he or she receives the payments.
The death benefit under a Roth IRA generally is not taxable as ordinary income
to the beneficiary if certain distribution requirements are met.
Annuities owned by corporations, partnerships or trusts: For nonqualified
annuities any annual increase in the value of annuities held by such entities
generally will be treated as ordinary income received during that year. This
provision is effective for purchase payments made after Feb. 28, 1986. However,
if the trust was set up for the benefit of a natural person only, the income
will remain tax-deferred.
Penalties: If you receive amounts from your contract before reaching age 591/2,
you may have to pay a 10% IRS penalty on the amount includable in your ordinary
income. However, this penalty will not apply to any amount received by you or
your beneficiary:
o because of your death;
o because you become disabled (as defined in the Code);
o if the distribution is part of a series of substantially equal periodic
payments, made at least annually, over your life or life expectancy (or
joint lives or life expectancies of you and your beneficiary); or
o if it is allocable to an investment before Aug. 14, 1982 (except for
qualified annuities).
For a qualified annuity, other penalties or exceptions may apply if you make
withdrawals from your contract before your plan specifies that payouts can be
made.
<PAGE>
Withholding, generally: If you receive all or part of the contract value, we may
deduct withholding against the taxable income portion of the payment. Any
withholding represents a prepayment of your tax due for the year. You take
credit for these amounts on your annual tax return.
If the payment is part of an annuity payout plan, we generally compute the
amount of withholding using payroll tables. You may provide us with a statement
of how many exemptions to use in calculating the withholding. As long as you've
provided us with a valid Social Security Number or Taxpayer Identification
Number, you can elect not to have any withholding occur.
If the distribution is any other type of payment (such as a partial or full
withdrawal), we compute withholding using 10% of the taxable portion. Similar to
above, as long as you have provided us with a valid Social Security Number or
Taxpayer Identification Number, you can elect not to have this withholding
occur.
Some states also impose withholding requirements similar to the federal
withholding described above. If this should be the case, we may deduct state
withholding from any payment from which we deduct federal withholding. The
withholding requirements may differ if we are making payment to a non-U.S.
citizen or if we deliver the payment outside the United States.
Transfer of ownership of a nonqualified annuity: If you transfer a nonqualified
annuity without receiving adequate consideration, the transfer is a gift and
also may be a withdrawal for federal income tax purposes. If the gift is a
currently taxable event for income tax purposes, the original owner will be
taxed on the amount of deferred earnings at the time of the transfer and also
may be subject to the 10% IRS penalty discussed earlier. In this case, the new
owner's investment in the contract will be the value of the contract at the time
of the transfer.
Collateral assignment of a nonqualified annuity: If you collaterally assign or
pledge your contract, earnings on purchase payments you made after Aug. 13, 1982
will be taxed to you like a withdrawal.
Important: Our discussion of federal tax laws is based upon our understanding of
current interpretations of these laws. Federal tax laws or current
interpretations of them may change. For this reason and because tax consequences
are complex and highly individual and cannot always be anticipated, you should
consult a tax advisor if you have any questions about taxation of your contract.
Tax qualification: We intend that the contract qualify as an annuity for federal
income tax purposes. To that end, the provisions of the contract are to be
interpreted to ensure or maintain such tax qualification, in spite of any other
provisions of the contract. We reserve the right to amend the contract to
reflect any clarifications that may be needed or are appropriate to maintain
such qualification or to conform the contract to any applicable changes in the
tax qualification requirements. We will send you a copy of any amendments.
<PAGE>
Voting Rights
As a contract owner with investments in the subaccounts, you may vote on
important fund policies until annuity payouts begin. Once they begin, the person
receiving them has voting rights. We will vote fund shares according to the
instructions of the person with voting rights.
Before annuity payouts begin, the number of votes you have is determined by
applying your percentage interest in each subaccount to the total number of
votes allowed to the subaccount.
After annuity payouts begin, the number of votes you have is equal to:
o the reserve held in each subaccount for your contract;
o divided by the net asset value of one share of the applicable fund.
As we make annuity payouts, the reserve for the contract decreases; therefore,
the number of votes also will decrease.
We calculate votes separately for each subaccount. We will send notice of
shareholders' meetings, proxy materials and a statement of the number of votes
to which the voter is entitled. We will vote shares for which we have not
received instructions in the same proportion as the votes for which we received
instructions. We also will vote the shares for which we have voting rights in
the same proportion as the votes for which we received instructions.
Substitution of Investments
We may substitute the funds in which the subaccounts invest if:
o laws or regulations change,
o existing funds become unavailable, or
o in our judgment, the funds no longer are suitable for the subaccounts.
If any of these situations occur and if we believe it is in the best interest of
persons having voting rights under the contract, we have the right to substitute
funds other than those currently listed in this prospectus for other funds.
We may also:
o add new subaccounts;
o combine any two or more subaccounts;
o add subaccounts investing in additional funds;
o transfer assets to and from the subaccounts or the variable account; and
o eliminate or close any subaccounts.
In the event of substitution or any of these changes, we may amend the contract
and take whatever action is necessary and appropriate without your consent or
approval. However, we will not make any substitution or change without the
necessary approval of the SEC and state insurance departments. We will notify
you of any substitution or change.
<PAGE>
About the Service Providers
PRINCIPAL UNDERWRITER
American Express Financial Advisors Inc. (AEFA) serves as the principal
underwriter for the contract. Its offices are located at 200 AXP Financial
Center, Minneapolis, MN 55474. AEFA is a wholly-owned subsidiary of American
Express Financial Corporation (AEFC) which is a wholly-owned subsidiary of
American Express Company.
The contracts will be distributed by broker-dealers which have entered into
distribution agreements with AEFA and American Enterprise Life.
We pay commissions for sales of the contracts of up to 7% of purchase payments
to insurance agencies or broker-dealers that are also insurance agencies.
Sometimes we pay the commissions as a combination of a certain amount of the
commission at the time of sale and a trail commission (which, when totaled,
could exceed 7% of purchase payments). In addition, we may pay certain sellers
additional compensation for selling and distribution activities under certain
circumstances. From time to time, we will pay or permit other promotional
incentives, in cash or credit or other compensation.
Other contracts issued by American Enterprise Life that are not described in
this prospectus may be available through your sales representative. The
features, investment options, sales charges and expenses of the other contracts
are different than those of this contract. Therefore, the contract values under
the other contracts may be different than your contract value under this
contract. In addition, sales commissions for the other contracts may be higher
or lower than sales commissions for this contract.
ISSUER
American Enterprise Life issues the annuities. American Enterprise Life is a
wholly-owned subsidiary of IDS Life, which is a wholly-owned subsidiary of AEFC.
AEFC is a wholly-owned subsidiary of American Express Company. American Express
Company is a financial services company principally engaged through subsidiaries
(in addition to AEFC) in travel related services, investment services and
international banking services.
American Enterprise Life is a stock life insurance company organized in 1981
under the laws of the state of Indiana. Its administrative offices are located
at 829 AXP Financial Center, Minneapolis, MN 55474. Its statutory address is 100
Capitol Center South, 201 North Illinois Street, Indianapolis, IN 46204.
American Enterprise Life conducts a conventional life insurance business.
LEGAL PROCEEDINGS
A number of lawsuits have been filed against life and health insurers in
jurisdictions in which American Enterprise Life and its affiliates do business
involving insurers' sales practices, alleged agent misconduct, failure to
properly supervise agents and other matters. IDS Life is a defendant in three
class action lawsuits of this nature. American Enterprise Life is a named
defendant in one of these suits, Richard W. and Elizabeth J. Thoresen vs.
American Express Financial Corporation, American Centurion Life Assurance
Company, American Enterprise Life Insurance Company, American Partners Life
Insurance Company, IDS Life Insurance Company and IDS Life Insurance Company of
New York which was commenced in Minnesota State Court in October 1998. The
action was brought by individuals who purchased an annuity in a qualified plan.
The plaintiffs allege that the sale of annuities in tax-deferred contributory
retirement investment plans (e.g., IRAs) is never appropriate. The plaintiffs
purport to represent a class consisting of all persons who made similar
purchases. The plaintiffs seek damages in an unspecified amount.
American Enterprise Life is included as a party to preliminary settlement of all
three class action lawsuits. We believe this approach will put these cases
behind us and provide a fair outcome for our clients. Our decision to settle
does not include any admission of wrongdoing. We do not anticipate that this
proposed settlement, or any other lawsuits in which American Enterprise Life is
a defendant, will have a material adverse effect on our financial condition.
<PAGE>
Additional Information About American Enterprise Life
Selected financial data
The following selected financial data for American Enterprise Life should be
read in conjunction with the financial statements and notes.
<TABLE>
<CAPTION>
<S> <C> <C> <C> <C> <C>
Years ended Dec. 31, (thousands) 1999 1998 1997 1996 1995
Net investment income $ 322,746 $ 340,219 $ 332,268 $ 271,719 $ 223,706
Net gain/loss on investments 6,565 (4,788) (509) (5,258) (1,154)
Other 8,338 7,662 6,329 5,753 4,214
Total revenues $ 337,649 $ 343,093 $ 338,088 $ 272,214 $ 226,766
Income before income taxes $ 50,662 $ 36,421 $ 44,958 $ 35,735 $ 33,440
Net income $ 33,987 $ 22,026 $ 28,313 $ 22,823 $ 21,748
Total assets $ 4,603,343 $ 4,885,621 $ 4,973,413 $ 4,425,837 $ 3,570,960
</TABLE>
Management's discussion and analysis of financial condition and results of
operations
1999 Compared to 1998:
Net income increased 54 percent to $34 million in 1999, compared to $22 million
in 1998. Earnings growth resulted primarily net realized gains of $6.6 million
in 1999, compared to net realized losses of $4.8 in 1998.
Income before income taxes totaled $51 million in 1999, compared with $36
million in 1998.
Total investment contract deposits received decreased to $336 million in 1999,
compared with $348 million in 1998. This decrease is primarily due to a decrease
in sales of variable annuities in 1999.
Total revenues decreased to $338 million in 1999, compared with $343 million in
1998. The decrease is primarily due to decreased net investment income which was
partially offset by an increase in realized gain on investments. Net investment
income, the largest component of revenues, decreased 5 percent from the prior
year, reflecting decreases in investments owned and investment yields.
Contractholder charges decreased 5 percent to $6.1 million in 1999, compared
with $6.4 million in 1998, reflecting a decrease in fixed annuities inforce. The
Company receives mortality and expense risk fees from the separate accounts.
Mortality and expense risk fees increased 77 percent to $2.3 million in 1999,
compared with $1.3 million in 1998, this reflects the increase in separate
account assets.
Net realized gain on investments was $6.6 million in 1999, compared to a net
realized loss on investments of $4.8 million in 1998. The net realized gains
were primarily due to the sale of available for sale fixed maturity investments
at a gain as well as a decrease in the allowance for mortgage loan losses based
on management's regular evaluation of allowance adequacy.
Total benefits and expenses decreased slightly to $287 million in 1999. The
largest component of expenses, interest credited on investment contracts,
decreased to $209 million, reflecting a decrease in fixed annuities in force and
lower interest rates. Amortization of deferred policy acquisition costs
decreased to $43 million, compared to $54 million in 1998. This decrease was due
primarily to decreased aggregate amounts in force, as well as the impact of
changing prospective assumptions in 1998 based on actual lapse experience on
certain fixed annuities.
<PAGE>
Other operating expenses increased 46 percent to $35 million in 1999, compared
to $24 million in 1998. This increase is primarily reflects technology costs
related to growth initiatives.
1998 Compared to 1997:
Net income decreased 22 percent to $22 million in 1998, compared to $28 million
in 1997. The decrease in earnings resulted primarily from increases in
amortization of deferred policy acquisition costs.
Income before income taxes totaled $36 million in 1998, compared with $45
million in 1997.
Total premiums and investment contract deposits received decreased to $348
million in 1998, compared with $802 million in 1997. This decrease is primarily
due to a decrease in sales of fixed annuities in 1998, reflecting the low
interest rate environment.
Total revenues increased to $343 million in 1998, compared with $338 million in
1997. The increase is primarily due to increases in net investment income and
contractholder charges. Net investment income, the largest component of
revenues, increased 2 percent from the prior year, reflecting increases in
investments owned and investment yields.
Contractholder charges, increased 12 percent to $6.4 million in 1998, compared
with $5.7 million in 1997. The Company receives mortality and expense risk fees
from the separate accounts.
Total benefits and expenses increased 4.6 percent to $307 million in 1998,
compared with 293 million in 1997. The largest component of expenses, interest
credited on contractholders investment contracts, decreased to $229 million,
reflecting a decrease in fixed annuities in force and lower interest rates.
Amortization of deferred policy acquisition costs increased to $54 million,
compared to $37 million in 1997. This increase was due primarily to the impact
of changing prospective assumptions based on actual lapse experience on certain
fixed annuities.
Risk Management
The sensitivity analysis of the test of market risk discussed below estimates
the effects of hypothetical sudden and sustained changes in the applicable
market conditions on the ensuing year's earnings based on year-end positions.
The market changes, assumed to occur as of year-end, is a 100 basis point
increase in market interest rates. Computations of the prospective effects of
hypothetical interest rate change based on numerous assumptions, including
relative levels of market interest rates as well as the levels of assets and
liabilities. The hypothetical changes and assumptions will be different from
what actually occurs in the future. Furthermore, the computations do not
anticipate actions that may be taken by management if the hypothetical market
changes actually occurred over time. As a result, actual earnings effects in the
future will differ from those quantified below.
The Company primarily invests in fixed income securities over a broad range of
maturities for the purpose of providing fixed annuity clients with a competitive
rate of return on their investments while minimizing risk, and to provide a
dependable and targeted spread between the interest rate earned on investments
and the interest rate credited to contractholders' accounts. The Company does
not invest in securities to generate trading profits.
The Company has an investment committee that holds regularly scheduled meetings
and, when necessary, special meetings. At these meetings, the committee reviews
models projecting different interest rate scenarios and their impact on
profitability. The objective of the committee is to structure the investment
security portfolio based upon the type and behavior of products in the liability
portfolio so as to achieve targeted levels of profitability.
<PAGE>
Rates credited to contractholders' accounts are generally reset at shorter
intervals than the maturity of underlying investments. Therefore, margins may be
negatively impacted by increases in the general level of interest rates. Part of
the committee's strategy includes the purchase of some types of derivatives,
such as interest rate caps, swaps and floors, for hedging purposes. These
derivatives protect margins by increasing investment returns if there is a
sudden and severe rise in interest rates, thereby mitigating the impact of an
increase in rates credited to contractholders' accounts.
The negative effect on the Company's pretax earnings of a 100 basis point
increase in interest rates, which assumes repricings and customer behavior based
on the application of proprietary models to the book of business at December 31,
1999, would be approximately $4.2 million.
Liquidity and Capital Resources
The liquidity requirements of the Company are met by funds provided by annuity
considerations, investment income, proceeds from sales of investments as well as
maturities and periodic repayments of investment principal.
The primary uses of funds are policy benefits, commissions and operating
expenses, policy loans, and investment purchases.
The Company has an available line of credit with American Express Financial
Corporation aggregating $50 million. The line of credit is used strictly as a
short-term source of funds. No borrowings were outstanding under the agreement
at December 31, 1999. At December 31, 1999, outstanding reverse repurchase
agreements totaled $26 million.
At December 31, 1999, investments in fixed maturities comprised 81 percent of
the Company's total invested assets. Of the fixed maturity portfolio,
approximately 32 percent is invested in GNMA, FNMA and FHLMC mortgage-backed
securities which are considered AAA/Aaa quality.
At December 31, 1999, approximately 14 percent of the Company's investments in
fixed maturities were below investment grade bonds. These investments may be
subject to a higher degree of risk than the investment grade issues because of
the borrower's generally greater sensitivity to adverse economic conditions,
such as recession or increasing interest rates, and in certain instances, the
lack of an active secondary market. Expected returns on below investment grade
bonds reflect consideration of such factors. The Company has identified those
fixed maturities for which a decline in fair value is determined to be other
than temporary, and has written them down to fair value with a charge to
earnings.
At December 31, 1999, net unrealized appreciation on fixed maturities held to
maturity included $6.3 million of gross unrealized appreciation and $29 million
of gross unrealized depreciation. Net unrealized appreciation on fixed
maturities available for sale included $9.3 million of gross unrealized
appreciation and $117 million of gross unrealized depreciation.
At December 31, 1999, the Company had an allowance for losses for mortgage loans
totaling $6.7 million.
The economy and other factors have caused a number of insurance companies to go
under regulatory supervision. This circumstance has resulted in assessments by
state guaranty associations to cover losses to policyholders of insolvent or
rehabilitated companies. Some assessments can be partially recovered through a
reduction in future premium taxes in certain states. The Company established an
asset for guaranty association assessments paid to those states allowing a
reduction in future premium taxes over a reasonable period of time. The asset is
being amortized as premium taxes are reduced. The Company has also estimated the
potential effect of future assessments on the Company's financial position and
results of operations and has established a reserve for such potential
assessments. The Company has adopted Statement of Position 97-3 providing
guidance when an insurer should recognize a liability for guaranty fund
assessments. The SOP is effective for fiscal years beginning after December 15,
1998. Adoption did not have a material impact on the Company's results of
operations or financial condition.
<PAGE>
The National Association of Insurance Commissioners has established risk-based
capital standards to determine the capital requirements of a life insurance
company based upon the risks inherent in its operations. These standards require
the computation of a risk-based capital amount which is then compared to a
company's actual total adjusted capital. The computation involves applying
factors to various statutory financial data to address four primary risks: asset
default, adverse insurance experience, interest rate risk and external events.
These standards provide for regulatory attention when the percentage of total
adjusted capital to authorized control level risk-based capital is below certain
levels. As of December 31, 1999, the Company's total adjusted capital was well
in excess of the levels requiring regulatory attention.
Year 2000 Issue
The Year 2000 issue is the result of computer programs having been written using
two digits rather than four to define a year. Any programs that have
time-sensitive software may recognize a date using "00" as the year 1900 rather
than 2000. This could result in the failure of major systems or miscalculations,
which could have a material impact on the operations of American Enterprise Life
and the variable account. All of the major systems used by American Enterprise
Life and by the variable account are maintained by AEFC and are utilized by
multiple subsidiaries and affiliates of AEFC. American Enterprise Life's and the
variable account's businesses are heavily dependent upon AEFC's computer systems
and have significant interactions with systems of third parties.
A comprehensive review of AEFC's computer systems and business processes
including those specific to American Enterprise Life and the variable account,
was conducted to identify the major systems that could be affected by the Year
2000 issue. Steps were taken to resolve potential problems including
modification to existing software and the purchase of new software. As of Dec.
31, 1999, AEFC had completed its program of corrective measures on its internal
systems and applications, including Year 2000 compliance testing. As of Dec. 31,
1999, AEFC had also completed an evaluation of the Year 2000 readiness of other
third parties whose system failures could have an impact on American Enterprise
Life's and the variable account's operations.
AEFC's Year 2000 project also included establishing Year 2000 contingency plans
for all key business units. Business continuation plans, which address business
continuation in the event of a system disruption, are in place for all key
business units. As of Dec. 31, 1999, these plans had been amended to include
specific Year 2000 considerations.
In assessing its Year 2000 initiatives and the results of actual production
since Jan. 1, 2000, management believes no material adverse consequences were
experienced, and there was no material effect on American Enterprise Life's and
the variable account's business, results of operations, or financial condition
as a result of the Year 2000 issue.
Reserves
In accordance with the insurance laws and regulations under which we operate, we
are obligated to carry on our books, as liabilities, actuarially determined
reserves to meet our obligations on our outstanding annuity contracts. We base
our reserves for deferred annuity contracts on accumulation value and for fixed
annuity contracts in a benefit status on established industry mortality tables.
These reserves are computed amounts that will be sufficient to meet our policy
obligations at their maturities.
Investments
Our total investments of $4,107,559 at Dec. 31, 1999, 28% was invested in
mortgage-backed securities, 53% in corporate and other bonds, 19% in primary
mortgage loans on real estate and the remaining less than 1% in other
investments.
<PAGE>
Competition
We are engaged in a business that is highly competitive due to the large number
of stock and mutual life insurance companies and other entities marketing
insurance products. There are over 1,600 stock, mutual and other types of
insurers in the life insurance business. Best's Insurance Reports, Life-Health
edition 1999, assigned us one of its highest classifications, A+ (Superior).
Employees
As of Dec. 31, 1999, we had no employees.
Properties
We occupy office space in Minneapolis, MN, which is rented by AEFC. We reimburse
AEFC for rent based on direct and indirect allocation methods. Facilities
occupied by us are believed to be adequate for the purposes for which they are
used and well maintained.
State Regulation
American Enterprise Life is subject to the laws of the State of Indiana
governing insurance companies and to the regulations of the Indiana Department
of Insurance. An annual statement in the prescribed form is filed with the
Indiana Department of Insurance each year covering our operation for the
preceding year and its financial condition at the end of such year. Regulation
by the Indiana Department of Insurance includes periodic examination to
determine American Enterprise's contract liabilities and reserves so that the
Indiana Department of Insurance may certify that these items are correct. The
Company's books and accounts are subject to review by the Indiana Department of
Insurance at all times. Such regulation does not, however, involve any
supervision of the account's management or the company's investment practices or
policies. In addition, American Enterprise Life is subject to regulation under
the insurance laws of other jurisdictions in which it operates. A full
examination of American Enterprise Life's operations is conducted periodically
by the National Association of Insurance Commissioners.
Under insurance guaranty fund laws, in most states, insurers doing business
therein can be assessed up to prescribed limits for policyholder losses incurred
by insolvent companies. Most of these laws do provide however, that an
assessment may be excused or deferred if it would threaten an insurer's own
financial strength.
<PAGE>
Directors and Executive Officers*
The directors and principal executive officers of American Enterprise Life and
the principal occupation of each during the last five years is as follows:
Directors
James E. Choat
Born in 1947
Director, president and chief executive officer since 1996; Senior vice
president Institutional Products Group, AEFA, 1994 to 1997.
Richard W. Kling
Born 1940
Director and chairman of the board since March 1989.
Paul S. Mannweiler**
Born in 1949
Director since 1986; Partner at Locke Reynolds Boyd & Weisell since 1980.
Paula R. Meyer
Born in 1954
Director and executive vice president since 1998; vice president, AEFC since
1998; Piper Capital Management (PCM) President from Oct. 1997 to May 1998; PCM
Director of Marketing from June 1995 to Oct. 1997; PCM Director of Retail
Marketing from Dec. 1993 to June 1995.
William A. Stoltzmann
Born in 1948
Director since Sept. 1989; vice president, general counsel and secretary since
1985.
Officers other than directors
Jeffrey S. Horton
Born 1961
Vice president and treasurer since Dec. 1997; vice president and corporate
treasurer, AEFC, since Dec. 1997; controller, American Express Technologies -
Financial Services, AEFC, from July 1997 to Dec. 1997; controller, Risk
Management Products, AEFC, from May 1994 to July 1997; director of finance and
analysis, Corporate Treasury, AEFC, from June 1990 to May 1994.
Philip C. Wentzel
Born in 1961
Vice president and controller since 1998; vice president - Finance, Risk
Management Products, AEFC since 1997; and director of financial reporting and
analysis from 1992 to 1997.
*The address for all of the directors and principal officers is: 200 AXP
Financial Center, Minneapolis, MN 55474 except for Mr. Mannweiler who is an
independent director.
**Mr. Mannweiler's address is: 201 No. Illinois Street, Indianapolis, IN 46204
<PAGE>
Executive compensation
Our executive officers also may serve one or more affiliated companies. The
following table reflects cash compensation paid to the five most highly
compensated executive officers as a group for services rendered in the most
recent year to us and our affiliates. The table also shows the total cash
compensation paid to all our executive officers, as a group, who were executive
officers at any time during the most recent year.
<TABLE>
<CAPTION>
<S> <C> <C>
Name of individual or number in group Position held Cash compensation
Five most highly compensated executive officers as a group: $7,960,888
Richard W. Kling Chairman of the Board
James E. Choat President and CEO
Stuart A. Sedlacek Executive Vice President
Lorraine R. Hart Vice President, Investments
Deborah L. Pederson Assistant Vice President, Investments
All executive officers as a group (11) $11,535,043
</TABLE>
Security ownership of management
Our directors and officers do not beneficially own any outstanding shares of
stock of the company. All of our outstanding shares of stock are beneficially
owned by IDS Life. The percentage of shares of IDS Life owned by any director,
and by all our directors and officers as a group, does not exceed 1% of the
class outstanding.
Experts
Ernst & Young LLP, independent auditors, have audited the consolidated financial
statements of American Enterprise Life Insurance Company at Dec. 31, 1999 and
1998, and for each of the three years in the period ended Dec. 31, 1999, as set
forth in their report. We've included our financial statements in the prospectus
and elsewhere in the registration statement in reliance on Ernst & Young LLP's
report, given on their authority as experts in accounting and auditing.
<PAGE>
AMERICAN ENTERPRISE LIFE INSURANCE COMPANY FINANCIAL INFORMATION
REPORT OF INDEPENDENT AUDITORS
The Board of Directors
American Enterprise Life Insurance Company
We have audited the accompanying balance sheets of American Enterprise Life
Insurance Company (a wholly owned subsidiary of IDS Life Insurance Company) as
of December 31, 1999 and 1998, and the related statements of income,
stockholder's equity and cash flows for each of the three years in the period
ended December 31, 1999. These financial statements are the responsibility of
the Company's management. Our responsibility is to express an opinion on these
financial statements based on our audits.
We conducted our audits in accordance with auditing standards generally accepted
in the United States. Those standards require that we plan and perform the audit
to obtain reasonable assurance about whether the financial statements are free
of material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements. An audit
also includes assessing the accounting principles used and significant estimates
made by management, as well as evaluating the overall financial statement
presentation. We believe that our audits provide a reasonable basis for our
opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the financial position of American Enterprise Life
Insurance Company at December 31, 1999 and 1998, and the results of its
operations and its cash flows for each of the three years in the period ended
December 31, 1999, in conformity with accounting principles generally accepted
in the United States.
/s/ Ernst & Young LLP
Ernst & Young LLP
February 3, 2000
Minneapolis, Minnesota
<PAGE>
AMERICAN ENTERPRISE LIFE INSURANCE COMPANY
BALANCE SHEETS
December 31,
($ thousands, except share amounts)
<TABLE>
<S> <C> <C>
ASSETS 1999 1998
- ------ ----------- -----------
Investments:
Fixed maturities:
Held to maturity, at amortized cost (fair value:
1999, $984,103; 1998, $1,126,732) $1,006,349 $1,081,193
Available for sale, at fair value (amortized cost:
1999, $2,411,799; 1998, $2,526,712) 2,304,487 2,594,858
----------- -----------
3,310,836 3,676,051
Mortgage loans on real estate 785,253 815,806
Other investments 11,470 12,103
----------- -----------
Total investments 4,107,559 4,503,960
Accounts receivable 316 214
Accrued investment income 56,676 61,740
Deferred policy acquisition costs 180,288 196,479
Deferred income taxes 37,501 --
Other assets 9 43
Separate account assets 220,994 123,185
----------- -----------
Total assets $4,603,343 $4,885,621
========== ==========
LIABILITIES AND STOCKHOLDER'S EQUITY
Liabilities:
Future policy benefits for fixed annuities $3,921,513 $4,166,852
Policy claims and other policyholders' funds 12,097 7,389
Deferred income taxes -- 23,199
Amounts due to brokers 25,215 54,347
Other liabilities 17,436 24,500
Separate account liabilities 220,994 123,185
----------- -----------
Total liabilities 4,197,255 4,399,472
Stockholder's equity:
Capital stock, $100 par value per share;
100,000 shares authorized,
20,000 shares issued and outstanding 2,000 2,000
Additional paid-in capital 282,872 282,872
Accumulated other comprehensive (loss) income:
Net unrealized securities (losses) gains (69,753) 44,295
Retained earnings 190,969 156,982
----------- -----------
Total stockholder's equity 406,088 486,149
----------- -----------
Total liabilities and stockholder's equity $4,603,343 $4,885,621
========== ==========
</TABLE>
<PAGE>
AMERICAN ENTERPRISE LIFE INSURANCE COMPANY
STATEMENTS OF INCOME
Years ended December 31,
($ thousands)
<TABLE>
<S> <C> <C> <C>
1999 1998 1997
--------- --------- ---------
Revenues:
Net investment income $322,746 $340,219 $332,268
Contractholder charges 6,069 6,387 5,688
Mortality and expense risk fees 2,269 1,275 641
Net realized gain (loss) on investments 6,565 (4,788) (509)
--------- --------- ---------
Total revenues 337,649 343,093 338,088
--------- --------- ---------
Benefits and expenses:
Interest credited on investment contracts 208,583 228,533 231,437
Amortization of deferred policy acquisition costs 43,257 53,663 36,803
Other operating expenses 35,147 24,476 24,890
--------- --------- ---------
Total benefits and expenses 286,987 306,672 293,130
--------- --------- ---------
Income before income taxes 50,662 36,421 44,958
Income taxes 16,675 14,395 16,645
--------- --------- ---------
Net income $ 33,987 $ 22,026 $ 28,313
========= ========= =========
</TABLE>
<PAGE>
AMERICAN ENTERPRISE LIFE INSURANCE COMPANY
STATEMENTS OF STOCKHOLDER'S EQUITY
Three years ended December 31, 1999
($ thousands)
<TABLE>
<CAPTION>
Accumulated
Other
Total Additional Comprehensive
Stockholder's Capital Paid-In (Loss) Income, Retained
Equity Stock Capital Net of Tax Earnings
------------- -------- ------------ ------------ -------------
<S> <C> <C> <C> <C> <C>
Balance, December 31, 1996 $363,858 $2,000 $242,872 $ 12,343 $106,643
Comprehensive income:
Net income 28,313 -- -- -- 28,313
Unrealized holding gains arising
during the year, net of taxes of
($19,891) 36,940 -- -- 36,940 --
Reclassification adjustment for losses
included in net income, net of tax
of ($126) 233 -- -- 233 --
------------- ------------
Other comprehensive income 37,173 -- -- 37,173 --
-------------
Comprehensive income 65,486
Capital contribution from IDS Life 40,000 -- 40,000 -- --
------------- -------- ------------ ------------ -------------
Balance, December 31, 1997 469,344 2,000 282,872 49,516 134,956
Comprehensive income:
Net income 22,026 -- -- -- 22,026
Unrealized holding losses arising
during the year, net of taxes of $3,400 (6,314) -- -- (6,314) --
Reclassification adjustment for losses
included in net income, net of tax
of ($588) 1,093 -- -- 1,093 --
------------- ------------
Other comprehensive loss (5,221) -- -- (5,221) --
-------------
Comprehensive income 16,805
------------- -------- ------------ ------------ -------------
Balance, December 31, 1998 486,149 2,000 282,872 44,295 156,982
Comprehensive loss:
Net income 33,987 -- -- -- 33,987
Unrealized holding losses arising
during the year, net of taxes of $(59,231) (110,001) -- -- (110,001) --
Reclassification adjustment for gains
included in net income, net of tax (4,047) (4,047) --
of $(2,179) ------------- ------------
Other comprehensive loss (114,048) -- -- (114,048) --
-------------
Comprehensive loss (80,061)
------------- -------- ------------ ------------ -------------
Balance, December 31, 1999 $406,088 $2,000 $282,872 $(69,753) $190,969
============= ======== ============ ============ =============
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
See accompanying notes.
AMERICAN ENTERPRISE LIFE INSURANCE COMPANY
STATEMENTS OF CASH FLOWS
Years ended December 31,
($ thousands)
<S> <C> <C> <C>
1999 1998 1997
----------- ----------- -----------
Cash flows from operating activities:
Net income $ 33,987 $ 22,026 $ 28,313
Adjustments to reconcile net income to net cash
provided by (used in) operating activities:
Change in accrued investment income 5,064 (2,152) (8,017)
Change in accounts receivable (102) 349 9,304
Change in deferred policy acquisition costs, net 16,191 28,022 (21,276)
Change in other assets 34 74 4,840
Change in policy claims and other policyholders' funds 4,708 (3,939) (16,099)
Deferred income tax (benefit) provision 711 (9,591) (2,485)
Change in other liabilities (7,064) 7,595 1,255
Amortization of premium (accretion of discount), net 2,315 122 (2,316)
Net realized (gain) loss on investments (6,565) 4,788 509
Other, net (1,562) 2,544 959
----------- ----------- -----------
Net cash provided by (used in) operating activities 47,717 49,838 (5,013)
Cash flows from investing activities:
Fixed maturities held to maturity:
Purchases -- -- (1,996)
Maturities 65,705 73,601 41,221
Sales 8,466 31,117 30,601
Fixed maturities available for sale:
Purchases (593,888) (298,885) (688,050)
Maturities 248,317 335,357 231,419
Sales 469,126 48,492 73,366
Other investments:
Purchases (28,520) (161,252) (199,593)
Sales 57,548 78,681 29,139
Change in amounts due to brokers (29,132) 19,412 (53,796)
----------- ----------- ------------
Net cash provided by (used in) investing activities 197,622 126,523 (537,689)
Cash flows from financing activities:
Activity related to investment contracts:
Considerations received 299,899 302,158 783,339
Surrenders and other benefits (753,821) (707,052) (552,903)
Interest credited to account balances 208,583 228,533 231,437
Capital contribution from parent -- -- 40,000
----------- ----------- -----------
Net cash (used in) provided by financing activities (245,339) (176,361) 501,873
----------- ----------- -----------
Net decrease in cash and cash equivalents -- -- (40,829)
Cash and cash equivalents at beginning of year -- -- 40,829
----------- ----------- -----------
Cash and cash equivalents at end of year $ -- $ -- $ --
=========== =========== ==========
See accompanying notes.
</TABLE>
<PAGE>
1. Summary of significant accounting policies
Nature of business
American Enterprise Life Insurance Company (the Company) is a stock life
insurance company that is domiciled in Indiana and is licensed to transact
insurance business in 48 states. The Company's principal product is
deferred annuities, which are issued primarily to individuals. It offers
single premium and annual premium deferred annuities on both a fixed and
variable dollar basis.
Immediate annuities are offered as well.
Basis of presentation
The Company is a wholly-owned subsidiary of IDS Life Insurance Company (IDS
Life), which is a wholly owned subsidiary of American Express Financial
Corporation (AEFC). AEFC is a wholly owned subsidiary of American Express
Company. The accompanying financial statements have been prepared in
conformity with accounting principles generally accepted in the United
States which vary in certain respects from reporting practices prescribed
or permitted by the Indiana Department of Insurance (see Note 4).
The preparation of financial statements in conformity with accounting
principles generally accepted in the United States requires management to
make estimates and assumptions that affect the reported amounts of assets
and liabilities and disclosure of contingent assets and liabilities at the
date of the financial statements and the reported amounts of revenues and
expenses during the reporting period. Actual results could differ from
those estimates.
Investments
Fixed maturities that the Company has both the positive intent and the
ability to hold to maturity are classified as held to maturity and carried
at amortized cost. All other fixed maturities are classified as available
for sale and carried at fair value. Unrealized gains and losses on
securities classified as available for sale are reported as a separate
component of accumulated other comprehensive (loss) income, net of deferred
income taxes.
Realized investment gain or loss is determined on an identified cost basis.
Prepayments are anticipated on certain investments in mortgage-backed
securities in determining the constant effective yield used to recognize
interest income. Prepayment estimates are based on information received
from brokers who deal in mortgage-backed securities.
Mortgage loans on real estate are carried at amortized cost less an
allowance for mortgage loan losses. The estimated fair value of the
mortgage loans is determined by a discounted cash flow analysis using
mortgage interest rates currently offered for mortgages of similar
maturities.
<PAGE>
1. Summary of significant accounting policies (continued)
Impairment of mortgage loans is measured as the excess of the loan's
recorded investment over its present value of expected principal and
interest payments discounted at the loan's effective interest rate, or the
fair value of collateral. The amount of the impairment is recorded in an
allowance for mortgage loan losses. The allowance for mortgage loan losses
is maintained at a level that management believes is adequate to absorb
estimated losses in the portfolio. The level of the allowance account is
determined based on several factors, including historical experience,
expected future principal and interest payments, estimated collateral
values, and current and anticipated economic and political conditions.
Management regularly evaluates the adequacy of the allowance for mortgage
loan losses.
The Company generally stops accruing interest on mortgage loans for which
interest payments are delinquent more than three months. Based on
management's judgment as to the ultimate collectibility of principal,
interest payments received are either recognized as income or applied to
the recorded investment in the loan.
The cost of interest rate caps and floors is amortized to investment income
over the life of the contracts and payments received as a result of these
agreements are recorded as investment income when realized. The amortized
cost of interest rate caps and floors is included in other investments.
When evidence indicates a decline, which is other than temporary, in the
underlying value or earning power of individual investments, such
investments are written down to the fair value by a charge to income.
Statements of cash flows
The Company considers investments with a maturity at the date of their
acquisition of three months or less to be cash equivalents. These
securities are carried principally at amortized cost which approximates
fair value.
Supplementary information to the statements of cash flows for the years
ended December 31, is summarized as follows:
1999 1998 1997
---- ----- ----
Cash paid during the year for:
Income taxes $22,007 $19,035 $19,456
Interest on borrowings 2,187 5,437 1,832
Contractholder charges
Contractholder charges include surrender charges and fees collected
regarding the issue and administration of annuity contracts.
<PAGE>
1. Summary of significant accounting policies (continued)
Deferred policy acquisition costs
The costs of acquiring new business, principally sales compensation, policy
issue costs, and certain sales expenses, have been deferred on annuity
contracts. These costs are amortized using primarily the interest method.
Amortization of deferred policy acquisition costs requires the use of
assumptions including interest margins, mortality margins, persistency
rates, maintenance expense levels and, for variable products, separate
account performance. For universal life-type insurance and deferred
annuities, actual experience is reflected in the Company's amortization
models monthly. As actual experience differs from the current assumptions,
management considers the need to change key assumptions underlying the
amortization models prospectively. The impact of changing prospective
assumptions is reflected in the period that such changes are made and is
generally referred to as an unlocking adjustment. During 1998, unlocking
adjustments resulted in a net increase in amortization of $11 million. Net
unlocking adjustments in 1999 and 1997 were not significant.
Liabilities for future policy benefits
Liabilities for universal-life type insurance and fixed and variable
deferred annuities are accumulation values.
Federal income taxes
The Company's taxable income is included in the consolidated federal income
tax return of American Express Company. The Company provides for income
taxes on a separate return basis, except that, under an agreement between
AEFC and American Express Company, tax benefit is recognized for losses to
the extent they can be used on the consolidated tax return. It is the
policy of AEFC and its subsidiaries that AEFC will reimburse subsidiaries
for all tax benefits.
Included in other liabilities at December 31, 1999 and 1998 are $2,147 and
$3,504, respectively, payable to IDS Life for federal income taxes.
Separate account business
The separate account assets and liabilities represent funds held for the
exclusive benefit of the variable annuity contract owners. The Company
receives mortality and expense risk fees from the variable annuity separate
accounts.
<PAGE>
1. Summary of significant accounting policies (continued)
The Company makes contractual mortality assurances to the variable annuity
contract owners that the net assets of the separate accounts will not be
affected by future variations in the actual life expectancy experience of
the annuitants and beneficiaries from the mortality assumptions implicit in
the annuity contracts. The Company makes periodic fund transfers to, or
withdrawals from, the separate account assets for such actuarial
adjustments for variable annuities that are in the benefit payment period.
The Company also guarantees that the rates at which administrative fees are
deducted from contract funds will not exceed contractual maximums.
Accounting changes
American Institute of Certified Public Accountants (AICPA) Statement of
Position (SOP) 98-1, "Accounting for Costs of Computer Software Developed
or Obtained for Internal Use" became effective January 1, 1999. The SOP
requires the capitalization of certain costs incurred after the date of
adoption to develop or obtain software for internal use. Software utilized
by the Company is owned by AEFC and capitalized by AEFC. As a result, the
new rule did not have a material impact on the Company's results of
operations or financial condition.
Effective January 1, 1999, the Company adopted AICPA SOP 97-3, "Accounting
by Insurance and Other Enterprises for Insurance-Related Assessments,"
providing guidance for the timing of recognition of liabilities related to
guaranty fund assessments. The Company had historically carried balance in
other liabilities on the balance sheet for potential guaranty fund
assessment exposure. Adoption of the SOP did not have a material impact on
the Company's results of operations or financial condition.
In June 1998, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards No. 133, "Accounting for Derivative
Instruments and Hedging Activities," which is effective January 1, 2001.
This Statement establishes accounting and reporting standards for
derivative instruments, including certain derivative instruments embedded
in other contracts, and for hedging activities. It requires that an entity
recognize all derivatives as either assets or liabilities in the balance
sheet and measure those instruments at fair value. The accounting for
changes in the fair value of a derivative depends on the intended use of
the derivative and the resulting designation. The ultimate financial effect
of the new rule will be measured based on the derivatives in place at
adoption and cannot be estimated at this time.
<PAGE>
2. Investments
Fair values of investments in fixed maturities represent quoted market
prices and estimated values when quoted prices are not available. Estimated
values are determined by established procedures involving, among other
things, review of market indices, price levels of current offerings of
comparable issues, price estimates and market data from independent brokers
and financial files.
The amortized cost, gross unrealized gains and losses and fair value of
investments in fixed maturities at December 31, 1999 are as follows:
<TABLE>
<S> <C> <C> <C> <C>
Gross Gross
Amortized Unrealized Unrealized Fair
Held to maturity Cost Gains Losses Value
---------------- ---------- -------- -------- ----------
U.S. Government agency obligations $ 7,514 $ 23 $ 431 $ 7,106
State and municipal obligations 3,002 44 -- 3,046
Corporate bonds and obligations 816,826 5,966 23,311 799,482
Mortgage-backed securities 179,007 296 4,834 174,469
---------- -------- -------- ----------
$1,006,349 $ 6,329 $ 28,576 $ 984,103
========== ======== ======== ==========
Available for sale
U.S. Government agency obligations $ 2,047 $ -- $ 47 $ 1,999
State and municipal obligations 2,250 -- 190 2,060
Corporate bonds and obligations 1,419,150 7,445 90,703 1,335,892
Mortgage-backed securities 988,352 1,929 25,746 964,536
------------ -------- -------- ----------
$2,411,799 $ 9,374 $116,686 $2,304,487
========== ======== ======== ==========
The amortized cost, gross unrealized gains and losses and fair value of
investments in fixed maturities at December 31, 1998 are as follows:
Gross Gross
Amortized Unrealized Unrealized Fair
Held to maturity Cost Gains Losses Value
---------------- ---------- -------- -------- ----------
U.S. Government agency obligations $ 8,652 $ 423 $ -- $ 9,075
State and municipal obligations 3,003 149 -- 3,152
Corporate bonds and obligations 877,140 48,822 6,670 919,292
Mortgage-backed securities 192,398 2,844 29 195,213
---------- -------- -------- ----------
$1,081,193 $ 52,238 $ 6,699 $1,126,732
========== ======== ======== ==========
Available for sale
U.S. Government agency obligations $ 2,062 $ 116 $ -- $ 2,178
Corporate bonds and obligations 1,472,814 69,990 34,103 1,508,701
Mortgage-backed securities 1,051,836 32,232 89 1,083,979
---------- -------- -------- ----------
$2,526,712 $102,338 $34,192 $2,594,858
========== ======== ======= ==========
</TABLE>
<PAGE>
2. Investments (continued)
The amortized cost and fair value of investments in fixed maturities at
December 31, 1999 by contractual maturity are shown below. Expected
maturities will differ from contractual maturities because borrowers may
have the right to call or prepay obligations with or without call or
prepayment penalties.
Amortized Fair
Held to maturity Cost Value
Due in one year or less $ 26,214 $ 26,334
Due from one to five years 412,533 408,638
Due from five to ten years 331,187 320,146
Due in more than ten years 57,408 54,516
Mortgage-backed securities 179,007 174,469
------------- -------------
$ 1,006,349 $ 984,103
=========== ============
Amortized Fair
Available for sale Cost Value
Due in one year or less $ 46,937 $ 47,236
Due from one to five years 75,233 73,525
Due from five to ten years 1,037,001 980,633
Due in more than ten years 264,276 238,557
Mortgage-backed securities 988,352 964,536
------------ ------------
$2,411,799 $2,304,487
During the years ended December 31, 1999, 1998 and 1997, fixed maturities
classified as held to maturity were sold with amortized cost of $8,466,
$31,117 and $29,561, respectively. Net gains and losses on these sales were
not significant. The sales of these fixed maturities were due to
significant deterioration in the issuers' creditworthiness.
In addition, fixed maturities available for sale were sold during 1999 with
proceeds of $469,126 and gross realized gains and losses of $10,374 and
$4,147 respectively. Fixed maturities available for sale were sold during
1998 with proceeds of $48,492 and gross realized gains and losses of $2,835
and $4,516, respectively. Fixed maturities available for sale were sold
during 1997 with proceeds of $73,366 and gross realized gains and losses of
$1,081 and $1,440, respectively.
At December 31, 1999, bonds carried at $3,277 were on deposit with various
states as required by law.
<PAGE>
2. Investments (continued)
At December 31, 1999, investments in fixed maturities comprised 81 percent
of the Company's total invested assets. These securities are rated by
Moody's and Standard & Poor's (S&P), except for securities carried at
approximately $486 million which are rated by AEFC internal analysts using
criteria similar to Moody's and S&P. A summary of investments in fixed
maturities, at amortized cost, by rating on December 31 is as follows:
Rating 1999 1998
---------------------- ----------- -----------
Aaa/AAA $1,168,144 $1,242,301
Aa/AA 42,859 45,526
Aa/A 52,416 60,019
A/A 422,668 422,725
A/BBB 189,072 228,656
Baa/BBB 995,152 1,030,874
Baa/BB 64,137 79,687
Below investment grade 483,700 498,117
------------ ------------
$3,418,148 $3,607,905
At December 31, 1999, approximately 94 percent of the securities rated
Aaa/AAA were GNMA, FNMA and FHLMC mortgage-backed securities. No holdings
of any other issuer were greater than one percent of the Company's total
investments in fixed maturities.
At December 31, 1999, approximately 19 percent of the Company's invested
assets were mortgage loans on real estate. Summaries of mortgage loans by
region of the United States and by type of real estate are as follows:
<TABLE>
<CAPTION>
December 31, 1999 December 31, 1998
------------------------------- --------------------------------
<S> <C> <C> <C> <C>
On Balance Commitments On Balance Commitments
Region Sheet to Purchase Sheet to Purchase
---------------------------------- ----------- ----------- ---------- -----------
South Atlantic $194,325 $ -- $198,552 $ 651
Middle Atlantic 118,699 -- 129,284 520
East North Central 126,243 -- 134,165 2,211
Mountain 103,751 -- 113,581 --
West North Central 125,891 513 119,380 9,626
New England 43,345 802 46,103 --
Pacific 41,396 -- 43,706 --
West South Central 31,153 -- 32,086 --
East South Central 7,100 -- 7,449 --
----------- ------------ ----------- ------------
791,903 1,315 824,306 13,008
Less allowance for losses 6,650 -- 8,500 --
----------- ------------ ----------- ------------
$785,253 $ 1,315 $815,806 $13,008
======== ======== ======== =======
<PAGE>
2. Investments (continued)
December 31, 1999 December 31, 1998
------------------------------ ------------------------------
On Balance Commitments On Balance Commitments
Property type Sheet to Purchase Sheet to Purchase
---------- -------------- ---------- ------------
Department/retail stores $232,449 $ 1,315 $253,380 $ 781
Apartments 181,346 -- 186,030 2,211
Office buildings 202,132 -- 206,285 9,496
Industrial buildings 83,186 -- 82,857 520
Hotels/Motels 43,839 -- 45,552 --
Medical buildings 32,284 -- 33,103 --
Nursing/retirement homes 6,608 -- 6,731 --
Mixed Use 10,059 -- 10,368 --
---------- -------------- ---------- ------------
791,903 1,315 824,306 13,008
Less allowance for losses 6,650 -- 8,500 --
----------- -------------- ----------- ------------
$785,253 $ 1,315 $815,806 $13,008
======== ========== ======== =======
</TABLE>
Mortgage loan fundings are restricted by state insurance regulatory
authorities to 80 percent or less of the market value of the real estate at
the time of origination of the loan. The Company holds the mortgage
document, which gives it the right to take possession of the property if
the borrower fails to perform according to the terms of the agreement.
Commitments to purchase mortgages are made in the ordinary course of
business. The fair value of the mortgage commitments is $nil.
At December 31, 1999, the Company's recorded investment in impaired loans
was $5,200 with an allowance of $1,250. At December 31, 1998, the Company's
recorded investment in impaired loans was $1,932 with an allowance of $500.
During 1999 and 1998, the average recorded investment in impaired loans was
$5,399 and $2,736, respectively.
The Company recognized $136, $251 and $nil of interest income related to
impaired loans for the years ended December 31, 1999, 1998 and 1997,
respectively.
The following table presents changes in the allowance for investment losses
related to all loans:
<TABLE>
<S> <C> <C> <C>
1999 1998 1997
---- ---- ----
Balance, January 1 $8,500 $3,718 $2,370
Provision (reduction) for investment losses (1,850) 4,782 1,805
Loan payoffs -- -- (457)
------ --------- -------
Balance, December 31 $6,650 $8,500 $3,718
====== ====== ======
Net investment income for the years ended December 31 is summarized as
follows:
1999 1998 1997
----- ----- ----
Interest on fixed maturities $265,199 $285,260 $278,736
Interest on mortgage loans 63,721 65,351 55,085
Interest on cash equivalents 534 137 704
Other (1,755) (2,493) 1,544
---------- ---------- ----------
327,699 348,255 336,069
Less investment expenses 4,953 8,036 3,801
--------- ---------- ----------
$322,746 $340,219 $332,268
======== ======== ========
</TABLE>
<PAGE>
2. Investments (continued)
Net realized gain (loss) on investments for the years ended December 31 is
summarized as follows:
<TABLE>
<S> <C> <C> <C>
1999 1998 1997
---- ---- ----
Fixed maturities $ 6,534 $ 863 $ 1,638
Mortgage loans (1,650) (4,816) (1,348)
Other investments (1,819) (835) (799)
--------- -------- -------
$ 3,065 $(4,788) $ (509)
========= ======= =======
Changes in net unrealized appreciation (depreciation) of investments for
the years ended December 31 are summarized as follows:
1999 1998 1997
----- ----- ----
Fixed maturities available for sale $(175,458) $(8,032) $57,188
3. Income taxes
The Company qualifies as a life insurance company for federal income tax
purposes. As such, the Company is subject to the Internal Revenue Code
provisions applicable to life insurance companies.
The income tax expense (benefit) for the years ended December 31, consists
of the following:
1999 1998 1997
---- ---- ----
Federal income taxes:
Current $ 15,531 $ 23,227 $17,668
Deferred 711 (9,591) (2,485)
-------- -------- -------
16,242 13,636 15,183
State income taxes-current 433 759 1,462
-------- -------- -------
Income tax expense $ 16,675 $ 14,395 $16,645
======== ======== =======
</TABLE>
Increases (decreases) to the federal income tax provision applicable to
pretax income based on the statutory rate, for the years ended December 31,
are attributable to:
<TABLE>
<CAPTION>
1999 1998 1997
------------------ ------------------ ---------------------
Provision Rate Provision Rate Provision Rate
--------- ----- --------- ----- --------- -----
<S> <C> <C> <C> <C> <C> <C>
Federal income taxes based
on the statutory rate $17,731 35.0% $13,972 35.0% $15,735 35.0%
Increases (decreases) are
attributable to:
Tax-excluded interest (14) -- (35) (0.1) (41) (0.1)
State tax, net of federal benefit 281 0.5 493 1.2 956 2.1
Reduction of mortgage loss
reserve (1,225) (2.4) -- -- -- --
Other, net (98) (0.2) (35) -- (5) --
------ ----- -------- ------ ---- ------
Total income taxes $16,675 32.9 % $14,395 36.1% $16,645 37.0%
======= ===== ======= ==== ======= ====
</TABLE>
<PAGE>
3. Income taxes (continued)
Significant components of the Company's deferred income tax assets and
liabilities as of December 31 are as follows:
Deferred income tax assets: 1999 1998
------- -------
Policy reserves $46,243 $51,298
Unrealized losses on investments 39,678 --
Other 1,070 2,214
-------- --------
Total deferred income tax assets 86,991 53,512
-------- --------
Deferred income tax liabilities:
Deferred policy acquisition costs 49,490 52,908
Unrealized gains on investments -- 23,803
-------- --------
Total deferred income tax liabilities 49,490 76,711
-------- --------
Net deferred income tax assets (liabilities) $37,501 ($23,199)
======= ========
The Company is required to establish a valuation allowance for any portion
of the deferred income tax assets that management believes will not be
realized. In the opinion of management, it is more likely than not that the
Company will realize the benefit of the deferred income tax assets and,
therefore, no such valuation allowance has been established.
4. Stockholder's equity
Retained earnings available for distribution as dividends to IDS Life are
limited to the Company's surplus as determined in accordance with
accounting practices prescribed by state insurance regulatory authorities.
Statutory unassigned surplus aggregated $58,223 and $45,716 as of December
31, 1999 and 1998, respectively. In addition, dividends in excess of
$15,241 would require approval by the Insurance Department of the state of
Indiana.
Statutory net income and stockholder's equity as of December 31, are
summarized as follows:
1999 1998 1997
--------- --------- -------
Statutory net income $ 15,241 $ 37,902 $ 23,589
Statutory stockholder's equity 343,094 330,588 302,264
5. Related party transactions
The Company has purchased interest rate floors from IDS Life and entered
into an interest rate swap with IDS Life to manage its exposure to interest
rate risk. The interest rate floors had a carrying amount of $8,258 and
$6,651 at December 31, 1999 and 1998, respectively. The interest rate swap
is an off balance sheet transaction.
The Company has no employees. Charges by IDS Life for services and use of
other joint facilities aggregated $38,931, $28,482 and $24,535 for the
years ended December 31, 1999, 1998 and 1997, respectively. Certain of
these costs are included in deferred policy acquisition costs.
<PAGE>
6. Lines of credit
The Company has an available line of credit with AEFC aggregating $50,000.
The rate for the line of credit is established by reference to various
indices plus 20 to 45 basis points, depending on the term. There were no
borrowings outstanding under this agreement at December 31, 1999 or 1998.
7. Derivative financial instruments
The Company enters into transactions involving derivative financial
instruments to manage its exposure to interest rate risk, including hedging
specific transactions. The Company does not hold derivative instruments for
trading purposes. The Company manages risks associated with these
instruments as described below.
Market risk is the possibility that the value of the derivative financial
instruments will change due to fluctuations in a factor from which the
instrument derives its value, primarily an interest rate. The Company is
not impacted by market risk related to derivatives held for non-trading
purposes beyond that inherent in cash market transactions. Derivatives are
largely used to manage risk and, therefore, the cash flow and income
effects of the derivatives are inverse to the effects of the underlying
transactions.
Credit risk is the possibility that the counterparty will not fulfill the
terms of the contract. The Company monitors credit risk related to
derivative financial instruments through established approval procedures,
including setting concentration limits by counterparty, and requiring
collateral, where appropriate. A vast majority of the Company's
counterparties are rated A or better by Moody's and Standard & Poor's.
Credit risk related to interest rate caps and floors is measured by
replacement cost of the contracts. The replacement cost represents the fair
value of the instruments.
The notional or contract amount of a derivative financial instrument is
generally used to calculate the cash flows that are received or paid over
the life of the agreement. Notional amounts are not recorded on the balance
sheet. Notional amounts far exceed the related credit exposure.
The Company's holdings of derivative financial instruments are as follows:
<TABLE>
<CAPTION>
Notional Carrying Fair Total Credit
December 31, 1999 Amount Amount Value Exposure
----------------- -------- -------- ------ ------------
<S> <C> <C> <C> <C>
Assets:
Interest rate caps $ 900,000 $ 3,212 $ 4,437 $ 4,437
Interest rate floors 2,000,000 8,258 2,251 2,251
Off balance sheet assets:
Interest rate swaps 2,000,000 -- 18,274 18,274
--------- -------- --------
$11,470 $24,962 $24,962
======= ======= =======
<PAGE>
7. Derivative financial instruments (continued)
Notional Carrying Fair Total Credit
December 31, 1998 Amount Amount Value Exposure
----------------- -------- -------- ------ ------------
Assets:
Interest rate caps $ 900,000 $ 5,452 $ 1,518 $ 1,518
Interest rate floors 1,000,000 6,651 17,798 17,798
Off balance sheet liabilities:
Interest rate swaps 1,000,000 -- (33,500) --
--------- ---------- --------
$12,103 ($ 14,184) $19,316
======= =========== =======
</TABLE>
The fair values of derivative financial instruments are based on market
values, dealer quotes or pricing models. All interest rate caps, floors and
swaps will expire on various dates from 2000 to 2006.
Interest rate caps, floors and swaps are used to manage the Company's
exposure to interest rate risk. These instruments are used primarily to
protect the margin between interest rates earned on investments and the
interest rates credited to related annuity contract holders.
8. Fair values of financial instruments
The Company discloses fair value information for most on- and off-balance
sheet financial instruments for which it is practicable to estimate that
value. Fair value of life insurance obligations, receivables and all
non-financial instruments, such as deferred acquisition costs are excluded.
Off-balance sheet intangible assets are also excluded. Management believes
the value of excluded assets and liabilities is significant. The fair value
of the Company, therefore, cannot be estimated by aggregating the amounts
presented.
<TABLE>
<CAPTION>
December 31,
1999 1998
-------------------------- --------------------------
Carrying Fair Carrying Fair
Financial Assets Amount Value Amount Value
---------------- ---------- --------- ---------- ----------
<S> <C> <C> <C> <C>
Investments:
Fixed maturities (Note 2):
Held to maturity $1,006,349 $984,103 $1,081,193 $1,126,732
Available for sale 2,304,487 2,304,487 2,594,858 2,594,858
Mortgage loans on real estate (Note 2) 785,253 770,095 815,806 874,064
Derivative financial instruments (Note 7) 11,470 24,962 12,103 19,316
Separate account assets (Note 1) 220,994 220,994 123,185 123,185
Financial Liabilities
Future policy benefits for fixed annuities $3,905,849 $3,778,945 $4,152,059 $4,000,789
Separate account liabilities 220,994 209,942 123,185 115,879
Derivative financial instruments (Note 7) -- -- -- 33,500
</TABLE>
At December 31, 1999 and 1998, the carrying amount and fair value of future
policy benefits for fixed annuities exclude life insurance-related
contracts carried at $15,633 and $14,793, respectively. The fair value of
these benefits is based on the status of the annuities at December 31, 1999
and 1998.
<PAGE>
8. Fair values of financial instruments (continued)
The fair values of deferred annuities and separate account liabilities are
estimated as the carrying amount less applicable surrender charges. The
fair value for annuities in non-life contingent payout status is estimated
as the present value of projected benefit payments at rates appropriate for
contracts issued in 1999 and 1998.
9. Commitments and contingencies
In January 2000, AEFC reached an agreement in principle to settle three
class-action lawsuits. The Company had been named as a co-defendant in one
of these lawsuits. It is expected the settlement will provide $215 million
of benefits to more than 2 million participants. The agreement in principle
to settle also provides for release by class members of all insurance and
annuity market conduct claims dating back to 1985 and is subject to a
number of contingencies including a definitive agreement and court
approval. The portion of the settlement allocated to the Company did not
have a material impact on the Company's financial position or results from
operations.
10. YEAR 2000 ISSUE (unaudited)
The Year 2000 issue is the result of computer programs having been written
using two digits rather than four to define a year. Any programs that have
time-sensitive software may recognize a date using "00" as the year 1900
rather than 2000. This could result in the failure of major systems or
miscalculations, which could have a material impact on the operations of
the Company. All of the major systems used by the Company are maintained by
AEFC and are utilized by multiple subsidiaries and affiliates of AEFC. The
Company's businesses are heavily dependent upon AEFC's computer systems and
have significant interaction with systems of third parties.
A comprehensive review of AEFC's computer systems and business processes,
including those specific to the Company, was conducted to identify the
major systems that could be affected by the Year 2000 issue. Steps were
taken to resolve potential problems including modification to existing
software and the purchase of new software. As of December 31, 1999, AEFC
had completed its program of corrective measures on its internal systems
and applications, including Year 2000 compliance testing. As of December
31, 1999, AEFC had also completed an evaluation of the Year 2000 readiness
of other third parties whose system failures could have an impact on the
Company's operations.
AEFC's Year 2000 project also included establishing Year 2000 contingency
plans for all key business units. Business continuation plans, which
address business continuation in the event of a system disruption, are in
place for all key business units. At December 31, 1999, these plans had
been amended to include specific Year 2000 considerations.
In assessing its Year 2000 initiatives and the results of actual production
since January 1, 2000, management believes no material adverse consequences
were experienced, and there was no material effect on the Company's
business, results of operations, or financial condition as a result of the
Year 2000 issue.
<PAGE>
Performance Information.................................................p.3
Calculating Annuity Payouts............................................p.13
Rating Agencies........................................................p.15
Principal Underwriter..................................................p.15
<PAGE>
Please check the box to receive a copy of the Statement of Additional
Information for:
- -- American Express Signature One Variable Annuity(SM)
- -- American Express(R)Variable Portfolio Funds
- -- AIM Variable Insurance Funds, Inc.
- -- Alliance Variable Products Series Fund
- -- Baron Capital Funds
- -- Fidelity Variable Insurance Products - Service Class
- -- Franklin Templeton Variable Insurance Products Trust
- -- Goldman Sachs Variable Insurance Trust (VIT)
- -- Janus Aspen Series: Service Shares
- -- J. P. Morgan Series Trust II
- -- Lazard Retirement Series, Inc.
- -- MFS(R) Variable Insurance TrustSM
- -- Royce Capital Fund
- -- Third Avenue Variable Series Trust
- -- Wanger Advisors Trust
- -- Warburg Pincus Trust
- -- Wells Fargo Variable Trust Funds
Mail your request to:
American Enterprise Life Insurance Company
829 AXP Financial Center
Minneapolis, MN 55474
We will mail your request to:
Your name _____________________________________________
Address _______________________________________________
City _____________________ State _________ Zip ________
<PAGE>
STATEMENT OF ADDITIONAL INFORMATION
for
WELLS FARGO ADVANTAGE(SM) VARIABLE ANNUITY
American Enterprise Variable Annuity Account
May 1, 2000
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 may be
obtained by writing or calling us at the address and telephone number below. The
prospectus is incorporated in this SAI by reference.
American Enterprise Life Insurance Company
829 AXP Financial Center
Minneapolis, MN 55474
1-800-333-3437
<PAGE>
TABLE OF CONTENTS
Performance Information..................................................p. 3
Calculating Annuity Payouts.............................................p. 15
Rating Agencies.........................................................p. 17
Principal Underwriter...................................................p. 17
Independent Auditors.....................................................p.17
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. We show actual performance from the date the
subaccounts began investing in the funds. For some subaccounts, we do not
provide any performance information because they are new and have not had any
activity to date. We also show performance from the commencement date of the
funds as if the contract existed at that time, which it did not. Although we
base performance figures on historical earnings, past performance does not
guarantee future results.
<PAGE>
<TABLE>
<CAPTION>
Average Annual Total Return For Annuities Without Withdrawal and Selection of the Five-Year Withdrawal Charge
Schedule For Periods Ending Dec. 31, 1999
<S> <C> <C> <C> <C> <C>
Performance Since Commencement of the Fund*
Since
Subaccount Investing In: 1 Year 5 Years 10 Years Commencement
- ---------- ------------- ------ ------- -------- ------------
AXP(SM) VARIABLE PORTFOLIO --
WBCA4 Blue Chip Advantage Fund (9/99)** --% --% --% 10.79%
WCAR4 Capital Resource Fund (10/81) 21.90 19.54 13.78 14.25
WDEI4 Diversified Equity Income Fund (9/99) -- -- -- 2.36
WEXI4 Extra Income Fund (5/96) 4.65 -- -- 3.93
WFDI4 Federal Income Fund (9/99) -- -- -- .02
WNDM4 New Dimensions Fund(R)(5/96) 30.04 -- -- 24.46
WSCA4 Small Cap Advantage Fund (9/99) -- -- -- 12.17
AIM V.I.
WCAP4 Capital Appreciation Fund (5/93) 42.52 23.72 -- 20.50
WVAL4 Value Fund (5/93) 27.99 25.33 -- 21.22
Dreyfus
WSRG4 The Dreyfus Socially Responsible Growth 28.18 26.78 -- 22.36
Fund, Inc. (10/93)
FRANKLIN TEMPLETON VIP TRUST
WISE4 Franklin Income Securities Fund - Class 2 -3.55 8.03 8.32 8.29
(1/89)***
WRES4 Franklin Real Estate Fund - Class 2 -7.78 6.36 7.37 7.04
(1/89)***
WSMC4 Franklin Small Cap Fund - Class 2 (11/95)*** 103.30 -- -- 31.60
WMSS4 Mutual Shares Securities Fund - Class 2 11.89 -- -- 9.19
(11/96)***
GOLDMAN SACHS Variable Insurance Trust (VIT)
WUSE4 CORE(SM) U.S. Equity Fund (2/98)**** 22.46 -- -- 18.93
WGLI4 Global Income Fund (1/98) -2.51 -- -- 2.03
WITO4 Internet Tollkeeper (5/00)+ -- -- -- --
WMCV4 Mid Cap Value Fund (4/98) 4.65 -- -- -6.40
MFS(R)
WGIS4 Growth with Income Series (10/95) 5.09 -- -- 19.28
WUTS4 Utilities Series (1/95) 28.89 -- -- 24.59
PUTNAM VARIABLE TRUST
WIGR4 Putnam VT International Growth Fund - 57.73 -- -- 28.19
Class IB Shares (1/97)++
WVIS4 Putnam VT Vista Fund - Class IB Shares 50.48 -- -- 29.13
(1/97)++
WELLS FARGO VARIABLE TRUST
WAAL4 Asset Allocation Fund (4/94) 7.69 10.83 -- 9.23
WCBD4 Corporate Bond Fund (9/99) -- -- -- -0.64
WEQI4 Equity Income Fund (5/96) 6.29 -- -- 15.41
WEQV4 Equity Value Fund (5/98) -3.95 -- -- -5.19
WGRO4 Growth Fund (4/94) 18.64 21.73 -- 19.42
WLCG4 Large Company Growth Fund (9/99) -- -- -- 19.77
WMMK4 Money Market Fund (5/94) 2.89 3.30 -- 3.25
WSCG4 Small Cap Growth Fund (5/95) 63.90 -- -- 18.82
* Current applicable charges deducted from fund performance include a $30
contract administrative charge, a 1.30% mortality and expense risk fee and
a 0.15% variable account administrative charge. Premium taxes are not
reflected in the above total returns.
** (Commencement date of the Fund)
*** Class 2 shares were issued Jan. 6, 1999. Prior to Jan. 6, 1999 Class 2
performance represents the historical performance results of Class 1
shares. Performance of Class 2 shares for periods after its Jan. 6, 1999
inception reflect Class 2's additional 12b-1 fee expense, which also
affects all future performance. Figures assume reinvestment of dividends
and capital gains.
**** CORE(SM) is a service mark of Goldman, Sachs & Co.
+ Fund had not commenced operations as of Dec. 31, 1999.
++ Each of the above Funds' Class IB Shares commenced operations on April 30,
1998. For periods prior to the inception dates of the Funds' Class IB
Shares, the performance shown is based on the historical performance of the
Funds' Class IA Shares adjusted to reflect the current expenses of the
Funds' Class IB Shares, including a 12b-1 fee of 0.15%.
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
Average Annual Total Return For Annuities With Withdrawal and Selection of the Five-Year Withdrawal Charge Schedule For
Periods Ending Dec. 31, 1999
<S> <C> <C> <C> <C> <C>
Performance Since Commencement of the Fund*
Since
Subaccount Investing In: 1 Year 5 Years 10 Years Commencement
- ---------- ------------- ------ ------- -------- ------------
AXP(SM) VARIABLE PORTFOLIO
WBCA4 Blue Chip Advantage Fund (9/99)** --% --% --% 3.13%
WCAR4 Capital Resource Fund (10/81) 13.90 19.34 13.78 14.25
WDEI4 Diversified Equity Income Fund (9/99) -- -- -- -4.63
WEXI4 Extra Income Fund (5/96) -2.53 -- -- 2.95
WFDI4 Federal Income Fund (9/99) -- -- -- -6.78
WNDM4 New Dimensions Fund(R)(5/96) 22.04 -- -- 23.85
WSCA4 Small Cap Advantage Fund (9/99) -- -- -- 4.39
AIM V.I.
WCAP4 Capital Appreciation Fund (5/93) 34.52 23.55 -- 20.50
WVAL4 Value Fund (5/93) 19.99 25.17 -- 21.22
Dreyfus
WSRG4 The Dreyfus Socially Responsible Growth 20.18 26.62 -- 22.36
Fund, Inc. (10/93)
FRANKLIN TEMPLETON VIP TRUST
WISE4 Franklin Income Securities Fund - Class 2 -10.07 7.74 8.32 8.29
(1/89)***
WRES4 Franklin Real Estate Fund - Class 2 -13.96 6.04 7.37 7.04
(11/96)***
WSMC4 Franklin Small Cap Fund - Class 2 (1/89)*** 95.30 -- -- 31.39
WMSS4 Mutual Shares Securities Fund - Class 2 4.14 -- -- 8.13
(11/95)***
GOLDMAN SACHS Variable Insurance Trust (VIT)
WUSE4 CORE(SM) U.S. Equity Fund (2/98) 14.46 -- -- 15.22
WGLI4 Global Income Fund (1/98) -9.11 -- -- -1.53
WITO4 Internet Tollkeeper (5/00)+ -- -- -- --
WMCV4 Mid Cap Value Fund (4/98) -2.52 -- -- -10.24
MFS(R)
WGIS4 Growth with Income Series (10/95) -2.11 -- -- 19.01
WUTS4 Utilities Series (1/95) 20.89 -- -- 24.42
PUTNAM VARIABLE TRUST
WIGR4 Putnam VT International Growth Fund - 49.73 -- -- 26.96
Class IB Shares (1/97)++
WVIS4 Putnam VT Vista Fund - Class IB Shares 42.48 -- -- 27.92
(1/97)++
WELLS FARGO VARIABLE TRUST
WAAL4 Asset Allocation Fund (4/94) 0.28 10.56 -- 9.23
WCBD4 Corporate Bond Fund (9/99) -- -- -- -7.39
WEQI4 Equity Income Fund (5/96) -1.01 -- -- 14.65
WEQV4 Equity Value Fund (5/98) -10.44 -- -- -9.05
WGRO4 Growth Fund (4/94) 10.64 21.55 -- 19.42
WLCG4 Large Company Growth Fund (9/99) -- -- -- 11.77
WMMK4 Money Market Fund (5/94) -4.14 2.95 -- 3.25
WSCG4 Small Cap Growth Fund (5/95) 55.90 -- -- 18.59
* Current applicable charges deducted from fund performance include a $30
contract administrative charge, a 1.30% mortality and expense risk fee, a
0.15% variable account administrative charge and applicable withdrawal
charges associated with the five-year withdrawal charge schedule. Premium
taxes are not reflected in the above total returns.
** (Commencement date of the Fund)
*** Class 2 shares were issued Jan. 6, 1999. Prior to Jan. 6, 1999, Class 2
performance represents the historical performance results of Class 1
shares. Performance of Class 2 shares for periods after its Jan. 6, 1999
inception reflect Class 2's additional 12b-1 fee expense, which also
affects all future performance. Figures assume reinvestment of dividends
and capital gains.
**** CORE(SM) is a service mark of Goldman, Sachs & Co.
+ Fund had not commenced operations as of Dec. 31, 1999.
++ Each of the above Funds' Class IB Shares commenced operations on April 30,
1998. For periods prior to the inception dates of the Funds' Class IB
Shares, the performance shown is based on the historical performance of the
Funds' Class IA Shares adjusted to reflect the current expenses of the
Funds' Class IB Shares, including a 12b-1 fee of 0.15%.
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
Average Annual Total Return For Annuities Without Withdrawal and Selection of
the Five-Year Withdrawal Charge Schedule and the Optional Enhanced Death Benefit
and Guaranteed Minimum Income Benefit Riders For Periods Ending Dec. 31, 1999
Performance Since Commencement of the Fund*
<S> <C> <C> <C> <C> <C> <C>
Since
Subaccount Investing In: 1 Year 5 Years 10 Years Commencement
- ---------- ------------- ------ ------- -------- ------------
AXP(SM) VARIABLE PORTFOLIO
WBCA2 Blue Chip Advantage Fund (9/99)** --% --% --% 10.39%
WCAR2 Capital Resource Fund (10/81) 21.29 19.23 13.21 14.01
WDEI2 Diversified Equity Income Fund (9/99) -- -- -- 1.99
WEXI2 Extra Income Fund (5/96) 4.12 -- -- 3.63
WFDI2 Federal Income Fund (9/99) -- -- -- -0.35
WNDM2 New Dimensions Fund(R)(5/96) 29.39 -- -- 24.11
WSCA2 Small Cap Advantage Fund (9/99) -- -- -- 11.76
AIM V.I.
WCAP2 Capital Appreciation Fund (5/93) 41.81 23.40 -- 20.20
WVAL2 Value Fund (5/93) 27.35 25.01 -- 20.92
Dreyfus
WSRG2 The Dreyfus Socially Responsible Growth 27.55 26.45 -- 22.06
Fund, Inc. (10/93)
FRANKLIN TEMPLETON VIP TRUST
WISE2 Franklin Income Securities Fund - Class 2 -4.04 7.75 7.78 8.05
(1/89)***
WRES2 Franklin Real Estate Fund - Class 2 -8.27 6.08 6.83 6.79
(11/96)***
WSMC2 Franklin Small Cap Fund - Class 2 (1/89)*** 102.31 -- -- 31.25
WMSS2 Mutual Shares Securities Fund - Class 2 11.34 -- -- 8.87
(11/95)***
GOLDMAN SACHS Variable Insurance Trust (VIT)
WUSE2 CORE(SM) U.S. Equity Fund (2/98) 21.85 -- -- 18.50
WGLI2 Global Income Fund (1/98) -3.00 -- -- 1.66
WITO2 Internet Tollkeeper (5/00)+ -- -- -- --
WMCV2 Mid Cap Value Fund (4/98) 4.12 -- -- -6.80
MFS(R)
WGIS2 Growth with Income Series (10/95) 4.57 -- -- 18.96
WUTS2 Utilities Series (1/95) 28.25 -- -- 24.27
PUTNAM VARIABLE TRUST
WIGR2 Putnam VT International Growth Fund - 56.95 -- -- 27.81
Class IB Shares (1/97)++
WVIS2 Putnam VT Vista Fund - Class IB Shares 49.73 -- -- 28.75
(1/97)++
WELLS FARGO VARIABLE TRUST
WAAL2 Asset Allocation Fund (4/94) 7.16 10.54 -- 8.95
WCBD2 Corporate Bond Fund (9/99) -- -- -- -1.00
WEQI2 Equity Income Fund (5/96) 5.76 -- -- 15.08
WEQV2 Equity Value Fund (5/98) -4.45 -- -- -5.58
WGRO2 Growth Fund (4/94) 18.05 21.41 -- 19.13
WLCG2 Large Company Growth Fund (9/99) -- -- -- 19.35
WMMK2 Money Market Fund (5/94) 2.38 3.03 -- 2.98
WSCG2 Small Cap Growth Fund (5/95) 63.09 -- -- 18.51
* Current applicable charges deducted from fund performance include a $30
contract administrative charge, a 1.30% mortality and expense risk fee, a
0.15% variable account administrative charge, a 0.20% Enhanced Death
Benefit Rider fee and a 0.30% Guaranteed Minimum Income Benefit Rider fee.
Premium taxes are not reflected in the above total returns.
** (Commencement date of the Fund)
*** Class 2 shares were issued Jan. 6, 1999. Prior to Jan. 6, 1999, Class 2
performance represents the historical performance results of Class 1
shares. Performance of Class 2 shares for periods after its Jan. 6, 1999
inception reflect Class 2's additional 12b-1 fee expense, which also
affects all future performance. Figures assume reinvestment of dividends
and capital gains.
**** CORE(SM)is a service mark of Goldman, Sachs & Co.
+ Fund had not commenced operations as of Dec. 31, 1999.
++ Each of the above Funds' Class IB Shares commenced operations on April 30,
1998. For periods prior to the inception dates of the Funds' Class IB
Shares, the performance shown is based on the historical performance of the
Funds' Class IA Shares adjusted to reflect the current expenses of the
Funds' Class IB Shares, including a 12b-1 fee of 0.15%.
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
Average Annual Total Return For Annuities With Withdrawal and Selection of the
Five-Year Withdrawal Charge Schedule and the Optional Enhanced Death Benefit and
Guaranteed Minimum Income Benefit Riders For Periods Ending Dec. 31, 1999
Performance Since Commencement of the Fund*
<S> <C> <C> <C> <C> <C>
Since
Subaccount Investing In: 1 Year 5 Years 10 Years Commencement
- ---------- ------------- ------ ------- -------- ------------
AXP(SM) VARIABLE PORTFOLIO
WBCA2 Blue Chip Advantage Fund (9/99)** --% --% --% 2.73%
WCAR2 Capital Resource Fund (10/81) 13.29 19.03 13.21 14.01
WDEI2 Diversified Equity Income Fund (9/99) -- -- -- -5.00
WEXI2 Extra Income Fund (5/96) -3.03 -- -- 2.66
WFDI2 Federal Income Fund (9/99) -- -- -- -7.14
WNDM2 New Dimensions Fund(R)(5/96) 21.39 -- -- 23.50
WSCA2 Small Cap Advantage Fund (9/99) -- -- -- 3.99
AIM V.I.
WCAP2 Capital Appreciation Fund (5/93) 33.81 23.23 -- 20.20
WVAL2 Value Fund (5/93) 19.35 24.84 -- 20.92
Dreyfus
WSRG2 The Dreyfus Socially Responsible Growth 19.55 26.30 -- 22.06
Fund, Inc. (10/93)
FRANKLIN TEMPLETON VIP TRUST
WISE2 Franklin Income Securities Fund - Class 2 -10.54 7.45 7.78 8.05
(1/89)***
WRES2 Franklin Real Estate Fund - Class 2 -14.43 5.76 6.83 6.79
(11/96)***
WSMC2 Franklin Small Cap Fund - Class 2 (1/89)*** 94.31 -- -- 31.04
WMSS2 Mutual Shares Securities Fund - Class 2 3.60 -- -- 7.80
(11/95)***
GOLDMAN SACHS Variable Insurance Trust (VIT)
WUSE2 CORE(SM) U.S. Equity Fund (2/98) 13.85 -- -- 14.78
WGLI2 Global Income Fund (1/98) -9.59 -- -- -1.90
WITO2 Internet Tollkeeper (5/00)+ -- -- -- --
WMCV2 Mid Cap Value Fund (4/98) -3.03 -- -- -10.63
MFS(R)
WGIS2 Growth with Income Series (10/95) -2.62 -- -- 18.69
WUTS2 Utilities Series (1/95) 20.25 -- -- 24.10
PUTNAM VARIABLE TRUST
WIGR2 Putnam VT International Growth Fund - 48.95 -- -- 26.57
Class IB Shares (1/97)++
WVIS2 Putnam VT Vista Fund - Class IB Shares 41.73 -- -- 27.53
(1/97)++
WELLS FARGO VARIABLE TRUST
WAAL2 Asset Allocation Fund (4/94) -0.24 10.27 -- 8.95
WCBD2 Corporate Bond Fund (9/99) -- -- -- -7.74
WEQI2 Equity Income Fund (5/96) -1.53 -- -- 14.32
WEQV2 Equity Value Fund (5/98) -10.92 -- -- -9.44
WGRO2 Growth Fund (4/94) 10.05 21.23 -- 19.13
WLCG2 Large Company Growth Fund (9/99) -- -- -- 11.35
WMMK2 Money Market Fund (5/94) -4.64 2.67 -- 2.98
WSCG2 Small Cap Growth Fund (5/95) 55.09 -- -- 18.27
* Current applicable charges deducted from fund performance include a $30
contract administrative charge, a 1.30% mortality and expense risk fee, a
0.15% variable account administrative charge, a 0.20% Enhanced Death
Benefit Rider fee, a 0.30% Guaranteed Minimum Income Benefit Rider fee and
applicable withdrawal charges associated with the five-year withdrawal
charge schedule. Premium taxes are not reflected in the above total
returns.
** (Commencement date of the Fund)
*** Class 2 shares were issued Jan. 6, 1999. Prior to Jan. 6, 1999, Class 2
performance represents the historical performance results of Class 1
shares. Performance of Class 2 shares for periods after its Jan. 6, 1999
inception reflect Class 2's additional 12b-1 fee expense, which also
affects all future performance. Figures assume reinvestment of dividends
and capital gains.
**** CORE(SM) is a service mark of Goldman, Sachs & Co.
+ Fund had not commenced operations as of Dec. 31, 1999.
++ Each of the above Funds' Class IB Shares commenced operations on April 30,
1998. For periods prior to the inception dates of the Funds' Class IB
Shares, the performance shown is based on the historical performance of the
Funds' Class IA Shares adjusted to reflect the current expenses of the
Funds' Class IB Shares, including a 12b-1 fee of 0.15%.
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
Average Annual Total Return For Annuities Without Withdrawal and Selection of the Seven-Year Withdrawal Charge Schedule For
Periods Ending Dec. 31, 1999
Performance Since Commencement of the Fund*
<S> <C> <C> <C> <C> <C>
Since
Subaccount Investing In: 1 Year 5 Years 10 Years Commencement
- ---------- ------------- ------ ------- -------- ------------
AXP(SM) VARIABLE PORTFOLIO
WBCA7 Blue Chip Advantage Fund (9/99)** -- --% --% 10.96%
WCAR7 Capital Resource Fund (10/81) 22.21 19.84 14.07 14.54
WDEI7 Diversified Equity Income Fund (9/99) -- -- -- 2.51
WEXI7 Extra Income Fund (5/96) 4.91 -- -- 4.19
WFDI7 Federal Income Fund (9/99) -- -- -- 0.17
WNDM7 New Dimensions Fund(R)(5/96) 30.36 -- -- 24.77
WSCA7 Small Cap Advantage Fund (9/99) -- -- -- 12.34
AIM V.I.
WCAP7 Capital Appreciation Fund (5/93) 42.88 24.03 -- 20.80
WVAL7 Value Fund (5/93) 28.31 25.65 -- 21.52
Dreyfus
WSRG7 The Dreyfus Socially Responsible Growth 28.49 27.09 -- 22.66
Fund, Inc. (10/93)
FRANKLIN TEMPLETON VIP TRUST
WISE7 Franklin Income Securities Fund - Class 2 -3.331 8.31 8.59 8.56
(1/89)***
WRES7 Franklin Real Estate Fund - Class 2 -7.55 6.62 7.64 7.30
(11/96)***
WSMC7 Franklin Small Cap Fund - Class 2 (1/89)*** 103.80 -- -- 31.93
WMSS7 Mutual Shares Securities Fund - Class 2 12.17 -- -- 9.46
(11/95)***
GOLDMAN SACHS Variable Insurance Trust (VIT)
WUSE7 CORE(SM) U.S. Equity Fund (2/98) 22.76 -- -- 19.22
WGLI7 Global Income Fund (1/98) -2.26 -- 2.29
WITO7 Internet Tollkeeper (5/00)+ -- -- -- --
WMCV7 Mid Cap Value Fund (4/98) 4.91 -- -- -6.17
MFS(R)
WGIS7 Growth with Income Series (10/95) 5.36 -- -- 19.58
WUTS7 Utilities Series (1/95) 29.21 -- -- 24.90
PUTNAM VARIABLE TRUST
WIGR7 Putnam VT International Growth Fund - 58.11 -- -- 28.51
Class IB Shares (1/97)++
WVIS7 Putnam VT Vista Fund - Class IB Shares 50.84 -- -- 29.45
(1/97)++
WELLS FARGO VARIABLE TRUST
WAAL7 Asset Allocation Fund (4/94) 7.96 11.10 -- 9.50
WCBD7 Corporate Bond Fund (9/99) -- -- -- -0.57
WEQI7 Equity Income Fund (5/96) 6.55 -- -- 15.69
WEQV7 Equity Value Fund (5/98) -3.71 -- -- -4.95
WGRO7 Growth Fund (4/94) 18.93 22.03 -- 19.72
WLCG7 Large Company Growth Fund (9/99) -- -- -- 19.85
WMMK7 Money Market Fund (5/94) 3.15 3.56 -- 3.51
WSCG7 Small Cap Growth Fund (5/95) 64.29 -- -- 19.12
* Current applicable charges deducted from fund performance include a $30
contract administrative charge, a 1.05% mortality and expense risk fee and
a 0.15% variable account administrative charge. Premium taxes are not
reflected in the above total returns.
** (Commencement date of the Fund)
*** Class 2 shares were issued Jan. 6, 1999. Prior to Jan. 6, 1999, Class 2
performance represents the historical performance results of Class 1
shares. Performance of Class 2 shares for periods after its Jan. 6, 1999
inception reflect Class 2's additional 12b-1 fee expense, which also
affects all future performance. Figures assume reinvestment of dividends
and capital gains.
**** CORE(SM) is a service mark of Goldman, Sachs & Co.
+ Fund had not commenced operations as of Dec. 31, 1999.
++ Each of the above Funds' Class IB Shares commenced operations on April 30,
1998. For periods prior to the inception dates of the Funds' Class IB
Shares, the performance shown is based on the historical performance of the
Funds' Class IA Shares adjusted to reflect the current expenses of the
Funds' Class IB Shares, including a 12b-1 fee of 0.15%.
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
Average Annual Total Return For Annuities With Withdrawal and Selection of the Seven-Year Withdrawal Charge
Schedule For Periods Ending Dec. 31, 1999
Performance Since Commencement of the Fund*
<S> <C> <C> <C> <C> <C>
Since
Subaccount Investing In: 1 Year 5 Years 10 Years Commencement
- ---------- ------------- ------ ------- -------- ------------
AXP(SM) VARIABLE PORTFOLIO
WBCA7 Blue Chip Advantage Fund (9/99)** --% --% --% 3.29%
WCAR7 Capital Resource Fund (10/81) 14.21 19.35 14.07 14.54
WDEI7 Diversified Equity Income Fund (9/99) -- -- -- -4.49
WEXI7 Extra Income Fund (5/96) -2.29 -- -- 2.71
WFDI7 Federal Income Fund (9/99) -- -- -- -6.64
WNDM7 New Dimensions Fund(R)(5/96) 22.36 -- -- 23.86
WSCA7 Small Cap Advantage Fund (9/99) -- -- -- 4.55
AIM V.I.
WCAP7 Capital Appreciation Fund (5/93) 34.88 23.60 -- 20.70
WVAL7 Value Fund (5/93) 20.31 25.24 -- 21.42
Dreyfus
WSRG7 The Dreyfus Socially Responsible Growth 20.49 26.70 -- 22.55
Fund, Inc. (10/93)
FRANKLIN TEMPLETON VIP TRUST
WISE7 Franklin Income Securities Fund - Class 2 -9.84 7.57 8.59 8.56
(1/89)***
WRES7 Franklin Real Estate Fund - Class 2 -13.75 5.84 7.64 7.30
(11/96)***
WSMC7 Franklin Small Cap Fund - Class 2 (1/89)*** 95.80 -- -- 31.41
WMSS7 Mutual Shares Securities Fund - Class 2 4.40 -- -- 7.87
(11/95)***
GOLDMAN SACHS Variable Insurance Trust (VIT)
WUSE7 CORE(SM) U.S. Equity Fund (2/98) 14.76 -- -- 15.52
WGLI7 Global Income Fund (1/98) -8.88 -- -- -1.29
WITO7 Internet Tollkeeper (5/00)+ -- -- -- --
WMCV7 Mid Cap Value Fund (4/98) -2.28 -- -- -10.02
MFS(R) -1.87 -- -- 18.91
WGIS7 Growth with Income Series (10/95) 21.21 -- -- 24.48
WUTS7 Utilities Series (1/95)
PUTNAM VARIABLE TRUST
WIGR7 Putnam VT International Growth Fund - 50.11 -- -- 27.08
Class IB Shares (1/97)++
WVIS7 Putnam VT Vista Fund - Class IB Shares 42.84 -- -- 28.04
(1/97)++
WELLS FARGO VARIABLE TRUST
WAAL7 Asset Allocation Fund (4/94) 0.53 10.44 -- 9.04
WCBD7 Corporate Bond Fund (9/99) -- -- -- -7.32
WEQI7 Equity Income Fund (5/96) -0.77 -- -- 14.56
WEQV7 Equity Value Fund (5/98) -10.22 -- -- -8.82
WGRO7 Growth Fund (4/94) 10.93 21.57 -- 19.42
WLCG7 Large Company Growth Fund (9/99) -- -- -- 11.85
WMMK7 Money Market Fund (5/94) -3.91 2.68 -- 2.89
WSCG7 Small Cap Growth Fund (5/95) 56.29 -- -- 18.54
* Current applicable charges deducted from fund performance include a $30
contract administrative charge, a 1.05% mortality and expense risk fee, a
0.15% variable account administrative charge and applicable withdrawal
charges associated with the seven-year withdrawal charge schedule. Premium
taxes are not reflected in the above total returns.
** (Commencement date of the Fund)
*** Class 2 shares were issued Jan. 6, 1999. Prior to Jan. 6, 1999, Class 2
performance represents the historical performance results of Class 1
shares. Performance of Class 2 shares for periods after its Jan. 6, 1999
inception reflect Class 2's additional 12b-1 fee expense, which also
affects all future performance. Figures assume reinvestment of dividends
and capital gains.
**** CORE(SM) is a service mark of Goldman, Sachs & Co.
+ Fund had not commenced operations as of Dec. 31, 1999.
++ Each of the above Funds' Class IB Shares commenced operations on April 30,
1998. For periods prior to the inception dates of the Funds' Class IB
Shares, the performance shown is based on the historical performance of the
Funds' Class IA Shares adjusted to reflect the current expenses of the
Funds' Class IB Shares, including a 12b-1 fee of 0.15%.
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
Average Annual Total Return For Annuities Without Withdrawal and Selection of
the Seven-Year Withdrawal Charge Schedule and the Optional Enhanced Death
Benefit and Guaranteed Minimum Income Benefit Riders For Periods Ending Dec. 31,
1999
Performance Since
Commencement Performance Since
of the Subaccount Commencement of the Fund*
<S> <C> <C> <C> <C> <C> <C> <C>
Since Since
Subaccount Investing In: 1 Year Commencement 1 Year 5 Years 10 Years Commencement
- ---------- ------------- ------ ------------ ------ ------- -------- ------------
AXP(SM) VARIABLE PORTFOLIO
WBCA5 Blue Chip Advantage Fund ( -/--; --% --% --% --% --% 10.81%
9/99)**
ECR Capital Resource Fund (2/95; 10/81) 21.96 18.97 21.96 19.55 13.76 14.22
WDEI5 Diversified Equity Income Fund (-/--; -- -- -- -- -- 2.37
9/99)
EIA Extra Income Fund (8/99; 5/96) 4.28 0.36 4.28 -- -- 3.87
WFDI5 Federal Income Fund (-/--; 9/99) -- -- -- -- -- 0.04
EGD New Dimensions Fund(R)(10/97; 5/96) 30.10 28.33 30.10 -- -- 24.50
WSCA5 Small Cap Advantage Fund (-/--; 9/99) -- -- -- -- -- 12.18
AIM V.I.
ECA Capital Appreciation Fund (8/99; 5/93) 42.56 32.97 42.56 23.78 -- 20.56
EVA Value Fund (10/97; 5/93) 28.03 28.33 28.03 25.36 -- 21.22
Dreyfus
ESR The Dreyfus Socially Responsible 28.22 14.82 28.22 26.84 -- 22.42
Growth Fund, Inc. (8/99; 10/93)
FRANKLIN TEMPLETON VIP TRUST
WISE5 Franklin Income Securities Fund - -- -- -3.50 8.09 8.38 8.35
Class 2
(-/--; 1/89)***
ERE Franklin Real Estate Fund - Class 2 -7.72 -0.50 -7.72 6.41 7.42 7.08
(9/99;11/96)***
WSMC5 Franklin Small Cap Fund - Class 2 -- -- 103.40 -- -- 31.67
(-/--;1/89)***
EMU Mutual Shares Securities Fund - Class 11.95 8.50 11.95 -- -- 9.24
2
(9/99; 11/95)***
GOLDMAN SACHS Variable Insurance Trust
(VIT)
JUS CORE(SM) U.S. Equity Fund (9/99; 2/98) 22.51 12.43 22.51 -- -- 18.98
JGL Global Income Fund (9/99; 1/98) -2.46 0.09 -2.46 -- -- 2.08
WITO5 Internet Tollkeeper (5/00)+ -- -- -- -- -- --
JMC Mid Cap Value Fund (-/--; 4/98) -- -- 4.70 -- -- -6.36
MFS(R)
WGIS5 Growth with Income Series (-/--; -- -- 5.15 -- -- 19.34
10/95)
EUT Utilities Series (9/99; 1/95) 28.93 21.18 28.93 -- -- 24.65
PUTNAM VARIABLE TRUST
EPL Putnam VT International Growth Fund - 57.89 36.35 57.89 -- -- 28.28
Class IB Shares (9/99; 1/97)++
EPT Putnam VT Vista Fund - Class IB 50.52 35.90 50.52 -- -- 29.19
Shares
(8/99; 1/97)++
* Current applicable charges deducted from fund performance include a $30
contract administrative charge, a 1.05% mortality and expense risk fee, a
0.15% variable account administrative charge, a 0.20% Enhanced Death
Benefit Rider fee and a 0.30% Guaranteed Minimum Income Benefit Rider fee.
Premium taxes are not reflected in the above total returns.
** (Commencement date of the subaccount; commencement date of the Fund)
*** Class 2 shares were issued Jan. 6, 1999. Prior to Jan. 6, 1999, Class 2
performance represents the historical performance results of Class 1
shares. Performance of Class 2 shares for periods after its Jan. 6, 1999
inception reflect Class 2's additional 12b-1 fee expense, which also
affects all future performance. Figures assume reinvestment of dividends
and capital gains.
**** CORE(SM) is a service mark of Goldman, Sachs & Co.
+ Fund had not commenced operations as of Dec. 31, 1999.
++ Each of the above Funds' Class IB Shares commenced operations on April 30,
1998. For periods prior to the inception dates of the Funds' Class IB
Shares, the performance shown is based on the historical performance of the
Funds' Class IA Shares adjusted to reflect the current expenses of the
Funds' Class IB Shares, including a 12b-1 fee of 0.15%.
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
Average Annual Total Return For Annuities Without Withdrawal and Selection of
the Seven-Year Withdrawal Charge Schedule and the Optional Enhanced Death
Benefit and Guaranteed Minimum Income Benefit Riders For Periods Ending Dec. 31,
1999 (continued)
Performance Since
Commencement Performance Since
of the Subaccount Commencement of the Fund*
<S> <C> <C> <C> <C> <C> <C> <C>
Since Since
Subaccount Investing In: 1 Year Commencement 1 Year 5 Years 10 Years Commencement
- ---------- ------------- ------ ------------ ------ ------- -------- ------------
WELLS FARGO VARIABLE TRUST
WAAL5 Asset Allocation Fund (--;4/94)** --% --% 7.75% 10.88% --% 9.28%
WCBD5 Corporate Bond Fund (--;9/99) -- -- -- -- -- -0.62
WEQI5 Equity Income Fund (--;5/96) -- -- 6.35 -- -- 15.46
WEQV5 Equity Value Fund (--;5/98) -- -- -3.91 -- -- -5.14
WGRO5 Growth Fund (--;4/94) -- -- 18.69 21.79 -- 19.48
WLCG5 Large Company Growth Fund (--;9/99) -- -- -- -- -- 19.79
WMMK5 Money Market Fund (--;5/94) -- -- 2.94 3.36 -- 3.30
WSCG5 Small Cap Growth Fund (--;5/95) -- -- 63.98 -- -- 18.88
* Current applicable charges deducted from fund performance include a $30
contract administrative charge, a 1.05% mortality and expense risk fee, a
0.15% variable account administrative charge, a 0.20% Enhanced Death
Benefit Rider fee and a 0.30% Guaranteed Minimum Income Benefit Rider fee.
Premium taxes are not reflected in the above total returns.
** (Commencement date of the subaccount; commencement date of the Fund)
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
Average Annual Total Return For Annuities With Withdrawal and Selection of the
Seven-Year Withdrawal Charge Schedule and the Optional Enhanced Death Benefit
and Guaranteed Minimum Income Benefit Riders For Periods Ending Dec. 31, 1999
Performance Since
Commencement Performance Since
of the Subaccount Commencement of the Fund*
<S> <C> <C> <C> <C> <C> <C> <C>
Since Since
Subaccount Investing In: 1 Year Commencement 1 Year 5 Years 10 Years Commencement
- ---------- ------------- ------ ------------ ------ ------- -------- ------------
AXP(SM) VARIABLE PORTFOLIO
WBCA5 Blue Chip Advantage Fund ( -/--; --% --% --% --% --% 3.15%
9/99)**
ECR Capital Resource Fund (2/95; 10/81) 13.96 18.97 21.96 19.55 13.76 14.22
WDEI5 Diversified Equity Income Fund (-/--; -- -- -- -- -- -4.62
9/99)
EIA Extra Income Fund (8/99; 5/96) -2.86 -6.41 -2.86 -- -- 2.40
WFDI5 Federal Income Fund (-/--; 9/99) -- -- -- -- -- -6.77
EGD New Dimensions Fund(R)(10/97; 5/96) 22.10 25.96 22.10 -- -- 23.58
WSCA5 Small Cap Advantage Fund (-/--; 9/99) -- -- -- -- -- 4.41
AIM V.I.
ECA Capital Appreciation Fund (8/99; 5/93) 34.56 25.04 34.56 23.35 -- 20.45
EVA Value Fund (10/97; 5/93) 20.03 25.96 20.03 24.95 -- 21.12
Dreyfus
ESR The Dreyfus Socially Responsible 20.22 6.89 20.22 26.45 -- 20.30
Growth Fund, Inc. (8/99; 10/93)
FRANKLIN TEMPLETON VIP TRUST
WISE5 Franklin Income Securities Fund - -- -- -10.02 7.35 8.38 8.35
Class 2
(-/--; 1/89)***
ERE Franklin Real Estate Fund - Class 2 -13.91 -7.20 -13.91 5.62 7.42 7.08
(9/99;11/96)***
WSMC5 Franklin Small Cap Fund - Class 2 -- -- 95.40 -- -- 31.14
(-/--;1/89)***
EMU Mutual Shares Securities Fund - Class 4.19 1.08 4.19 -- -- 7.65
2
(9/99; 11/95)***
GOLDMAN SACHS Variable Insurance Trust
(VIT)
JUS CORE(SM) U.S. Equity Fund (9/99; 2/98) 14.51 4.70 14.51 -- -- 15.28
JGL Global Income Fund (9/99; 1/98) -9.06 -6.65 -9.06 -- -- -1.48
WITO5 Internet Tollkeeper (5/00)+ -- -- -- -- --
JMC Mid Cap Value Fund (-/--; 4/98) -- -- -2.47 -- -- -10.20
MFS(R)
WGIS5 Growth with Income Series (-/--; -- -- -2.07 -- -- 18.67
10/95)
EUT Utilities Series (9/99; 1/95) 20.93 13.25 20.93 -- -- 24.23
PUTNAM VARIABLE TRUST
EPL Putnam VT International Growth Fund - 49.89 28.42 49.89 -- -- 26.84
Class IB Shares (9/99; 1/97)++
EPT Putnam VT Vista Fund - Class IB 42.52 27.97 42.52 -- -- 27.77
Shares
(8/99; 1/97)++
* Current applicable charges deducted from fund performance include a $30
contract administrative charge, a 1.05% mortality and expense risk fee, a
0.15% variable account administrative charge, a 0.20% Enhanced Death
Benefit Rider fee, a 0.30% Guaranteed Minimum Income Benefit Rider fee and
applicable withdrawal charges associated with the seven-year withdrawal
charge schedule. Premium taxes are not reflected in the above total
returns.
** (Commencement date of the subaccount; commencement date of the Fund)
*** Class 2 shares were issued Jan. 6, 1999. Prior to Jan. 6, 1999, Class 2
performance represents the historical performance results of Class 1
shares. Performance of Class 2 shares for periods after its Jan. 6, 1999
inception reflect Class 2's additional 12b-1 fee expense, which also
affects all future performance. Figures assume reinvestment of dividends
and capital gains.
**** CORE(SM) is a service mark of Goldman, Sachs & Co.
+ Fund had not commenced operations as of Dec. 31, 1999.
++ Each of the above Funds' Class IB Shares commenced operations on April 30,
1998. For periods prior to the inception dates of the Funds' Class IB
Shares, the performance shown is based on the historical performance of the
Funds' Class IA Shares adjusted to reflect the current expenses of the
Funds' Class IB Shares, including a 12b-1 fee of 0.15%.
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
Average Annual Total Return For Annuities With Withdrawal and Selection of the
Seven-Year Withdrawal Charge Schedule and the Optional Enhanced Death Benefit
and Guaranteed Minimum Income Benefit Riders For Periods Ending Dec. 31, 1999
(continued)
Performance Since
Commencement Performance Since
of the Subaccount Commencement of the Fund*
<S> <C> <C> <C> <C> <C> <C> <C>
Since Since
Subaccount Investing In: 1 Year Commencement 1 Year 5 Years 10 Years Commencement
- ---------- ------------- ------ ------------ ------ ------- -------- ------------
WELLS FARGO VARIABLE TRUST
WAAL5 Asset Allocation Fund (--;4/94)** --% --% 0.33% 10.21% --% 8.82%
WCBD5 Corporate Bond Fund (--;9/99) -- -- -- -- -- -7.37
WEQI5 Equity Income Fund (--;5/96) -- -- -0.97 -- -- 14.33
WEQV5 Equity Value Fund (--;5/98) -- -- -10.39 -- -- -9.00
WGRO5 Growth Fund (--;4/94) -- -- 10.69 21.33 -- 19.18
WLCG5 Large Company Growth Fund (--;9/99) -- -- -- -- -- 11.79
WMMK5 Money Market Fund (--;5/94) -- -- -4.10 2.46 -- 2.68
WSCG5 Small Cap Growth Fund (--;5/95) -- -- 55.98 -- -- 18.30
* Current applicable charges deducted from fund performance include a
$30 contract administrative charge, a 1.05% mortality and expense risk
fee, a 0.15% variable account administrative charge, a 0.20% Enhanced
Death Benefit Rider fee, a 0.30% Guaranteed Minimum Income Benefit
Rider fee and applicable withdrawal charges associated with the
seven-year withdrawal charge schedule. Premium taxes are not reflected
in the above total returns.
**(Commencement date of the subaccount; commencement date of the Fund)
</TABLE>
<PAGE>
Cumulative Total Return
Cumulative total return represents the cumulative change in the value of an
investment for a given period (reflecting change in a subaccount's accumulation
unit value). We compute cumulative total return by using the following formula:
ERV - P
P
where: P = a hypothetical initial payment of $1,000
ERV = Ending Redeemable Value of a hypothetical $1,000
payment made at the beginning of the period, at the
end of the period (or fractional portion thereof)
Total return figures reflect the deduction of the withdrawal charge which
assumes you withdraw the entire contract value at the end of the one, five and
ten year periods (or, if less, up to the life of the subaccount). We also may
show performance figures without the deduction of a withdrawal charge. In
addition, total return figures reflect the deduction of all other applicable
charges including the contract administrative charge, the variable account
administrative charge, the Enhanced Death Benefit Rider fee, the Guaranteed
Minimum Income Benefit Rider fee and the mortality and expense risk fee.
Calculation of Yield for Subaccounts Investing in Money Market Funds
Annualized Simple Yield
For the subaccounts investing in money market funds, we base quotations of
simple yield on:
(a) the change in the value of a hypothetical subaccount (exclusive of
capital changes and income other than investment income) at the
beginning of a particular seven-day period:
(b) less, a pro rata share of the subaccount expenses accrued over the
period;
(c) dividing this difference by the value of the subaccount at the
beginning of the period to obtain the base period return; and
(d) multiplying the base period return by 365/7.
The subaccount's value includes:
o any declared dividends;
o the value of any shares purchased with dividends paid during the period;
and o any dividends declared for such shares.
It does not include:
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
You must consider (when comparing an investment in subaccounts investing in
money market funds with fixed annuities) that fixed annuities often provide an
agreed-to or guaranteed yield for a stated period of time, whereas the
subaccount's yield fluctuates. In comparing the yield of the subaccount to a
money market fund, you should consider the different services that the contract
provides.
<PAGE>
Annualized Yield for Subaccounts Investing in Income Funds
For the subaccounts investing in income funds, we base quotations of yield on
all investment income earned during a particular 30-day period, less expenses
accrued during the period (net investment income) and compute it by dividing net
investment income per accumulation unit by the value of an accumulation unit on
the last day of the period, according to the following formula:
YIELD = 2[( a-b + 1)6 - 1]
cd
where: a = dividends and investment income earned during the period
b = expenses accrued for the period (net of reimbursements)
c = the average daily number of accumulation units
outstanding during the period that were entitled to
receive dividends
d = the maximum offering price per accumulation unit on the
last day of the period
The subaccount earns yield from the increase in the net asset value of shares of
the fund in which it invests and from dividends declared and paid by the fund,
which are automatically invested in shares of the fund.
Annualized Yield Based on the 30-Day Period Ended Dec. 31, 1999
Subaccount Investing In Yield
- ---------- ------------ -----
EIA AXP(SM) Variable Portfolio -
Extra Income Fund 15.35%
The yield on the subaccount's accumulation unit may fluctuate daily and does not
provide a basis for determining future yields.
Independent rating or statistical services or publishers or publications such as
those listed below may quote subaccount performance, compare it to rankings,
yields or returns, or use it in variable annuity accumulation or settlement
illustrations they publish or prepare.
The Bank Rate Monitor National Index, Barron's, Business Week, CDA
Technologies, Donoghue's Money Market Fund Report, Financial Services
Week, Financial Times, Financial World, Forbes, Fortune, Global
Investor, Institutional Investor, Investor's Business Daily,
Kiplinger's Personal Finance, Lipper Analytical Services, Money,
Morningstar, Mutual Fund Forecaster, Newsweek, The New York Times,
Personal Investor, Stanger Report, Sylvia Porter's Personal Finance,
USA Today, U.S. News & World Report, The Wall Street Journal and
Wiesenberger Investment Companies Service.
CALCULATING ANNUITY PAYOUTS
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 contract on the valuation date; 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.
<PAGE>
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. 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; by
o the fixed number of annuity units credited to you.
Annuity Unit Values: We originally set this value at $1 for each subaccount. To
calculate later values 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
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, the variable account administrative charge and the Enhanced Death
Benefit Rider fee (if selected) from the result.
Because the net asset value of the fund may fluctuate, the 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 variable subaccount.
The One-Year 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 one-year fixed account at the retirement date or the
date you 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.
<PAGE>
RATING AGENCIES
The following chart reflects the ratings given to us by independent rating
agencies. These agencies evaluate the financial soundness and claims-paying
ability of insurance companies based on a number of different factors. This
information does not relate to the management or performance of the subaccounts
of the contract. This information relates only to our general account and
reflects our ability to make annuity payouts and to pay death benefits and other
distributions from the contract.
Rating Agency Rating
- -------------------- -----------------
A.M. Best A+ (Superior)
Duff & Phelps AAA
Moody's Aa2 (Excellent)
A.M. Best's superior rating reflects our strong distribution network, favorable
overall balance sheet, consistently improving profitability, adequate level of
capitalization and asset/liability management expertise.
Duff & Phelps rating reflects our consistently excellent profitability record,
leadership position in chosen markets, stable operating leverage and effective
use of asset/liability management techniques.
Moody's excellent rating reflects our leadership position in financial planning,
strong asset, liability management and good capitalization. American Enterprise
Life has a strong market focus and greatly emphasizes quality service. This
information applies only to fixed products invested in American Enterprise
Life's General Account and reflects American Enterprise Life's ability to
fulfill its obligations under its contracts. This information does not relate to
the management and performance of the separate account assets associated with
American Enterprise Life's variable products.
PRINCIPAL UNDERWRITER
The principal underwriter for the contract is American Express Financial
Advisors Inc. (AEFA) 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
<PAGE>
American Enterprise Variable Annuity Account - Wells Fargo Advantage(SM)
Variable Annuity
Annual Financial Information
Report of Independent Auditors
The Board of Directors
American Enterprise Life Insurance Company
We have audited the individual and combined statements of net assets of the
segregated asset subaccounts of American Enterprise Variable Annuity Account
(comprised of subaccounts ECR, EIA, EGD, ECA, EVA, ESR, ERE, EMU, JUS, JGL, JMC,
EUT, EPL and EPT) as of December 31, 1999, and the related statements of
operations and the statements of changes in net assets for each of the periods
indicated therein. These financial statements are the responsibility of the
management of American Enterprise Life Insurance Company. Our responsibility is
to express an opinion on these financial statements based on our audits.
We conducted our audits in accordance with auditing standards generally accepted
in the United States. Those standards require that we plan and perform the audit
to obtain reasonable assurance about whether the financial statements are free
of material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements. Our
procedures included confirmation of securities owned at December 31, 1999 with
the affiliated and unaffiliated mutual fund managers. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the individual and combined financial position of the
segregated asset subaccounts of American Enterprise Variable Annuity Account (as
described above) at December 31, 1999, and the individual and combined results
of their operations and the changes in their net assets for the periods
indicated therein, in conformity with accounting principles generally accepted
in the United States.
ERNST & YOUNG LLP
Minneapolis, Minnesota
March 17, 2000
<PAGE>
<TABLE>
<CAPTION>
American Enterprise Variable Annuity Account -- Wells Fargo Advantage(SM) Variable Annuity
Statements of Net Assets
December 31, 1999
Segregated Asset Subaccounts
Assets ECR EIA EGD
Investments in shares of mutual funds and portfolios:
<S> <C> <C> <C>
at cost $ 10,984,992 $ 6,759 $ 2,802,524
------------ ------- -----------
at market value $ 13,632,953 $ 6,752 $ 3,689,151
Dividends receivable -- 1,078 --
Accounts receivable from American Enterprise Life
for contract purchase payments 27,305 -- --
Receivable from mutual funds and portfolios for share redemptions -- -- --
------ ---- --------
Total assets 13,660,258 7,830 3,689,151
========== ===== =========
Liabilities
Payable to American Enterprise Life for:
Mortality and expense risk fee 14,364 93 3,694
Issue and adminstrative fee 1,724 11 443
Contract terminations -- -- 401
Payable to mutual funds and portfolios for investments purchased -- -- --
---- ---- ---
Total liabilities 16,088 104 4,538
------ --- -----
Net assets applicable to contracts in accumulation period 13,637,782 7,726 3,684,613
Net assets applicable to contracts in payment period 6,388 -- --
----- ----- --------
Total net assets $ 13,644,170 $ 7,726 $ 3,684,613
============ ======= ===========
Accumulation units outstanding 5,864,252 7,716 2,140,748
========= ===== =========
Net asset value per accumulation unit $ 2.33 $ 1.00 $ 1.72
====== ====== ======
Assets ECA EVA
Investments in shares of mutual funds and portfolios:
at cost $ 71,183 $ 8,003,320
-------- -----------
at market value $ 80,940 $ 9,698,008
Dividends receivable -- --
Accounts receivable from American Enterprise Life
for contract purchase payments -- --
Receivable from mutual funds and portfolios for share redemptions 70 27,675
-- ------
Total assets 81,010 9,725,683
====== =========
Liabilities
Payable to American Enterprise Life for:
Mortality and expense risk fee 63 10,001
Issue and adminstrative fee 7 1,200
Contract terminations -- 16,474
Payable to mutual funds and portfolios for investments purchased -- --
------ -------
Total liabilities 70 27,675
-- ------
Net assets applicable to contracts in accumulation period 80,940 9,698,008
Net assets applicable to contracts in payment period -- --
------ -------
Total net assets $ 80,940 $ 9,698,008
======== ===========
Accumulation units outstanding 56,612 5,637,595
====== =========
Net asset value per accumulation unit $ 1.43 $ 1.72
====== ======
See accompanying notes to financial statements.
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
American Enterprise Variable Annuity Account -- Wells Fargo Advantage(SM) Variable Annuity
Statements of Net Assets
December 31, 1999
Segregated Asset Subaccounts
Assets ESR ERE EMU
Investments in shares of mutual funds and portfolios:
<S> <C> <C> <C>
at cost $ 149,389 $ 867 $ 31,535
--------- ----- --------
at market value $ 151,441 $ 859 $ 32,322
Dividends receivable -- -- --
Accounts receivable from American Enterprise Life
for contract purchase payments -- -- 52
Receivable from mutual funds and portfolios for share redemptions 68 1 18
-- - --
Total assets 151,509 860 32,392
======= === ======
Liabilities
Payable to American Enterprise Life for:
Mortality and expense risk fee 61 1 16
Issue and adminstrative fee 7 -- 2
Contract terminations -- -- --
Payable to mutual funds and portfolios for investments purchased -- -- 52
------ ------- --
Total liabilities 68 1 70
-- - --
Net assets applicable to contracts in accumulation period 151,441 859 32,322
Net assets applicable to contracts in payment period -- -- --
------ ----- ------
Total net assets $ 151,441 $ 859 $ 32,322
========= ===== ========
Accumulation units outstanding 123,239 889 30,888
======= === ======
Net asset value per accumulation unit $ 1.23 $ 0.97 $ 1.05
====== ====== ======
Assets JUS JGL
Investments in shares of mutual funds and portfolios:
at cost $ 515,769 $ 34,464
--------- --------
at market value $ 539,763 $ 33,287
Dividends receivable -- --
Accounts receivable from American Enterprise Life
for contract purchase payments -- --
Receivable from mutual funds and portfolios for share redemptions 429 38
--- --
Total assets 540,192 33,325
======= ======
Liabilities
Payable to American Enterprise Life for:
Mortality and expense risk fee 383 34
Issue and adminstrative fee 46 4
Contract terminations -- --
Payable to mutual funds and portfolios for investments purchased -- --
---- -----
Total liabilities 429 38
--- --
Net assets applicable to contracts in accumulation period 539,763 33,287
Net assets applicable to contracts in payment period -- --
------ -----
Total net assets $ 539,763 $ 33,287
========= ========
Accumulation units outstanding 480,470 34,328
======= ======
Net asset value per accumulation unit $ 1.12 $ 0.97
====== ======
See accompanying notes to financial statements.
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
American Enterprise Variable Annuity Account -- Wells Fargo Advantage(SM) Variable Annuity
Statements of Net Assets
December 31, 1999
Segregated Asset Subaccounts
Assets JMC EUT EPL
Investments in shares of mutual funds and portfolios:
<S> <C> <C> <C>
at cost $ 75,738 $ 34,419 $ 421,932
-------- -------- ---------
at market value $ 77,095 $ 36,290 $ 461,834
Dividends receivable -- -- --
Accounts receivable from American Enterprise Life
for contract purchase payments -- -- 3
Receivable from mutual funds and portfolios for share redemptions 87 25 322
-- -- ---
Total assets 77,182 36,315 462,159
====== ====== =======
Liabilities
Payable to American Enterprise Life for:
Mortality and expense risk fee 78 22 288
Issue and adminstrative fee 9 3 34
Contract terminations -- -- --
Payable to mutual funds and portfolios for investments purchased -- -- 3
----- ---- -
Total liabilities 87 25 325
-- -- ---
Net assets applicable to contracts in accumulation period 77,095 36,290 461,834
Net assets applicable to contracts in payment period -- -- --
------ ----- -----
Total net assets $ 77,095 $ 36,290 $ 461,834
======== ======== =========
Accumulation units outstanding 78,800 30,180 346,626
====== ====== =======
Net asset value per accumulation unit $ 0.98 $ 1.20 $ 1.33
====== ====== ======
See accompanying notes to financial statements.
Combined
Variable
Assets EPT Account
Investments in shares of mutual funds and portfolios:
at cost $ 1,137 $ 23,134,028
------- ------------
at market value $ 1,414 $ 28,442,109
Dividends receivable -- 1,078
Accounts receivable from American Enterprise Life
for contract purchase payments -- 27,360
Receivable from mutual funds and portfolios for share redemptions 2 28,735
- ------
Total assets 1,416 28,499,282
===== ==========
Liabilities
Payable to American Enterprise Life for:
Mortality and expense risk fee 2 29,100
Issue and adminstrative fee -- 3,490
Contract terminations -- 16,875
Payable to mutual funds and portfolios for investments purchased -- 55
----- --
Total liabilities 2 49,520
- ------
Net assets applicable to contracts in accumulation period 1,414 28,443,374
Net assets applicable to contracts in payment period -- 6,388
----- -----
Total net assets $ 1,414 $ 28,449,762
======= ============
Accumulation units outstanding 955
===
Net asset value per accumulation unit $ 1.48
======
See accompanying notes to financial statements.
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
American Enterprise Variable Annuity Account -- Wells Fargo Advantage(SM) Variable Annuity
Statements of Operations
Period ended December 31, 1999
Segregated Asset Subaccounts
Investment income ECR EIA1 EGD
<S> <C> <C> <C>
Dividend income from mutual funds and portfolios $ 1,220,605 $ 1,149 $ 32,955
----------- ------- --------
Expenses:
Mortality and expense risk fee 140,485 103 29,409
Administrative charge 16,857 12 3,529
------ -- -----
Total expenses 157,342 115 32,938
------- --- ------
Investment income (loss) - net 1,063,263 1,034 17
========= ===== ==
Realized and unrealized gain (loss) on investments - net
Realized gain (loss) on sales of investments in
mutual funds and portfolios:
Proceeds from sales 775,040 351,891 141,571
Cost of investments sold 641,397 352,546 116,987
------- ------- -------
Net realized gain (loss) on investments 133,643 (655) 24,584
Net change in unrealized appreciation or depreciation of investments 1,170,550 (7) 694,325
--------- -- -------
Net gain (loss) on investments 1,304,193 (662) 718,909
--------- ---- -------
Net increase (decrease) in net assets resulting from operations $ 2,367,456 $ 372 $ 718,926
=========== ===== =========
Investment income ECA1 EVA
Dividend income from mutual funds and portfolios $ 1,195 $ 154,339
------- ---------
Expenses:
Mortality and expense risk fee 105 67,218
Administrative charge 12 8,066
-- -----
Total expenses 117 75,284
--- ------
Investment income (loss) - net 1,078 79,055
===== ======
Realized and unrealized gain (loss) on investments - net
Realized gain (loss) on sales of investments in
mutual funds and portfolios:
Proceeds from sales 175 136,790
Cost of investments sold 157 119,888
--- -------
Net realized gain (loss) on investments 18 16,902
Net change in unrealized appreciation or depreciation of investments 9,757 1,432,915
----- ---------
Net gain (loss) on investments 9,775 1,449,817
----- ---------
Net increase (decrease) in net assets resulting from operations $ 10,853 $ 1,528,872
======== ===========
1For the period Aug. 26, 1999 (commencement of operations) to Dec. 31, 1999.
See accompanying notes to financial statements.
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
American Enterprise Variable Annuity Account -- Wells Fargo Advantage(SM) Variable Annuity
Statements of Operations
Period ended December 31, 1999
Segregated Asset Subaccounts
Investment income ESR1 ERE2 EMU2
<S> <C> <C> <C>
Dividend income from mutual funds and portfolios $ 4,928 $-- $--
------- - -
Expenses:
Mortality and expense risk fee 65 3 18
Administrative charge 7 -- 2
- -
Total expenses 72 3 20
-- - --
Investment income (loss) - net 4,856 (3) (20)
===== == ===
Realized and unrealized gain (loss) on investments - net
Realized gain (loss) on sales of investments in
mutual funds and portfolios:
Proceeds from sales 71 3 28
Cost of investments sold 70 3 28
-- - --
Net realized gain (loss) on investments 1 -- --
Net change in unrealized appreciation or depreciation of investments 2,052 (8) 787
----- -- ---
Net gain (loss) on investments 2,053 (8) 787
----- -- ---
Net increase (decrease) in net assets resulting from operations $ 6,909 $ (11) $ 767
======= ===== =====
Investment income JUS2 JGL2
Dividend income from mutual funds and portfolios $ 4,261 $ 1,258
------- -------
Expenses:
Mortality and expense risk fee 514 60
Administrative charge 62 7
-- -
Total expenses 576 67
--- --
Investment income (loss) - net 3,685 1,191
===== =====
Realized and unrealized gain (loss) on investments - net
Realized gain (loss) on sales of investments in
mutual funds and portfolios:
Proceeds from sales 36,031 65,197
Cost of investments sold 34,985 65,023
------ ------
Net realized gain (loss) on investments 1,046 174
Net change in unrealized appreciation or depreciation of investments 23,994 (1,177)
------ ------
Net gain (loss) on investments 25,040 (1,003)
------ ------
Net increase (decrease) in net assets resulting from operations $ 28,725 $ 188
======== =====
1For the period Aug. 26, 1999 (commencement of operations) to Dec. 31, 1999.
2For the period Sept. 22, 1999 (commencement of operations) to Dec. 31, 1999.
See accompanying notes to financial statements.
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
American Enterprise Variable Annuity Account -- Wells Fargo Advantage(SM) Variable Annuity
Statements of Operations
Period ended December 31, 1999
Segregated Asset Subaccounts
Investment income JMC1 EUT2 EPL2
<S> <C> <C> <C>
Dividend income from mutual funds and portfolios $ 586 $-- $--
----- - -
Expenses:
Mortality and expense risk fee 158 28 563
Administrative charge 19 3 68
-- - --
Total expenses 177 31 631
--- -- ---
Investment income (loss) - net 409 (31) (631)
=== === ====
Realized and unrealized gain (loss) on investments - net
Realized gain (loss) on sales of investments in
mutual funds and portfolios:
Proceeds from sales 3,237 31 183,965
Cost of investments sold 3,254 30 155,333
----- -- -------
Net realized gain (loss) on investments (17) 1 28,632
Net change in unrealized appreciation or depreciation of investments 1,357 1,871 39,902
----- ----- ------
Net gain (loss) on investments 1,340 1,872 68,534
----- ----- ------
Net increase (decrease) in net assets resulting from operations $ 1,749 $ 1,841 $ 67,903
======= ======= ========
Combined
Variable
Investment income EPT3 Account
Dividend income from mutual funds and portfolios $ 103 $ 1,421,379
----- -----------
Expenses:
Mortality and expense risk fee 7 238,736
Administrative charge -- 28,644
------
Total expenses 7 267,380
- -------
Investment income (loss) - net 96 1,153,999
== =========
Realized and unrealized gain (loss) on investments - net
Realized gain (loss) on sales of investments in
mutual funds and portfolios:
Proceeds from sales 6 1,694,036
Cost of investments sold 5 1,489,706
- ---------
Net realized gain (loss) on investments 1 204,330
Net change in unrealized appreciation or depreciation of investments 277 3,376,595
Net gain (loss) on investments 278 3,580,925
--- ---------
Net increase (decrease) in net assets resulting from operations $ 374 $ 4,734,924
===== ===========
1For the period Oct. 4, 1999 (commencement of operations) to Dec.31,1999.
2For the period Sept. 22, 1999 (commencement of operations) to Dec. 31, 1999.
3For the period Aug. 26, 1999 (commencement of operations) to Dec. 31, 1999.
See accompanying notes to financial statements.
</TABLE>
<TABLE>
<CAPTION>
<PAGE>
American Enterprise Variable Annuity Account -- Wells Fargo Advantage(SM) Variable Annuity
Statements of Changes in Net Assets
Period ended December 31, 1999
Segregated Asset Subaccounts
Operations ECR EIA1 EGD
<S> <C> <C> <C>
Investment income (loss) - net $ 1,063,263 $ 1,034 $ 17
Net realized gain (loss) on investments 133,643 (655) 24,584
Net change in unrealized appreciation or
depreciation of investments 1,170,550 (7) 694,325
--------- -- -------
Net increase (decrease) in net assets resulting from operations 2,367,456 372 718,926
========= === =======
Contract transactions
Contract purchase payments 1,613,826 5,191 1,253,933
Net transfers2 889,541 2,163 409,913
Annuity payments (473) -- --
Contract terminations:
Surrender benefits and contract charges (978,721) -- (132,862)
Death benefits (92,582) -- (30,780)
------- -------
Increase (decrease) from contract transactions 1,431,591 7,354 1,500,204
--------- ----- ---------
Net assets at beginning of year 9,845,123 -- 1,465,483
--------- ---------
Net assets at end of year $ 13,644,170 $ 7,726 $ 3,684,613
============ ======= ===========
Accumulation unit activity
Units outstanding at beginning of year 5,163,185 -- 1,108,323
Contract purchase payments 806,674 5,303 882,440
Net transfers2 436,406 2,413 288,019
Contract terminations:
Surrender benefits and contract charges (490,112) -- (117,217)
Death benefits (51,901) -- (20,817)
------- -------
Units outstanding at end of year 5,864,252 7,716 2,140,748
========= ===== =========
Operations ECA1 EVA
Investment income (loss) - net $ 1,078 $ 79,055
Net realized gain (loss) on investments 18 16,902
Net change in unrealized appreciation or
depreciation of investments 9,757 1,432,915
----- ---------
Net increase (decrease) in net assets resulting from operations 10,853 1,528,872
====== =========
Contract transactions
Contract purchase payments 63,183 3,650,384
Net transfers2 6,962 2,416,621
Annuity payments -- --
Contract terminations:
Surrender benefits and contract charges (58) (259,654)
Death benefits -- (27,190)
-------
Increase (decrease) from contract transactions 70,087 5,780,161
------ ---------
Net assets at beginning of year -- 2,388,975
---------
Net assets at end of year $ 80,940 $ 9,698,008
======== ===========
Accumulation unit activity
Units outstanding at beginning of year -- 1,778,901
Contract purchase payments 51,342 2,548,626
Net transfers2 5,312 1,606,765
Contract terminations:
Surrender benefits and contract charges (42) (278,884)
Death benefits -- (17,813)
-------
Units outstanding at end of year 56,612 5,637,595
====== =========
1For the period Aug. 26, 1999 (commencement of operations) to Dec. 31, 1999.
2Includes transfer activity from (to) other subaccounts and transfers from (to)
American Enterprise Life's fixed account.
See accompanying notes to financial statements.
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
American Enterprise Variable Annuity Account -- Wells Fargo Advantage(SM) Variable Annuity
Statements of Changes in Net Assets
Period ended December 31, 1999
Segregated Asset Subaccounts
Operations ESR1 ERE2 EMU2
<S> <C> <C> <C>
Investment income (loss) - net $ 4,856 $ (3) $ (20)
Net realized gain (loss) on investments 1 -- --
Net change in unrealized appreciation or depreciation of investments 2,052 (8) 787
----- -- ---
Net increase (decrease) in net assets resulting from operations 6,909 (11) 767
===== === ===
Contract transactions
Contract purchase payments 143,947 870 1,178
Net transfers3 585 -- 30,377
Annuity payments -- -- --
Contract terminations:
Surrender benefits and contract charges -- -- --
Death benefits -- -- --
----- ---- ----
Increase (decrease) from contract transactions 144,532 870 31,555
------- --- ------
Net assets at beginning of year -- -- --
------- --- ------
Net assets at end of year $ 151,441 $ 859 $ 32,322
========= ===== ========
Accumulation unit activity
Units outstanding at beginning of year -- -- --
Contract purchase payments 119,943 889 1,194
Net transfers3 3,296 -- 29,694
Contract terminations:
Surrender benefits and contract charges -- -- --
Death benefits -- -- --
----- ---- -----
Units outstanding at end of year 123,239 889 30,888
======= === ======
Operations JUS2 JGL2
Investment income (loss) - net $ 3,685 $ 1,191
Net realized gain (loss) on investments 1,046 174
Net change in unrealized appreciation or depreciation of investments 23,994 (1,177)
------ ------
Net increase (decrease) in net assets resulting from operations 28,725 188
====== ===
Contract transactions
Contract purchase payments 401,524 21,346
Net transfers3 109,571 11,753
Annuity payments -- --
Contract terminations:
Surrender benefits and contract charges (57) --
Death benefits -- --
------ ------
Increase (decrease) from contract transactions 511,038 33,099
------- ------
Net assets at beginning of year -- --
------- -----
Net assets at end of year $ 539,763 $ 33,287
========= ========
Accumulation unit activity
Units outstanding at beginning of year -- --
Contract purchase payments 376,243 22,245
Net transfers3 104,278 12,083
Contract terminations:
Surrender benefits and contract charges (51) --
Death benefits -- --
----- ------
Units outstanding at end of year 480,470 34,328
======= ======
1For the period Aug. 26, 1999 (commencement of operations) to Dec. 31, 1999.
2For the period Sept. 22, 1999 (commencement of operations) to Dec. 31, 1999.
3Includes transfer activity from (to) other subaccounts and transfers from (to)
American Enterprise Life's fixed account.
See accompanying notes to financial statements.
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
American Enterprise Variable Annuity Account -- Wells Fargo Advantage(SM) Variable Annuity
Statements of Changes in Net Assets
Period ended December 31, 1999
Segregated Asset Subaccounts
Operations JMC1 EUT2 EPL2
<S> <C> <C> <C>
Investment income (loss) - net $ 409 $ (31) $ (631)
Net realized gain (loss) on investments (17) 1 28,632
Net change in unrealized appreciation or depreciation of investments 1,357 1,871 39,902
----- ----- ------
Net increase (decrease) in net assets resulting from operations 1,749 1,841 67,903
===== ===== ======
Contract transactions
Contract purchase payments 37,916 22,501 70,121
Net transfers4 37,430 12,005 323,810
Annuity payments -- -- --
Contract terminations:
Surrender benefits and contract charges -- (57) --
Death benefits -- -- --
----- ------ -------
Increase (decrease) from contract transactions 75,346 34,449 393,931
------ ------ -------
Net assets at beginning of year -- -- --
------ ------ ------
Net assets at end of year $ 77,095 $ 36,290 $ 461,834
======== ======== =========
Accumulation unit activity
Units outstanding at beginning of year -- -- --
Contract purchase payments 39,952 19,749 61,197
Net transfers4 38,848 10,479 285,429
Contract terminations:
Surrender benefits and contract charges -- (48) --
Death benefits -- -- --
----- ----- ------
Units outstanding at end of year 78,800 30,180 346,626
====== ====== =======
Combined
Variable
Operations EPT3 Account
Investment income (loss) - net $ 96 $ 1,153,999
Net realized gain (loss) on investments 1 204,330
Net change in unrealized appreciation or depreciation of investments 277 3,376,595
--- ---------
Net increase (decrease) in net assets resulting from operations 374 4,734,924
=== =========
Contract transactions
Contract purchase payments 1,040 7,286,960
Net transfers4 -- 4,250,731
Annuity payments -- (473)
Contract terminations:
Surrender benefits and contract charges -- (1,371,409)
Death benefits -- (150,552)
--------
Increase (decrease) from contract transactions 1,040 10,015,257
----- ----------
Net assets at beginning of year -- 13,699,581
----------
Net assets at end of year $ 1,414 $ 28,449,762
======= ============
Accumulation unit activity
Units outstanding at beginning of year --
Contract purchase payments 955
Net transfers4 --
Contract terminations:
Surrender benefits and contract charges --
Death benefits --
-----
Units outstanding at end of year 955
===
1For the period Oct. 4, 1999 (commencement of operations) to Dec. 31, 1999.
2For the period Sept. 22, 1999 (commencement of operations) to Dec. 31, 1999.
3For the period Aug. 26, 1999 (commencement of operations) to Dec. 31, 1999.
4Includes transfer activity from (to) other subaccounts and transfers from (to)
American Enterprise Life's fixed account.
See accompanying notes to financial statements.
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
American Enterprise Variable Annuity Account
Statements of Changes in Net Assets
Year ended December 31, 1998
Segregated Asset Subaccounts Combined
Variable
Operations ECR EGD EVA Account
<S> <C> <C> <C> <C>
Investment income (loss) - net $598,178 $ (4,574) $ 90,940 $ 90,940
Net realized gain (loss) on investments 31,856 758 478 478
Net change in unrealized appreciation or
depreciation of investments 957,259 190,924 262,764 262,764
------- ------- ------- -------
Net increase (decrease) in net assets
resulting from operations 1,587,293 187,108 354,182 354,182
========= ======= ======= =======
Contract transactions
Contract purchase payments 3,114,006 1,111,110 1,616,894 1,616,894
Net transfers1 (245,243) 126,930 381,890 381,890
Annuity payments (385) -- -- --
Contract terminations:
Surrender benefits and contract charges (529,563) (25,802) (25,796) (25,796)
Death benefits (21,950) (5,911) (5,952) (5,952)
------- ------ ------ ------
Increase (decrease) from contract transactions 2,316,865 1,206,327 1,967,036 1,967,036
--------- --------- --------- ---------
Net assets at beginning of year 5,940,965 72,048 67,757 67,757
--------- ------ ------ ------
Net assets at end of year $9,845,123 $1,465,483 $2,388,975 $ 2,388,975
========== ========== ========== ===========
Accumulation unit activity
Units outstanding at beginning of year 3,812,754 68,572 65,875
Contracts purchase payments 1,848,700 965,321 1,418,576
Net transfers1 (146,994) 108,613 327,920
Contract terminations:
Surrender benefits and contract charges (338,414) (29,255) (28,544)
Death benefits (12,861) (4,928) (4,926)
------- ------ ------
Units outstanding at end of year 5,163,185 1,108,323 1,778,901
========= ========= =========
1 Includes transfer activity from (to) other subaccounts and transfers from
(to) American Enterprise Life's fixed account.
See accompanying notes to financial statements.
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
American Enterprise Variable Annuity Account - Wells Fargo Advantage(SM)
Variable Annuity
Notes to Financial Statements
1. ORGANIZATION
American Enterprise Variable Annuity Account (the Account) was established under
Indiana law on July 15, 1987 and the subaccounts are registered together as a
single unit investment trust of American Enterprise Life Insurance Company
(American Enterprise Life) under the Investment Company Act of 1940, as amended
(the 1940 Act). Operations of the Account commenced on Feb. 21, 1995.
The Account is comprised of various subaccounts. Each subaccount invests
exclusively in shares of the following mutual funds (collectively, the Funds),
which are registered under the 1940 Act as diversified, open-end management
investment companies and have the following investment managers.
Subaccount Invests exclusively in shares of Investment Manager
<S> <C> <C>
ECR AXP(SM) Variable Portfolio-- Capital Resource Fund IDS Life Insurance Company 1
EIA AXP(SM) Variable Portfolio-- Extra Income Fund IDS Life Insurance Company 1
EGD AXP(SM) Variable Portfolio-- New Dimensions Fund(R) IDS Life Insurance Company 1
ECA AIM V.I. Capital Appreciation Fund A I M Advisors, Inc.
EVA AIM V.I. Value Fund A I M Advisors, Inc.
ESR The Dreyfus Socially Responsible Growth Fund, Inc. The Dreyfus Corporation2
ERE FTVIPT Franklin Real Estate Securities Fund - Class 2 Franklin Advisers, Inc.
EMU FTVIPT Mutual Shares Securities Fund - Class 2 Franklin Advisers, Inc.
JUS Goldman Sachs VIT Core(SM) U.S. Equity Fund Goldman Sachs Asset Management
JGL Goldman Sachs VIT Global Income Fund Goldman Sachs Asset Management International
JMC Goldman Sachs VIT Mid Cap Value Fund Goldman Sachs Asset Management
EUT MFS(R)Utilities Series Massachusetts Financial Services Company (MFS) Investment
Management(R)
EPL Putnam VT International Growth Fund - Class IB Shares Putnam Investment Management, Inc.
EPT Putnam VT Vista Fund - Class IB Shares Putnam Investment Management, Inc.
1 American Express Financial Corporation (AEFC) is the investment advisor.
2 NCM Capital Management Group, Inc. is the sub-investment advisor.
The assets of each subaccount of the Account are not chargeable with liabilities
arising out of the business conducted by any other segregated asset account or
by American Enterprise Life.
American Enterprise Life issues the contracts that are distributed by banks and
financial institutions either directly or through a network of third-party
marketers.
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Investments in the Funds
Investments in shares of the Funds are stated at market value which is the net
asset value per share as determined by the respective Funds. Investment
transactions are accounted for on the date the shares are purchased and sold.
The cost of investments sold and redeemed is determined on the average cost
method. Dividend distributions received from the Funds are reinvested in
additional shares of the Funds and are recorded as income by the subaccounts on
the ex-dividend date.
Unrealized appreciation or depreciation of investments in the accompanying
financial statements represents the subaccounts' share of the Funds'
undistributed net investment income, undistributed realized gain or loss and the
unrealized appreciation or depreciation on their investment securities.
Use of Estimates
The preparation of financial statements in conformity with accounting principles
generally accepted in the United States requires management to make estimates
and assumptions that affect the reported amounts of assets and liabilities and
disclosures of contingent assets and liabilities at the date of the financial
statements and the reported amounts of increase and decrease in net assets from
operations during the period. Actual results could differ from those estimates.
Federal Income Taxes
American Enterprise Life is taxed as a life insurance company. The Account is
treated as part of American Enterprise Life for federal income tax purposes.
Under existing federal income tax law, no income taxes are payable with respect
to any investment income of the Account.
3. MORTALITY AND EXPENSE RISK FEE
American Enterprise Life makes contractual assurances to the Account that
possible future adverse changes in administrative expenses and mortality
experience of the contract owners and annuitants will not affect the Account.
The mortality and expense risk fee paid to American Enterprise Life is computed
daily and is equal, on an annual basis, to either 1.05% or 1.30% of the average
daily net assets of the subaccounts, depending on the death benefit option that
applies to the contract.
4. ADMINISTRATIVE CHARGE
American Enterprise Life deducts a daily charge equal, on an annual basis, to
0.15% of the average daily net assets of each subaccount as an administrative
charge. This charge covers certain administrative and operating expenses of the
subaccounts incurred by American Enterprise Life such as accounting, legal and
data processing fees, and expenses involved in the preparation and distribution
of reports and prospectuses. This charge cannot be increased.
5. CONTRACT ADMINISTRATIVE CHARGE
American Enterprise Life deducts a contract administrative charge of $30 per
year on each contract anniversary. This charge cannot be increased and does not
apply after annuity payouts begin. American Enterprise Life does not expect to
profit from this charge. This charge reimburses American Enterprise Life for
expenses incurred in establishing and maintaining the annuity records. This
charge is waived when the contract value is $50,000 or more on the current
contract anniversary. The $30 annual charge is deducted at the time of any full
surrender.
6. WITHDRAWAL CHARGE
American Enterprise Life will use a withdrawal charge to help it recover certain
expenses relating to the sale of the annuity. The withdrawal charge is deducted
for withdrawals up to the first five or seven payment years following a purchase
payment, depending on the withdrawal charge schedule selected at the time of
application. Charges by American Enterprise Life for withdrawals are not
identified on an individual segregated asset account basis. Charges for all
segregated asset accounts amounted to $479,554 in 1999 and $199,062 in 1998.
Such charges are not treated as a separate expense of the subaccounts. They are
ultimately deducted from contract withdrawal benefits paid by American
Enterprise Life. This charge is waived if the withdrawal meets certain
provisions as stated in the contract.
7. INVESTMENT IN SHARES
The subaccounts' investment in shares of the Funds as of Dec. 31, 1999 were as follows:
Subaccount Investment Shares NAV
<S> <C> <C> <C>
ECR AXP(SM) Variable Portfolio-- Capital Resource Fund 374,575 $36.40
EIA AXP(SM) Variable Portfolio-- Extra Income Fund 787 8.58
EGD AXP(SM) Variable Portfolio-- New Dimensions Fund(R) 161,401 22.86
ECA AIM V.I. Capital Appreciation Fund 2,275 35.58
EVA AIM V.I. Value Fund 289,489 33.50
ESR The Dreyfus Socially Responsible Growth Fund, Inc. 3,876 39.07
ERE FTVIPT Franklin Real Estate Securities Fund - Class 2 58 14.88
EMU FTVIPT Mutual Shares Securities Fund - Class 2 2,439 13.25
JUS Goldman Sachs VIT Core(SM) U.S. Equity Fund 38,610 13.98
JGL Goldman Sachs VIT Global Income Fund 3,386 9.83
JMC Goldman Sachs VIT Mid Cap Value Fund 9,156 8.42
EUT MFS(R)Utilities Series 1,502 24.16
EPL Putnam VT International Growth Fund - Class IB Shares 21,361 21.62
EPT Putnam VT Vista Fund - Class IB Shares 68 20.65
8. INVESTMENT TRANSACTIONS
The subaccounts' purchases of Funds' shares, including reinvestment of dividend
distributions, were as follows:
Year ended Dec. 31,
Subaccount Investment 1999 1998
<S> <C> <C> <C>
ECR AXP(SM) Variable Portfolio-- Capital Resource Fund $3,258,677 $ 3,205,569
EIA1 AXP(SM) Variable Portfolio-- Extra Income Fund 359,305 --
EGD AXP(SM) Variable Portfolio-- New Dimensions Fund(R) 1,646,330 1,222,554
ECA1 AIM V.I. Capital Appreciation Fund 71,340 --
EVA AIM V.I. Value Fund 5,993,303 2,077,208
ESR1 The Dreyfus Socially Responsible Growth Fund, Inc. 149,459 --
ERE2 FTVIPT Franklin Real Estate Securities Fund - Class 2 870 --
EMU2 FTVIPT Mutual Shares Securities Fund - Class 2 31,563 --
JUS2 Goldman Sachs VIT Core(SM) U.S. Equity Fund 550,754 --
JGL2 Goldman Sachs VIT Global Income Fund 99,487 --
JMC3 Goldman Sachs VIT Mid Cap Value Fund 78,992 --
EUT2 MFS(R)Utilities Series 34,449 --
EPL2 Putnam VT International Growth Fund - Class IB Shares 577,265 --
EPT1 Putnam VT Vista Fund - Class IB Shares 1,142 --
Combined Variable Account $12,852,936 $6,505,331
1 Operations commenced on Aug. 26, 1999.
2 Operations commenced on Sept. 22, 1999.
3 Operations commenced on Oct. 4, 1999.
9. YEAR 2000 (UNAUDITED)
The Year 2000 issue is the result of computer programs having been written using
two digits rather than four to define a year. Any programs that have
time-sensitive software may recognize a date using "00" as the year 1900 rather
than 2000. This could result in the failure of major systems or miscalculations,
which could have a material impact on the operations of American Enterprise Life
and the Account. All of the major systems used by the American Enterprise Life
and by the Account are maintained by AEFC and are utilized by multiple
subsidiaries and affiliates of AEFC. American Enterprise Life's and the
Account's businesses are heavily dependent upon AEFC's computer systems and have
significant interactions with systems of third parties.
A comprehensive review of AEFC's computer systems and business processes,
including those specific to American Enterprise Life and the Account, was
conducted to identify the major systems that could be affected by the Year 2000
issue. Steps were taken to resolve potential problems including modification to
existing software and the purchase of new software. As of Dec. 31, 1999, AEFC
had completed its program of corrective measures on its internal systems and
applications, including Year 2000 compliance testing. As of Dec. 31, 1999, AEFC
had also completed an evaluation of the Year 2000 readiness of other third
parties whose system failures could have an impact on American Enterprise Life's
and the Account's operations.
AEFC's Year 2000 project also included establishing Year 2000 contingency plans
for all key business units. Business continuation plans, which address business
continuation in the event of a system disruption, are in place for all key
business units. As of Dec. 31, 1999, these plans had been amended to include
specific Year 2000 considerations.
In assessing its Year 2000 initiatives and the results of actual production
since Jan. 1, 2000, management believes no material adverse consequences were
experienced, and there was no material effect on American Enterprise Life's and
the Account's business, results of operations, or financial condition as a
result of the Year 2000 issue.
</TABLE>
<PAGE>
STATEMENT OF ADDITIONAL INFORMATION
for
WELLS FARGO ADVANTAGE(SM) BUILDER VARIABLE ANNUITY
American Enterprise Variable Annuity Account
May 1, 2000
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 may be
obtained by writing or calling us at the address and telephone number below. The
prospectus is incorporated in this SAI by reference.
American Enterprise Life Insurance Company
829 AXP Financial Center
Minneapolis, MN 55474
1-800-333-3437
<PAGE>
TABLE OF CONTENTS
Performance Information..................................................p. 3
Calculating Annuity Payouts.............................................p. 13
Rating Agencies.........................................................p. 15
Principal Underwriter...................................................p. 15
Independent Auditors....................................................p. 15
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 show 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 on
historical earnings, past performance does not guarantee future results.
<PAGE>
<TABLE>
<CAPTION>
Average Annual Total Return (Without Purchase Payment Credits) For Annuities Without Withdrawal and Selection of the Six-Year
Withdrawal Charge Schedule For Periods Ending Dec. 31, 1999
Performance Since Commencement of the
Fund*
<S> <C> <C> <C> <C> <C>
Since
Subaccount Investing In: 1 Year 5 Years 10 Years Commencement
- ---------- ------------- ------ ------- -------- ------------
AXP(SM) VARIABLE PORTFOLIO --
WBCA3 Blue Chip Advantage Fund (9/99)** --% --% --% 10.78%
WCAR3 Capital Resource Fund (10/81) 21.84 19.48 13.72 14.20
WDEI3 Diversified Equity Income Fund (9/99) -- -- -- 2.34
WEXI3 Extra Income Fund (5/96) 4.59 -- -- 3.88
WFDI3 Federal Income Fund (9/99) -- -- -- 0.00
WNDM3 New Dimensions Fund(R)(5/96) 29.97 -- -- 24.40
WSCA3 Small Cap Advantage Fund (9/99) -- -- -- 12.15
AIM V.I.
WCAP3 Capital Appreciation Fund (5/93) 42.45 23.66 -- 20.44
WVAL3 Value Fund (5/93) 27.93 25.27 -- 21.16
Dreyfus
WSRG3 The Dreyfus Socially Responsible Growth 28.12 26.72 -- 22.30
Fund, Inc. (10/93)
FRANKLIN TEMPLETON VIP TRUST
WISE3 Franklin Income Securities Fund - Class 2 -3.60 7.98 8.27 8.24
(1/89)***
WRES3 Franklin Real Estate Fund - Class 2 -7.83 6.30 7.32 6.98
(1/89)***
WSMC3 Franklin Small Cap Fund - Class 2 (11/95)*** 103.20 -- -- 31.54
WMSS3 Mutual Shares Securities Fund - Class 2 11.84 -- -- 9.13
(11/96)***
GOLDMAN SACHS Variable Insurance Trust (VIT)
WUSE3 CORE(SM) U.S. Equity Fund (2/98)**** 22.40 -- -- 18.87
WGLI3 Global Income Fund (1/98) -2.56 -- -- 1.98
SITO2 Internet Tollkeeper Fund (5/00)+ -- -- -- --
WMCV3 Mid Cap Value Fund (4/98) 4.60 -- -- -6.45
MFS(R)
WGIS3 Growth with Income Series (10/95) 5.04 -- -- 19.22
WUTS3 Utilities Series (1/95) 28.83 -- -- 24.53
PUTNAM VARIABLE TRUST
WIGR3 Putnam VT International Growth Fund - Class 57.66 -- -- 28.13
IB Shares (1/97)++
WVIS3 Putnam VT Vista Fund - Class IB Shares 50.40 -- -- 29.07
(1/97)++
WELLS FARGO VARIABLE TRUST
WAAL3 Asset Allocation Fund (4/94) 7.64 10.77 -- 9.17
WCBD3 Corporate Bond Fund (9/99) -- -- -- -0.65
WEQI3 Equity Income Fund (5/96) 6.24 -- -- 15.35
WEQV3 Equity Value Fund (5/98) -4.00 -- -- -5.24
WGRO3 Growth Fund (4/94) 18.58 21.67 -- 19.37
WLCG3 Large Company Growth Fund (9/99) -- -- -- 19.76
WMMK3 Money Market Fund (5/94) 2.84 3.25 -- 3.20
WSCG3 Small Cap Growth Fund (5/95) 63.82 -- -- 18.76
* Current applicable charges deducted from fund performance include a $30
contract administrative charge, a 1.35% mortality and expense risk fee and
a 0.15% variable account administrative charge. Premium taxes are not
reflected in the above total returns.
** (Commencement date of the Fund)
*** Class 2 shares were issued Jan. 6, 1999. Prior to Jan. 6, 1999, Class 2
performance represents the historical performance results of Class 1
shares. Performance of Class 2 shares for periods after its Jan. 6, 1999
inception reflect Class 2's additional 12b-1 fee expense, which also
affects all future performance. Figures assume reinvestment of dividends
and capital gains.
****CORE(SM) is a service mark of Goldman, Sachs & Co. + Fund had not commenced
operations as of Dec. 31, 1999.
++ Each of the above Funds' Class IB Shares commenced operations on April 30,
1998. For periods prior to the inception dates of the Funds' Class IB
Shares, the performance shown is based on the historical performance of the
Funds' Class IA Shares adjusted to reflect the current expenses of the
Funds' Class IB Shares, including a 12b-1 fee of 0.15%.
</TABLE>
<PAGE>
<TABLE>
Average Annual Total Return For Annuities (Without Purchase Payment Credits) With Withdrawal and Selection of the
Six-Year Withdrawal Charge Schedule For Periods Ending Dec. 31, 1999
Performance Since Commencement of the Fund*
<S> <C> <C> <C> <C> <C>
Since
Subaccount Investing In: 1 Year 5 Years 10 Years Commencement
- ---------- ------------- ------ ------- -------- ------------
AXP(SM) VARIABLE PORTFOLIO --
WBCA3 Blue Chip Advantage Fund (9/99)** --% --% --% 3.11%
WCAR3 Capital Resource Fund (10/81) 13.84 19.09 13.72 14.20
WDEI3 Diversified Equity Income Fund (9/99) -- -- -- -4.65
WEXI3 Extra Income Fund (5/96) -2.57 -- -- 2.40
WFDI3 Federal Income Fund (9/99) -- -- -- -6.80
WNDM3 New Dimensions Fund(R)(5/96) 21.97 -- -- 23.48
WSCA3 Small Cap Advantage Fund (9/99) -- -- -- 4.38
AIM V.I.
WCAP3 Capital Appreciation Fund (5/93) 42.45 23.66 -- 20.44
WVAL3 Value Fund (5/93) 27.93 25.27 -- 21.16
Dreyfus
WSRG3 The Dreyfus Socially Responsible Growth 20.12 26.40 -- 22.30
Fund, Inc. (10/93)
FRANKLIN TEMPLETON VIP TRUST
WISE3 Franklin Income Securities Fund - Class 2 -10.11 7.39 8.27 8.24
(1/89)***
WRES3 Franklin Real Estate Fund - Class 2 -14.00 5.67 7.32 6.98
(1/89)***
WSMC3 Franklin Small Cap Fund - Class 2 (11/95)*** 95.20 -- -- 31.12
WMSS3 Mutual Shares Securities Fund - Class 2 4.09 -- -- 7.54
(11/96)***
GOLDMAN SACHS Variable Insurance Trust (VIT)
WUSE3 CORE(SM) U.S. Equity Fund (2/98)**** 14.40 -- -- 15.16
WGLI3 Global Income Fund (1/98) -9.15 -- -- -1.58
SITO2 Internet Tollkeeper Fund (5/00)+ -- -- -- --
WMCV3 Mid Cap Value Fund (4/98) -2.57 -- -- -10.29
MFS(R)
WGIS3 Growth with Income Series (10/95) -2.16 -- -- 18.68
WUTS3 Utilities Series (1/95) 20.83 -- -- 24.19
PUTNAM VARIABLE TRUST
WIGR3 Putnam VT International Growth Fund - Class 49.66 -- -- 26.48
IB Shares (1/97)++
WVIS3 Putnam VT Vista Fund - Class IB Shares 42.40 -- -- 27.44
(1/97)++
WELLS FARGO VARIABLE TRUST
WAAL3 Asset Allocation Fund (4/94) 0.23 10.24 -- 8.94
WCBD3 Corporate Bond Fund (9/99) -- -- -- -7.40
WEQI3 Equity Income Fund (5/96) -1.06 -- -- 14.21
WEQV3 Equity Value Fund (5/98) -10.48 -- -- -9.09
WGRO3 Growth Fund (4/94) 10.58 21.30 -- 19.21
WLCG3 Large Company Growth Fund (9/99) -- -- -- 11.76
WMMK3 Money Market Fund (5/94) -4.19 2.54 -- 2.89
WSCG3 Small Cap Growth Fund (5/95) 55.82 -- -- 18.30
* Current applicable charges deducted from fund performance include a $30
contract administrative charge, a 1.35% mortality and expense risk fee and
a 0.15% variable account administrative charge. Premium taxes are not
reflected in the above total returns.
** (Commencement date of the Fund)
*** Class 2 shares were issued Jan. 6, 1999. Prior to Jan. 6, 1999, Class 2
performance represents the historical performance results of Class 1
shares. Performance of Class 2 shares for periods after its Jan. 6, 1999
inception reflect Class 2's additional 12b-1 fee expense, which also
affects all future performance. Figures assume reinvestment of dividends
and capital gains.
**** CORE(SM) is a service mark of Goldman, Sachs & Co.
+ Fund had not commenced operations as of Dec. 31, 1999.
++ Each of the above Funds' Class IB Shares commenced operations on April 30,
1998. For periods prior to the inception dates of the Funds' Class IB
Shares, the performance shown is based on the historical performance of the
Funds' Class IA Shares adjusted to reflect the current expenses of the
Funds' Class IB Shares, including a 12b-1 fee of 0.15%.
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
Average Annual Total Return (Without Purchase Payment Credits) For Annuities
Without Withdrawal and Selection of the Six-Year Withdrawal Charge Schedule and
the Optional Enhanced Death Benefit and Guaranteed Minimum Income Benefit Riders
For Periods Ending Dec. 31, 1999
Performance Since Commencement of the Fund*
<S> <C> <C> <C> <C> <C>
Since
Subaccount Investing In: 1 Year 5 Years 10 Years Commencement
- ---------- ------------- ------ ------- -------- ------------
AXP(SM) VARIABLE PORTFOLIO --
WBCA1 Blue Chip Advantage Fund (9/99)** --% --% --% 10.71%
WCAR1 Capital Resource Fund (10/81) 21.60 19.24 13.50 13.97
WDEI1 Diversified Equity Income Fund (9/99) -- -- -- 2.28
WEXI1 Extra Income Fund (5/96) 4.39 -- -- 3.67
WFDI1 Federal Income Fund (9/99) -- -- -- -0.06
WNDM1 New Dimensions Fund(R)(5/96) 29.71 -- -- 24.15
WSCA1 Small Cap Advantage Fund (9/99) -- -- -- 12.08
AIM V.I.
WCAP1 Capital Appreciation Fund (5/93) 42.17 23.41 -- 20.20
WVAL1 Value Fund (5/93) 27.67 25.02 -- 20.92
Dreyfus
WSRG1 The Dreyfus Socially Responsible Growth 27.87 26.47 -- 22.06
Fund, Inc. (10/93)
FRANKLIN TEMPLETON VIP TRUST
WISE1 Franklin Income Securities Fund - Class 2 -3.79 7.76 8.05 8.02
(1/89)***
WRES1 Franklin Real Estate Fund - Class 2 (11/96) -8.01 6.09 7.10 6.77
WSMC1 Franklin Small Cap Fund - Class 2 (1/89)* 102.82 -- -- 31.28
WMSS1 Mutual Shares Securities Fund - Class 2 11.62 -- -- 8.91
(11/95***
GOLDMAN SACHS Variable Insurance Trust (VIT)
WUSE1 CORE(SM) U.S. Equity Fund (2/98)**** 22.16 -- -- 18.63
WGLI1 Global Income Fund (1/98) -2.75 -- -- 1.78
WITO2 Internet Tollkeeper Fund (5/00)+ -- -- -- --
WMCV1 Mid Cap Value Fund (4/98) 4.38 -- -- -6.64
MFS(R)
WGIS1 Growth with Income Series (10/95) 4.83 -- -- 18.98
WUTS1 Utilities Series (1/95) 28.58 -- -- 24.29
PUTNAM VARIABLE TRUST
WIGR1 Putnam VT International Growth Fund - Class 57.35 -- -- 27.88
IB Shares (1/97)++
WVIS1 Putnam VT Vista Fund - Class IB Shares 50.11 -- -- 28.82
(1/97)++
WELLS FARGO VARIABLE TRUST
WAAL1 Asset Allocation Fund (4/94) 7.43 10.55 -- 8.96
WCBD1 Corporate Bond Fund (9/99) -- -- -- -0.71
WEQI1 Equity Income Fund (5/96) 6.02 -- -- 15.12
WEQV1 Equity Value Fund (5/98) -4.20 -- -- -5.43
WGRO1 Growth Fund (4/94) 18.34 21.43 -- 19.13
WLCG1 Large Company Growth Fund (9/99) -- -- -- 19.70
WMMK1 Money Market Fund (5/94) 2.63 3.05 -- 2.99
WSCG1 Small Cap Growth Fund (5/95) 63.50 -- -- 18.53
* Current applicable charges deducted from fund performance include a $30
contract administrative charge, a 1.35% mortality and expense risk fee and
a 0.15% variable account administrative charge. Premium taxes are not
reflected in the above total returns.
** (Commencement date of the Fund)
*** Class 2 shares were issued Jan. 6, 1999. Prior to Jan. 6, 1999, Class 2
performance represents the historical performance results of Class 1
shares. Performance of Class 2 shares for periods after its Jan. 6, 1999
inception reflect Class 2's additional 12b-1 fee expense, which also
affects all future performance. Figures assume reinvestment of dividends
and capital gains.
**** CORE(SM) is a service mark of Goldman, Sachs & Co.
+ Fund had not commenced operations as of Dec. 31, 1999.
++ Each of the above Funds' Class IB Shares commenced operations on April 30,
1998. For periods prior to the inception dates of the Funds' Class IB
Shares, the performance shown is based on the historical performance of the
Funds' Class IA Shares adjusted to reflect the current expenses of the
Funds' Class IB Shares, including a 12b-1 fee of 0.15%.
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
Average Annual Total Return (Without Purchase Payment Credits) For Annuities
With Withdrawal and Selection of the Six-Year Withdrawal Charge Schedule and the
Optional Enhanced Death Benefit and Guaranteed Minimum Income Benefit Riders For
Periods Ending Dec. 31, 1999
Performance Since Commencement of the
Fund*
Since
Subaccount Investing In: 1 Year 5 Years 10 Years Commencement
<S> <C> <C> <C> <C> <C>
- ---------- ------------- ------ ------- -------- ------------
AXP(SM) VARIABLE PORTFOLIO --
WBCA1 Blue Chip Advantage Fund (9/99)** --% --% --% 2.72%
WCAR1 Capital Resource Fund (10/81) 13.60 18.77 13.50 13.95
WDEI1 Diversified Equity Income Fund (9/99) -- -- -- -4.71
WEXI1 Extra Income Fund (5/96) -2.77 -- -- 2.11
WFDI1 Federal Income Fund (9/99) -- -- -- -6.85
WNDM1 New Dimensions Fund(R)(5/96) 21.71 -- -- 23.12
WSCA1 Small Cap Advantage Fund (9/99) -- -- -- 3.98
AIM V.I.
WCAP1 Capital Appreciation Fund (5/93) 34.17 22.99 -- 20.14
WVAL1 Value Fund (5/93) 19.67 24.61 -- 20.86
Dreyfus
WSRG1 The Dreyfus Socially Responsible Growth 19.87 26.08 -- 22.00
Fund, Inc. (10/93)
FRANKLIN TEMPLETON VIP TRUST
WISE1 Franklin Income Securities Fund - Class 2 -10.29 7.10 8.05 7.99
(1/89)***
WRES1 Franklin Real Estate Fund - Class 2 -14.17 5.38 7.10 6.74
(11/96)***
WSMC1 Franklin Small Cap Fund - Class 2 (1/89)*** 94.82 -- -- 30.76
WMSS1 Mutual Shares Securities Fund - Class 2 3.89 -- -- 7.21
(11/95)***
GOLDMAN SACHS Variable Insurance Trust (VIT)
WUSE1 CORE(SM) U.S. Equity Fund (2/98)**** 14.16 -- -- 14.72
WGLI1 Global Income Fund (1/98) -9.33 -- -- -1.95
WITO2 Internet Tollkeeper Fund (5/00)+ -- -- -- --
WMCV1 Mid Cap Value Fund (4/98) -2.77 -- -- -10.68
MFS(R)
WGIS1 Growth with Income Series (10/95) -2.35 -- -- 18.36
WUTS1 Utilities Series (1/95) 20.58 -- -- 23.87
PUTNAM VARIABLE TRUST
WIGR1 Putnam VT International Growth Fund - Class 49.35 -- -- 26.09
IB Shares (1/97)++
WVIS1 Putnam VT Vista Fund - Class IB Shares 42.11 -- -- 27.05
(1/97)++
WELLS FARGO VARIABLE TRUST
WAAL1 Asset Allocation Fund (4/94) 0.03 9.94 -- 8.67
WCBD1 Corporate Bond Fund (9/99) -- -- -- -7.75
WEQI1 Equity Income Fund (5/96) -1.26 -- -- 13.88
WEQV1 Equity Value Fund (5/98) -10.66 -- -- -9.48
WGRO1 Growth Fund (4/94) 10.34 20.98 -- 18.91
WLCG1 Large Company Growth Fund (9/99) -- -- -- 11.34
WMMK1 Money Market Fund (5/94) -4.38 2.26 -- 2.62
WSCG1 Small Cap Growth Fund (5/95) 55.50 -- -- 17.98
* Current applicable charges deducted from fund performance include a $30
contract administrative charge, a 1.35% mortality and expense risk fee and
a 0.15% variable account administrative charge. Premium taxes are not
reflected in the above total returns.
** (Commencement date of the Fund)
*** Class 2 shares were issued Jan. 6, 1999. Prior to Jan. 6, 1999, Class 2
performance represents the historical performance results of Class 1
shares. Performance of Class 2 shares for periods after its Jan. 6, 1999
inception reflect Class 2's additional 12b-1 fee expense, which also
affects all future performance. Figures assume reinvestment of dividends
and capital gains.
**** CORE (SM) is a service mark of Goldman, Sachs & Co.
+ Fund had not commenced operations as of Dec. 31, 1999.
++ Each of the above Funds' Class IB Shares commenced operations on April 30,
1998. For periods prior to the inception dates of the Funds' Class IB
Shares, the performance shown is based on the historical performance of the
Funds' Class IA Shares adjusted to reflect the current expenses of the
Funds' Class IB Shares, including a 12b-1 fee of 0.15%.
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
Average Annual Total Return (Without Purchase Payment Credits) For Annuities Without Withdrawal and Selection of the
Eight-Year Withdrawal Charge Schedule For Periods Ending Dec. 31, 1999
Performance Since Performance Since Commencement
Commencement of the of the Fund*
Subaccount
Since Since
Subaccount Investing In: 1 Year Commencement 1 Year 5 Years 10 Years Commencement
<S> <C> <C> <C> <C> <C> <C> <C>
- ---------- ------------- ------ ------------ ------ ------- -------- ------------
AXP(SM) VARIABLE PORTFOLIO --
PBCA1 Blue Chip Advantage Fund (11/99;9/99)** --% 8.10% --% --% --% 10.49%
WCAR6 Capital Resource Fund (--/--;10/81) -- -- 22.14 19.78 14.01 14.48
PDEI1 Diversified Equity Income Fund (11/99;9/99) -- 2.49 -- -- -- 1.77
PEXI1 Extra Income Fund (11/99;5/96) 4.86 2.49 4.86 -- -- 4.14
WFDI6 Federal Income Fund (--/--;9/99) -- -- -- -- -- 0.08
PNDM1 New Dimensions Fund(R)(11/99;5/96) 30.30 13.86 30.30 -- -- 24.71
PSCA1 Small Cap Advantage Fund (11/99;9/99) -- 8.45 -- -- -- 12.24
AIM V.I.
PCAP1 Capital Appreciation Fund (11/99;5/93) 42.81 21.73 42.81 23.97 -- 20.74
PVAL1 Value Fund (11/99;5/93) 28.25 10.09 28.25 25.58 -- 21.46
Dreyfus
WSRG6 The Dreyfus Socially Responsible Growth Fund, -- -- 28.43 27.03 -- 22.60
Inc. (--/--;10/93)
FRANKLIN TEMPLETON VIP TRUST
WISE6 Franklin Income Securities Fund - Class 2 -- -- -3.36 8.25 8.54 8.51
(--/--;1/89)***
WRES6 Franklin Real Estate Fund - Class 2 -- -- -7.60 6.57 7.58 7.25
(--/--;11/96)***
PSMC1 Franklin Small Cap Fund - Class 2 103.69 34.15 103.69 -- -- 31.86
(11/991/89)***
WMSS6 Mutual Shares Securities Fund - Class 2 -- -- 12.12 -- -- 9.40
(11/99;11/95)***
GOLDMAN SACHS Variable Insurance Trust (VIT)
WUSE6 CORE(SM) U.S. Equity Fund (--/--;2/98)**** -- -- 22.70 -- -- 19.16
WGLI6 Global Income Fund (--/--;1/98) -- -- -2.31 -- -- 2.24
WITO6 Internet Tollkeeper Fund (--/--;5/00)+ -- -- -- -- -- --
WMCV6 Mid Cap Value Fund (--/--;4/98) -- -- 4.86 -- -- -6.21
MFS(R)
PGIS1 Growth with Income Series (11/99;10/95) 5.30 5.40 5.30 -- -- 19.52
PUTS1 Utilities Series (11/99;1/95) 29.15 11.65 29.15 -- -- 24.84
PUTNAM VARIABLE TRUST
PIGR1 Putnam VT International Growth Fund - Class IB 58.04 24.49 58.04 -- -- 28.45
Shares (11/99;1/97)++
PVIS1 Putnam VT Vista Fund - Class IB Shares 50.77 26.42 50.77 -- -- 29.39
(11/99;1/97)++
WELLS FARGO VARIABLE TRUST
WAAL6 Asset Allocation Fund (--/--;4/94) -- -- 7.91 11.05 -- 9.45
WCBD6 Corporate Bond Fund (--/--;9/99) -- -- -- -- -- -0.58
WEQI6 Equity Income Fund (--/--;5/96) -- -- 6.50 -- -- 15.63
WEQV6 Equity Value Fund (--/--;5/98) -- -- -3.76 -- -- -5.00
WGRO6 Growth Fund (--/--;4/94) -- -- 18.87 21.97 -- 19.66
WLCG6 Large Company Growth Fund (--/--;9/99) -- -- -- -- -- 19.84
WMMK6 Money Market Fund (--/--;5/94) -- -- 3.09 3.51 -- 3.46
WSCG6 Small Cap Growth Fund (--/--;5/95) -- -- 64.21 -- -- 19.06
* Current applicable charges deducted from fund performance include a $30
contract administrative charge, a 1.35% mortality and expense risk fee and
a 0.15% variable account administrative charge. Premium taxes are not
reflected in the above total returns.
** (Commencement date of the subaccount; Commencement date of the Fund)
*** Class 2 shares were issued Jan. 6, 1999. Prior to Jan. 6, 1999, Class 2
performance represents the historical performance results of Class 1
shares. Performance of Class 2 shares for periods after its Jan. 6, 1999
inception reflect Class 2's additional 12b-1 fee expense, which also
affects all future performance. Figures assume reinvestment of dividends
and capital gains.
**** CORE(SM) is a service mark of Goldman, Sachs & Co.
+ Fund had not commenced operations as of Dec. 31, 1999.
++ Each of the above Funds' Class IB Shares commenced operations on April 30,
1998. For periods prior to the inception dates of the Funds' Class IB
Shares, the performance shown is based on the historical performance of the
Funds' Class IA Shares adjusted to reflect the current expenses of the
Funds' Class IB Shares, including a 12b-1 fee of 0.15%.
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
Average Annual Total Return (Without Purchase Payment Credits) For Annuities With Withdrawal and Selection of the Eight-Year
Withdrawal Charge Schedule For Periods Ending Dec. 31, 1999
Performance Since
Commencement of the Performance Since Commencement of the
Subaccount Fund*
Since Since
Subaccount Investing In: 1 Year Commencement 1 Year 5 Years 10 Years Commencement
<S> <C> <C> <C> <C> <C> <C> <C>
- ---------- ------------- ------ ------------ ------ ------- -------- ------------
AXP(SM) VARIABLE PORTFOLIO --
PBCA1 Blue Chip Advantage Fund (11/99;9/99)** --% 0.72% --% --% --% 3.19%
WCAR6 Capital Resource Fund (--/--;10/81) -- -- 14.14 18.99 14.01 14.48
PDEI1 Diversified Equity Income Fund (11/99;9/99) -- -4.45 -- -- -- -5.17
PEXI1 Extra Income Fund (11/99;5/96) -2.33 -4.45 -2.33 -- -- 2.16
WFDI6 Federal Income Fund (--/--;9/99) -- -- -- -- -- -6.72
PNDM1 New Dimensions Fund(R)(11/99;5/96) 22.30 6.01 22.30 -- -- 23.49
PSCA1 Small Cap Advantage Fund (11/99;9/99) -- 1.04 -- -- -- 4.46
AIM V.I.
PCAP1 Capital Appreciation Fund (11/99;5/93) 34.81 13.80 34.81 23.28 -- 20.53
PVAL1 Value Fund (11/99;5/93) 20.25 2.55 20.25 24.93 -- 21.26
Dreyfus
WSRG6 The Dreyfus Socially Responsible Growth Fund, -- -- 20.43 26.41 -- 22.38
Inc. (--/--;10/93)
FRANKLIN TEMPLETON VIP TRUST
WISE6 Franklin Income Securities Fund - Class 2 -- -- -9.89 7.06 8.54 8.51
(--/--;1/89)***
WRES6 Franklin Real Estate Fund - Class 2 -- -- -13.79 5.30 7.58 7.25
(--/--;11/96)***
PSMC1 Franklin Small Cap Fund - Class 2 95.69 26.21 95.69 -- -- 31.02
(11/99;1/89)***
WMSS6 Mutual Shares Securities Fund - Class 2 -- -- 4.35 -- -- 7.28
(11/99;11/95)***
GOLDMAN SACHS Variable Insurance Trust (VIT)
WUSE6 CORE(SM) U.S. Equity Fund (--/--;2/98)**** -- -- 14.70 -- -- 15.46
WGLI6 Global Income Fund (--/--;1/98) -- -- -8.93 -- -- -1.34
WITO6 Internet Tollkeeper Fund (--/--;5/00)+ -- -- -- -- -- --
WMCV6 Mid Cap Value Fund (--/--;4/98) -- -- -2.33 -- -- -10.06
MFS(R)
PGIS1 Growth with Income Series (11/99;10/95) -1.92 -1.77 -1.92 -- -- 18.44
PUTS1 Utilities Series (11/99;1/95) 21.15 3.98 21.15 -- -- 24.17
PUTNAM VARIABLE TRUST
PIGR1 Putnam VT International Growth Fund - Class 50.04 16.55 50.04 -- -- 26.80
IB Shares (11/99;1/97)++
PVIS1 Putnam VT Vista Fund - Class IB Shares 42.77 18.48 42.77 -- -- 27.77
(11/99;1/97)++
WELLS FARGO VARIABLE TRUST
WAAL6 Asset Allocation Fund (--/--;4/94) -- -- 0.48 9.98 -- 8.75
WCBD6 Corporate Bond Fund (--/--;9/99) -- -- -- -- -- -7.33
WEQI6 Equity Income Fund (--/--;5/96) -- -- -0.82 -- -- 14.12
WEQV6 Equity Value Fund (--/--;5/98) -- -- -10.26 -- -- -8.86
WGRO6 Growth Fund (--/--;4/94) -- -- 10.87 21.24 -- 19.21
WLCG6 Large Company Growth Fund (--/--;9/99) -- -- -- -- -- 11.84
WMMK6 Money Market Fund (--/--;5/94) -- -- -3.95 2.08 -- 2.53
WSCG6 Small Cap Growth Fund (--/--;5/95) -- -- 56.21 -- -- 18.12
* Current applicable charges deducted from fund performance include a $30
contract administrative charge, a 1.35% mortality and expense risk fee and
a 0.15% variable account administrative charge. Premium taxes are not
reflected in the above total returns.
** (Commencement date of the subaccount; Commencement date of the Fund)
*** Class 2 shares were issued Jan. 6, 1999. Prior to Jan. 6, 1999, Class 2
performance represents the historical performance results of Class 1
shares. Performance of Class 2 shares for periods after its Jan. 6, 1999
inception reflect Class 2's additional 12b-1 fee expense, which also
affects all future performance. Figures assume reinvestment of dividends
and capital gains.
**** CORE(SM) is a service mark of Goldman, Sachs & Co.
+ Fund had not commenced operations as of Dec. 31, 1999.
++ Each of the above Funds' Class IB Shares commenced operations on April 30,
1998. For periods prior to the inception dates of the Funds' Class IB
Shares, the performance shown is based on the historical performance of the
Funds' Class IA Shares adjusted to reflect the current expenses of the
Funds' Class IB Shares, including a 12b-1 fee of 0.15%.
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
Average Annual Total Return (Without Purchase Payment Credits) For Annuities
Without Withdrawal and Selection of the Eight-Year Withdrawal Charge Schedule
and the Optional Enhanced Death Benefit and Guaranteed Minimum Income Benefit
Riders For Periods Ending Dec. 31, 1999
Performance Since Commencement of the Fund*
Since
Subaccount Investing In: 1 Year 5 Years 10 Years Commencement
<S> <C> <C> <C> <C> <C>
- ---------- ------------- ------ ------- -------- ------------
AXP(SM) VARIABLE PORTFOLIO --
WBCA4 Blue Chip Advantage Fund (9/99)** --% --% --% 10.79%
WCAR4 Capital Resource Fund (10/81) 21.90 19.54 13.78 14.25
WDEI4 Diversified Equity Income Fund (9/99) -- -- -- 2.36
WEXI4 Extra Income Fund (5/96) 4.65 -- -- 3.93
WFDI4 Federal Income Fund (9/99) -- -- -- 0.02
WNDM4 New Dimensions Fund(R)(5/96) 30.04 -- -- 24.46
WSCA4 Small Cap Advantage Fund (9/99) -- -- -- 12.17
AIM V.I.
WCAP4 Capital Appreciation Fund (5/93) 42.52 23.72 -- 20.50
WVAL4 Value Fund (5/93) 27.99 25.33 -- 21.22
Dreyfus
WSRG4 The Dreyfus Socially Responsible Growth 28.18 26.78 -- 22.36
Fund, Inc. (10/93)
FRANKLIN TEMPLETON VIP TRUST
WISE4 Franklin Income Securities Fund - Class 2 -3.55 8.03 8.32 8.29
(1/89)***
WRES4 Franklin Real Estate Fund - Class 2 -7.78 6.36 7.37 7.04
(11/96)***
WSMC4 Franklin Small Cap Fund - Class 2 (1/98)*** 103.30 -- -- 31.60
WMSS4 Mutual Shares Securities Fund - Class 2 11.89 -- -- 9.19
(11/95)***
GOLDMAN SACHS Variable Insurance Trust (VIT)
WUSE4 CORE(SM) U.S. Equity Fund (2/98)**** 22.46 -- -- 18.93
WGLI4 Global Income Fund (1/98) -2.51 -- -- 2.03
WITO4 Internet Tollkeeper Fund (--/--;5/00)+ -- -- -- --
WMCV4 Mid Cap Value Fund (4/98) 4.65 -- -- -6.40
MFS(R)
WGIS4 Growth with Income Series (10/95) 5.09 -- -- 19.28
WUTS4 Utilities Series (1/95) 28.89 -- -- 24.59
PUTNAM VARIABLE TRUST
WIGR4 Putnam VT International Growth Fund - Class 57.73 -- -- 28.19
IB Shares (1/97)++
WVIS4 Putnam VT Vista Fund - Class IB Shares 50.48 -- -- 29.13
(1/97)++
WELLS FARGO VARIABLE TRUST
WAAL4 Asset Allocation Fund (4/94) 7.69 10.83 -- 9.23
WCBD4 Corporate Bond Fund (9/99) -- -- -- -0.64
WEQI4 Equity Income Fund (5/96) 6.29 -- -- 15.41
WEQV4 Equity Value Fund (5/98) -3.95 -- -- -5.19
WGRO4 Growth Fund (4/94) 18.64 21.73 -- 19.42
WLCG4 Large Company Growth Fund (9/99) -- -- -- 19.77
WMMK4 Money Market Fund (5/94) 2.89 3.30 -- 3.25
WSCG4 Small Cap Growth Fund (5/95) 63.90 -- -- 18.82
* Current applicable charges deducted from fund performance include a $30
contract administrative charge, a 1.35% mortality and expense risk fee and
a 0.15% variable account administrative charge. Premium taxes are not
reflected in the above total returns.
** (Commencement date of the Fund)
*** Class 2 shares were issued Jan. 6, 1999. Prior to Jan. 6, 1999, Class 2
performance represents the historical performance results of Class 1
shares. Performance of Class 2 shares for periods after its Jan. 6, 1999
inception reflect Class 2's additional 12b-1 fee expense, which also
affects all future performance. Figures assume reinvestment of dividends
and capital gains.
**** CORE(SM) is a service mark of Goldman, Sachs & Co.
+ Fund had not commenced operations as of Dec. 31, 1999.
++ Each of the above Funds' Class IB Shares commenced operations on April 30,
1998. For periods prior to the inception dates of the Funds' Class IB
Shares, the performance shown is based on the historical performance of the
Funds' Class IA Shares adjusted to reflect the current expenses of the
Funds' Class IB Shares, including a 12b-1 fee of 0.15%.
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
Average Annual Total Return (Without Purchase Payment Credits) For Annuities
With Withdrawal and Selection of the Eight-Year Withdrawal Charge Schedule and
the Optional Enhanced Death Benefit and Guaranteed Minimum Income Benefit Riders
For Periods Ending Dec. 31, 1999
Performance Since Commencement of the
Fund*
Since
Subaccount Investing In: 1 Year 5 Years 10 Years Commencement
<S> <C> <C> <C> <C> <C>
- ---------- ------------- ------ ------- -------- ------------
AXP(SM) VARIABLE PORTFOLIO --
WBCA4 Blue Chip Advantage Fund (9/99)** --% --% --% 2.80%
WCAR4 Capital Resource Fund (10/81) 13.90 18.67 13.78 14.23
WDEI4 Diversified Equity Income Fund (9/99) -- -- -- -4.63
WEXI4 Extra Income Fund (5/96) -2.53 -- -- 1.86
WFDI4 Federal Income Fund (9/99) -- -- -- -6.78
WNDM4 New Dimensions Fund(R)(5/96) 22.04 -- -- 23.13
WSCA4 Small Cap Advantage Fund (9/99) -- -- -- 4.06
AIM V.I.
WCAP4 Capital Appreciation Fund (5/93) 34.52 22.95 -- 20.23
WVAL4 Value Fund (5/93) 19.99 24.60 -- 20.96
Dreyfus
WSRG4 The Dreyfus Socially Responsible Growth 20.18 26.08 -- 22.07
Fund, Inc. (10/93)
FRANKLIN TEMPLETON VIP TRUST
WISE4 Franklin Income Securities Fund - Class 2 -10.07 6.76 8.32 8.26
(1/89)***
WRES4 Franklin Real Estate Fund - Class 2 -13.96 5.00 7.37 7.01
(11/96)***
WSMC4 Franklin Small Cap Fund - Class 2 (1/89)*** 95.30 -- -- 30.66
WMSS4 Mutual Shares Securities Fund - Class 2 4.14 -- -- 6.94
(11/95)***
GOLDMAN SACHS Variable Insurance Trust (VIT)
WUSE4 CORE(SM) U.S. Equity Fund (2/98)**** 14.46 -- -- 15.02
WGLI4 Global Income Fund (1/98) -9.11 -- -- -1.70
WITO4 Internet Tollkeeper Fund (--/--;5/00)+ -- -- -- --
WMCV4 Mid Cap Value Fund (4/98) -2.52 -- -- -10.45
MFS(R)
WGIS4 Growth with Income Series (10/95) -2.11 -- -- 18.11
WUTS4 Utilities Series (1/95) 20.89 -- -- 23.84
PUTNAM VARIABLE TRUST
WIGR4 Putnam VT International Growth Fund - Class 49.73 -- -- 26.41
IB Shares (1/97)++
WVIS4 Putnam VT Vista Fund - Class IB Shares 42.48 -- -- 27.38
(1/97)++`
WELLS FARGO VARIABLE TRUST
WAAL4 Asset Allocation Fund (4/94) 0.28 9.68 -- 8.47
WCBD4 Corporate Bond Fund (9/99) -- -- -- -7.69
WEQI4 Equity Income Fund (5/96) -1.01 -- -- 13.78
WEQV4 Equity Value Fund (5/98) -10.44 -- -- -9.26
WGRO4 Growth Fund (4/94) 10.64 20.92 -- 18.90
WLCG4 Large Company Growth Fund (9/99) -- -- -- 11.42
WMMK4 Money Market Fund (5/94) -4.14 1.79 -- 2.25
WSCG4 Small Cap Growth Fund (5/95) 55.90 -- -- 17.80
* Current applicable charges deducted from fund performance include a $30
contract administrative charge, a 1.35% mortality and expense risk fee and
a 0.15% variable account administrative charge. Premium taxes are not
reflected in the above total returns.
** (Commencement date of the Fund)
*** Class 2 shares were issued Jan. 6, 1999. Prior to Jan. 6, 1999, Class 2
performance represents the historical performance results of Class 1
shares. Performance of Class 2 shares for periods after its Jan. 6, 1999
inception reflect Class 2's additional 12b-1 fee expense, which also
affects all future performance. Figures assume reinvestment of dividends
and capital gains.
**** CORE(SM) is a service mark of Goldman, Sachs & Co.
+ Fund had not commenced operations as of Dec. 31, 1999.
++ Each of the above Funds' Class IB Shares commenced operations on April 30,
1998. For periods prior to the inception dates of the Funds' Class IB
Shares, the performance shown is based on the historical performance of the
Funds' Class IA Shares adjusted to reflect the current expenses of the
Funds' Class IB Shares, including a 12b-1 fee of 0.15%.
</TABLE>
<PAGE>
Cumulative Total Return
Cumulative total return represents the cumulative change in the value of an
investment for a given period (reflecting change in a subaccount's accumulation
unit value). We compute cumulative total return by using the following formula:
ERV - P
P
where: P = a hypothetical initial payment of $1,000
ERV = Ending Redeemable Value of a hypothetical $1,000
payment made at the beginning of the period, at the
end of the period (or fractional portion thereof)
Total return figures reflect the deduction of the withdrawal charge which
assumes you withdraw the entire contract value at the end of the one, five and
ten year periods (or, if less, up to the life of the subaccount). We also may
show performance figures without the deduction of a withdrawal charge. In
addition, total return figures reflect the deduction of all other applicable
charges including the contract administrative charge, the variable account
administrative charge, the Enhanced Death Benefit Rider fee, the Guaranteed
Minimum Income Benefit Rider fee and the mortality and expense risk fee.
Calculation of Yield for Subaccounts Investing in Money Market Funds
Annualized Simple Yield
For the subaccounts investing in money market funds, we base quotations of
simple yield on:
(a) the change in the value of a hypothetical subaccount (exclusive of
capital changes and income other than investment income) at the
beginning of a particular seven-day period;
(b) less, a pro rata share of the subaccount expenses accrued over the
period;
(c) dividing this difference by the value of the subaccount at the
beginning of the period to obtain the base period return; and
(d) multiplying the base period return by 365/7.
The subaccount's value includes:
o any declared dividends;
o the value of any shares purchased with dividends paid during the period;
and o any dividends declared for such shares.
It does not include:
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 return described above, which we then
compound according to the following formula:
Compound Yield = [(Base Period Return + 1)365/7] - 1
You must consider (when comparing an investment in subaccounts investing in
money market funds with fixed annuities) that fixed annuities often provide an
agreed-to or guaranteed yield for a stated period of time, whereas the
subaccount's yield fluctuates. In comparing the yield of the subaccount to a
money market fund, you should consider the different services that the contract
provides.
<PAGE>
Annualized Yield for Subaccounts Investing in Income Funds
For the subaccounts investing in income funds, we base quotations of yield on
all investment income earned during a particular 30-day period, less expenses
accrued during the period (net investment income) and compute it by dividing net
investment income per accumulation unit by the value of an accumulation unit on
the last day of the period, according to the following formula:
YIELD = 2[( a-b + 1)6 - 1]
cd
where: a = dividends and investment income earned during the period
b = expenses accrued for the period (net of reimbursements)
c = the average daily number of accumulation units
outstanding during the period that were entitled to
receive dividends
d = the maximum offering price per accumulation unit on the
last day of the period
The subaccount earns yield from the increase in the net asset value of shares of
the fund in which it invests and from dividends declared and paid by the fund,
which are automatically invested in shares of the fund.
Annualized Yield Based on the 30-Day Period Ended Dec. 31, 1999
Subaccount Investing In Yield
PEXI1 AXP(SM) Variable Portfolio - Extra Income Fund 11.28%
The yield on the subaccount's accumulation unit may fluctuate daily and does not
provide a basis for determining future yields.
Independent rating or statistical services or publishers or publications such as
those listed below may quote subaccount performance, compare it to rankings,
yields or returns, or use it in variable annuity accumulation or settlement
illustrations they publish or prepare.
The Bank Rate Monitor National Index, Barron's, Business Week, CDA
Technologies, Donoghue's Money Market Fund Report, Financial Services
Week, Financial Times, Financial World, Forbes, Fortune, Global
Investor, Institutional Investor, Investor's Business Daily,
Kiplinger's Personal Finance, Lipper Analytical Services, Money,
Morningstar, Mutual Fund Forecaster, Newsweek, The New York Times,
Personal Investor, Stanger Report, Sylvia Porter's Personal Finance,
USA Today, U.S. News & World Report, The Wall Street Journal and
Wiesenberger Investment Companies Service.
CALCULATING ANNUITY PAYOUTS
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 contract on the valuation date; 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.
<PAGE>
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. 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; by
o the fixed number of annuity units credited to you.
Annuity Unit Values: We originally set this value at $1 for each subaccount. To
calculate later values 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
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, the variable account administration charge and the Enhanced Death
Benefit Rider fee (if selected) 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 variable subaccount.
The One-Year 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 one-year fixed account at the retirement date or the
date you 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.
<PAGE>
RATING AGENCIES
The following chart reflects the ratings given to us by independent rating
agencies. These agencies evaluate the financial soundness and claims-paying
ability of insurance companies based on a number of different factors. This
information does not relate to the management or performance of the subaccounts
of the contract. This information relates only to our general account and
reflects our ability to make annuity payouts and to pay death benefits and other
distributions from the contract.
Rating Agency Rating
A.M. Best A+ (Superior)
Duff & Phelps AAA
Moody's Aa2 (Excellent)
A.M. Best's superior rating reflects our strong distribution network, favorable
overall balance sheet, consistently improving profitability, adequate level of
capitalization and asset/liability management expertise.
Duff & Phelps rating reflects our consistently excellent profitability record,
leadership position in chosen markets, stable operating leverage and effective
use of asset/liability management techniques.
Moody's excellent rating reflects our leadership position in financial planning,
strong asset, liability management and good capitalization. American Enterprise
Life has a strong market focus and greatly emphasizes quality service. This
information applies only to fixed products invested in American Enterprise
Life's General Account and reflects American Enterprise Life's ability to
fulfill its obligations under its contracts. This information does not relate to
the management and performance of the separate account assets associated with
American Enterprise Life's variable products.
PRINCIPAL UNDERWRITER
The principal underwriter for the contract is American Express Financial
Advisors Inc. (AEFA) 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
<PAGE>
American Enterprise Variable Annuity Account - Wells Fargo Advantage(SM) Builder
Variable Annuity
Annual Financial Information
Report of Independent Auditors
The Board of Directors
American Enterprise Life Insurance Company
We have audited the individual and combined statements of net assets of the
segregated asset subaccounts of American Enterprise Variable Annuity Account
(comprised of subaccounts PBCA1, PDEI1, PEXI1, PNDM1, PSCA1, PCAP1, PVAL1,
PSMC1, PGIS1, PUTS1, PIGR1 and PVIS1) as of December 31, 1999, and the related
statements of operations and changes in net assets for the periods indicated
therein. These financial statements are the responsibility of the management of
American Enterprise Life Insurance Company. Our responsibility is to express an
opinion on these financial statements based on our audits.
We conducted our audits in accordance with auditing standards generally accepted
in the United States. Those standards require that we plan and perform the audit
to obtain reasonable assurance about whether the financial statements are free
of material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements. Our
procedures included confirmation of securities owned at December 31, 1999 with
the affiliated and unaffiliated mutual fund managers. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the individual and combined financial position of the
segregated asset subaccounts of American Enterprise Variable Annuity Account (as
described above) at December 31, 1999, and the individual and combined results
of their operations and the changes in their net assets for the periods
indicated therein, in conformity with accounting principles generally accepted
in the United States.
ERNST & YOUNG LLP
Minneapolis, Minnesota
March 17, 2000
<PAGE>
<TABLE>
<CAPTION>
American Enterprise Variable Annuity Account -- Wells Fargo Advantage(SM) Builder Variable Annuity
Statements of Net Assets
December 31, 1999
Segregated Asset Subaccounts
Assets PBCA1 PDEI1 PEXI1 PNDM1 PSCA1 PCAP1
Investments in shares of mutual funds
and portfolios:
<S> <C> <C> <C> <C> <C> <C>
at cost $ 260 $ 261 $ 261 $ 262 $ 261 $ 266
----- ----- ----- ----- ----- -----
at market value $ 282 $ 267 $ 265 $ 296 $ 282 $ 317
Dividends receivable -- -- 2 -- -- --
-
Total assets 282 267 267 296 282 317
=== === === === === ===
Net assets applicable to contracts in
accumulation period $ 282 $ 267 $ 267 $ 296 $ 282 $ 317
----- ----- ----- ----- ----- -----
Accumulation units outstanding 259 262 259 257 254 251
=== === === === === ===
Net asset value per accumulation unit $ 1.09 $ 1.02 $ 1.03 $ 1.15 $ 1.11 $ 1.26
====== ====== ====== ====== ====== ======
See accompanying notes to financial statements.
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
American Enterprise Variable Annuity Account -- Wells Fargo Advantage(SM) Builder Variable Annuity
Statements of Net Assets
December 31, 1999
Segregated Asset Subaccounts
Assets PVAL1 PSMC1 PGIS1 PUTS1
Investments in shares of mutual funds and portfolios:
<S> <C> <C> <C> <C>
at cost $ 264 $ 260 $ 260 $ 260
----- ----- ----- -----
at market value $ 287 $ 349 $ 274 $ 291
Dividends receivable -- -- -- --
---- ----- --- ----
Total assets 287 349 274 291
=== === === ===
Net assets applicable to contracts in
accumulation period $ 287 $ 349 $ 274 $ 291
----- ----- ----- -----
Accumulation units outstanding 258 243 261 255
=== === === ===
Net asset value per accumulation unit $ 1.11 $ 1.43 $ 1.05 $ 1.14
====== ====== ====== ======
Combined
Variable
Assets PIGR1 PVIS1 Account
Investments in shares of mutual funds and portfolios:
at cost $ 260 $ 284 $ 3,159
----- ----- -------
at market value $ 324 $ 329 $ 3,563
Dividends receivable -- -- 2
-
Total assets 324 329 3,565
=== === =====
Net assets applicable to contracts in
accumulation period $ 324 $ 329 $ 3,565
----- ----- -------
Accumulation units outstanding 252 253
=== ===
Net asset value per accumulation unit $ 1.29 $ 1.30
====== ======
See accompanying notes to financial statements.
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
American Enterprise Variable Annuity Account -- Wells Fargo Advantage(SM) Builder Variable Annuity
Statements of Operations
Period ended December 31, 1999
Segregated Asset Subaccounts
Investment income PBCA11 PDEI11 PEXI11 PNDM11 PSCA11 PCAP12
<S> <C> <C> <C> <C> <C> <C>
Dividend income from mutual funds and portfolios $-- $ 1 $ 4 $ 2 $ 2 $ 7
Mortality and expense risk fee 1 1 1 1 1 1
- - - - - -
Investment income (loss) - net (1) -- 3 1 1 6
== == = = = =
Realized and unrealized gain (loss) on investments - net
Net change in unrealized appreciation or
depreciation of investments 22 6 4 34 21 51
-- - - -- -- --
Net gain (loss) on investments 22 6 4 34 21 51
-- - - -- -- --
Net increase (decrease) in net assets resulting
from operations $ 21 $ 6 $ 7 $ 35 $ 22 $ 57
==== === === ==== ==== ====
1For the period Nov. 10, 1999 (commencement of operations) to Dec. 31, 1999.
2For the period Nov. 9, 1999 (commencement of operations) to Dec. 31, 1999.
See accompanying notes to financial statements.
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
American Enterprise Variable Annuity Account -- Wells Fargo Advantage(SM) Builder Variable Annuity
Statements of Operations
Period ended December 31, 1999
Segregated Asset Subaccounts
Combined
Variable
Investment income PVAL11 PSMC11 PGIS11 PUTS11 PIGR11 PVIS11 Account
<S> <C> <C> <C> <C> <C> <C> <C>
Dividend income from mutual funds and portfolios $ 5 $-- $-- $-- $-- $ 24 $ 45
Mortality and expense risk fee 1 -- -- -- -- -- 7
- --- --- --- --- --- ---
Investment income (loss) - net 4 -- -- -- -- 24 38
= == === === === == ==
Realized and unrealized gain (loss) on
investments - net
Net change in unrealized appreciation or
depreciation of investments 23 89 14 31 64 45 404
-- -- -- -- -- -- ---
Net gain (loss) on investments 23 89 14 31 64 45 404
-- -- -- -- -- -- ---
Net increase (decrease) in net assets
resulting from operations $27 $ 89 $ 14 $ 31 $ 64 $ 69 $ 442
=== ==== ==== ==== ==== ==== =====
1For the period Nov. 9, 1999 (commencement of operations) to Dec. 31, 1999.
See accompanying notes to financial statements.
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
American Enterprise Variable Annuity Account -- Wells Fargo Advantage(SM) Builder Variable Annuity
Statements of Changes in Net Assets
Period ended December 31, 1999
Segregated Asset Subaccounts
Operations PBCA11 PDEI11 PEXI11 PNDM11 PSCA11 PCAP12
<S> <C> <C> <C> <C> <C> <C>
Investment income (loss) - net $ (1) $-- $ 3 $ 1 $ 1 $ 6
Net change in unrealized appreciation or
depreciation of investments 22 6 4 34 21 51
-- - - -- -- --
Net increase (decrease) in net assets
resulting from operations 21 6 7 35 22 57
== = = == == ==
Contract transactions
Contract purchase payments 261 261 260 261 260 260
--- --- --- --- --- ---
Net assets at beginning of year -- -- -- -- -- --
Net assets at end of year $ 282 $ 267 $ 267 $ 296 $ 282 $ 317
===== ===== ===== ===== ===== =====
Accumulation unit activity
Units outstanding at beginning of year -- -- -- -- -- --
Contract purchase payments 259 262 259 257 254 251
--- --- --- --- --- ---
Units outstanding at end of year 259 262 259 257 254 251
=== === === === === ===
1For the period Nov. 10, 1999 (commencement of operations) to Dec. 31, 1999.
2For the period Nov. 9, 1999 (commencement of operations) to Dec. 31, 1999.
See accompanying notes to financial statements.
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
American Enterprise Variable Annuity Account -- Wells Fargo Advantage(SM) Builder Variable Annuity
Statements of Changes in Net Assets
Period ended December 31, 1999
Segregated Asset Subaccounts
Combined
Variable
Operations PVAL11 PSMC11 PGIS11 PUTS11 PIGR11 PVIS11 Account
<S> <C> <C> <C> <C> <C> <C> <C>
Investment income (loss) - net $ 4 $-- $-- $-- $-- $ 24 $ 38
Net change in unrealized appreciation
or depreciation of investments 23 89 14 31 64 45 404
-- -- -- -- -- -- ---
Net increase (decrease) in net assets
resulting from operations 27 89 14 31 64 69 442
== == == == == == ===
Contract transactions
Contract purchase payments 260 260 260 260 260 260 3,123
--- --- --- --- --- --- -----
Net assets at beginning of year -- -- -- -- -- -- --
Net assets at end of year $ 287 $ 349 $ 274 $ 291 $ 324 $ 329 $ 3,565
===== ===== ===== ===== ===== ===== =======
Accumulation unit activity
Units outstanding at beginning of year -- -- -- -- -- --
Contract purchase payments 258 243 261 255 252 253
--- --- --- --- --- ---
Units outstanding at end of year 258 243 261 255 252 253
=== === === === === ===
1For the period Nov. 9, 1999 (commencement of operations) to Dec. 31, 1999.
See accompanying notes to financial statements.
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
American Enterprise Variable Annuity Account - Wells Fargo Advantage(SM) Builder
Variable Annuity
Notes to Financial Statements
1. ORGANIZATION
American Enterprise Variable Annuity Account (the Account) was established under
Indiana law on July 15, 1987 and the subaccounts are registered together as a
single unit investment trust of American Enterprise Life Insurance Company
(American Enterprise Life) under the Investment Company Act of 1940, as amended
(the 1940 Act). Operations of the Account commenced on Feb. 21, 1995.
The Account is comprised of various subaccounts. Each subaccount invests
exclusively in shares of the following mutual funds (collectively, the Funds),
which are registered under the 1940 Act as diversified, open-end management
investment companies and have the following investment managers.
Subaccount Invests exclusively in shares of Investment Manager
<S> <C> <C>
PBCA1 AXP(SM) Variable Portfolio-- Blue Chip Advantage Fund IDS Life Insurance Company 1
PDEI1 AXP(SM) Variable Portfolio-- Diversified Equity Income Fund IDS Life Insurance Company 1
PEXI1 AXP(SM) Variable Portfolio-- Extra Income Fund IDS Life Insurance Company 1
PNDM1 AXP(SM) Variable Portfolio-- New Dimensions Fund(R) IDS Life Insurance Company 1
PSCA1 AXP(SM) Variable Portfolio-- Small Cap Advantage Fund IDS Life Insurance Company 2
PCAP1 AIM V.I. Capital Appreciation Fund A I M Advisors, Inc.
PVAL1 AIM V.I. Value Fund A I M Advisors, Inc.
PSMC1 FTVIPT Franklin Small Cap Fund - Class 2 Franklin Advisers, Inc.
PGIS1 MFS(R)Growth with Income Series Massachusetts Financial Services Company (MFS)
Investment Management(R)
PUTS1 MFS(R) Utilities Series MFS Investment Management(R)
PIGR1 Putnam VT International Growth Fund - Class IB Shares Putnam Investment Management, Inc.
PVIS1 Putnam VT Vista Fund - Class IB Shares Putnam Investment Management, Inc.
1 American Express Financial Corporation (AEFC) is the investment advisor.
2 AEFC is the investment advisor. Kenwood Capital Management LLC is the
sub-investment advisor.
The assets of each subaccount of the Account are not chargeable with liabilities
arising out of the business conducted by any other segregated asset account or
by American Enterprise Life.
American Enterprise Life issues the contracts that are distributed by banks and
financial institutions either directly or through a network of third-party
marketers.
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Investments in the Funds
Investments in shares of the Funds are stated at market value which is the net
asset value per share as determined by the respective Funds. Investment
transactions are accounted for on the date the shares are purchased and sold.
The cost of investments sold and redeemed is determined on the average cost
method. Dividend distributions received from the Funds are reinvested in
additional shares of the Funds and are recorded as income by the subaccounts on
the ex-dividend date.
Unrealized appreciation or depreciation of investments in the accompanying
financial statements represents the subaccounts' share of the Funds'
undistributed net investment income, undistributed realized gain or loss and the
unrealized appreciation or depreciation on their investment securities.
Use of Estimates
The preparation of financial statements in conformity with accounting principles
generally accepted in the United States requires management to make estimates
and assumptions that affect the reported amounts of assets and liabilities and
disclosures of contingent assets and liabilities at the date of the financial
statements and the reported amounts of increase and decrease in net assets from
operations during the period. Actual results could differ from those estimates.
Federal Income Taxes
American Enterprise Life is taxed as a life insurance company. The Account is
treated as part of American Enterprise Life for federal income tax purposes.
Under existing federal income tax law, no income taxes are payable with respect
to any investment income of the Account.
3. MORTALITY AND EXPENSE RISK FEE
American Enterprise Life makes contractual assurances to the Account that
possible future adverse changes in administrative expenses and mortality
experience of the contract owners and annuitants will not affect the Account.
The mortality and expense risk fee paid to American Enterprise Life is computed
daily and is equal, on an annual basis, to either 1.10% or 1.35% of the average
daily net assets of the subaccounts, depending on the death benefit option that
applies to the contract.
4. ADMINISTRATIVE CHARGE
American Enterprise Life deducts a daily charge equal, on an annual basis, to
0.15% of the average daily net assets of each subaccount as an administrative
charge. This charge covers
certain administrative and operating expenses of the subaccounts incurred by
American Enterprise Life such as accounting, legal and data processing fees, and
expenses involved in the preparation and distribution of reports and
prospectuses. This charge cannot be increased.
5. CONTRACT ADMINISTRATIVE CHARGE
American Enterprise Life deducts a contract administrative charge of $30 per
year on each contract anniversary. This charge cannot be increased and does not
apply after annuity payouts begin. American Enterprise Life does not expect to
profit from this charge. This charge reimburses American Enterprise Life for
expenses incurred in establishing and maintaining the annuity records. This
charge is waived when the contract value is $50,000 or more on the current
contract anniversary. The $30 annual charge is deducted at the time of any full
withdrawal.
6. WITHDRAWAL CHARGE
American Enterprise Life will use a withdrawal charge to help it recover certain
expenses relating to the sale of the annuity. The withdrawal charge is deducted
for withdrawals up to the first six or eight payment years following a purchase
payment, depending on the withdrawal charge schedule selected at the time of
application. Charges by American Enterprise Life for withdrawals are not
identified on an individual segregated asset account basis. Charges for all
segregated asset accounts amounted to $479,554 in 1999. Such charges are not
treated as a separate expense of the subaccounts. They are ultimately deducted
from contract withdrawal benefits paid by American Enterprise Life. This charge
is waived if the withdrawal meets certain provisions as stated in the contract.
7. INVESTMENT IN SHARES
The subaccounts' investment in shares of the Funds as of Dec. 31, 1999 were as follows:
Subaccount Investment Shares NAV
<S> <C> <C> <C>
PBCA1 AXP(SM) Variable Portfolio-- Blue Chip Advantage Fund 25 $11.08
PDEI1 AXP(SM) Variable Portfolio-- Diversified Equity Income Fund 26 10.19
PEXI1 AXP(SM) Variable Portfolio-- Extra Income Fund 31 8.58
PNDM1 AXP(SM) Variable Portfolio-- New Dimensions Fund(R) 13 22.86
PSCA1 AXP(SM) Variable Portfolio-- Small Cap Advantage Fund 25 11.13
PCAP1 AIM V.I. Capital Appreciation Fund 9 35.58
PVAL1 AIM V.I. Value Fund 9 33.50
PSMC1 FTVIPT Franklin Small Cap Fund - Class 2 13 26.79
PGIS1 MFS(R)Growth with Income Series 13 21.31
PUTS1 MFS(R)Utilities Series 12 24.16
PIGR1 Putnam VT International Growth Fund - Class IB Shares 15 21.62
PVIS1 Putnam VT Vista Fund - Class IB Shares 16 20.65
8. INVESTMENT TRANSACTIONS
The subaccounts' purchases of Funds' shares, including reinvestment of dividend
distributions, were as follows:
Year ended Dec. 31,
Subaccount Investment 1999
<S> <C> <C>
PBCA11 AXP(SM) Variable Portfolio-- Blue Chip Advantage Fund $260
PDEI11 AXP(SM) Variable Portfolio-- Diversified Equity Income Fund 261
PEXI11 AXP(SM) Variable Portfolio-- Extra Income Fund 261
PNDM11 AXP(SM) Variable Portfolio-- New Dimensions Fund(R) 262
PSCA11 AXP(SM) Variable Portfolio-- Small Cap Advantage Fund 261
PCAP12 AIM V.I. Capital Appreciation Fund 266
PVAL12 AIM V.I. Value Fund 264
PSMC12 FTVIPT Franklin Small Cap Fund - Class 2 260
PGIS12 MFS(R)Growth with Income Series 260
PUTS12 MFS(R)Utilities Series 260
PIGR12 Putnam VT International Growth Fund - Class IB Shares 260
PVIS12 Putnam VT Vista Fund - Class IB Shares 284
Combined Variable Account $3,159
1 Operations commenced on Nov. 10, 1999. 2 Operations commenced on Nov. 9, 1999.
9. YEAR 2000 (UNAUDITED)
The Year 2000 issue is the result of computer programs having been written using
two digits rather than four to define a year. Any programs that have
time-sensitive software may recognize a date using "00" as the year 1900 rather
than 2000. This could result in the failure of major systems or miscalculations,
which could have a material impact on the operations of American Enterprise Life
and the Account. All of the major systems used by the American Enterprise Life
and the Account are maintained by AEFC and are utilized by multiple subsidiaries
and affiliates of AEFC. American Enterprise Life's and the Account's businesses
are heavily dependent upon AEFC's computer systems and have significant
interactions with systems of third parties.
A comprehensive review of AEFC's computer systems and business processes,
including those specific to American Enterprise Life and the Account, was
conducted to identify the major systems that could be affected by the Year 2000
issue. Steps were taken to resolve potential problems including modification to
existing software and the purchase of new software. As of Dec. 31, 1999, AEFC
had completed its program of corrective measures on its internal systems and
applications, including Year 2000 compliance testing. As of Dec. 31, 1999, AEFC
had also completed an evaluation of the Year 2000 readiness of other third
parties whose system failures could have an impact on American Enterprise Life's
and the Account's operations.
AEFC's Year 2000 project also included establishing Year 2000 contingency plans
for all key business units. Business continuation plans, which address business
continuation in the event of a system disruption, are in place for all key
business units. As of Dec. 31, 1999, these plans had been amended to include
specific Year 2000 considerations.
In assessing its Year 2000 initiatives and the results of actual production
since Jan. 1, 2000, management believes no material adverse consequences were
experienced, and there was no material effect on American Enterprise Life's and
the Account's business, results of operations, or financial condition as a
result of the Year 2000 issue.
</TABLE>
<PAGE>
STATEMENT OF ADDITIONAL INFORMATION
for
AMERICAN EXPRESS SIGNATURE ONE VARIABLE ANNUITY(SM)
American Enterprise Variable Annuity Account
May 1, 2000
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 may be
obtained by writing or calling us at the address and telephone number below. The
prospectus is incorporated in this SAI by reference.
American Enterprise Life Insurance Company
829 AXP Financial Center
Minneapolis, MN 55474
1-800-333-3437
<PAGE>
TABLE OF CONTENTS
Performance Information.............................................p.3
Calculating Annuity Payouts........................................p.13
Rating Agencies....................................................p.15
Principal Underwriter..............................................p.15
<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 show 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>
Average Annual Total Return (Without Purchase Payment Credits) For Annuities
Without Withdrawal and Selection of the Value Option Return of Purchase Payment
Death Benefit For Periods Ending Dec. 31, 1999
<TABLE>
<CAPTION>
Performance Since
Commencement of the Fund*
Since
Subaccount Investing In: 1 Year 5 Years 10 Years Commencement
- ---------- ------------- ------ ------- -------- ------------
<S> <C> <C> <C> <C> <C>
AXP(SM) VARIABLE PORTFOLIO -
WBCA 3 Blue Chip Advantage Fund(9/99)** --% --% --% 10.74%
SBND 2 Bond Fund (10/81) 0.09 6.30 6.47 8.97
WCAR 3 Capital Resource Fund (10/81) 21.81 19.45 13.69 14.16
SCMG 2 Cash Management Fund (10/81) 3.07 3.45 3.24 4.90
WDEI 3 Diversified Equity Income Fund(9/99) -- -- -- 2.31
WEXI 3 Extra Income Fund (5/96) 4.56 -- -- 3.84
WFDI 3 Federal Income Fund(9/99) -- -- -- -0.03
SGRO 2 Growth Fund(9/99) -- -- -- 17.65
SGMD 2 Managed Fund (4/86) 13.03 16.36 11.75 11.11
WNDM 3 New Dimensions Fund(R)( 5/96) 29.94 -- -- 24.37
WSCA 3 Small Cap Advantage Fund(9/99) -- -- -- 12.12
AIM V.I.
WCAP 3 Capital Appreciation Fund (5/93) 42.42 23.63 -- 20.41
SCDV 2 Capital Development Fund (5/98) 27.11 -- -- 9.45
WVAL 3 Value Fund (5/93) 27.90 25.24 -- 21.13
ALLIANCE VP
SPGR 2 Premier Growth Portfolio (Class B) (7/99) -- -- -- 11.22
STEC 2 Technology Portfolio (Class B) (9/99) -- -- -- 47.95
SUGH 2 U.S. Government/High Grade Securities -- -- -- -0.69
Portfolio (Class B) (6/99)
BARON FUNDS
SCAS 2 Baron Capital Asset Fund (10/98) 33.75 -- -- 59.14
FIDELITY VIP
SGRI 2 III Growth & Income Portfolio (Service 6.13 -- -- 19.63
Class) (12/96)
SMDC 2 III Mid Cap Portfolio 46.66 -- -- 50.69
(Service Class) (12/98)
SOVS 2 Overseas Portfolio (Service Class) (12/87) 40.12 15.48 9.65 10.64
FRANKLIN TEMPLETON VIP TRUST
WRES 3 Franklin Real Estate Fund - -7.86 6.27 7.28 6.94
Class 2 (1/89)***
WMSS 3 Mutual Shares Securities Fund - 11.81 -- -- 9.10
Class 2 (11/96)***
SISC 2 Templeton International Smaller Companies 21.99 -- -- 3.56
Fund - Class 2 (5/96)***
</TABLE>
*Current applicable charges deducted from fund performance include a $40
contract administrative charge, a 1.35% mortality and expense risk fee and a
0.15% variable account administrative charge. Premium taxes are not reflected in
these total returns.
**(Commencement date of the Fund.)
***Class 2 shares were issued Jan. 6, 1999. Prior to Jan. 6, 1999, Class 2
performance represents the historical performance results of Class 1 shares.
Performance of Class 2 shares for periods after its Jan. 6, 1999 inception
reflect Class 2's additional 12b-1 fee expense, which also affects all future
performance. Figures assume reinvestment of dividends and capital gains.
<PAGE>
Average Annual Total Return (Without Purchase Payment Credits) For Annuities
Without Withdrawal and Selection of the Value Option Return of Purchase Payment
Death Benefit For Periods Ending Dec. 31, 1999 (continued)
<TABLE>
<CAPTION>
Performance Since
Commencement of the Fund*
Since
Subaccount Investing In: 1 Year 5 Years 10 Years Commencement
- ---------- ------------- ------ ------- -------- ------------
<S> <C> <C> <C> <C> <C>
GOLDMAN SACHS VARIABLE INSURANCE TRUST (VIT)
SCGR 2 Capital Growth Fund (4/98)** 25.16% --% --% 22.53%
WUSE 3 CORE(SM) U.S. Equity Fund (2/98)*** 22.37 -- -- 18.83
WGLI 3 Global Income Fund (1/98) -2.59 -- -- 1.97
SIEQ 2 International Equity Fund (1/98) 29.18 -- -- 24.03
SITO 2 Internet Tollkeeper Fund (5/00)+ -- -- -- --
JANUS ASPEN SERIES
SAGP 2 aggressive Growth Portfolio: Service Shares (12/99)+ -- -- -- --
SGLT 2 Global Technology Portfolio: Service Shares (1/00)+ -- -- -- --
SGIP 2 Growth Portfolio: Service Shares (12/99)+ -- -- -- --
SINT 2 International Growth Portfolio: Service Shares -- -- -- --
(12/99)+
J.P. MORGAN Series Trust II
SUDE 2 J.P. Morgan U.S. Disciplined Equity Portfolio (12/94) 16.71 22.58 -- 22.56
LAZARD RETIREMENT Series
SREQ 2 Equity Portfolio (3/98) 6.29 -- -- 8.86
SRIE 2 International Equity Portfolio (9/98) 19.53 -- -- 24.27
MFS(R)
SNDS 2 New Discovery Series (4/98) 70.84 -- -- 38.59
SRSS 2 Research Series (7/95) 22.14 -- -- 21.02
WUTS 3 Utilities Series (1/95) 28.80 -- -- 24.50
ROYCE Capital Fund
SMCC 2 Micro-Cap Portfolio (12/96) 26.16 -- -- 15.50
SPRM 2 Premier Portfolio (12/96) 6.52 -- -- 9.56
THIRD AVENUE VARIABLE SERIES TRUST
SVLU 2 Value Portfolio (9/99) -- -- -- 7.86
WANGER
SISM2 International Small Cap (5/95) 123.15 -- -- 36.63
SUSC2 U.S. Small Cap (5/95) 22.96 -- -- 24.48
WARBURG PINCUS TRUST -
SEGR 2 Emerging Growth Portfolio (9/99) -- -- -- 34.30
WELLS FARGO VARIABLE TRUST
WEQI 3 Equity Income Fund (5/96) 6.21 -- -- 15.32
</TABLE>
*Current applicable charges deducted from fund performance include a $40
contract administrative charge, a 1.35% mortality and expense risk fee and a
0.15% variable account administrative charge. Premium taxes are not reflected in
these total returns.
**(Commencement date of the Fund.)
*** CORE(SM) is a service mark of Goldman, Sachs & Co.
+Had not commenced operations as of Dec. 31, 1999.
<PAGE>
Average Annual Total Return (Without Purchase Payment Credits) For Annuities
With Withdrawal and Selection of the Value Option Return of Purchase Payment
Death Benefit For Periods Ending Dec. 31, 1999
<TABLE>
<CAPTION>
Performance Since
Commencement of the Fund*
Since
Subaccount Investing In: 1 Year 5 Years 10 Years Commencement
- ---------- ------------- ------ ------- -------- ------------
<S> <C> <C> <C> <C> <C>
AXP(SM) VARIABLE PORTFOLIO -
WBCA 3 Blue Chip Advantage Fund(9/99)** --% --% --% 2.74%
SBND 2 Bond Fund (10/81) -7.12 5.18 6.47 8.97
WCAR 3 Capital Resource Fund (10/81) 13.81 18.75 13.69 14.16
SCMG 2 Cash Management Fund (10/81) -4.38 2.20 3.24 4.90
WDEI 3 Diversified Equity Income Fund(9/99) -- -- -- -5.08
WEXI 3 Extra Income Fund (5/96) 4.56 -- -- 3.84
WFDI 3 Federal Income Fund(9/99) -- -- -- -7.23
SGRO 2 Growth Fund(9/99) -- -- -- 9.65
SGMD 2 Managed Fund (4/86) 5.03 15.59 11.75 11.11
WNDM 3 New Dimensions Fund(R)( 5/96) 21.94 -- -- 23.13
WSCA 3 Small Cap Advantage Fund(9/99) -- -- -- 4.12
AIM V.I.
WCAP 3 Capital Appreciation Fund (5/93) 34.42 23.02 -- 20.09
SCDV 2 Capital Development Fund (5/98) 19.11 -- -- 4.87
WVAL 3 Value Fund (5/93) 19.90 24.67 -- 20.82
ALLIANCE VP
SPGR 2 Premier Growth Portfolio (Class B) (7/99) -- -- -- 3.22
STEC 2 Technology Portfolio (Class B) (9/99) -- -- -- 39.95
SUGH 2 U.S. Government/High Grade Securities -- -- -- -7.84
Portfolio (Class B) (6/99)
BARON FUNDS
SCAS 2 Baron Capital Asset Fund (10/98) 25.75 -- -- 53.37
FIDELITY VIP
SGRI 2 III Growth & Income Portfolio (Service -1.56 -- -- 17.74
Class) (12/96)
SMDC 2 III Mid Cap Portfolio 38.66 -- -- 42.78
(Service Class) (12/98)
SOVS 2 Overseas Portfolio (Service Class) (12/87) 32.21 14.68 9.65 10.64
FRANKLIN TEMPLETON VIP TRUST
WRES 3 Franklin Real Estate Fund - -14.43 5.15 7.28 6.94
Class 2 (1/89)***
WMSS 3 Mutual Shares Securities Fund - 3.81 -- -- 6.96
Class 2 (11/96)***
SISC 2 Templeton International Smaller Companies 13.99 -- -- 1.52
Fund - Class 2 (5/96)***
</TABLE>
*Current applicable charges deducted from fund performance include a $40
contract administrative charge, a 1.35% mortality and expense risk fee, a 0.15%
variable account administrative charge and applicable withdrawal charges.
Premium taxes are not reflected in these total returns.
**(Commencement date of the Fund.)
***Class 2 shares were issued Jan. 6, 1999. Prior to Jan. 6, 1999, Class 2
performance represents the historical performance results of Class 1 shares.
Performance of Class 2 shares for periods after its Jan. 6, 1999 inception
reflect Class 2's additional 12b-1 fee expense, which also affects all future
performance. Figures assume reinvestment of dividends and capital gains.
<PAGE>
Average Annual Total Return (Without Purchase Payment Credits) For Annuities
With Withdrawal and Selection of the Value Option Return of Purchase Payment
Death Benefit For Periods Ending Dec. 31, 1999 (continued)
<TABLE>
<CAPTION>
Performance Since
Commencement of the Fund*
Since
Subaccount Investing In: 1 Year 5 Years 10 Years Commencement
- ---------- ------------- ------ ------- -------- ------------
<S> <C> <C> <C> <C> <C>
GOLDMAN SACHS VARIABLE INSURANCE TRUST (VIT)
SCGR 2 Capital Growth Fund (4/98)** 17.16% --% --% 18.31%
WUSE 3 CORE(SM) U.S. Equity Fund (2/98)*** 14.37 -- -- 15.13
WGLI 3 Global Income Fund (1/98) -9.58 -- -- -1.82
SIEQ 2 International Equity Fund (1/98) 21.18 -- -- 20.68
SITO 2 Internet Tollkeeper Fund (5/00)+ -- -- -- --
JANUS ASPEN SERIES
SAGP 2 aggressive Growth Portfolio: Service Shares (12/99)+ -- -- -- --
SGLT 2 Global Technology Portfolio: Service Shares (1/00)+ -- -- -- --
SGIP 2 Growth Portfolio: Service Shares (12/99)+ -- -- -- --
SINT 2 International Growth Portfolio: Service Shares -- -- -- --
(12/99)+
J.P. MORGAN Series Trust II
SUDE 2 J.P. Morgan U.S. Disciplined Equity Portfolio (12/94) 8.71 21.96 -- 22.02
LAZARD RETIREMENT Series
SREQ 2 Equity Portfolio (3/98) -1.41 -- -- 4.61
SRIE 2 International Equity Portfolio (9/98) 11.53 -- -- 18.64
MFS(R)
SNDS 2 New Discovery Series (4/98) 62.84 -- -- 34.68
SRSS 2 Research Series (7/95) 14.14 -- -- 20.19
WUTS 3 Utilities Series (1/95) 20.80 -- -- 23.91
ROYCE Capital FUND
SMCC 2 Micro-Cap Portfolio (12/96) 18.16 -- -- 13.46
SPRM 2 Premier Portfolio (12/96) -1.20 -- -- 7.29
THIRD AVENUE VARIABLE SERIES TRUST
SVLU 2 Value Portfolio (9/99) -- -- -- 0.03
WANGER
SISM2 International Small Cap (5/95) 115.15 -- -- 36.14
SUSC2 U.S. Small Cap (5/95) 14.96 -- -- 23.80
WARBURG PINCUS TRUST -
SEGR 2 Emerging Growth Portfolio (9/99) -- -- -- 26.30
WELLS FARGO VARIABLE TRUST
WEQI 3 Equity Income Fund (5/96) -1.49 -- -- 13.79
</TABLE>
*Current applicable charges deducted from fund performance include a $40
contract administrative charge, a 1.35% mortality and expense risk fee, a 0.15%
variable account administrative charge and applicable withdrawal charges.
Premium taxes are not reflected in these total returns.
**(Commencement date of the Fund.)
*** CORE(SM) is a service mark of Goldman, Sachs & Co.
+Had not commenced operations as of Dec. 31, 1999.
<PAGE>
Average Annual Total Return (Without Purchase Payment Credits) For Annuities
Without Withdrawal and Selection of the Guaranteed Minimum Income Benefit Rider
(6% Accumulation Benefit Base) and Either the Maximum Anniversary Value Death
Benefit or the 5% Accumulation Death Benefit For Periods Ending Dec. 31, 1999
<TABLE>
<CAPTION>
Performance Since
Commencement of the Fund*
Since
Subaccount Investing In: 1 Year 5 Years 10 Years Commencement
- ---------- ------------- ------ ------- -------- ------------
<S> <C> <C> <C> <C> <C>
AXP(SM) VARIABLE PORTFOLIO -
SBCA1 Blue Chip Advantage Fund (9/99)** --% --% --% 10.36%
SBND1 Bond Fund (10/81) -0.36 5.85 6.01 8.52
SCAR1 Capital Resource Fund (10/81) 21.34 18.98 13.23 13.70
SCMG1 Cash Management Fund (10/81) 2.62 3.00 2.79 4.45
SDEI1 Diversified Equity Income Fund (9/99) -- -- -- 1.93
SEXI1 Extra Income Fund (5/96) 4.11 -- -- 3.39
SFDI1 Federal Income Fund (9/99) -- -- -- -0.41
SGRO1 Growth Fund (9/99) -- -- -- 17.26
SMGD1 Managed Fund (4/86) 12.57 15.89 11.29 10.65
SNDM1 New Dimensions Fund(R)( 5/96) 29.46 -- -- 23.89
SSCA1 Small Cap Advantage Fund (9/99) -- -- -- 11.73
AIM V.I.
SCAP1 Capital Appreciation Fund (5/93) 41.93 23.15 -- 19.94
SCDV1 Capital Development Fund (5/98) 26.64 -- -- 8.99
SVAL1 Value Fund (5/93) 27.43 24.76 -- 20.66
ALLIANCE VP
SPGR1 Premier Growth Portfolio (Class B) (7/99) -- -- -- 10.82
STEC1 Technology Portfolio (Class B) (9/99) -- -- -- 47.56
SUGH1 U.S. Government/High Grade Securities -- -- -- -1.10
Portfolio (Class B) (6/99)
BARON FUNDS
SCAS1 Baron Capital Asset Fund (10/98) 33.27 -- -- 58.64
FIDELITY VIP
SGRI1 III Growth & Income Portfolio (Service 5.68 -- -- 19.16
Class) (12/96)
SMDC1 III Mid Cap Portfolio 46.17 -- -- 50.19
(Service Class) (12/98)
SOVS1 Overseas Portfolio (Service Class) (12/87) 39.73 15.02 9.19 10.18
FRANKLIN TEMPLETON VIP TRUST
SRES1 Franklin Real Estate Fund - -8.30 5.82 6.82 6.49
Class 2 (1/89)***
SMSS1 Mutual Shares Securities Fund - 11.34 -- -- 8.64
Class 2 (11/96)***
SISC1 Templeton International Smaller Companies 21.52 -- -- 3.11
Fund - Class 2 (5/96)***
</TABLE>
*Current applicable charges deducted from fund performance include a $40
contract administrative charge, a 1.45% mortality and expense risk fee, a 0.15%
variable account administrative charge and a 0.35% Guaranteed Minimum Income
Benefit Rider (6% Accumulation Benefit Base) fee. Premium taxes are not
reflected in these total returns.
**(Commencement date of the Fund.)
***Class 2 shares were issued Jan. 6, 1999. Prior to Jan. 6, 1999, Class 2
performance represents the historical performance results of Class 1 shares.
Performance of Class 2 shares for periods after its Jan. 6, 1999 inception
reflect Class 2's additional 12b-1 fee expense, which also affects all future
performance. Figures assume reinvestment of dividends and capital gains.
<PAGE>
Average Annual Total Return (Without Purchase Payment Credits) For Annuities
Without Withdrawal and Selection of the Guaranteed Minimum Income Benefit Rider
(6% Accumulation Benefit Base) and Either the Maximum Anniversary Value Death
Benefit or the 5% Accumulation Death Benefit For Periods Ending Dec. 31, 1999
(continued)
<TABLE>
<CAPTION>
Performance Since
Commencement of the Fund*
Since
Subaccount Investing In: 1 Year 5 Years 10 Years Commencement
- ---------- ------------- ------ ------- -------- ------------
<S> <C> <C> <C> <C> <C>
GOLDMAN SACHS VARIABLE INSURANCE TRUST (VIT)
SCGR1 Capital Growth Fund (4/98)** 24.69% --% --% 22.06%
SUSE1 CORE(SM) U.S. Equity Fund (2/98)*** 21.90 -- -- 18.37
SGLI1 Global Income Fund (1/98) -3.04 -- -- 1.52
SIEQ1 International Equity Fund (1/98) 28.70 -- -- 23.56
SITO1 Internet Tollkeeper Fund (5/00)+
JANUS ASPEN SERIES
SAGP1 aggressive Growth Portfolio: Service Shares (12/99)+ -- -- -- --
SGLT1 Global Technology Portfolio: Service Shares (1/00)+ -- -- -- --
SGIP1 Growth Portfolio: Service Shares (12/99)+ -- -- -- --
SINT1 International Growth Portfolio: Service Shares -- -- -- --
(12/99)+
J.P. MORGAN Series Trust II
SUDE1 J.P. Morgan U.S. Disciplined Equity Portfolio 16.24 22.11 -- 22.08
(12/94)
LAZARD RETIREMENT Series
SREQ1 Equity Portfolio (3/98) 5.83 -- -- 8.40
SRIE1 International Equity Portfolio (9/98) 19.06 -- -- 23.80
MFS(R)
SNDS1 New Discovery Series (4/98) 70.37 -- -- 38.14
SRSS1 Research Series (7/95) 21.67 -- -- 20.55
SUTS1 Utilities Series (1/95) 28.33 -- -- 24.03
ROYCE CAPITAL FUND
SMCC1 Micro-Cap Portfolio (12/96) 25.68 -- -- 15.03
SPRM1 Premier Portfolio (12/96) 6.06 -- -- 9.10
THIRD AVENUE VARIABLE SERIES TRUST
SVLU1 Value Portfolio (9/99) -- -- -- 7.48
WANGER
SISM1 International Small Cap (5/95) 122.59 -- -- 36.14
SUSC1 U.S. Small Cap (5/95) 22.49 -- -- 24.01
WARBURG PINCUS TRUST -
SEGR1 Emerging Growth Portfolio (9/99) -- -- -- 33.92
WELLS FARGO VARIABLE TRUST
SEQI1 Equity Income Fund (5/96) 5.75 -- -- 14.85
</TABLE>
*Current applicable charges deducted from fund performance include a $40
contract administrative charge, a 1.45% mortality and expense risk fee, a 0.15%
variable account administrative charge and a 0.35% Guaranteed Minimum Income
Benefit Rider (6% Accumulation Benefit Base) fee. Premium taxes are not
reflected in these total returns.
**(Commencement date of the Fund.)
*** CORE(SM) is a service mark of Goldman, Sachs & Co.
+Had not commenced operations as of Dec. 31, 1999.
<PAGE>
Average Annual Total Return (Without Purchase Payment Credits) For Annuities
With Withdrawal and Selection of the Guaranteed Minimum Income Benefit Rider (6%
Accumulation Benefit Base) and Either the Maximum Anniversary Value Death
Benefit or the 5% Accumulation Death Benefit For Periods Ending Dec. 31, 1999
<TABLE>
<CAPTION>
Performance Since
Commencement of the Fund*
Since
Subaccount Investing In: 1 Year 5 Years 10 Years Commencement
- ---------- ------------- ------ ------- -------- ------------
<S> <C> <C> <C> <C> <C>
AXP(SM) VARIABLE PORTFOLIO -
SBCA1 Blue Chip Advantage Fund (9/99)** --% --% --% 2.36%
SBND1 Bond Fund (10/81) -7.53 4.71 6.01 8.52
SCAR1 Capital Resource Fund (10/81) 13.34 18.27 13.23 13.70
SCMG1 Cash Management Fund (10/81) -4.79 1.72 2.79 4.45
SDEI1 Diversified Equity Income Fund (9/99) -- -- -- -5.43
SEXI1 Extra Income Fund (5/96) 4.11 -- -- 3.39
SFDI1 Federal Income Fund (9/99) -- -- -- -7.58
SGRO1 Growth Fund (9/99) -- -- -- 9.26
SMGD1 Managed Fund (4/86) 4.57 15.11 11.29 10.65
SNDM1 New Dimensions Fund(R)( 5/96) 29.46 -- -- 23.89
SSCA1 Small Cap Advantage Fund (9/99) -- -- -- 3.73
AIM V.I.
SCAP1 Capital Appreciation Fund (5/93) 33.93 22.54 -- 19.61
SCDV1 Capital Development Fund (5/98) 18.64 -- -- 4.40
SVAL1 Value Fund (5/93) 19.43 24.18 -- 20.34
ALLIANCE VP
SPGR1 Premier Growth Portfolio (Class B) (7/99) -- -- -- 2.82
STEC1 Technology Portfolio (Class B) (9/99) -- -- -- 39.59
SUGH1 U.S. Government/High Grade Securities -- -- -- -8.21
Portfolio (Class B) (6/99)
BARON FUNDS
SCAS1 Baron Capital Asset Fund (10/98) 25.27 -- -- 52.87
FIDELITY VIP
SGRI1 III Growth & Income Portfolio (Service -1.98 -- -- 17.25
Class) (12/96)
SMDC1 III Mid Cap Portfolio 3.17 -- -- 42.28
(Service Class) (12/98)
SOVS1 Overseas Portfolio (Service Class) (12/87) 31.73 14.20 9.19 10.18
FRANKLIN TEMPLETON VIP TRUST
SRES1 Franklin Real Estate Fund - -14.84 4.68 6.82 6.49
Class 2 (1/89)***
SMSS1 Mutual Shares Securities Fund - 3.34 -- -- 6.48
Class 2 (11/96)***
SISC1 Templeton International Smaller Companies 13.52 -- -- 1.05
Fund - Class 2 (5/96)***
</TABLE>
*Current applicable charges deducted from fund performance include a $40
contract administrative charge, a 1.45% mortality and expense risk fee, a 0.15%
variable account administrative charge, a 0.35% Guaranteed Minimum Income
Benefit Rider (6% Accumulation Benefit Base) fee and applicable withdrawal
charges. Premium taxes are not reflected in these total returns.
**(Commencement date of the Fund.)
***Class 2 shares were issued Jan. 6, 1999. Prior to Jan. 6, 1999, Class 2
performance represents the historical performance results of Class 1 shares.
Performance of Class 2 shares for periods after its Jan. 6, 1999 inception
reflect Class 2's additional 12b-1 fee expense, which also affects all future
performance. Figures assume reinvestment of dividends and capital gains.
<PAGE>
Average Annual Total Return (Without Purchase Payment Credits) For Annuities
With Withdrawal and Selection of the Guaranteed Minimum Income Benefit Rider (6%
Accumulation Benefit Base) and Either the Maximum Anniversary Value Death
Benefit or the 5% Accumulation Death Benefit For Periods Ending Dec. 31, 1999
(continued)
<TABLE>
<CAPTION>
Performance Since
Commencement of the Fund*
Since
Subaccount Investing In: 1 Year 5 Years 10 Years Commencement
- ---------- ------------- ------ ------- -------- ------------
<S> <C> <C> <C> <C> <C>
GOLDMAN SACHS VARIABLE INSURANCE TRUST (VIT)
SCGR1 Capital Growth Fund (4/98)** 16.69% --% --% 17.82%
SUSE1 CORE(SM) U.S. Equity Fund (2/98)*** 13.90 -- -- 14.64
SGLI1 Global Income Fund (1/98) -9.99 -- -- -2.25
SIEQ1 International Equity Fund (1/98) 20.70 -- -- 20.20
SITO1 Internet Tollkeeper Fund (5/00)+
JANUS ASPEN SERIES
SAGP1 aggressive Growth Portfolio: Service Shares (12/99)+ -- -- -- --
SGLT1 Global Technology Portfolio: Service Shares (1/00)+ -- -- -- --
SGIP1 Growth Portfolio: Service Shares (12/99)+ -- -- -- --
SINT1 International Growth Portfolio: Service Shares -- -- -- --
(12/99)+
J.P. MORGAN Series trust II
SUDE1 J. P. Morgan U.S. Disciplined Equity Portfolio 8.24 21.48 -- 21.54
(12/94)
LAZARD RETIREMENT Series
SREQ1 Equity Portfolio (3/98) -1.83 -- -- 4.14
SRIE1 International Equity Portfolio (9/98) 11.06 -- -- 18.16
MFS(R)
SNDS1 New Discovery Series (4/98) 62.37 -- -- 34.22
SRSS1 Research Series (7/95) 13.67 -- -- 19.71
SUTS1 Utilities Series (1/95) 20.33 -- -- 23.43
ROYCE Capital fund
SMCC1 Micro-Cap Portfolio (12/96) 17.68 -- -- 12.98
SPRM1 Premier Portfolio (12/96) -1.62 -- -- 6.81
THIRD AVENUE VARIABLE SERIES TRUST
SVLU1 Value Portfolio (9/99) -- -- -- -0.32
WANGER
SISM1 International Small Cap (5/95) 114.59 -- -- 35.65
SUSC1 U.S. Small Cap (5/95) 14.49 -- -- 23.32
WARBURG PINCUS TRUST -
SEGR1 Emerging Growth Portfolio (9/99) -- -- -- 25.92
WELLS FARGO VARIABLE TRUST
SEQI1 Equity Income Fund (5/96) -1.91 -- -- 13.31
</TABLE>
*Current applicable charges deducted from fund performance include a $40
contract administrative charge, a 1.45% mortality and expense risk fee, a 0.15%
variable account administrative charge, a 0.35% Guaranteed Minimum Income
Benefit Rider (6% Accumulation Benefit Base) fee and applicable withdrawal
charges. Premium taxes are not reflected in these total returns.
**(Commencement date of the Fund.)
***CORE(SM) is a service mark of Goldman, Sachs & Co.
+Had not commenced operations as of Dec. 31, 1999.
<PAGE>
Cumulative Total Return
Cumulative total return represents the cumulative change in the value of an
investment for a given period (reflecting change in a subaccount's accumulation
unit value). We compute cumulative total return by using the following formula:
ERV - P
P
where: P = a hypothetical initial payment of $1,000
ERV = Ending Redeemable Value of a hypothetical $1,000
payment made at the beginning of the period, at the
end of the period (or fractional portion thereof)
Total return figures reflect the deduction of the withdrawal charge which
assumes you withdraw the entire contract value at the end of the one, five and
ten year periods (or, if less, up to the life of the subaccount). We also may
show performance figures without the deduction of a withdrawal charge. In
addition, total return figures reflect the deduction of all other applicable
charges including the contract administrative charge, the variable account
administrative charge, the Maximum Anniversary Value Death Benefit Rider fee,
the Enhanced Death Benefit Rider fee, the Guaranteed Minimum Income Benefit
Rider fee and the mortality and expense risk fee.
Calculation of Yield for Subaccounts Investing in Money Market Funds
Annualized Simple Yield
For the subaccounts investing in money market funds, we base quotations of
simple yield on:
(a) the change in the value of a hypothetical subaccount (exclusive of
capital changes and income other than investment income) at the
beginning of a particular seven-day period:
(b) less, a pro rata share of the subaccount expenses accrued over the
period;
(c) dividing this difference by the value of the subaccount at the
beginning of the period to obtain the base period return; and
(d) multiplying the base period return by 365/7.
The subaccount's value includes:
o any declared dividends;
o the value of any shares purchased with dividends paid during
the period; and
o any dividends declared for such shares.
It does not include:
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
You must consider (when comparing an investment in subaccounts investing in
money market funds with fixed annuities) that fixed annuities often provide an
agreed-to or guaranteed yield for a stated period of time, whereas the
subaccount's yield fluctuates. In comparing the yield of the subaccount to a
money market fund, you should consider the different services that the contract
provides.
<PAGE>
Annualized Yield for Subaccounts Investing in Income Funds
For the subaccounts investing in income funds, we base quotations of yield on
all investment income earned during a particular 30-day period, less expenses
accrued during the period (net investment income) and compute it by dividing net
investment income per accumulation unit by the value of an accumulation unit on
the last day of the period, according to the following formula:
YIELD = 2[( a-b + 1)6 - 1]
cd
where: a = dividends and investment income earned during the period
b = expenses accrued for the period (net of reimbursements)
c = the average daily number of accumulation units outstanding
during the period that were entitled to receive dividends
d = the maximum offering price per accumulation unit on the last
day of the period
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.
The yield on the subaccount's accumulation unit may fluctuate daily and does not
provide a basis for determining future yields.
Independent rating or statistical services or publishers or publications such as
those listed below may quote subaccount performance, compare it to rankings,
yields or returns, or use it in variable annuity accumulation or settlement
illustrations they publish or prepare.
The Bank Rate Monitor National Index, Barron's, Business Week, CDA
Technologies, Donoghue's Money Market Fund Report, Financial Services
Week, Financial Times, Financial World, Forbes, Fortune, Global
Investor, Institutional Investor, Investor's Business Daily,
Kiplinger's Personal Finance, Lipper Analytical Services, Money,
Morningstar, Mutual Fund Forecaster, Newsweek, The New York Times,
Personal Investor, Stanger Report, Sylvia Porter's Personal Finance,
USA Today, U.S. News & World Report, The Wall Street Journal and
Wiesenberger Investment Companies Service.
CALCULATING ANNUITY PAYOUTS
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 contract on the valuation date; 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. The number of units
in your subaccount is fixed. The value of the units fluctuates with the
performance of the underlying fund.
<PAGE>
Subsequent Payouts: To compute later payouts, we multiply:
o the annuity unit value on the valuation date; by
o the fixed number of annuity units credited to you.
Annuity Unit Values: We originally set this value at $1 for each subaccount. To
calculate later values 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
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 variable subaccount.
The One-Year 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 one-year fixed account at the retirement date or the
date you 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.
<PAGE>
RATING AGENCIES
The following chart reflects the ratings given to us by independent rating
agencies. These agencies evaluate the financial soundness and claims-paying
ability of insurance companies based on a number of different factors. This
information does not relate to the management or performance of the subaccounts
of the contract. This information relates only to our general account and
reflects our ability to make annuity payouts and to pay death benefits and other
distributions from the contract.
Rating Agency Rating
A.M. Best A+ (Superior)
Duff & Phelps AAA
Moody's Aa2 (Excellent)
A.M. Best's superior rating reflects our strong distribution network, favorable
overall balance sheet, consistently improving profitability, adequate level of
capitalization and asset/liability management expertise.
Duff & Phelps rating reflects our consistently excellent profitability record,
leadership position in chosen markets, stable operating leverage and effective
use of asset/liability management techniques.
Moody's excellent rating reflects our leadership position in financial planning,
strong asset, liability management and good capitalization. American Enterprise
Life has a strong market focus and greatly emphasizes quality service. This
information applies only to fixed products invested in American Enterprise
Life's General Account and reflects American Enterprise Life's ability to
fulfill its obligations under its contracts. This information does not relate to
the management and performance of the separate account assets associated with
American Enterprise Life's variable products.
PRINCIPAL UNDERWRITER
The principal underwriter for the contract is American Express Financial
Advisors Inc. (AEFA) 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.
<PAGE>
PART C.
Item 24. Financial Statements and Exhibits
American Enterprise Life Insurance Company
Report of Independent Auditors dated Feb. 3, 2000.
Balance sheets as of Dec. 31, 1999 and 1998.
Statements of Income for the years ended Dec. 31, 1999, 1998, and 1997.
Statement of Stockholders Equity for the three years ended Dec. 31, 1999.
Statements of Cash Flows for the years ended Dec. 31, 1999, 1998 and 1997.
Notes to Financial Statements.
Financial Statements included in Part B of this Registration Statement:
American Enterprise Variable Annuity Account
Report of Independent Auditors dated March 17, 2000.
Statements of Net Assets for the year ended Dec. 31, 1999.
Statements of Operations for the year ended Dec. 31, 1999.
Statements of Changes in Net Assets for the period ended Dec. 31, 1999.
Notes to Financial Statements.
(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 by reference.
1.2 Resolution of the Board of Directors of American Enterprise Life
establishing 67 subaccounts dated Nov. 22, 1999, filed electronically
as Exhibit 1.2 to Post-Effective Amendment No. 2 to Registration
Statement No. 333-85567 filed on or about Dec. 30, 1999 is
incorporated by reference.
1.3 Resolution of the Board of Directors of American Enterprise Life
establishing 141 additional subaccounts within the separate account
dated April 25, 2000, filed electronically herewith.
2. Not applicable.
3.1 Form of Selling Agreement for American Enterprise Life Insurance
Company Variable Annuities, filed electronically as Exhibit 3 to
American Enterprise Variable Annuity Account's Pre-Effective Amendment
No. 1 to Registration Statement No. 333-85567 filed on or about Nov.
4, 1999 is incorporated by reference.
3.2 Form of Master General Agent Agreement for American Enterprise Life
Insurance Company Variable Annuities (form 9802 B), filed
electronically as Exhibit 3 to American Enterprise Variable Annuity
Account's Pre-Effective Amendment No. 1 to Registration Statement No.
333-74865 filed on or about Aug. 4, 1999 is incorporated by reference.
4.1 Form of Deferred Annuity Contract for the American Express Signature
One Variable Annuity(SM) (form 240180), filed electronically as
Exhibit 4.1 to American Enterprise Variable Annuity Account's
Post-Effective Amendment No. 1 to Registration Statement No. 333-85567
filed on or about Dec. 8, 1999 is incorporated by reference.
4.2 Form of Deferred Annuity Contract for the Wells Fargo Advantage(SM)
Variable Annuity (form 44209), filed electronically as Exhibit 4.1 to
American Enterprise Variable Annuity Account's Pre-Effective Amendment
No. 1 to Registration Statement No. 333-85567 on form N-4, filed on or
about Nov. 4, 1999, is incorporated by reference.
<PAGE>
4.3 Form of Deferred Annuity Contract for the Wells Fargo Advantage(SM)
Builder Variable Annuity (form 44210), filed electronically as Exhibit
4.2 to American Enterprise Variable Annuity Account's Pre-Effective
Amendment No. 1 to Registration Statement No. 333-85567 on form N-4,
filed on or about Nov. 4, 1999, is incorporated by reference.
4.4 Form of Enhanced Death Benefit Rider for the Wells Fargo Advantage(SM)
Variable Annuity and the Wells Fargo Advantage(SM) Builder Variable
Annuity (form 44213), filed electronically as Exhibit 4.3 to American
Enterprise Variable Annuity Account's Pre-Effective Amendment No. 1 to
Registration Statement No. 333-85567 on form N-4, filed on or about
Nov. 4, 1999, is incorporated by reference.
4.5 Form of Guaranteed Minimum Income Benefit Rider for the Wells Fargo
Advantage(SM) Variable Annuity and the Wells Fargo Advantage(SM)
Builder Variable Annuity (form 44214), filed electronically as Exhibit
4.4 to American Enterprise Variable Annuity Account's Pre-Effective
Amendment No. 1 to Registration Statement No. 333-85567 on form N-4,
filed on or about Nov. 4, 1999, is incorporated by reference.
4.6 Form of Guaranteed Minimum Income Benefit Rider (6% Accumulation
Benefit Base) for the American Express Signature One Variable
Annuity(SM) (form 240186), filed electronically as Exhibit 4.2 to
American Enterprise Variable Annuity Account's Post-Effective
Amendment No. 3 to Registrant Statement No. 333-85567 filed on or
about Feb. 11, 2000, is incorporated by reference.
4.7 Form of 5% Accumulation Death Benefit Rider for the American Express
Signature One Variable Annuity(SM) (form 240183), filed electronically
as Exhibit 4.3 to American Enterprise Variable Annuity Account's
Post-Effective Amendment No. 1 to Registration Statement No. 333-85567
filed on or about Dec. 8, 1999 is incorporated by reference.
4.8 Form of 8% Performance Credit Rider for the American Express Signature
One Variable Annuity(SM) (form 240187), filed electronically as
Exhibit 4.4 to American Enterprise Variable Annuity Account's
Post-Effective Amendment No. 2 to Registration Statement No. 333-85567
filed on or about Dec. 30, 1999 is incorporated by reference.
4.9 Form of Disability Waiver of Withdrawal Charges Rider for the Wells
Fargo Advantage(SM) Variable Annuity and the Wells Fargo Advantage(SM)
Builder Variable Annuity (form 44215), filed electronically as Exhibit
4.5 to American Enterprise Variable Annuity Account's Pre-Effective
Amendment No. 1 to Registration Statement No. 333-85567 on form N-4,
filed on or about Nov. 4, 1999, is incorporated by reference.
4.10 Form of Unemployment Waiver of Withdrawal Charges Rider for the Wells
Fargo Advantage(SM) Variable Annuity and the Wells Fargo Advantage(SM)
Builder Variable Annuity (form 44216), to American Enterprise Variable
Annuity Account's Pre-Effective No. 1 Amendment to Registration
Statement No. 333-85567 on form N-4, filed on or about Nov. 4, 1999,
is incorporated by reference.
4.11 Form of Roth IRA Endorsement for the Wells Fargo Advantage(SM)
Variable Annuity, the Wells Fargo Advantage(SM) Builder Variable
Annuity and the American Express Signature One Variable
Annuity(SM)(form 43094) filed electronically as Exhibit 4.2 to
American Enterprise Variable Annuity Account's Pre-Effective Amendment
No. 1 to Registration Statement No. 333-74865, filed on or about Aug.
4, 1999, is incorporated by reference.
4.12 Form of SEP-IRA for the Wells Fargo Advantage(SM) Variable Annuity,
the Wells Fargo Advantage(SM) Builder Variable Annuity and the
American Express Signature One Variable Annuity(SM) (form 43412) filed
electronically as Exhibit 4.3 to American Enterprise Variable Annuity
Account's Pre-Effective Amendment No. 1 to Registration Statement No.
333-72777, filed on or about July 8, 1999, is incorporated by
reference.
4.13 Form of Value Option Return of Purchase Payment Death Benefit Rider for
the American Express Signature One Variable Annuity(SM)(form 240182),
filed electronically herewith.
<PAGE>
4.14 Form of TSA Endorsement for the Wells Fargo Advantage(SM) Variable
Annuity and the Wells Fargo Advantage(SM) Builder Variable Annuity
(form 43413), filed electronically as Exhibit 4.4 to American
Enterprise Variable Annuity Account's Pre-Effective Amendment No. 1 to
Registration Statement No. 333-72777 on form N-4, filed on or about
July 8, 1999, is incorporated by reference.
5.1 Form of Variable Annuity Application for the American Express
Signature One Variable Annuity(SM) (form 240181), filed electronically
as Exhibit 5 to American Enterprise Variable Annuity Account's
Post-Effective Amendment No. 1 to Registration Statement No. 333-85567
filed on or about Dec. 8, 1999 is incorporated by reference.
5.2 Form of Variable Annuity Application for the Wells Fargo Advantage(SM)
Variable Annuity and the Wells Fargo Advantage(SM) Builder Variable
Annuity (Form 44211) filed electronically as Exhibit 5 to American
Enterprise Variable Annuity Account's Pre-Effective Amendment No. 1 to
Registration Statement No. 333-85567 filed on or about Nov. 4, 1999 is
incorporated by reference.
6.1 Amendment and Restatement of Articles of Incorporation of American
Enterprise Life dated July 29, 1986, filed electronically as Exhibit
6.1 to American Enterprise Life Personal Portfolio Plus 2's Initial
Registration Statement No. 33-54471, filed on or about July 5, 1994,
is incorporated by reference.
6.2 Amended By-Laws of American Enterprise Life, filed electronically as
Exhibit 6.2 to American Enterprise Life Personal Portfolio Plus 2's
Initial Registration Statement No. 33-54471, filed on or about July 5,
1994, is incorporated by reference.
7. Not applicable.
8.1 (a) Copy of Participation Agreement among Putnam Capital Manager Trust,
Putnam Mutual Funds Corp. and American Express Life Insurance Company,
dated January 16, 1995, filed electronically as Exhibit 8.2 to American
Enterprise Life Personal Portfolio Plus 2's Post-Effective Amendment
No. 2 to Registration Statement No. 33-54471, is incorporated herein by
reference.
8.1 (b) Form of Amendment No. 5 to Participation Agreement among Putnam
Capital Manager Trust, Putnam Mutual Funds Corp. and American
Enterprise Life Insurance Company dated July 16, 1999, filed
electronically as Exhibit 8.1 (b) to Pre-Effective Amendment No. 1 to
Registration Statement No. 333-85567 filed on or about Nov. 4, 1999 is
incorporated by reference.
9. Opinion of counsel and consent to its use as to the legality of the
securities being registered dated April, __, 2000, filed electronically
herewith.
10. Consent of Independent Auditors dated April 24, 2000, filed
electronically herewith.
11. None.
12. Not applicable.
13.1 Copy of schedule for computation of each performance quotation
provided in the Registration Statement for Wells Fargo Advantage(SM)
Variable Annuity and Wells Fargo Advantage(SM) Builder Variable
Annuity in response to Item 21, filed electronically as Exhibit 13 to
Pre-Effective Amendment No. 1 to Registration Statement No. 333-85567
filed on or about Nov. 4, 1999 is incorporated by reference.
13.2 Copy of schedule for computation of each performance quotation provided
in the Registration Statement for the American Express Signature One
Variable Annuity(SM) in response to Item 21, filed electronically
herewith.
14. Not applicable.
15. Power of Attorney to sign this Registration Statement, dated July 29,
1999, filed electronically as Exhibit 15 to Registrant's Initial
Registration Statement No. 333-85567, filed on or about Aug. 19, 1999
is incorporated by reference.
<PAGE>
<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 200 AXP Financial Center Director, President and Chief
Minneapolis, MN 55474 Executive Officer
Lorraine R. Hart 200 AXP Financial Center Vice President, Investments
Minneapolis, MN 55474
Jeffrey S. Horton 200 AXP Financial Center Vice President and Treasurer
Minneapolis, MN 55474
Richard W. Kling 200 AXP Financial Center Director and Chairman of the Board
Minneapolis, MN 55474
Bruce A. Kohn 200 AXP Financial Center Vice President, Group Counsel and
Minneapolis, MN 55474 Assistant Secretary
Paul S. Mannweiler Indianapolis Power and Light Director
One Monument Circle
P.O. Box 1595
Indianapolis, IN 46206-1595
Eric L. Marhoun 200 AXP Financial Center Vice President, Group Counsel and
Minneapolis, MN 55474 Assistant Secretary
Paula R. Meyer 200 AXP Financial Center Director and Executive Vice
Minneapolis, MN 55474 President, Assured Assets
Mary Ellyn Minenko 200 AXP Financial Center Vice President, Group Counsel and
Minneapolis, MN 55474 Assistant Secretary
Stuart A. Sedlacek 200 AXP Financial Center Executive Vice President
Minneapolis, MN 55474
William A. Stoltzmann 200 AXP Financial Center Director, Vice President, General
Minneapolis, MN 55474 Counsel and Secretary
Philip C. Wentzel 200 AXP Financial Center Vice President and Controller
Minneapolis, MN 55474
</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
<PAGE>
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
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.
<PAGE>
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.
(a) American Express Financial Advisors acts as principal underwriter for the
following investment companies:
Item 29. Principal Underwriters.
(a) American Express Financial Advisors acts as principal underwriter for the
following investment companies:
AXP Bond Fund, Inc.; AXP California Tax-Exempt Trust; AXP Discovery
Fund, Inc.; AXP Equity Select Fund, Inc.; AXP Extra Income Fund, Inc.;
AXP Federal Income Fund, Inc.; AXP Global Series, Inc.; AXP Growth
Series, Inc.; AXP High Yield Tax-Exempt Fund, Inc.; AXP International
Fund, Inc.; AXP Investment Series, Inc.; AXP Managed Series, Inc.; AXP
Market Advantage Series, Inc.; AXP Money Market Series, Inc.; AXP New
Dimensions Fund, Inc.; AXP Precious Metals Fund, Inc.; AXP Progressive
Fund, Inc.; AXP Selective Fund, Inc.; AXP Special Tax-Exempt Series
Trust; AXP Stock Fund, Inc.; AXP Strategy Series, Inc.; AXP Tax-Exempt
Series, Inc.; AXP Tax-Free Money Fund, Inc.; AXP Utilities Income Fund,
Inc., Growth Trust; Growth and Income Trust; Income Trust; Tax-Free
Income Trust; World Trust; IDS Certificate Company; Strategist Income
Fund, Inc.; Strategist Growth Fund, Inc.; Strategist Growth and Income
Fund, Inc.; Strategist World Fund, Inc. and Strategist Tax-Free Income
Fund, Inc.
(b) As to each director, officer or partner of the principal underwriter:
Name and Principal Business Address Position and Offices with
Underwriter
- ------------------------------------- -----------------------------------
Ronald. G. Abrahamson Vice President - Business
200 AXP Financial Center Transformation
Minneapolis, MN 55474
Douglas A. Alger Senior Vice President - Human
200 AXP Financial Center Resources
Minneapolis, MN 55474
Peter J. Anderson Senior Vice President -
200 AXP Financial Center Investment Operations
Minneapolis, MN 55474
Ward D. Armstrong Senior Vice President -
200 AXP Financial Center Retirement Services
Minneapolis, MN 55474
<PAGE>
John M. Baker Vice President - Plan Sponsor
200 AXP Financial Center Services
Minneapolis, MN 55474
Joseph M. Barsky, III Vice President - Mutual Fund
200 AXP Financial Center Equities
Minneapolis, MN 55474
Timothy V. Bechtold Vice President - Risk Management
200 AXP Financial Center Products
Minneapolis, MN 55474
John D. Begley Group Vice President -
Suite 100 Ohio/Indiana
7760 Olentangy River Rd.
Columbus, OH 43235
Brent L. Bisson Group Vice President - Los
Suite 900 Angeles Metro
E. Westside Twr
11835 West Olympic Blvd.
Los Angeles, CA 90064
John C. Boeder Vice President - Nonproprietary
200 AXP Financial Center Products
Minneapolis, MN 55474
Walter K. Booker Group Vice President - New Jersey
200 AXP Financial Center
Minneapolis, MN 55474
Bruce J. Bordelon Group Vice President - San
1333 N. California Blvd., Suite 200 Francisco Bay Area
Walnut Creek, CA 94596
Charles R. Branch Group Vice President - Northwest
Suite 200
West 111 North River Dr.
Spokane, WA 99201
<PAGE>
Douglas W. Brewers Vice President - Sales Support
200 AXP Financial Center
Minneapolis, MN 55474
Karl J. Breyer Corporate Senior Vice President
200 AXP Financial Center
Minneapolis, MN 55474
Cynthia M. Carlson Vice President - American Express
200 AXP Financial Center Securities Services
Minneapolis, MN 55474
Mark W. Carter Senior Vice President and Chief
200 AXP Financial Center Marketing Officer
Minneapolis, MN 55474
James E. Choat Senior Vice President - Third
200 AXP Financial Center Party Distribution
Minneapolis, MN 55474
<PAGE>
Kenneth J. Ciak Vice President and General
IDS Property Casualty Manager - IDS Property Casualty
1400 Lombardi Avenue
Green Bay, WI 54304
Paul A. Connolly Vice President - Advisor
200 AXP Financial Center Staffing, Training and Support
Minneapolis, MN 55474
Henry J. Cormier Group Vice President - Connecticut
Commerce Center One
333 East River Drive
East Hartford, CT 06108
John M. Crawford Group Vice President -
Suite 200 Arkansas/Springfield/Memphis
10800 Financial Ctr Pkwy
Little Rock, AR 72211
Kevin F. Crowe Group Vice President -
Suite 312 Carolinas/Eastern Georgia
7300 Carmel Executive Pk
Charlotte, NC 28226
Colleen Curran Vice President and Assistant
200 AXP Financial Center General Counsel
Minneapolis, MN 55474
Luz Maria Davis Vice President - Communications
200 AXP Financial Center
Minneapolis, MN 55474
Arthur E. DeLorenzo Group Vice President - Upstate
4 Atrium Drive, #100 New York
Albany, NY 12205
Scott M. DiGiammarino Group Vice President -
Suite 500 Washington/Baltimore
8045 Leesburg Pike
Vienna, VA 22182
Bradford L. Drew Group Vice President - Eastern
Two Datran Center Florida
Penthouse One B
9130 S. Dadeland Blvd.
Miami, FL 33156
Douglas K. Dunning Vice President - Assured Assets
200 AXP Financial Center Product Development and Management
Minneapolis, MN 55474
James P. Egge Group Vice President - Western
4305 South Louise, Suite 202 Iowa, Nebraska, Dakotas
Sioux Falls, SD 57103
Gordon L. Eid Senior Vice President, General
200 AXP Financial Center Counsel and Chief Compliance
Minneapolis, MN 55474 Officer
Robert M. Elconin Vice President - Government
200 AXP Financial Center Relations
Minneapolis, MN 55474
<PAGE>
Phillip W. Evans, Group Vice President - Rocky
Suite 600 Mountain
6985 Union Park Center
Midvale, UT 84047-4177
Gordon M. Fines Vice President - Mutual Fund
200 AXP Financial Center Equity Investments
Minneapolis, MN 55474
Douglas L. Forsberg Vice President - International
200 AXP Financial Center
Minneapolis, MN 55474
Jeffrey P. Fox Vice President and Corporate
200 AXP Financial Center Controller
Minneapolis, MN 55474
William P. Fritz Group Vice President - Gateway
Suite 160
12855 Flushing Meadows Dr.
St. Louis, MO 63131
Carl W. Gans Group Vice President - Twin City
8500 Tower Suite 1770 Metro
8500 Normandale Lake Blvd.
Bloomington, MN 55437
Peter A. Gallus Vice President-Investment
200 AXP Financial Center Administration
Minneapolis, MN 55474
Derek G. Gledhill Vice President - Integrated
200 AXP Financial Center Financial Services Field
Minneapolis, MN 55474 Implementation
David A. Hammer Vice President and Marketing
200 AXP Financial Center Controller
Minneapolis, MN 55474
Teresa A. Hanratty Senior Vice President-Field
Suites 6&7 Management
169 South River Road
Bedford, NH 03110
Robert L. Harden Group Vice President - Boston
Two Constitution Plaza Metro
Boston, MA 02129
Lorraine R. Hart Vice President - Insurance
200 AXP Financial Center Investments
Minneapolis, MN 55474
Scott A. Hawkinson Vice President and Controller -
200 AXP Financial Center Private Client Group
Minneapolis, MN 55474
Brian M. Heath Senior Vice President and General
Suite 150 Sales Manager
801 E. Campbell Road
Richardson, TX 75081
<PAGE>
Janis K. Heaney Vice President - Incentive
200 AXP Financial Center Management
Minneapolis, MN 55474
Jon E. Hjelm Group Vice President - Rhode
310 Southbridge Street Island/Central - Western
Auburn, MA 01501 Massachusetts
David J. Hockenberry Group Vice President - Tennessee
30 Burton Hills Blvd. Valley
Suite 175
Nashville, TN 37215
Jeffrey S. Horton Vice President and Treasurer
200 AXP Financial Center
Minneapolis, MN 55474
David R. Hubers Chairman, President and Chief
200 AXP Financial Center Executive Officer
Minneapolis, MN 55474
Debra A. Hutchinson Vice President - Relationship
200 AXP Financial Center Leader
Minneapolis, MN 55474
James M. Jensen Vice President and
200 AXP Financial Center Controller-Advice and Retail
Minneapolis, MN 55474 Distribution Group
Marietta L. Johns Senior Vice President - Field
200 AXP Financial Center Management
Minneapolis, MN 55474
Nancy E. Jones Vice President - Business
200 AXP Financial Center Development
Minneapolis, MN 55474
Ora J. Kaine Vice President - Financial
200 AXP Financial Center Advisory Services
Minneapolis, MN 55474
Linda B. Keene Vice President - Market
200 AXP Financial Center Development
Minneapolis, MN 55474
G. Michael Kennedy Vice President - Senior Portfolio
200 AXP Financial Center Manager
Minneapolis, MN 55474
Richard W. Kling Senior Vice President - Products
200 AXP Financial Center
Minneapolis, MN 55474
John M. Knight Vice President - Investment
200 AXP Financial Center Accounting
Minneapolis, MN 55474
Paul F. Kolkman Vice President - Actuarial Finance
200 AXP Financial Center
Minneapolis, MN 55474
<PAGE>
Claire Kolmodin Vice President - Service Quality
200 AXP Financial Center
Minneapolis, MN 55474
David S. Kreager Group Vice President - Greater
Suite 108 Michigan
Trestle Bridge V
5126 Lovers Lane
Kalamazoo, MI 49002
Steven C. Kumagai Director and Senior Vice
200 AXP Financial Center President-Direct and Interactive
Minneapolis, MN 55474 Group
Mitre Kutanovski Group Vice President - Chicago
Suite 680 Metro
8585 Broadway
Merrillville, IN 48410
Kurt A. Larson Vice President - Senior Portfolio
200 AXP Financial Center Manager
Minneapolis, MN 55474
Lori J. Larson Vice President - Brokerage and
200 AXP Financial Center Direct Services
Minneapolis, MN 55474
Daniel E. Laufenberg Vice President and Chief U.S.
200 AXP Financial Center Economist
Minneapolis, MN 55474
Jane W. Lee Vice President - New Business
200 AXP Financial Center Development and Marketing
Minneapolis, MN 55474
Peter A. Lefferts Senior Vice President - Corporate
200 AXP Financial Center Strategy and Development
Minneapolis, MN 55474
Douglas A. Lennick Director and Executive Vice
200 AXP Financial Center President - Private Client Group
Minneapolis, MN 55474
Fred A. Mandell Vice President - Field Marketing
200 AXP Financial Center Readiness
Minneapolis, MN 55474
Daniel E. Martin Group Vice President - Pittsburgh
Suite 650 Metro
5700 Corporate Drive
Pittsburgh, PA 15237
Timothy J. Masek Vice President and Director of
200 AXP Financial Center Global Research
Minneapolis, MN 55474
Sarah A. Mealey Vice President - Mutual Funds
200 AXP Financial Center
Minneapolis, MN 55474
Paula R. Meyer Vice President - Assured Assets
200 AXP Financial Center
Minneapolis, MN 55474
<PAGE>
William P. Miller Vice President and Senior
200 AXP Financial Center Portfolio Manager
Minneapolis, MN 55474
Shashank B. Modak Vice President - Technology Leader
200 AXP Financial Center
Minneapolis, MN 55474
Pamela J. Moret Vice President - Variable Assets
200 AXP Financial Center
Minneapolis, MN 55474
Barry J. Murphy Senior Vice President - Client
200 AXP Financial Center Service
Minneapolis, MN 55474
Mary Owens Neal Vice President-Consumer Marketing
200 AXP Financial Center
Minneapolis, MN 55474
Thomas V. Nicolosi Group Vice President - New York
Suite 220 Metro Area
500 Mamaroneck Avenue
Harrison, NY 10528
Michael J. O'Keefe Vice President - Advisory
200 AXP Financial Center Business Systems
Minneapolis, MN 55474
James R. Palmer Vice President - Taxes
200 AXP Financial Center
Minneapolis, MN 55474
Marc A. Parker Group Vice President -
10200 SW Greenburg Road Portland/Eugene
Suite 110
Portland, OR 97223
Carla P. Pavone Vice President-Compensation
200 AXP Financial Center Services and ARD Product
Minneapolis, MN 55474 Distribution
Thomas P. Perrine Senior Vice President - Group
200 AXP Financial Center Relationship Leader/American
Minneapolis, MN 55474 Express Technologies Financial
Services
Susan B. Plimpton Vice President - Marketing
200 AXP Financial Center Services
Minneapolis, MN 55474
Larry M. Post Group Vice President -
One Tower Bridge Philadelphia Metro and Northern
100 Front Street, 8th Fl New England
West Conshohocken, PA 19428
Ronald W. Powell Vice President and Assistant
200 AXP Financial Center General Counsel
Minneapolis, MN 55474
Diana R. Prost Group Vice President -
3030 N.W. Expressway Kansas/Oklahoma
Suite 900
Oklahoma City, OK 73112
<PAGE>
James M. Punch Vice President and Project
200 AXP Financial Center Manager - Platform I Value
Minneapolis, MN 55474 Enhanced
Frederick C. Quirsfeld Senior Vice President - Fixed
200 AXP Financial Center Income
Minneapolis, MN 55474
Rollyn C. Renstrom Vice President - Corporate
200 AXP Financial Center Planning and Analysis
Minneapolis, MN 55474
R. Daniel Richardson Group Vice President - Southern
Suite 800 Texas
Arboretum Plaza One
9442 Capital of Texas Hwy. N
Austin, TX 78759
ReBecca K. Roloff Senior Vice President - Field
200 AXP Financial Center Management and Financial Advisory
Minneapolis, MN 55474 Service
Stephen W. Roszell Senior Vice President -
200 AXP Financial Center Institutional
Minneapolis, MN 55474
Max G. Roth Group Vice President -
Suite 201 S. IDS Ctr Wisconsin/Upper Michigan
1400 Lombardi Avenue
Green Bay, WI 54304
Erven A. Samsel Senior Vice President - Field
45 Braintree Hill Park Management
Suite 402
Braintree, MA 02184
Theresa M. Sapp Vice President - Relationship
200 AXP Financial Center Leader
Minneapolis, MN 55474
Russell L. Scalfano Group Vice President -
Suite 201 Illinois/Indiana/Kentucky
101 Plaza East Blvd.
Evansville, IN 47715
William G. Scholz Group Vice President -
Suite 205 Arizona/Las Vegas
7333 E. Doubletree Ranch Rd
Scottsdale, AZ 85258
Stuart A. Sedlacek Senior Vice President and Chief
200 AXP Financial Center Financial Officer
Minneapolis, MN 55474
Donald K. Shanks Vice President - Property Casualty
200 AXP Financial Center
Minneapolis, MN 55474
Judy P. Skoglund Vice President - Quality and
200 AXP Financial Center Service Support
Minneapolis, MN 55474
<PAGE>
James B. Solberg Group Vice President - Eastern
466 Westdale Mall Iowa Area
Cedar Rapids, IA 52404
Bridget Sperl Vice President - Geographic
200 AXP Financial Center Service Teams
Minneapolis, MN 55474
Paul J. Stanislaw Group Vice President - Southern
Suite 1100 California
Two Park Plaza
Irvine, CA 92714
Lisa A. Steffes Vice President - Marketing Offer
200 AXP Financial Center Development
Minneapolis, MN 55474
Lois A. Stilwell Group Vice President - Outstate
Suite 433 Minnesota Area/North
9900 East Bren Road Dakota/Western Wisconsin
Minnetonka, MN 55343
William A. Stoltzmann Vice President and Assistant
200 AXP Financial Center General Counsel
Minneapolis, MN 55474
James J. Strauss Vice President and General Auditor
200 AXP Financial Center
Minneapolis, MN 55474
Jeffrey J. Stremcha Vice President - Information
200 AXP Financial Center Resource Management/ISD
Minneapolis, MN 55474
Barbara Stroup Stewart Vice President - Channel
200 AXP Financial Center Development
Minneapolis, MN 55474
Craig P. Taucher Group Vice President -
Suite 150 Orlando/Jacksonville
4190 Belfort Road
Jacksonville, FL 32216
Neil G. Taylor Group Vice President -
Suite 425 Seattle/Tacoma/Hawaii
101 Elliott Avenue West
Seattle, WA 98119
John R. Thomas Senior Vice President
200 AXP Financial Center
Minneapolis, MN 55474
Keith N. Tufte Vice President and Director of
200 AXP Financial Center Equity Research
Minneapolis, MN 55474
Peter S. Velardi Group Vice President -
Suite 180 Atlanta/Birmingham
1200 Ashwood Parkway
Atlanta, GA 30338
<PAGE>
Charles F. Wachendorfer Group Vice President - Detroit
Suite 100 Metro
Stanford Plaza II
7979 East Tufts Ave. Pkwy
Denver, CO 80237
Donald F. Weaver Group Vice President - Greater
3500 Market Street, Suite 200 Pennsylvania
Camp Hill, PA 17011
Norman Weaver Jr. Senior Vice President - Alliance
1010 Main St., Suite 2B Group
Huntington Beach, CA 92648
Michael L. Weiner Vice President - Tax Research and
200 AXP Financial Center Audit
Minneapolis, MN 55474
Jeffry M. Welter Vice President - Equity and Fixed
200 AXP Financial Center Income Trading
Minneapolis, MN 55474
Thomas L. White Group Vice President - Cleveland
Suite 200 Metro
28601 Chagrin Blvd.
Woodmere, OH 44122
Eric S. Williams Group Vice President - Virginia
Suite 250
3951 Westerre Parkway
Richmond, VA 23233
William J. Williams Group Vice President - Western
Two North Tamiami Trail Florida
Suite 702
Sarasota, FL 34236
<PAGE>
Edwin M. Wistrand Vice President and Assistant
200 AXP Financial Center General Counsel
Minneapolis, MN 55474
Michael D. Wolf Vice President - Senior Portfolio
200 AXP Financial Center Manager
Minneapolis, MN 55474
Michael R. Woodward Senior Vice President - Field
32 Ellicott St. Management
Suite 100
Batavia, NY 14020
Rande L. Zellers Group Vice President-Gulf States
1 Galleria Blvd., Suite 1900
Metairie, LA 70001
<TABLE>
<CAPTION>
Item 29(c)
Net Underwriting
Name of Principal Discounts and Compensation on Brokerage
Underwriter Commissions Redemption Commissions Compensation
<S> <C> <C> <C> <C>
American Express $5,924,368 $479,554 None None
Financial Advisors
Inc.
</TABLE>
<PAGE>
Item 30. Location of Accounts and Records
American Enterprise Life Insurance Company
829 AXP Financial Center
Minneapolis, MN 55474
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) 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,
certifies that it meets the requirements of the Securities Act Rule 485(b) for
effectiveness of the Registration Statement and has duly caused this
Registration Statement to be signed on its behalf by the undersigned, thereto
duly authorized in the City of Minneapolis, and State of Minnesota, on the 28th
day of April, 2000.
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 28th day of
April, 2000.
Signature Title
/s/ James E. Choat* Director, President and
James E. Choat Chief Executive Officer
/s/ Jeffrey S. Horton* Vice President and Treasurer
Jeffrey S. Horton
/s/ Richard W. Kling* Chairman of the Board
Richard W. Kling
/s/ Paul S. Mannweiler Director
Paul S. Mannweiler
/s/ Paula R. Meyer* Executive Vice President,
Paula R. Meyer Assured Assets
/s/ William A. Stoltzmann* Director, Vice President,
William A. Stoltzmann General Counsel and Secretary
/s/ Philip C. Wentzel* Vice President and Controller
Philip C. Wentzel
*Signed pursuant to Power of Attorney, dated July 29, 1999, filed electronically
as Exhibit 15 to Registrant's Initial Registration Statement No. 333-85567,
filed on or about Aug. 19, 1999 is incorporated by reference.
By: /s/ Mary Ellyn Minenko
Mary Ellyn Minenko
<PAGE>
CONTENTS OF POST-EFFECTIVE AMENDMENT NO. 5 TO REGISTRATION STATEMENT NO.
333-85567
This Registration Statement is comprised of the following papers and documents:
The Cover Page.
Part A.
The prospectuses.
Part B.
Statements of Additional Information.
Financial Statements.
Part C.
Other Information.
The signatures.
Exhibits.
American Enterprise Variable Annuity Account
File No. 333-85567/811-7195
EXHIBIT INDEX
Exhibit 1.3: Resolution ot Board of Directors of American Enterprise
Life, dated April 25, 2000.
Exhibit 4.13: Form of Value Option Return Rider (form 240182).
Exhibit 9: Opinion of Counsel, dated April 28, 2000.
Exhibit 10: Consent of Independent Auditors, dated April 24, 2000.
Exhibit 13.2: Copy of schedule for Signature One Variable Annuity
Performance Calculations.
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, 141 additional subaccounts within the separate account
to invest in the following funds or portfolios:
AXP(sm) Variable Portfolio - Blue Chip Advantage Fund (1 subaccount)
AXP(sm) Variable Portfolio - Diversified Equity Income Fund (1 subaccount)
AXP(sm) Variable Portfolio - Federal Income Fund (2 subaccounts)
AXP(sm) Variable Portfolio - Growth Fund (1 subaccount)
AXP(sm) Variable Portfolio - S&P 500 Index Fund (4 subaccounts)
AXP(sm) Variable Portfolio - Small Cap Advantage Fund (1 subaccount)
AIM V.I. Capital Appreciation Fund (3 subaccounts)
AIM V.I. Dent Demographic Trends Fund (4 subaccounts)
AIM V.I. Value Fund (3 subaccounts)
Alliance VP Technology Portfolio - Class B (4 subaccounts)
Alliance VP Premier Growth Portfolio - Class B (4 subaccounts)
Alliance VP Growth & Income Portfolio - Class B (4 subaccounts)
Evergreen Masters Fund (4 subaccounts)
Evergreen Small Cap Value Fund (4 subaccounts)
Evergreen Growth and Income Fund (4 subaccounts)
Evergreen Omega Fund (4 subaccounts)
Evergreen Global Leaders Fund (4 subaccounts)
Evergreen Strategic Income Fund (4 subaccounts)
Fidelity VIP III Mid Cap Portfolio - Service Class (3 subaccounts)
Fidelity VIP Contrafund(R) Portfolio - Service Class (4 subaccounts)
Fidelity VIP High Income Portfolio - Service Class (4 subaccounts)
FTVIPT Templeton International Securities Fund - Class 2 (4 subaccounts)
FTVIPT Mutual Shares Securities Fund - Class 2 (3 subaccounts)
FTVIPT Franklin Small Cap Fund - Class 2 (3 subaccounts)
FTVIPT Templeton Developing Markets Securities Fund - Class 2 (4 subaccounts)
Galaxy VIP Asset Allocation Fund (2 subaccounts)
Galaxy VIP Equity Fund (2 subaccounts)
Galaxy VIP Growth & Income Fund (2 subaccounts)
Galaxy VIP High Quality Bond Fund (2 subaccounts)
<PAGE>
Galaxy VIP Small Company Growth Fund (2 subaccounts)
Goldman Sachs VIT Internet Tollkeeper Fund (8 subaccounts)
Janus Aspen Series Aggressive Growth Portfolio: Service Shares (3 subaccounts)
Janus Aspen Series Global Technology Portfolio : Service Shares (3 subaccounts)
Janus Aspen Series Growth Portfolio: Service Shares (3 subaccounts)
Janus Aspen Series International Growth Portfolio: Service Shares
(3 subaccounts)
MFS(R) VIT Growth Series - Service Class (4 subaccounts)
MFS(R) VIT Growth with Income Series - Service Class (2 subaccounts)
MFS(R) VIT New Discovery Series - Service Class (5 subaccounts)
MFS(R) VIT Total Return Series - Service Class (5 subaccounts)
MFS(R) VIT Utilities Series - Service Class (2 subaccounts)
Putnam VT Growth & Income Fund - Class IB (3 subaccounts)
Putnam VT International New Opportunities Fund - Class IB (4 subaccounts)
Putnam VT Vista Fund - Class IB (4 subaccounts)
Third Avenue Value Portfolio (1 subaccount)
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 403 subaccounts is hereby reconstituted as American Enterprise
Variable Annuity Account consisting of 544 subaccounts.
Received by the Secretary:
/s/ James E. Choat /s/ William A. Stoltzmann
James E. Choat William A. Stoltzmann
Date: 4/25/2000
VALUE OPTION RETURN OF PURCHASE PAYMENT DEATH BENEFIT RIDER
The "Death Benefits Before Annuitization" provision of the annuity contract to
which this rider is attached is hereby deleted and replaced with the following.
Death Benefits Before Annuitization
A death benefit is payable to the beneficiary upon the earlier death of you or
the annuitant while this contract is in force and prior to annuitization.
We will pay the beneficiary the greatest of the following amounts, less any
purchase payment credits that have not vested;
1. the contract value; or
2. the total payments and purchase payment credits made to the contract minus
"adjustments for partial withdrawals".
Adjustments for Partial Withdrawals
Adjustments for partial withdrawals are calculated for each partial withdrawal
as the product of (a) times (b) where:
(a) is the ratio of the amount of the partial withdrawal (including any
withdrawal charges) to the contract value on the date of (but prior
to) the partial withdrawal; and
(b) is the death benefit on the date of (but prior to) the partial
withdrawal.
Any amounts payable or applied by us as described in the sections below will be
based on the contract values as of the valuation date on or next following the
date on which due proof of death is received at our administrative office.
This Rider is effective as of the contract date of this contract unless a
different date is shown here.
American Enterprise Life Insurance Company
Secretary
April 28, 2000
American Enterprise Life Insurance Company
829 AXP Financial Center
Minneapolis, MN 55474
RE: Wells Fargo Advantage(SM) Variable Annuity
Wells Fargo Advantage(SM) Builder Variable Annuity
American Express Signature One Variable Annuity(SM)
American Enterprise Variable Annuity Account
Post-Effective Amendment No. 5
File No.: 333-85567/811-7195
Ladies and Gentlemen:
I am familiar with the establishment of the American Enterprise Variable Account
("Account"), which is a separate account of American Enterprise Life Insurance
Company ("Company") established by the Company's Board of Directors according to
applicable insurance law. I also am familiar with the above-referenced
Registration Statement filed by the Company on behalf of the Account with the
Securities and Exchange Commission.
I have made such examination of law and examined such documents and records as
in my judgment are necessary and appropriate to enable me to give the following
opinion:
1. The Company is duly incorporated, validly existing and in good standing
under applicable state law and is duly licensed or qualified to do business
in each jurisdiction where it transacts business. The Company has all
corporate powers required to carry on its business and to issue the
contracts.
2. The Account is a validly created and existing separate account of the
Company and is duly authorized to issue the securities registered.
3. The contracts issued by the Company, when offered and sold in accordance
with the prospectus contained in the Registration Statement and in
compliance with applicable law, will be legally issued and represent
binding obligations of the Company in accordance with their terms.
I hereby consent to the filing of this opinion as an exhibit to the Registration
Statement.
Sincerely,
/s/ Mary Ellyn Minenko
Mary Ellyn Minenko
Vice President and Group Counsel
Consent of Independent Auditors
We consent to the reference to our firm under the caption "Experts" in the
Prospectuses and under the caption "Independent Auditors" in the Statements of
Additional Information and to the use of our report dated February 3, 2000 with
respect to the financial statements of American Enterprise Life Insurance
Company and to the use of our report dated March 17, 2000 with respect to the
financial statements of American Enterprise Variable Annuity Account, included
in Post-Effective Amendment No. 5 to Registration Statement (Form N-4, No.
333-85567) and related Prospectuses for the registration of the Wells Fargo
Advantage(SM) Variable Annuity, Wells Fargo Advantage(SM) Builder Variable
Annuity and the American Express Signature One Variable Annuity(SM) Contracts to
be offered by American Enterprise Life Insurance Company.
/s/ Ernst & Young LLP
Minneapolis, Minnesota
April 24, 2000
American Enterprise Life - Signature One Variable Annuity
Performance Calculations
As disclosed in the Fund's prospectus, cumulative total return is the cumulative
change in the value of an investment over a specified time period. We assume
that income earned by the investment is reinvested.
Cumulative Total Return = Ending Total Value - Initial Amount Invested
____________________________________________
Initial Amount Invested
where: Ending Total Value = Initial Investment *
((1 + Gross Total Return)- Contract Charge Factor)
and; Contract Charge Factor = Policy Fee
_____________________________
Estimated Average Policy Size
Gross Total Return = Ending AUV - Initial AUV
_________________________
Initial AUV
Average Policy Size = $40,000
Policy Fee = $40
Average annual total return (T) equates the initial amount invested (P) to the
ending redeemable value (ERV) over each period (n) in accordance with the
formula prescribed by the Securities and Exchange P(1+T)n = ERV.
Average annual total return with surrender charge
Ending Total Value - Surrender Charge Amount
____________________________________________
Initial Amount Invested
where: Surrender Charge Amount = (Ending Total Value - Free Withdrawal Amount) *
Surrender Charge %
and; Free Withdrawal Amount is the greater of 10% of the value of the
contract on the prior contract anniversary or 100% of earnings on
the contract (Ending Total Value - Initial Amount Invested).
The surrender charge percentage depends on the number of years since you made
the payments that are surrendered, depending on the schedule you selected:
Nine year schedule
Years from purchase payment
receipt Surrender charge percentage
1 8%
2 8
3 8
4 8
5 7
6 6
7 6
8 4
9 2
10 0
