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. 1 (333-92297) [X]
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and/or
REGISTRATION STATEMENT UNDER THE INVESTMENT COMPANY ACT OF 1940
Amendment No. 3 (File No. 811-7195) [X]
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(Check appropriate box or boxes)
AMERICAN ENTERPRISE VARIABLE ANNUITY ACCOUNT
(Exact Name of Registrant)
American Enterprise Life Insurance Company
(Name of Depositor)
829 AXP Financial Center, Minneapolis, MN 55474
(Address of Depositor's Principal Executive Offices) (Zip Code)
Depositor's Telephone Number, including Area Code (612) 671-3678
Mary Ellyn Minenko, 200 AXP Financial Center, Minneapolis, MN 55474
(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>
<PAGE>
PROSPECTUS
May 1, 2000
AMERICAN EXPRESS NEW SOLUTIONS VARIABLE ANNUITY(SM)
INDIVIDUAL OR GROUP FLEXIBLE PREMIUM DEFERRED COMBINATION FIXED/VARIABLE ANNUITY
AMERICAN ENTERPRISE VARIABLE ANNUITY ACCOUNT
Issued by: American Enterprise Life Insurance Company (American Enterprise Life)
829 AXP Financial Center
Minneapolis, MN 55474
Telephone: 1-800-333-3437
This prospectus contains information that you should know before investing. You
also will receive the prospectuses for:
- - American Express(R) Variable Portfolio Funds
- - AIM Variable Insurance Funds
- - Alliance Variable Products Series Fund
- - Evergreen Variable Annuity Trust
- - Fidelity Variable Insurance Products - Service Class
- - Franklin Templeton Variable Insurance Products Trust (FTVIPT)
- - MFS(R) Variable Insurance Trust(SM)
- - Putnam Variable Trust - Class IB Shares
Please read the prospectuses carefully and keep them for future reference.
The contract provides for purchase payment credits which we may reverse up to
the maximum withdrawal charge under certain circumstances. Expense charges for
contracts with purchase payment credits may be higher than expenses for
contracts without such credits. The amount of the credit may be more than offset
by any additional fees and charges associated with the credit.
THE SECURITIES AND EXCHANGE COMMISSION (SEC) HAS NOT APPROVED OR DISAPPROVED
THESE SECURITIES OR PASSED UPON THE ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY
REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE.
AN INVESTMENT IN THIS CONTRACT IS NOT A DEPOSIT OF A BANK OR FINANCIAL
INSTITUTION AND IS NOT INSURED OR GUARANTEED BY THE FEDERAL DEPOSIT INSURANCE
CORPORATION OR ANY OTHER GOVERNMENT AGENCY. AN INVESTMENT IN THIS CONTRACT
INVOLVES INVESTMENT RISK INCLUDING THE POSSIBLE LOSS OF PRINCIPAL.
A Statement of Additional Information (SAI), dated the same date as this
prospectus, is incorporated by reference into this prospectus. It is filed with
the SEC and is available without charge by contacting American Enterprise Life
at the telephone number above or by completing and sending the order form on the
last page of this prospectus. The table of contents of the SAI is on the last
page of this prospectus.
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TABLE OF CONTENTS
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KEY TERMS
THE CONTRACT IN BRIEF
EXPENSE SUMMARY
CONDENSED FINANCIAL INFORMATION (UNAUDITED)
FINANCIAL STATEMENTS
PERFORMANCE INFORMATION
THE VARIABLE ACCOUNT AND THE FUNDS
THE FIXED ACCOUNTS
BUYING YOUR CONTRACT
CHARGES
VALUING YOUR INVESTMENT
MAKING THE MOST OF YOUR CONTRACT
WITHDRAWALS
CHANGING OWNERSHIP
BENEFITS IN CASE OF DEATH
THE ANNUITY PAYOUT PERIOD
TAXES
VOTING RIGHTS
SUBSTITUTION OF INVESTMENTS
ABOUT THE SERVICE PROVIDERS
ADDITIONAL INFORMATION ABOUT AMERICAN ENTERPRISE LIFE
DIRECTORS AND EXECUTIVE OFFICERS
EXPERTS
AMERICAN ENTERPRISE LIFE INSURANCE COMPANY FINANCIAL INFORMATION
TABLE OF CONTENTS OF THE STATEMENT OF ADDITIONAL INFORMATION
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KEY TERMS
THESE TERMS CAN HELP YOU UNDERSTAND DETAILS ABOUT YOUR CONTRACT.
ACCUMULATION UNIT -- A measure of the value of each subaccount before annuity
payouts begin.
ANNUITANT -- The person on whose life or life expectancy the annuity payouts are
based.
ANNUITY PAYOUTS -- An amount paid at regular intervals under one of several
plans.
BENEFICIARY -- The person you designate to receive annuity benefits in case of
the owner's or annuitant's death while the contract is in force and before
annuity payouts begin.
CLOSE OF BUSINESS -- When the New York Stock Exchange (NYSE) closes, normally 4
p.m. Eastern time.
CONTRACT - A deferred annuity contract or a certificate showing your interest
under a group annuity contract, that permits you to accumulate money for
retirement by making one or more purchase payments. It provides for lifetime or
other forms of payouts beginning at a specified time in the future.
CONTRACT VALUE -- The total value of your contract before we deduct any
applicable charges.
CONTRACT YEAR -- A period of 12 months, starting on the effective date of your
contract and on each anniversary of the effective date.
FIXED ACCOUNTS - The one-year fixed account is an account to which you may
allocate purchase payments. Amounts you allocate to this account earn interest
at rates that we declare periodically. Guarantee Period Accounts are fixed
accounts to which you may also allocate purchase payments. These accounts have
guaranteed interest rates declared for periods ranging from two to ten years.
Withdrawals from these accounts prior to the end of the term specified will
receive a Market Value Adjustment, which may result in a gain or loss of
principal.
FUNDS -- Investment options under your contract. You may allocate your purchase
payments into subaccounts investing in shares of any or all of these funds.
GUARANTEE PERIOD -- The number of years that a guaranteed interest rate is
credited.
MARKET VALUE ADJUSTMENT (MVA) -- A positive or negative adjustment assessed if
any portion of a Guarantee Period Account is withdrawn or transferred prior to
the end of its Guarantee Period.
OWNER (YOU, YOUR) -- The person who controls the contract (decides on investment
allocations, transfers, payout options, etc.). Usually, but not always, the
owner is also the annuitant. The owner is responsible for taxes, regardless of
whether he or she receives the contract's benefits.
PURCHASE PAYMENT CREDITS -- An addition we make to your contract value. We base
the amount of the credit on total net payments (total payments less total
withdrawals). We apply the credit to your contract based on your current
payment.
QUALIFIED ANNUITY -- A contract that you purchase to fund one of the following
tax-deferred retirement plans that is subject to applicable federal law and any
rules of the plan itself:
- - Individual Retirement Annuities (IRAs) under Section 408(b) of the Internal
Revenue Code of 1986, as amended (the Code)
- - Roth IRAs under Section 408A of the Code
- - Simplified Employee Pension (SEP) plans under Section 408(k) of the Code
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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.
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THE CONTRACT IN BRIEF
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PURPOSE: The purpose of the contract is to allow you to
accumulate money for retirement. You do this by
making one or more purchase payments; you may
allocate your purchase payments to the fixed
accounts and/or subaccounts under the contract.
These accounts in turn, may earn returns that
increase the value of the contract. Beginning at a
specified time in the future called the retirement
date, the contract provides lifetime or other
forms of payouts of your contract value (less any
applicable premium tax). As in the case of other
annuities, it may not be advantageous for you to
purchase this contract as a replacement for, or in
addition to, an existing annuity.
A qualified annuity will not provide any necessary
or additional tax deferral if it is used to fund a
retirement plan that is tax-deferred. However, the
contract has features other than tax deferral that
may make it an appropriate investment for your
retirement plan. You should compare these features
and their costs with other investment options
before deciding to purchase this contract.
FREE LOOK PERIOD: You may return your contract to your sales
representative or to our office within the time
stated on the first page of your contract and
receive a full refund of the contract value, less
any purchase payment credits up to the maximum
withdrawal charges. (See "Buying Your Contract -
Purchase payment credits.") However, you bear the
investment risk from the time of purchase until
you return the contract; the refund amount may be
more or less than the payment you made.
(Exception: If the law requires, we will refund
all of your purchase payments.)
ACCOUNTS: Currently, you may allocate your purchase payments
among any or all of:
- the subaccounts, each of which invests in a
fund with a particular investment objective.
The value of each subaccount varies with the
performance of the particular fund in which
it invests. We cannot guarantee that the
value at the retirement date will equal or
exceed the total purchase payments you
allocate to the subaccounts. (p. __)
- the fixed accounts, which earn interest at
rates that we adjust periodically. (p. __)
BUYING YOUR CONTRACT: Your sales representative will help you complete
and submit an application. Applications are
subject to acceptance at our office. You may buy a
nonqualified annuity or a qualified annuity. After
your initial purchase payment, you have the option
of making additional purchase payments in the
future.
- Minimum initial purchase payment (not
including Systematic Investment Plans (SIPs))
-- $5,000 for contracts sold in Pennsylvania,
Texas, Washington and South Carolina; and
$2,000 for contracts sold in other states.
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- Minimum additional purchase payment -- $100
($50 for SIPs).
- Maximum total purchase payments (without
prior approval) -- $1,000,000. (p.__ )
TRANSFERS: Subject to certain restrictions you currently may
redistribute your money among the accounts without
charge at any time until annuity payouts begin,
and once per contract year among the subaccounts
after annuity payouts begin. Transfers out of the
Guarantee Period Accounts before the end of the
Guarantee Period will be subject to a MVA. You may
establish automated transfers among the accounts.
Fixed account transfers are subject to special
restrictions. (p. __)
WITHDRAWALS: You may withdraw all or part of your contract
value at any time before the retirement date. You
also may establish automated partial withdrawals.
Withdrawals may be subject to charges and tax
penalties (including a 10% IRS penalty if you make
withdrawals prior to your reaching age 59 1/2) and
may have other tax consequences; also, certain
restrictions apply. (p. __)
CHANGING OWNERSHIP: You may change ownership of a nonqualified annuity
by written instruction, but this may have federal
income tax consequences. Restrictions apply to
changing ownership of a qualified annuity. (p. __)
BENEFITS IN CASE
OF DEATH: If you or the annuitant die before annuity payouts
begin, we will pay the beneficiary an amount at
least equal to the contract value. (p. __)
ANNUITY PAYOUTS: You can apply your contract value to an annuity
payout plan that begins on the retirement date.
You may choose from a variety of plans to make
sure that payouts continue as long as you like. If
you purchased a qualified annuity, the payout
schedule must meet the requirements of the
qualified plan. We can make payouts on a fixed or
variable basis, or both. Total monthly payouts may
include amounts from each subaccount and the
one-year fixed account. During the annuity payout
period, your choices for subaccounts may be
limited. The Guarantee Period Accounts are not
available during the payout period. (p. __)
TAXES: Generally, your contract grows tax-deferred until
you make withdrawals from it or begin to receive
payouts. (Under certain circumstances, IRS penalty
taxes may apply.) Even if you direct payouts to
someone else, you will be taxed on the income if
you are the owner. However, Roth IRAs may grow and
be distributed tax free if you meet certain
distribution requirements. (p. __)
CHARGES: We assess certain charges in connection with your
contract (p. __):
- $40 annual contract administrative charge;
- a 0.15% variable account administrative
charge;
- a 0.85% mortality and expense risk fee
applies (if you allocate money to one or more
subaccounts) for qualified annuities;
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- a 1.10% mortality and expense risk fee
applies (if you allocate money to one or more
subaccounts) for nonqualified annuities;
- if you select the Maximum Anniversary Value
Death Benefit Rider*, an additional 0.10%
mortality and expense risk fee applies (if
you allocate money to one or more
subaccounts);
- if you select the Guaranteed Minimum Income
Benefit Rider**, an annual fee based on the
adjusted contract value (currently at 0.30%);
- if you select the Performance Credit Rider**,
an annual fee of 0.15% of the contract value;
- withdrawal charge;
- any premium taxes that may be imposed on us
by state or local governments (currently, we
deduct any applicable premium tax when you
make a total withdrawal or when annuity
payouts begin, but we reserve the right to
deduct this tax at other times such as when
you make purchase payments or when you make a
total withdrawal); and
- the operating expenses of the funds in which
the subaccounts invest.
* Available if both you and the annuitant are age 79 or younger. May not be
available in all states.
** You may select either the Guarantee Minimum Income Benefit Rider or the
Performance Credit Rider, but not both. Riders may not be available in all
states. The Guaranteed Minimum Income Benefit Rider is available if the
annuitant is age 75 or younger.
EXPENSE SUMMARY
The purpose of the following information is to help you understand the various
costs and expenses associated with your contract.
You pay no sales charge when you purchase your contract. We show all costs that
we deduct directly from your contract or indirectly from the subaccounts and
funds below. Some expenses may vary as we explain under "Charges." Please see
the funds' prospectuses for more information on the operating expenses of each
fund.
CONTRACT OWNER EXPENSES
WITHDRAWAL CHARGE: contingent deferred sales charge as a percentage of
purchase payment withdrawn.
<TABLE>
<CAPTION>
YEARS FROM PURCHASE WITHDRAWAL CHARGE
PAYMENT RECEIPT PERCENTAGE
<S> <C>
1 8%
2 8
3 7
4 7
5 6
6 5
7 3
Thereafter 0
</TABLE>
WITHDRAWAL CHARGE UNDER ANNUITY PAYOUT PLAN E - PAYOUTS FOR A SPECIFIED
PERIOD: The amount equal to the difference in the present value of
remaining payments using the assumed investment rate and such present value
using the assumed investment rate plus 1.36% under a qualified annuity and
1.61% under a nonqualified annuity. This withdrawal charge cannot be
greater than 9% of the amount available for payouts under the Plan.
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ANNUAL CONTRACT ADMINISTRATIVE CHARGE $40*
* We will waive this charge when your contract value is $50,000 or more on the
current contract anniversary.
GUARANTEED MINIMUM INCOME BENEFIT RIDER** FEE:
as a percentage of the adjusted contract value
charged annually. This is an optional expense. 0.30%
PERFORMANCE CREDIT RIDER** FEE:
as a percentage of the contract value. 0.15%
** You may select either the Guarantee Minimum Income Benefit Rider or the
Performance Credit Rider, but not both. Riders may not be available in all
states. The Guaranteed Minimum Income Benefit Rider is available if the
annuitant is age 75 or younger.
ANNUAL VARIABLE ACCOUNT EXPENSES (as a percentage of average subaccount value)
You can choose the death benefit guarantee provided. The combination you choose
determines the fees you pay. The table below shows the combinations available to
you and their cost.
<TABLE>
<CAPTION>
- ------------------------------------------------------------- ------------------------- ---------------------------
QUALIFIED ANNUITIES NON-QUALIFIED
ANNUITIES
- ------------------------------------------------------------- ------------------------- ---------------------------
<S> <C> <C>
VARIABLE ACCOUNT ADMINISTRATIVE CHARGE 0.15% 0.15%
- ------------------------------------------------------------- ------------------------- ---------------------------
MORTALITY AND EXPENSE RISK FEE 0.85% 1.10%
- ------------------------------------------------------------- ------------------------- ---------------------------
MAXIMUM ANNIVERSARY VALUE DEATH BENEFIT RIDER FEE AS
PART OF THE MORTALITY AND EXPENSE RISK FEE (OPTIONAL) 0.10% 0.10%
- ------------------------------------------------------------- ------------------------- ---------------------------
TOTAL ANNUAL VARIABLE ACCOUNT EXPENSES WITHOUT ANY
OPTIONAL RIDER FEES 1.00% 1.25%
- ------------------------------------------------------------- ------------------------- ---------------------------
TOTAL ANNUAL VARIABLE ACCOUNT EXPENSE WITH THE MAXIMUM
ANNIVERSARY VALUE DEATH BENEFIT RIDER FEE 1.10% 1.35%
- ------------------------------------------------------------- ------------------------- ---------------------------
</TABLE>
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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>
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MANAGEMENT 12b-1 OTHER
FEES FEES EXPENSES TOTAL
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<S> <C> <C> <C> <C>
AXP(SM) VARIABLE PORTFOLIO -
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Cash Management Fund .51% .13 .05 .69%(1)
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Federal Income Fund .61% .13 .14 .88%(2)
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Managed Fund .59% .13 .04 .76%(1)
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New Dimensions Fund(R) .61% .13 .07 .81%(1)
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S&P 500 Index Fund .37% .13 -- .50%(2)
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Small Cap Advantage Fund .79% .13 .31 1.23%(2)
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AIM V.I.
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Capital Appreciation Fund .62% -- .11 .73%(3)
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Dent Demographic Trends Fund .85% -- .55 1.40%(4)
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Value Fund .61% -- .15 .76%(3)
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ALLIANCE VP
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Growth & Income Portfolio (Class B) .63% .25 .09 .97%(5)
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Premier Growth Portfolio (Class B) 1.00% .25 .04 1.29%(5)
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Technology Portfolio (Class B) .71% .25 .24 1.20%(5)
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EVERGREEN VA
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Global Leaders Fund .68% -- .33 1.01%(6)
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Growth and Income Fund .80% -- .21 1.01%(6)
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Masters Fund .37% -- .63 1.00%(6)
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Omega Fund .52% -- .44 .96%(6)
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Small Cap Value Fund .51% -- .50 1.01%(6)
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Strategic Income Fund .52% -- .32 .84%(6)
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FIDELITY VIP
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III Mid Cap Portfolio (Service Class) .57% .10 .40 1.07%(7)
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Contrafund(R) Portfolio (Service Class) .58% .10 .10 .78%(8)
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High Income Portfolio (Service Class) .58% .10 .11 .79%(8)
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FTVIPT
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Franklin Small Cap Fund - Class 2 .55% .25 .27 1.07%(9,10)
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Mutual Shares Securities Fund - Class 2 .60% .25 .19 1.04%(9,11)
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Templeton Developing Markets Securities Fund - Class 2 1.25% .25 .31 1.81%(9,12)
- ------------------------------------------------------------------------------------------------------------------------------------
Templeton International Securities Fund - Class 2 .69% .25 .19 1.13%(9,13)
- ------------------------------------------------------------------------------------------------------------------------------------
MFS(R) VIT
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Growth Series - Service Class .75% .20 .16 1.11%(14,15,16)
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New Discovery Series - Service Class .90% .20 .17 1.27%(14,15,16)
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Total Return Series - Service Class .75% .20 .15 1.10%(14,15)
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PUTNAM VARIABLE TRUST
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Putnam VT Growth and Income Fund - Class IB Shares .46% .15 .04 .65%(3)
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Putnam VT International New Opportunities Fund - Class IB Shares 1.08% .15 .33 1.56%(3)
- ------------------------------------------------------------------------------------------------------------------------------------
Putnam VT Vista Fund - Class IB Shares .65% .15 .10 .90%(3)
- ------------------------------------------------------------------------------------------------------------------------------------
</TABLE>
(1) The fund's expense figures are based on actual expenses for the fiscal year
ended Aug. 31, 1999 restated to include a Rule 12b-1 distribution fee of .125%
that went into effect Sept. 21, 1999.
(2) Based on estimated expenses after fee waivers and expense reimbursements.
Without fee waivers and expense reimbursements "Other Expenses" and "Total"
would be: 0.26% and 1.00% for AXP(SM) Variable Portfolio - Federal Income Fund,
and 0.43% and 1.35% for AXP(SM) Variable Portfolio - Small Cap Advantage Fund.
(3) Figures in "Management Fees," "12b-1 Fees," "Other Expenses" and "Total" are
based on actual expenses for the fiscal year ended Dec. 31, 1999.
(4) Calculated based on estimated net assets.
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(5) Figures in "Management Fees," "12b-1 Fees," "Other Expenses," and "Total"
are based on actual expenses for the fiscal period ended Dec. 31, 1999. Absent
fee waivers and expense reimbursements "Management Fees," "12b-1 Fees," "Other
Expenses" and "Total" would be, respectively, 1.00%, 0.25%, 0.27% and 1.52% for
Alliance Technology Portfolio.
(6) Annualized operating expenses for the Evergreen Funds at Dec. 31, 1999,
restated to reflect current fees. If the underlying funds had borne all expenses
that were assumed or waived by the investment advisor, the ratios for
"Management Fees," "Other Expenses," and "Total" respectively would have been as
follows: Evergreen VA Global Leaders Fund: 0.83%, 0.33%, 1.20%; Evergreen VA
Growth and Income Fund: 0.87%, 0.21%, 1.08%; Evergreen VA Masters Fund: 0.87%,
0.63%, 1.50%; Evergreen VA Omega Fund: 0.52%, 0.44%, 0.96%; Evergreen VA Small
Cap Value Fund: 0.87%, 0.50%, 1.37%; and Evergreen VA Strategic Income Fund:
0.52%, 0.32%, 0.84%.
(7) FMR agreed to reimburse a portion of Mid Cap Portfolio's expenses during the
period. Without this reimbursement, the Portfolio's management fee, distribution
& service fee (12b-1), other expenses and total expenses would have been 0.57%,
0.10%, 2.74% and 3.41% respectively.
(8) A portion of the brokerage commissions that certain funds pay was used to
reduce fund expenses. In addition, through arrangements with certain funds'
custodians, credits realized as a result of uninvested cash balances were used
to reduce a portion of each applicable funds' expenses. With these reductions,
the "Other Expenses," and "Total" presented in the table would have been 0.07%
and 0.75% for Contrafund(R) Portfolio.
(9) The fund's class 2 distribution plan or "Rule 12b-1 plan" is described in
the fund's prospectus.
(10) On Feb 8, 2000, a merger and reorganization was approved that combined the
assets of the fund with a similar fund of the Templeton Variable products Series
Fund, effective May 1, 2000. On Feb. 8, 2000, fund shareholders approved new
management fees, which apply to the combined fund effective May 1, 2000. The
table shows restated total expenses based on the new fees and assets of the fund
as of Dec. 31, 1999, and not the assets of the combined fund. However, if the
table reflected both the new fees and the combined assets, the fund's expenses
after May 1, 2000 would be estimated as: "Management Fees" 0.55%, "12b-1 Fees"
0.25%, "Other Expenses" 0.27%, and "Total" 1.07%.
(11) On Feb. 8, 2000 a merger and reorganization was approved that combined the
fund with a similar fund of Templeton Variable Products Series Fund, effective
May 1, 2000. The table shows total expenses based on the fund's assets as of
Dec. 31, 1999, and not the assets of the combined fund. However, if the table
reflected combined assets, the fund's expenses after May 1, 2000 would be
estimated as: "Management Fees" 0.60%, "12b-1 Fees" 0.25%, "Other Expenses"
0.19%, and "Total" 1.04%.
(12) Previously Templeton Developing Markets Fund. On Feb 8, 2000, shareholders
approved a merger and reorganization combined the fund with the Templeton
Developing Markets Equity Fund, effective May 1, 2000. The shareholders of that
fund had approved new management fees, which apply to the combined fund
effective May 1, 2000. The table shows restated total expenses based on the new
fees and assets of the fund as of Dec. 31, 1999, and not the assets of the
combined fund. However, if the table reflected both the new fees and the
combined assets, the fund's expenses after May 1, 2000 would be estimated as:
"Management Fees" 1.25%, "12b-1 Fees" 0.25%, "Other Expenses" 0.29%, and "Total"
1.79%. The fund's class 2 distribution plan or "Rule 12b-1 plan" is described in
the fund's prospectus. While the maximum amount payable under the fund's class 2
Rule 12b-1 plan is 0.35% per year of the fund's average daily net assets, the
Board of Trustees of Franklin Templeton Variable Insurance Products Trust has
set the current rate at 0.25% per year.
(13) Previously Templeton International Fund. Feb 8, 2000, shareholders approved
a merger and reorganization combined the fund with the Templeton International
Equity Fund, effective May 1, 2000. The shareholders of that fund had approved
new management fees, which apply to the combined fund effective May 1, 2000. The
table shows restated total expenses based on the new fees and assets of the fund
as of Dec. 31, 1999, and not the assets of the combined fund. However, if the
table reflected both the new fees and the combined assets, the fund's expenses
after May 1, 2000 would be estimated as: "Management Fees" 0.65%, "12b-1 Fees"
0.25%, "Other Expenses" 0.20%, and "Total" 1.10%
(14) Each Series has adopted a distribution plan under Rule 12b-1 that permits
it to pay marketing and other fees to support the sales and distribution of
service class shares (these fees are referred to as distribution fees).
(15) Each series has an expense offset arrangement which reduces the series'
custodian fee based upon the amount of cash maintained by the series with its
custodian and dividend disbursing agent. The series may enter into other similar
arrangements and directed brokerage arrangements, which would also have the
effect of reducing the series' expenses. "Other Expenses" do not take into
account these expense reductions, and are therefore higher than the actual
expenses of the series. Had these fee reductions been taken into account, Net
Expenses would be lower, and for service class shares would be estimated to be:
1.10% for Growth Series, 1.25% for New Discovery Series and 1.09% for Total
Return Series.
(16) MFS has contractually agreed, subject to reimbursement, to bear expenses
for the series' expenses such that "Other Expenses" (after taking into account
the expense offset arrangement described above), do not exceed 0.15% annually.
Without this agreement, "Other Expenses" and "Total" would be 0.71%and 1.66% for
Growth Series and 1.59% and 2.69% for New Discovery Series. These contractual
fee arrangements will continue until at least May 1, 2001, unless changed with
the consent of the board of trustees which oversees the series.
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EXAMPLES: *
You would pay the following expenses on a $1,000 investment if you have a
qualified annuity without any optional riders and assuming a 5% annual return
and....
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------------------------------------------------------
A TOTAL WITHDRAWAL AT THE NO WITHDRAWAL OR SELECTION OF AN ANNUITY
END OF EACH TIME PERIOD PAYOUT PLAN AT THE END OF EACH TIME PERIOD
- ------------------------------------------------------------------------------------------------------------------------------------
1 YEAR 3 YEARS 1 YEAR 3 YEARS
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
AXP(SM) VARIABLE PORTFOLIO -
- ------------------------------------------------------------------------------------------------------------------------------------
Cash Management Fund $98.35 $126.80 $18.35 $56.80
- ------------------------------------------------------------------------------------------------------------------------------------
Federal Income Fund 100.30 132.71 20.30 62.71
- ------------------------------------------------------------------------------------------------------------------------------------
Managed Fund 99.07 128.98 19.07 58.98
- ------------------------------------------------------------------------------------------------------------------------------------
New Dimensions Fund(R) 99.58 130.54 19.58 60.54
- ------------------------------------------------------------------------------------------------------------------------------------
S&P 500 Index Fund 96.40 120.87 16.40 50.87
- ------------------------------------------------------------------------------------------------------------------------------------
Small Cap Advantage Fund 103.88 143.54 23.88 73.54
- ------------------------------------------------------------------------------------------------------------------------------------
AIM V.I.
- ------------------------------------------------------------------------------------------------------------------------------------
Capital Appreciation Fund 98.76 128.05 18.76 58.05
- ------------------------------------------------------------------------------------------------------------------------------------
Dent Demographic Trends Fund 105.63 148.76 25.63 78.76
- ------------------------------------------------------------------------------------------------------------------------------------
Value Fund 99.07 128.98 19.07 58.98
- ------------------------------------------------------------------------------------------------------------------------------------
ALLIANCE VP
- ------------------------------------------------------------------------------------------------------------------------------------
Growth & Income Portfolio (Class B) 101.22 135.50 21.22 65.50
- ------------------------------------------------------------------------------------------------------------------------------------
Premier Growth Portfolio (Class B) 104.50 145.38 24.50 75.38
- ------------------------------------------------------------------------------------------------------------------------------------
Technology Portfolio (Class B) 103.58 142.61 23.58 72.61
- ------------------------------------------------------------------------------------------------------------------------------------
EVERGREEN VA
- ------------------------------------------------------------------------------------------------------------------------------------
Global Leaders Fund 101.63 136.74 21.63 66.74
- ------------------------------------------------------------------------------------------------------------------------------------
Growth and Income Fund 101.63 136.74 21.63 66.74
- ------------------------------------------------------------------------------------------------------------------------------------
Masters Fund 101.53 136.43 21.53 66.43
- ------------------------------------------------------------------------------------------------------------------------------------
Omega Fund 101.12 135.19 21.12 65.19
- ------------------------------------------------------------------------------------------------------------------------------------
Small Cap Value Fund 101.63 136.74 21.63 66.74
- ------------------------------------------------------------------------------------------------------------------------------------
Strategic Income Fund 99.89 131.47 19.89 61.47
- ------------------------------------------------------------------------------------------------------------------------------------
FIDELITY VIP
- ------------------------------------------------------------------------------------------------------------------------------------
III Mid Cap Portfolio (Service Class) 102.24 138.60 22.24 68.60
- ------------------------------------------------------------------------------------------------------------------------------------
Contrafund(R) Portfolio (Service Class) 99.27 129.60 19.27 59.60
- ------------------------------------------------------------------------------------------------------------------------------------
High Income Portfolio (Service Class) 99.37 129.92 19.37 59.92
- ------------------------------------------------------------------------------------------------------------------------------------
FTVIPT
- ------------------------------------------------------------------------------------------------------------------------------------
Franklin Small Cap Fund - Class 2 102.24 138.60 22.24 68.60
- ------------------------------------------------------------------------------------------------------------------------------------
Mutual Shares Securities Fund - Class 2 101.94 137.67 21.94 67.67
- ------------------------------------------------------------------------------------------------------------------------------------
Templeton Developing Markets Securities 109.83 161.30 29.83 91.30
Fund - Class 2
- ------------------------------------------------------------------------------------------------------------------------------------
Templeton International Securities Fund 102.86 140.45 22.86 70.45
- Class 2
- ------------------------------------------------------------------------------------------------------------------------------------
MFS(R) VIT
- ------------------------------------------------------------------------------------------------------------------------------------
Growth Series - Service Class 102.65 139.83 22.65 69.83
- ------------------------------------------------------------------------------------------------------------------------------------
New Discovery Series - Service Class 104.29 144.77 24.29 74.77
- ------------------------------------------------------------------------------------------------------------------------------------
Total Return Series - Service Class 102.55 139.52 22.55 69.52
- ------------------------------------------------------------------------------------------------------------------------------------
PUTNAM VARIABLE TRUST
- ------------------------------------------------------------------------------------------------------------------------------------
Putnam VT Growth and Income Fund - Class 97.94 125.56 17.94 55.56
IB Shares
- ------------------------------------------------------------------------------------------------------------------------------------
Putnam VT International New 107.27 153.67 27.27 83.67
Opportunities Fund - Class IB Shares
- ------------------------------------------------------------------------------------------------------------------------------------
Putnam VT Vista Fund - Class IB Shares 100.50 133.33 20.50 63.33
- ------------------------------------------------------------------------------------------------------------------------------------
</TABLE>
11
<PAGE>
You would pay the following expenses on a $1,000 investment if you have a
qualified annuity with the optional 0.10% Maximum Anniversary Value Death
Benefit Rider, 0.30% Guaranteed Minimum Income Benefit Rider and assuming a 5%
annual return and....
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------------------------------------------------------
A TOTAL WITHDRAWAL AT THE NO WITHDRAWAL OR SELECTION OF AN ANNUITY
END OF EACH TIME PERIOD PAYOUT PLAN AT THE END OF EACH TIME PERIOD
- ------------------------------------------------------------------------------------------------------------------------------------
1 YEAR 3 YEARS 1 YEAR 3 YEARS
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
AXP(SM) VARIABLE PORTFOLIO -
- ------------------------------------------------------------------------------------------------------------------------------------
Cash Management Fund $102.45 $139.21 $22.45 $69.21
- ------------------------------------------------------------------------------------------------------------------------------------
Federal Income Fund 104.40 145.07 24.40 75.07
- ------------------------------------------------------------------------------------------------------------------------------------
Managed Fund 103.17 141.38 23.17 71.38
- ------------------------------------------------------------------------------------------------------------------------------------
New Dimensions Fund(R) 103.68 142.92 23.68 72.92
- ------------------------------------------------------------------------------------------------------------------------------------
S&P 500 Index Fund 100.50 133.33 20.50 63.33
- ------------------------------------------------------------------------------------------------------------------------------------
Small Cap Advantage Fund 107.98 155.81 27.98 85.81
- ------------------------------------------------------------------------------------------------------------------------------------
AIM V.I.
- ------------------------------------------------------------------------------------------------------------------------------------
Capital Appreciation Fund 102.86 140.45 22.86 70.45
- ------------------------------------------------------------------------------------------------------------------------------------
Dent Demographic Trends Fund 109.73 161.00 29.73 91.00
- ------------------------------------------------------------------------------------------------------------------------------------
Value Fund 103.17 141.38 23.17 71.38
- ------------------------------------------------------------------------------------------------------------------------------------
ALLIANCE VP
- ------------------------------------------------------------------------------------------------------------------------------------
Growth & Income Portfolio (Class B) 105.32 147.84 25.32 77.84
- ------------------------------------------------------------------------------------------------------------------------------------
Premier Growth Portfolio (Class B) 108.60 157.64 28.60 87.64
- ------------------------------------------------------------------------------------------------------------------------------------
Technology Portfolio (Class B) 107.68 154.89 27.68 84.89
- ------------------------------------------------------------------------------------------------------------------------------------
EVERGREEN VA
- ------------------------------------------------------------------------------------------------------------------------------------
Global Leaders Fund 105.73 149.07 25.73 79.07
- ------------------------------------------------------------------------------------------------------------------------------------
Growth and Income Fund 105.73 149.07 25.73 79.07
- ------------------------------------------------------------------------------------------------------------------------------------
Masters Fund 105.63 148.76 25.63 78.76
- ------------------------------------------------------------------------------------------------------------------------------------
Omega Fund 105.22 147.54 25.22 77.54
- ------------------------------------------------------------------------------------------------------------------------------------
Small Cap Value Fund 105.73 149.07 25.73 79.07
- ------------------------------------------------------------------------------------------------------------------------------------
Strategic Income Fund 103.99 143.84 23.99 73.84
- ------------------------------------------------------------------------------------------------------------------------------------
FIDELITY VIP
- ------------------------------------------------------------------------------------------------------------------------------------
III Mid Cap Portfolio (Service Class) 106.34 150.91 26.34 80.91
- ------------------------------------------------------------------------------------------------------------------------------------
Contrafund(R) Portfolio (Service Class) 103.37 141.99 23.37 71.99
- ------------------------------------------------------------------------------------------------------------------------------------
High Income Portfolio (Service Class) 103.47 142.30 23.47 72.30
- ------------------------------------------------------------------------------------------------------------------------------------
FTVIPT
- ------------------------------------------------------------------------------------------------------------------------------------
Franklin Small Cap Fund - Class 2 106.34 150.91 26.34 80.91
- ------------------------------------------------------------------------------------------------------------------------------------
Mutual Shares Securities Fund - Class 2 106.04 149.99 26.04 79.99
- ------------------------------------------------------------------------------------------------------------------------------------
Templeton Developing Markets Securities 113.93 173.43 33.93 103.43
Fund - Class 2
- ------------------------------------------------------------------------------------------------------------------------------------
Templeton International Securities Fund - 106.96 152.75 26.96 82.75
Class 2
- ------------------------------------------------------------------------------------------------------------------------------------
MFS(R) VIT
- ------------------------------------------------------------------------------------------------------------------------------------
Growth Series - Service Class 106.75 152.14 26.75 82.14
- ------------------------------------------------------------------------------------------------------------------------------------
New Discovery Series - Service Class 108.39 157.03 28.39 87.03
- ------------------------------------------------------------------------------------------------------------------------------------
Total Return Series - Service Class 106.65 151.83 26.65 81.83
- ------------------------------------------------------------------------------------------------------------------------------------
PUTNAM VARIABLE TRUST
- ------------------------------------------------------------------------------------------------------------------------------------
Putnam VT Growth and Income Fund - Class 102.04 137.98 22.04 67.98
IB Shares
- ------------------------------------------------------------------------------------------------------------------------------------
Putnam VT International New Opportunities 111.37 165.86 31.37 95.86
Fund - Class IB Shares
- ------------------------------------------------------------------------------------------------------------------------------------
Putnam VT Vista Fund - Class IB Shares 104.60 145.69 24.60 75.69
- ------------------------------------------------------------------------------------------------------------------------------------
</TABLE>
12
<PAGE>
You would pay the following expenses on a $1,000 investment if you have a
nonqualified annuity without any optional riders and assuming a 5% annual return
and....
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------------------------------------------------------
A TOTAL WITHDRAWAL AT THE NO WITHDRAWAL OR SELECTION OF AN ANNUITY
END OF EACH TIME PERIOD PAYOUT PLAN AT THE END OF EACH TIME PERIOD
- ------------------------------------------------------------------------------------------------------------------------------------
1 YEAR 3 YEARS 1 YEAR 3 YEARS
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
AXP(SM) VARIABLE PORTFOLIO -
- ------------------------------------------------------------------------------------------------------------------------------------
Cash Management Fund $100.91 $134.57 $20.91 $64.57
- ------------------------------------------------------------------------------------------------------------------------------------
Federal Income Fund 102.86 140.45 22.86 70.45
- ------------------------------------------------------------------------------------------------------------------------------------
Managed Fund 101.63 136.74 21.63 66.74
- ------------------------------------------------------------------------------------------------------------------------------------
New Dimensions Fund(R) 102.14 138.29 22.14 68.29
- ------------------------------------------------------------------------------------------------------------------------------------
S&P 500 Index Fund 98.96 128.67 18.96 58.67
- ------------------------------------------------------------------------------------------------------------------------------------
Small Cap Advantage Fund 106.45 151.22 26.45 81.22
- ------------------------------------------------------------------------------------------------------------------------------------
AIM V.I.
- ------------------------------------------------------------------------------------------------------------------------------------
Capital Appreciation Fund 101.32 135.81 21.32 65.81
- ------------------------------------------------------------------------------------------------------------------------------------
Dent Demographic Trends Fund 108.19 156.42 28.19 86.42
- ------------------------------------------------------------------------------------------------------------------------------------
Value Fund 101.63 136.74 21.63 66.74
- ------------------------------------------------------------------------------------------------------------------------------------
ALLIANCE VP
- ------------------------------------------------------------------------------------------------------------------------------------
Growth & Income Portfolio (Class B) 103.78 143.23 23.78 73.23
- ------------------------------------------------------------------------------------------------------------------------------------
Premier Growth Portfolio (Class B) 107.06 153.06 27.06 83.06
- ------------------------------------------------------------------------------------------------------------------------------------
Technology Portfolio (Class B) 106.14 150.30 26.14 80.30
- ------------------------------------------------------------------------------------------------------------------------------------
EVERGREEN VA
- ------------------------------------------------------------------------------------------------------------------------------------
Global Leaders Fund 104.19 144.46 24.19 74.46
- ------------------------------------------------------------------------------------------------------------------------------------
Growth and Income Fund 104.19 144.46 24.19 74.46
- ------------------------------------------------------------------------------------------------------------------------------------
Masters Fund 104.09 144.15 24.09 74.15
- ------------------------------------------------------------------------------------------------------------------------------------
Omega Fund 103.68 142.92 23.68 72.92
- ------------------------------------------------------------------------------------------------------------------------------------
Small Cap Value Fund 104.19 144.46 24.19 74.46
- ------------------------------------------------------------------------------------------------------------------------------------
Strategic Income Fund 102.45 139.21 22.45 69.21
- ------------------------------------------------------------------------------------------------------------------------------------
FIDELITY VIP
- ------------------------------------------------------------------------------------------------------------------------------------
III Mid Cap Portfolio (Service Class) 104.81 146.31 24.81 76.31
- ------------------------------------------------------------------------------------------------------------------------------------
Contrafund(R) Portfolio (Service Class) 101.83 137.36 21.83 67.36
- ------------------------------------------------------------------------------------------------------------------------------------
High Income Portfolio (Service Class) 101.94 137.67 21.94 67.67
- ------------------------------------------------------------------------------------------------------------------------------------
FTVIPT
- ------------------------------------------------------------------------------------------------------------------------------------
Franklin Small Cap Fund - Class 2 104.81 146.31 24.81 76.31
- ------------------------------------------------------------------------------------------------------------------------------------
Mutual Shares Securities Fund - Class 2 104.50 145.38 24.50 75.38
- ------------------------------------------------------------------------------------------------------------------------------------
Templeton Developing Markets Securities 112.39 168.89 32.39 98.89
Fund - Class 2
- ------------------------------------------------------------------------------------------------------------------------------------
Templeton International Securities Fund - 105.42 148.15 25.42 78.15
Class 2
- ------------------------------------------------------------------------------------------------------------------------------------
MFS(R) VIT
- ------------------------------------------------------------------------------------------------------------------------------------
Growth Series - Service Class 105.22 147.54 25.22 77.54
- ------------------------------------------------------------------------------------------------------------------------------------
New Discovery Series - Service Class 106.86 152.44 26.86 82.44
- ------------------------------------------------------------------------------------------------------------------------------------
Total Return Series - Service Class 105.11 147.23 25.11 77.23
- ------------------------------------------------------------------------------------------------------------------------------------
PUTNAM VARIABLE TRUST
- ------------------------------------------------------------------------------------------------------------------------------------
Putnam VT Growth and Income Fund - Class 100.50 133.33 20.50 63.33
IB Shares
- ------------------------------------------------------------------------------------------------------------------------------------
Putnam VT International New Opportunities 109.83 161.30 29.83 91.30
Fund - Class IB Shares
- ------------------------------------------------------------------------------------------------------------------------------------
Putnam VT Vista Fund - Class IB Shares 103.06 141.07 23.06 71.07
- ------------------------------------------------------------------------------------------------------------------------------------
</TABLE>
13
<PAGE>
You would pay the following expenses on a $1,000 investment if you have a
nonqualified annuity with the optional 0.10% Maximum Anniversary Value Death
Benefit Rider, 0.30% Guaranteed Minimum Income Benefit Rider and assuming a 5%
annual return and....
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------------------------------------------------------
A TOTAL WITHDRAWAL AT THE NO WITHDRAWAL OR SELECTION OF AN ANNUITY
END OF EACH TIME PERIOD PAYOUT PLAN AT THE END OF EACH TIME PERIOD
- ------------------------------------------------------------------------------------------------------------------------------------
1 YEAR 3 YEARS 1 YEAR 3 YEARS
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
AXP(SM) VARIABLE PORTFOLIO -
- ------------------------------------------------------------------------------------------------------------------------------------
Cash Management Fund $105.01 $146.92 $25.01 $76.92
- ------------------------------------------------------------------------------------------------------------------------------------
Federal Income Fund 106.96 152.75 26.96 82.75
- ------------------------------------------------------------------------------------------------------------------------------------
Managed Fund 105.73 149.07 25.73 79.07
- ------------------------------------------------------------------------------------------------------------------------------------
New Dimensions Fund(R) 106.24 150.61 26.24 80.61
- ------------------------------------------------------------------------------------------------------------------------------------
S&P 500 Index Fund 103.06 141.07 23.06 71.07
- ------------------------------------------------------------------------------------------------------------------------------------
Small Cap Advantage Fund 110.55 163.43 30.55 93.43
- ------------------------------------------------------------------------------------------------------------------------------------
AIM V.I.
- ------------------------------------------------------------------------------------------------------------------------------------
Capital Appreciation Fund 105.42 148.15 25.42 78.15
- ------------------------------------------------------------------------------------------------------------------------------------
Dent Demographic Trends Fund 112.29 168.59 32.29 98.59
- ------------------------------------------------------------------------------------------------------------------------------------
Value Fund 105.73 149.07 25.73 79.07
- ------------------------------------------------------------------------------------------------------------------------------------
ALLIANCE VP
- ------------------------------------------------------------------------------------------------------------------------------------
Growth & Income Portfolio (Class B) 107.88 155.50 27.88 85.50
- ------------------------------------------------------------------------------------------------------------------------------------
Premier Growth Portfolio (Class B) 111.16 165.25 31.16 95.25
- ------------------------------------------------------------------------------------------------------------------------------------
Technology Portfolio (Class B) 110.24 162.52 30.24 92.52
- ------------------------------------------------------------------------------------------------------------------------------------
EVERGREEN VA
- ------------------------------------------------------------------------------------------------------------------------------------
Global Leaders Fund 108.29 156.73 28.29 86.73
- ------------------------------------------------------------------------------------------------------------------------------------
Growth and Income Fund 108.29 156.73 28.29 86.73
- ------------------------------------------------------------------------------------------------------------------------------------
Masters Fund 108.19 156.42 28.19 86.42
- ------------------------------------------------------------------------------------------------------------------------------------
Omega Fund 107.78 155.20 27.78 85.20
- ------------------------------------------------------------------------------------------------------------------------------------
Small Cap Value Fund 108.29 156.73 28.29 86.73
- ------------------------------------------------------------------------------------------------------------------------------------
Strategic Income Fund 106.55 151.52 26.55 81.52
- ------------------------------------------------------------------------------------------------------------------------------------
FIDELITY VIP
- ------------------------------------------------------------------------------------------------------------------------------------
III Mid Cap Portfolio (Service Class) 108.91 158.56 28.91 88.56
- ------------------------------------------------------------------------------------------------------------------------------------
Contrafund(R) Portfolio (Service Class) 105.93 149.68 25.93 79.68
- ------------------------------------------------------------------------------------------------------------------------------------
High Income Portfolio (Service Class) 106.04 149.99 26.04 79.99
- ------------------------------------------------------------------------------------------------------------------------------------
FTVIPT
- ------------------------------------------------------------------------------------------------------------------------------------
Franklin Small Cap Fund - Class 2 108.91 158.56 28.91 88.56
- ------------------------------------------------------------------------------------------------------------------------------------
Mutual Shares Securities Fund - Class 2 108.60 157.64 28.60 87.64
- ------------------------------------------------------------------------------------------------------------------------------------
Templeton Developing Markets Securities 116.49 180.96 36.49 110.96
Fund - Class 2
- ------------------------------------------------------------------------------------------------------------------------------------
Templeton International Securities Fund - 109.52 160.39 29.52 90.39
Class 2
- ------------------------------------------------------------------------------------------------------------------------------------
MFS(R) VIT
- ------------------------------------------------------------------------------------------------------------------------------------
Growth Series - Service Class 109.32 159.78 29.32 89.78
- ------------------------------------------------------------------------------------------------------------------------------------
New Discovery Series - Service Class 110.96 164.64 30.96 94.64
- ------------------------------------------------------------------------------------------------------------------------------------
Total Return Series - Service Class 109.21 159.47 29.21 89.47
- ------------------------------------------------------------------------------------------------------------------------------------
PUTNAM VARIABLE TRUST
- ------------------------------------------------------------------------------------------------------------------------------------
Putnam VT Growth and Income Fund - Class 104.60 145.69 24.60 75.69
IB Shares
- ------------------------------------------------------------------------------------------------------------------------------------
Putnam VT International New Opportunities 113.93 173.43 33.93 103.43
Fund - Class IB Shares
- ------------------------------------------------------------------------------------------------------------------------------------
Putnam VT Vista Fund - Class IB Shares 107.16 153.36 27.16 83.36
- ------------------------------------------------------------------------------------------------------------------------------------
</TABLE>
*In these examples, the $40 contract administrative charge is approximated as a
0.100% charge based on our estimated average contract size. Premium taxes
imposed by some state and local governments are not reflected in these examples.
We entered into
14
<PAGE>
certain arrangements under which we are compensated by the funds' advisors
and/or distributors for the administrative services we provide to the funds.
YOU SHOULD NOT CONSIDER THESE EXAMPLES AS REPRESENTATIONS OF PAST OR FUTURE
EXPENSES. ACTUAL EXPENSES MAY BE MORE OR LESS THAN THOSE SHOWN.
CONDENSED FINANCIAL INFORMATION (UNAUDITED)
The following tables give per-unit information about the financial history for
each subaccount. We have not provided this information for some of the
subaccounts because they are new and do not have any history.
<TABLE>
<CAPTION>
YEAR ENDED DEC. 31,
1999
<S> <C>
SUBACCOUNT PCMG1(1) (INVESTING IN SHARES OF AXP(SM) VARIABLE PORTFOLIO -- CASH
MANAGEMENT FUND)
Accumulation unit $1.00
value at beginning
of period
Accumulation unit value $1.01
at end of period
Number of accumulation 260
units outstanding at end
of period
Ratio of operating 1.25%
expense to average
net assets
Simple yield(3) 4.62%
Compound yield(3) 4.73%
SUBACCOUNT PMGD1(1) (INVESTING IN SHARES OF AXP(SM) VARIABLE PORTFOLIO --
MANAGED FUND)
Accumulation unit $1.00
value at beginning
of period
Accumulation unit value $1.08
at end of period
Number of accumulation 259
units outstanding at end
of period
Ratio of operating 1.25%
expense to average
net assets
</TABLE>
15
<PAGE>
<TABLE>
<S> <C>
SUBACCOUNT PNDM1(1) (INVESTING IN SHARES OF AXP(SM) VARIABLE PORTFOLIO -- NEW
DIMENSIONS FUND(R))
Accumulation unit $1.00
value at beginning
of period
Accumulation unit value $1.15
at end of period
Number of accumulation 257
units outstanding at end
of period
Ratio of operating 1.25%
expense to average
net assets
SUBACCOUNT PSCA1(1) (INVESTING IN SHARES OF AXP(SM) VARIABLE PORTFOLIO -- SMALL
CAP ADVANTAGE FUND)
Accumulation unit $1.00
value at beginning
of period
Accumulation unit value $1.11
at end of period
Number of accumulation 254
units outstanding at end
of period
Ratio of operating 1.25%
expense to average
net assets
SUBACCOUNT PCAP1(2) (INVESTING IN SHARES OF AIM V.I. CAPITAL APPRECIATION FUND)
Accumulation unit $1.00
value at beginning
of period
Accumulation unit value $1.26
at end of period
Number of accumulation 251
units outstanding at end
of period
Ratio of operating 1.25%
expense to average
net assets
</TABLE>
16
<PAGE>
<TABLE>
<S> <C>
SUBACCOUNT PVAL1(2) (INVESTING IN SHARES OF AIM V.I. VALUE FUND)
Accumulation unit $1.00
value at beginning
of period
Accumulation unit value $1.11
at end of period
Number of accumulation 258
units outstanding at end
of period
Ratio of operating 1.25%
expense to average
net assets
SUBACCOUNT PMDC1(2) (INVESTING IN SHARES OF FIDELITY VIP III MID CAP PORTFOLIO -
SERVICE CLASS)
Accumulation unit $1.00
value at beginning
of period
Accumulation unit value $1.24
at end of period
Number of accumulation 188
units outstanding at end
of period
Ratio of operating 1.25%
expense to average
net assets
SUBACCOUNT PSMC1(2) (INVESTING IN SHARES OF FTVIPT FRANKLIN SMALL CAP FUND -
CLASS 2)
Accumulation unit $1.00
value at beginning
of period
Accumulation unit value $1.43
at end of period
Number of accumulation 243
units outstanding at end
of period
Ratio of operating 1.25%
expense to average
net assets
</TABLE>
17
<PAGE>
<TABLE>
<S> <C>
SUBACCOUNT PMSS1(2) (INVESTING IN SHARES OF FTVIPT MUTUAL SHARES SECURITIES
FUND - CLASS 2)
Accumulation unit $1.00
value at beginning
of period
Accumulation unit value $1.03
at end of period
Number of accumulation 260
units outstanding at end
of period
Ratio of operating 1.25%
expense to average
net assets
SUBACCOUNT PNDS1(2) (INVESTING IN SHARES OF MFS(R) VIT NEW DISCOVERY SERIES)
Accumulation unit $1.00
value at beginning
of period
Accumulation unit value $1.43
at end of period
Number of accumulation 238
units outstanding at end
of period
Ratio of operating 1.25%
expense to average
net assets
SUBACCOUNT PTRS1(2) (INVESTING IN SHARES OF MFS(R) VIT TOTAL RETURN SERIES)
Accumulation unit $1.00
value at beginning
of period
Accumulation unit value $1.00
at end of period
Number of accumulation 259
units outstanding at end
of period
Ratio of operating 1.25%
expense to average
net assets
</TABLE>
18
<PAGE>
<TABLE>
<S> <C>
SUBACCOUNT PGIN1(2) (INVESTING IN SHARES OF PUTNAM VT GROWTH AND INCOME FUND -
CLASS IB SHARES)
Accumulation unit $1.00
value at beginning
of period
Accumulation unit value $0.97
at end of period
Number of accumulation 262
units outstanding at end
of period
Ratio of operating 1.25%
expense to average
net assets
</TABLE>
(1) Operations commenced on Nov. 10, 1999.
(2) Operations commenced on Nov. 9, 1999.
FINANCIAL STATEMENTS
You can find the audited financial statements of the subaccounts with financial
history in the SAI. The SAI does not include the audited financial statements
for some of the subaccounts because they are new and do not have any assets. You
can find our audited financial statements later in this prospectus.
PERFORMANCE INFORMATION
Performance information for the subaccounts may appear from time to time in
advertisements or sales literature. This information reflects the performance of
a hypothetical investment in a particular subaccount during a specified time
period. We show actual performance from the date the subaccounts began investing
in the funds. Currently, we do not provide any performance information because
they are new and have not had any activity to date. However, we show performance
from the commencement date of the funds as if the contract existed at that time,
which it did not. Although we base performance figures on historical earnings,
past performance does not guarantee future results.
We include non-recurring charges (such as withdrawal charges) in total return
figures, but not in yield quotations. Excluding non-recurring charges in yield
calculations increases the reported value.
Total return figures do not reflect any purchase payment credits or performance
credits.
Total return figures reflect deduction of all applicable charges, including the:
- - contract administrative charge,
- - variable account administrative charge,
- - Maximum Anniversary Value Death Benefit Rider* fee,
- - Guaranteed Minimum Income Benefit Rider** fee,
- - Performance Credit Rider** fee,
- - mortality and expense risk fee, and
- - withdrawal charge (assuming a withdrawal at the end of the illustrated
period).
* Available if both you and the annuitant are age 79 or younger. May not be
available in all states.
** You may select either the Guarantee Minimum Income Benefit Rider or the
Performance Credit Rider, but not both. Riders may not be available in all
states. The Guaranteed Minimum Income Benefit Rider is available if the
annuitant is age 75 or younger.
19
<PAGE>
We also show optional total return quotations that do not reflect deduction of
the withdrawal charge (assuming no withdrawal) and the Guaranteed Minimum Income
Benefit Rider fee. We may show total return quotations by means of schedules,
charts or graphs.
AVERAGE ANNUAL TOTAL RETURN is the average annual compounded rate of return of
the investment over a period of one, five and ten years (or up to the life of
the subaccount if it is less than ten years old).
CUMULATIVE TOTAL RETURN is the cumulative change in the value of an investment
over a specified time period. We assume that income earned by the investment is
reinvested. Cumulative total return generally will be higher than average annual
total return.
ANNUALIZED SIMPLE YIELD (FOR SUBACCOUNTS INVESTING IN MONEY MARKET FUNDS)
"annualizes" the income generated by the investment over a given seven-day
period. That is, we assume the amount of income generated by the investment
during the period will be generated each seven-day period for a year. We show
this as a percentage of the investment.
ANNUALIZED COMPOUND YIELD (FOR SUBACCOUNTS INVESTING IN MONEY MARKET FUNDS) is
calculated like simple yield except that we assume the income is reinvested when
we annualize it. Compound yield will be higher than simple yield because of the
compounding effect of the assumed reinvestment.
ANNUALIZED YIELD (FOR SUBACCOUNTS INVESTING IN INCOME FUNDS) divides the net
investment income (income less expenses) for each accumulation unit during a
given 30-day period by the value of the unit on the last day of the period. We
then convert the result to an annual percentage.
You should consider performance information in light of the investment
objectives, policies, characteristics and quality of the fund in which the
subaccount invests and the market conditions during the specified time period.
Advertised yields and total return figures include charges that reduce
advertised performance. Therefore, you should not compare subaccount performance
to that of mutual funds that sell their shares directly to the public. (See the
SAI for a further description of methods used to determine total return and
yield.)
If you would like additional information about actual performance, please
contact us at the address or telephone number on the first page of this
prospectus.
THE VARIABLE ACCOUNT AND THE FUNDS
You may allocate payments to any or all the subaccounts of the variable account
that invest in shares of the following funds:
<TABLE>
<CAPTION>
- ---------------------------------------------------------------------------------------------------------------------------------
Subaccount Investing In Investment Objectives and Policies Investment Advisor or Manager
- ---------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
UCMG1 AXP(SM) Variable Objective: maximum current income consistent with IDS Life Insurance Company (IDS
UCMG2 Portfolio- Cash liquidity and conservation of capital. Invests in money Life), investment manager;
UCMG4 Management Fund market securities. American Express Financial
PCMG1 Corporation (AEFC) investment
advisor.
- ---------------------------------------------------------------------------------------------------------------------------------
UFIF1 AXP(SM) Variable Objective: a high level of current income and safety of IDS Life, investment manager;
UFIF2 Portfolio- Federal principal consistent with an investment in U.S. AEFC, investment advisor.
UFIF3 Income Fund government and government agency securities. Invests
UFIF4 primarily in debt obligations issued or guaranteed as
to principal and interest by the U.S. government, its
agencies or instrumentalities.
- ---------------------------------------------------------------------------------------------------------------------------------
UMGD1 AXP(SM) Variable Objective: maximum total investment return through a IDS Life, investment manager;
UMGD2 Portfolio- Managed Fund combination of capital growth and current income. AEFC, investment advisor.
UMGD4 Invests primarily in a combination of common and
PMGD1 preferred stocks, convertible securities, bonds and
other debt securities.
- ---------------------------------------------------------------------------------------------------------------------------------
UNDM1 AXP(SM) Variable Objective: long-term growth of capital. Invests IDS Life, investment manager;
UNDM2 Portfolio- New primarily in common stocks of U.S. and foreign AEFC, investment advisor.
UNDM4 Dimensions Fund(R) companies showing potential for significant growth.
PNDM1
- ---------------------------------------------------------------------------------------------------------------------------------
</TABLE>
20
<PAGE>
<TABLE>
<S> <C> <C> <C>
- ---------------------------------------------------------------------------------------------------------------------------------
USPF1 AXP(SM) Variable Objective: long-term capital appreciation. Invests IDS Life, investment manager;
USPF2 Portfolio- primarily in securities that are expected to provide AEFC investment advisor.
USPF3 S&P 500 Index Fund investment results that correspond to the performance
USPF4 of the S&P 500 Index.
- ---------------------------------------------------------------------------------------------------------------------------------
USCA1 AXP(SM) Variable Objective: long-term capital growth. Invests primarily IDS Life, investment manager;
USCA2 Portfolio- in equity securities of small companies that are often AEFC, investment advisor.
USCA4 Small Cap included in the S&P SmallCap 600 Index or the Russell
PSCA1 Advantage Fund 2000 Index.
- ---------------------------------------------------------------------------------------------------------------------------------
UCAP1 AIM V.I. Capital Objective: growth of capital. Invests primarily in A I M Advisors, Inc.
UCAP2 Appreciation Fund common stocks, with emphasis on medium- or small-sized
UCAP4 growth companies.
PCAP1
- ---------------------------------------------------------------------------------------------------------------------------------
UDDT1 AIM V.I. Dent Objective: long term growth of capital. Seeks to meet A I M Advisors, Inc.
UDDT2 Demographic Trends Fund its objective by investing in securities of companies
UDDT3 that are likely to benefit from changing demographic,
UDDT4 economic, and lifestyle trends.
- ---------------------------------------------------------------------------------------------------------------------------------
UVAL1 AIM V.I. Value Fund Objective: long-term growth of capital with income as a A I M Advisors, Inc.
UVAL2 secondary objective. Invests primarily in equity
UVAL4 securities judged to be undervalued relative to the
PVAL1 investment advisor's appraisal of the current or
projected earnings of the companies issuing the
securities, or relative to current market values of
assets owned by the companies issuing the securities,
or relative to the equity market generally.
- ---------------------------------------------------------------------------------------------------------------------------------
UGIP1 Alliance VP Growth & Objective: reasonable current income and reasonable Alliance Capital Management.
UGIP2 Income Portfolio appreciation. Invests primarily in dividend-paying L.P.
UGIP3 (Class B) common stocks of good quality.
UGIP4
- ---------------------------------------------------------------------------------------------------------------------------------
UPRG1 Alliance VP Premier Objective: long-term growth of capital by pursuing Alliance Capital Management.
UPRG2 Growth Portfolio aggresive investment policies. Invests primarily in L.P.
UPRG3 (Class B) equity securities of a limited number of large,
UPRG4 carefully selected, high-quality U.S. companies that
are judged likely to achieve superior earnings growth.
- ---------------------------------------------------------------------------------------------------------------------------------
UTEC1 Alliance VP Technology Objective: growth of capital. Current income is only an Alliance Capital Management.
UTEC2 Portfolio (Class B) incidental consideration. Invests primarily in L.P.
UTEC3 securities of companies expected to benefit from
UTEC4 technological advances and improvements.
- ---------------------------------------------------------------------------------------------------------------------------------
UEGL1 Evergreen VA Global Objective: long-term capital growth. Invests primarily Evergreen Asset Management
UEGL2 Leaders Fund in a diversified portfolio of equity securities of Corp. (EAMC)
UEGL3 companies located in the world's major industrialized
UEGL4 countries. The Fund will make investments in no less
than three countries, which may include the U.S., but
may invest more than 25% of its total assets in one
country.
- ---------------------------------------------------------------------------------------------------------------------------------
UEGI1 Evergreen VA Growth and Objective: capital growth and current income. Invests EAMC
UEGI2 Income Fund primarily in common stocks of mid-sized U.S. companies.
UEGI3 The Fund's stock selection is based on a diversified
UEGI4 style of equity that allows it to invest in both growth
and value equity securities and which have a catalyst
(new products, new management, changes in regulation
and/or restructuring potential) that will bring the
stock's price into line with its actual or potential
value.
- ---------------------------------------------------------------------------------------------------------------------------------
UEMS1 Evergreen VA Masters Objective: long-term capital appreciation. The Evergreen Investment
UEMS2 Fund portfolio's assets are invested on an approximately Management, investment advisor;
UEMS3 equal basis among the following four styles, each EAMC, MFS Institutional
UEMS4 implemented by a different sub-investment advisor: 1) Advisors Inc.,
equity securities of U.S. and foreign companies that OppenheimerFunds, Inc. and
are temporarily undervalued; 2) equity securities Putnam Investment Management,
expected to show growth above that of the overall Inc. sub-investment advisors.
economy and inflation; 3) blended growth and
value-oriented strategy focusing on foreign and
domestic large-cap equity securities; and 4) growth
oriented strategy focusing on large-cap equity
securities of U.S. and foreign issuers.
- ---------------------------------------------------------------------------------------------------------------------------------
UEOM1 Evergreen VA Omega Fund Objective: long-term capital growth. Invests primarily Evergreen Investment Management
UEOM2 in common stocks of U.S. companies across all market Company (EIMC)
UEOM3 capitalizations.
UEOM4
- ---------------------------------------------------------------------------------------------------------------------------------
UESC1 Evergreen VA Small Cap Objective: current income and capital growth. Invests EAMC
UESC2 Value Fund primarily in common stocks and convertible preferred
UESC3 stocks of small companies (less than $1.5 billion in
UESC4 market capitalization).
- ---------------------------------------------------------------------------------------------------------------------------------
UESI1 Evergreen VA Strategic Objective: high current income from interest on debt EIMC
UESI2 Income Fund securities with a secondary objective of potential for
UESI3 growth of capital. Invests primarily in domestic
UESI4 high-yield, high-risk bonds and debt securities of
foreign governments and corporations.
- ---------------------------------------------------------------------------------------------------------------------------------
</TABLE>
21
<PAGE>
<TABLE>
<S> <C> <C> <C>
- ---------------------------------------------------------------------------------------------------------------------------------
UMDC1 Fidelity VIP III Mid Objective: long-term growth of capital. Invests FMR investment manager; FMR
UMDC2 Cap Portfolio (Service primarily in medium market capitalization common stocks. U.K. and FMR Far East,
UMDC4 Class) sub-investment advisors.
PMDC1
- ---------------------------------------------------------------------------------------------------------------------------------
UCOF1 Fidelity VIP Objective: long-term capital appreciation. Invests FMR Investment manager; FMR
UCOF2 Contrafund(R) Portfolio primarily in common stocks of foreign and domestic U.K. and FMR Far East,
UCOF3 (Service Class) companies whose value is not fully recognized by the sub-investment advisors.
UCOF4 public.
- ---------------------------------------------------------------------------------------------------------------------------------
UHIP1 Fidelity VIP High Objective: high level of current income while also FMR Investment manager; FMR
UHIP2 Income Portfolio considering growth of capital. Invests primarily in U.K. and FMR Far East,
UHIP3 (Service Class) foreign and domestic issued income-producing debt sub-investment advisors.
UHIP4 securities, preferred stocks and convertible
securities, with an emphasis on lower-quality debt
securities. Invests in companies in troubled or
uncertain financial condition.
- ---------------------------------------------------------------------------------------------------------------------------------
USMC1 FTVIPT Franklin Small Objective: long-term capital growth. Invests primarily Franklin Advisers, Inc.
USMC2 Cap Fund - Class 2 in equity securities of U.S. small capitalization
USMC4 (small cap) growth companies.
PSMC1
- ---------------------------------------------------------------------------------------------------------------------------------
UMSS1 FTVIPT Mutual Shares Objective: capital appreciation with income as a Franklin Mutual Advisers, LLC
UMSS2 Securities Fund - secondary goal. Invests primarily in equity securities
UMSS4 Class 2 of companies that the manager believes are available at
PMSS1 market prices less than their value based on certain
recognized or objective criteria (intrinsic value).
- ---------------------------------------------------------------------------------------------------------------------------------
UDMS1 FTVIPT Templeton Objective: long-term capital appreciation. Invests Templeton Asset Management Ltd.
UDMS2 Developing Markets Fund primarily in emerging markets equity securities.
UDMS3 - Class 2 (previously
UDMS4 Templeton Developing
Markets Fund)
- ---------------------------------------------------------------------------------------------------------------------------------
UINT1 FTVIPT Templeton Objective: long-term capital growth. Invests primarily Templeton Investment Counsel,
UINT2 International in equity securities of non-U.S. companies, including Inc.
UINT3 Securities Fund emerging markets.
UINT4 (Class 2)
(previously Templeton
International Fund)
- ---------------------------------------------------------------------------------------------------------------------------------
UGRS1 MFS(R) VIT Growth Objective: long-term growth of capital and future MFS Investment Management(R)
UGRS2 Series - Service Class income. Invests at least 80% of its total assets in
UGRS3 common stocks and related securities of companies which
UGRS4 MFS believes offer better than average prospects for
long-term growth.
- ---------------------------------------------------------------------------------------------------------------------------------
UNDS1 MFS(R) VIT New Objective: capital appreciation. Invests primarily in MFS Investment Management(R)
UNDS2 Discovery Series - equity securities of emerging growth companies.
UNDS4 Service Class
PNDS1
- ---------------------------------------------------------------------------------------------------------------------------------
UTRS1 MFS(R) VIT New Total Objective: above-average income (compared to a MFS Investment Management(R)
UTRS2 Return Series - Service portfolio invested entirely in equity securities)
UTRS4 Class consistent with the prudent employment of capital, and
PTRS1 secondarily reasonable opportunity for growth of
capital and income. Invests primarily in a combination
of equity and fixed income securities.
- ---------------------------------------------------------------------------------------------------------------------------------
UGIN1 Putnam VT Growth and Objective: capital growth and current income. Invests Putnam Investment Management,
UGIN2 Income Fund - Class IB primarily in common stocks that offer potential of Inc.
UGIN4 Shares capital growth, current income or both.
PGIN1
- ---------------------------------------------------------------------------------------------------------------------------------
UINO1 Putnam VT International Objective: long-term capital appreciation by investing Putnam Investment Management,
UINO2 New Opportunities Fund in companies that have above-average growth prospects Inc.
UINO3 - Class IB Shares due to the fundamental growth of their market sector.
UINO4 Invests primarily in growth stocks outside the U.S.
- ---------------------------------------------------------------------------------------------------------------------------------
UVIS1 Putnam VT Vista Fund - Objective: capital appreciation. Invests primarily in a Putnam Investment Management,
UVIS2 Class IB Shares diversified portfolio of common stocks that Putnam Inc.
UVIS3 Management believes have the potential for
UVIS4 above-average capital appreciation.
- ---------------------------------------------------------------------------------------------------------------------------------
</TABLE>
The investment objectives and policies of some of the funds are similar to the
investment objectives and policies of other mutual funds that an investment
advisor or its affiliates manage. Although the objectives and policies may be
similar, each fund will have its own portfolio holdings and its own fees and
expenses. Accordingly, each fund will have its own investment results, and those
results may differ significantly from other funds with similar investment
objectives and policies.
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<PAGE>
The investment managers and advisors cannot guarantee that the funds will meet
their investment objectives. Please read the funds' prospectuses for facts you
should know before investing. These prospectuses are also available by
contacting us at the address or telephone number on the first page of this
prospectus.
All funds are available to serve as the underlying investments for variable
annuities. Some funds also are available to serve as investment options for
variable life insurance policies and tax-deferred retirement plans. It is
possible that in the future, it may be disadvantageous for variable annuity
accounts and variable life insurance accounts and/or tax-deferred retirement
plans to invest in the available funds simultaneously.
Although the insurance company and the funds do not currently foresee any such
disadvantages, the board of directors will monitor events in order to identify
any material conflicts between annuity owners, policy owners and tax-deferred
retirement plans and to determine what action, if any, should be taken in
response to a conflict. If a board were to conclude that it should establish
separate funds for the variable annuity, variable life insurance and
tax-deferred retirement plan accounts, you would not bear any expenses
associated with establishing separate funds. Please refer to the funds'
prospectuses for risk disclosure regarding simultaneous investments by variable
annuity, variable life insurance and tax-deferred retirement plan accounts.
The Internal Revenue Service (IRS) issued final regulations relating to the
diversification requirements under Section 817(h) of the Code. Each fund intends
to comply with these requirements.
The variable account was established under Indiana law on July 15, 1987, and the
subaccounts are registered together as a single unit investment trust under the
Investment Company Act of 1940 (the 1940 Act). This registration does not
involve any supervision of our management or investment practices and policies
by the SEC. All obligations arising under the contracts are general obligations
of American Enterprise Life.
The variable account meets the definition of a separate account under federal
securities laws. We credit or charge income, capital gains and capital losses of
each subaccount only to that subaccount. State insurance law prohibits us from
charging a subaccount with liabilities of any other subaccount or of our general
business. The variable account includes other subaccounts that are available
under contracts that are not described in this prospectus.
The U.S. Treasury and the IRS indicated that they may provide additional
guidance on investment control. This concerns how many variable subaccounts an
insurance company may offer and how many exchanges among subaccounts it may
allow before the contract owner would be currently taxed on income earned within
subaccount assets. At this time, we do not know what the additional guidance
will be or when action will be taken. We reserve the right to modify the
contract, as necessary, so that the owner will not be subject to current
taxation as the owner of the subaccount assets.
We intend to comply with all federal tax laws so that the contract continues to
qualify as an annuity for federal income tax purposes. We reserve the right to
modify the contract as necessary to comply with any new tax laws.
THE FIXED ACCOUNTS
GUARANTEE PERIOD ACCOUNTS
You may allocate purchase payments to one or more of the Guarantee Period
Accounts with Guarantee Periods ranging from two to ten years. These accounts
are not available in all states and are not offered after annuity payouts begin.
Each Guarantee Period Account pays an interest rate that is declared when you
allocate money to that account. That interest rate is then fixed for the
Guarantee Period that you chose. We will periodically change the declared
interest rate for any future allocations to these accounts, but we will not
change the rate paid on money currently in a Guarantee Period Account.
23
<PAGE>
The interest rates that we will declare as guaranteed rates in the future are
determined by us at our discretion. We will determine these rates based on
various factors, including, but not limited to, the interest rate environment,
returns available on investments backing these annuities, product design,
competition and American Enterprise Life's revenues and other expenses.
You may transfer money out of the Guarantee Period Accounts within 30 days
before the end of the Guarantee Period without receiving a MVA (see "Market
Value Adjustment (MVA)" below.) At that time you may choose to start a new
Guarantee Period of the same length, transfer the money to another Guarantee
Period Account, transfer the money to any of the subaccounts, or withdraw the
money from the contract (subject to applicable withdrawal provisions). If we do
not receive any instructions at the end of your Guarantee Period, we will
automatically transfer the money into the one-year fixed account.
We hold amounts you allocate to the Guarantee Period Accounts in a "nonunitized"
separate account we have established under the Indiana Insurance Code. This
separate account provides an additional measure of assurance that we will make
full payment of amounts due under the Guarantee Period Accounts. State insurance
law prohibits us from charging this separate account with liabilities of any
other separate account or of our general business. We own the assets of this
separate account as well as any favorable investment performance of those
assets. You do not participate in the performance of the assets held in this
separate account. We guarantee all benefits relating to your value in the
Guarantee Period Accounts.
We intend to construct and manage the investment portfolio relating to the
separate account using a strategy known as "immunization." Immunization seeks to
lock in a defined return on the pool of assets versus the pool of liabilities
over a specified time horizon. Since the return on the assets versus the
liabilities is locked in, it is "immune" to any potential fluctuations in
interest rates during the given time. We achieve immunization by constructing a
portfolio of assets with a price sensitivity to interest rate changes (i.e.,
price duration) that is essentially equal to the price duration of the
corresponding portfolio of liabilities. Portfolio immunization provides us with
flexibility and efficiency in creating and managing the asset portfolio, while
still assuring safety and soundness for funding liability obligations.
We must invest this portfolio of assets in accordance with requirements
established by applicable state laws regarding the nature and quality of
investments that life insurance companies may make and the percentage of their
assets that they may commit to any particular type of investment. Our investment
strategy will incorporate the use of a variety of debt instruments having price
durations tending to match the applicable Guarantee Periods. These instruments
include, but are not necessarily limited to, the following:
- - Securities issued by the U.S. government or its agencies or
instrumentalities, which issues may or may not be guaranteed by the U.S.
government;
- - Debt securities that have an investment grade, at the time of purchase,
within the four highest grades assigned by any of three nationally
recognized rating agencies - Standard & Poor's, Moody's Investors Service
or Duff and Phelp's - or are rated in the two highest grades by the
National Association of Insurance Commissioners;
- - Other debt instruments which are unrated or rated below investment grade,
limited to 10% of assets at the time of purchase; and
- - Real estate mortgages, limited to 45% of portfolio assets at the time of
acquisition.
In addition, options and futures contracts on fixed income securities will be
used from time to time to achieve and maintain appropriate investment and
liquidity characteristics on the overall asset portfolio.
While this information generally describes our investment strategy, we are not
obligated to follow any particular strategy except as may be required by federal
law and Indiana and other state insurance laws.
MARKET VALUE ADJUSTMENT (MVA)
You may choose to transfer money out of the Guarantee Period Accounts at anytime
after 60 days of transfer or payment allocation into the Account. Any amount
transferred or withdrawn will receive a MVA
24
<PAGE>
which will increase or decrease the actual amount transferred or withdrawn. We
calculate the MVA using the formula shown below and we base it on the current
level of interest rates compared to the rate of your Guarantee Period Account.
Amount transferred x ( l + i ) n/12
--------------------
( l + j + .001 )
Where: i = rate earned in the account from which funds
are being transferred
j = current rate for a new Guarantee Period equal
to the remaining term in the current Guarantee
Period
n = number of months remaining in the current
Guarantee Period (rounded up)
We will not make MVAs for amounts withdrawn for withdrawal charges, the annual
contract administrative charge or paid out as a death claim. We also will not
make MVAs on automatic transfers from the two year Guarantee Period Account. We
determine any applicable withdrawal charges based on the market value adjusted
withdrawals. In some states the MVA is limited.
THE ONE-YEAR FIXED ACCOUNT
You may also allocate purchase payments to the one-year fixed account. We back
the principal and interest guarantees relating to the one-year fixed account.
The value of the one-year fixed account increases as we credit interest to the
account. Purchase payments and transfers to the one-year fixed account become
part of our general account. We credit interest daily and compound it annually.
We will change the interest rates from time to time at our discretion. These
rates will be based on various factors including, but not limited to, the
interest rate environment, returns earned on investments backing annuities, the
interest rates currently in effect for new and existing company annuities,
product design, competition, and the company's revenues and expenses.
Interest in the one-year fixed account is not required to be registered with the
SEC. However, the Market Value Adjustment interests under the contracts are
registered with the SEC. The SEC staff does not review the disclosures in this
prospectus on the one-year fixed account (but the SEC does review the
disclosures in this prospectus on the Market Value Adjustment interests).
Disclosures regarding the one-year fixed account, however, may be subject to
certain generally applicable provisions of the federal securities laws relating
to the accuracy and completeness of statements made in prospectuses. (See
"Making the Most of Your Contract -- Transfer policies" for restrictions on
transfers involving the one-year fixed account.)
BUYING YOUR CONTRACT
You can fill out an application and send it along with your initial purchase
payment to our office. As the owner, you have all rights and may receive all
benefits under the contract. You can own a nonqualified annuity in joint tenancy
with rights of survivorship only in spousal situations. You cannot own a
qualified annuity in joint tenancy. You can buy a contract or become an
annuitant if you are 85 or younger. (The age limit may be younger for qualified
annuities in some states.)
When you apply, you may select (if available in your state):
- - the optional Maximum Anniversary Value Death Benefit Rider*;
- - an optional Guaranteed Minimum Income Benefit Rider**;
- - the optional Performance Credit Rider**
- - the one-year fixed account, Guarantee Period Accounts and/or subaccounts in
which you want to invest;
- - how you want to make purchase payments; and
- - a beneficiary.
* Available if both you and the annuitant are age 79 or younger. May not be
available in all states.
** You may select either the Guarantee Minimum Income Benefit Rider or the
Performance Credit Rider, but not both. Riders may not be available in all
states. The Guaranteed Minimum Income Benefit Rider is available if the
annuitant is age 75 or younger.
25
<PAGE>
The contract provides for allocation of purchase payments to the subaccounts of
the variable account and/or to the fixed accounts in even 1% increments.
If your application is complete, we will process it and apply your purchase
payment to the fixed accounts and subaccounts you selected within two business
days after we receive it at our office. If we accept your application, we will
send you a contract. If we cannot accept your application within five business
days, we will decline it and return your payment. We will credit additional
purchase payments you make to your accounts on the valuation date we receive
them. We will value the additional payments at the next accumulation unit value
calculated after we receive your payments at our office.
You may make monthly payments to your contract under a Systematic Investment
Plan (SIP). To begin the SIP, you will complete and send a form and your first
SIP payment along with your application. There is no charge for SIP. You can
stop your SIP payments at any time.
In most states, you may make additional purchase payments to nonqualified and
qualified annuities until the retirement date.
THE RETIREMENT DATE
Annuity payouts are scheduled to begin on the retirement date. When we process
your application, we will establish the retirement date to the maximum age or
date described below. You can also select a date within the maximum limits. You
can align this date with your actual retirement from a job, or it can be a
different future date, depending on your needs and goals and on certain
restrictions. You also can change the date, provided you send us written
instructions at least 30 days before annuity payouts begin.
FOR NONQUALIFIED ANNUITIES AND ROTH IRAS, the retirement date must be:
- - no earlier than the 60th day after the contract's effective date; and
- - no later than the annuitant's 85th birthday or the tenth contract
anniversary, if purchased after age 75.
FOR QUALIFIED ANNUITIES (EXCEPT ROTH IRAS), to avoid IRS penalty taxes, the
retirement date generally must be:
- - on or after the date the annuitant reaches age 59 1/2; and
- - for IRAs and SEPs, by April 1 of the year following the calendar year when
the annuitant reaches age 70 1/2.
If you take the minimum IRA distribution as required by the Code from another
tax-qualified investment, or in the form of partial withdrawals from this
contract, annuity payouts can start as late as the annuitant's 85th birthday or
the tenth contract anniversary, if later.
BENEFICIARY
We will pay your named beneficiary the death benefit if it becomes payable
before the retirement date (while the contract is in force and before annuity
payouts begin). If there is no named beneficiary, then you or your estate will
be the beneficiary. (See "Benefits in Case of Death" for more about
beneficiaries.)
PURCHASE PAYMENTS
MINIMUM INITIAL PURCHASE PAYMENT (NOT
INCLUDING SIPS):
$5,000 for contracts sold in Pennsylvania,
Texas, Washington and South Carolina
$2,000 for contracts sold in other states
MINIMUM ADDITIONAL PURCHASE PAYMENTS:
If paying by SIP*: If paying by any other method:
$50 $100
26
<PAGE>
* Payments made using SIP must total $2,000 before you can make partial
withdrawals.
MAXIMUM TOTAL ALLOWABLE PURCHASE PAYMENTS** (WITHOUT PRIOR
APPROVAL): $1,000,000
** This limit applies in total to all American Enterprise Life annuities
you own. We reserve the right to increase the maximum limit. For qualified
annuities, the tax-deferred retirement plan's limits on annual
contributions also apply.
HOW TO MAKE PURCHASE PAYMENTS
1
BY LETTER: Send your check along with your name and contract number to:
American Enterprise Life Insurance Company
829 AXP Financial Center
Minneapolis, MN 55474
2
BY SIP: Contact your sales representative to complete the necessary
SIP paperwork.
PURCHASE PAYMENT CREDITS
You will generally receive a purchase payment credit with any payment you make
to your contract that brings your total net payment (total payments less total
withdrawals) to $100,000 or more.
We apply this 1% credit to your contract based on your current payment. If you
make any future payments which cause the contract to be eligible for the credit,
we will add credits attributable to purchase payments. We apply this credit
immediately. We allocate the credit to the fixed accounts and subaccounts in the
same proportions as your purchase payment.
We fund the credit from our general account. We do not consider credits to be
"investments" for income tax purposes. (See "Taxes.")
We will reverse credits from the contract value for any purchase payment that is
not honored (if, for example, your purchase payment check is returned for
insufficient funds).
To the extent a death benefit or withdrawal payment includes purchase payment
credits applied within twelve months preceding: (1) the date of death that
results in a lump sum death benefit under this contract; or (2) a request for
withdrawal charge waiver due to "Contingent events" (see "Charges - Contingent
events"), we will assess a charge, similar to a withdrawal charge, equal to the
amount of the purchase payment credits. The amount we pay to you under these
circumstances will always equal or exceed your withdrawal value. The amount
returned to you under the free look provision also will not include any credits
applied to your contract.
Because of higher charges, there may be circumstances where you may be worse off
for having received the credit than in other contracts. All things being equal
(such as guarantee availability or fund performance and availability), this may
occur if you hold your contract for 15 years or more. This also may occur if you
make a full withdrawal in the first seven years. You should consider these
higher charges and other relevant factors before you buy this contract or before
you exchange a contract you currently own for this contract.
This credit is made available because of lower distribution and other expenses
associated with larger sized contracts and through revenue from higher
withdrawal charges and contract administrative charges than would otherwise be
charged. In general, we do not profit from the higher charges assessed to cover
the cost of the purchase payment credit. We use all the revenue from these
higher charges to pay for the cost of the credits. However, we could profit from
the higher charges if market appreciation is higher than expected or if contract
owners hold their contracts for longer than expected.
27
<PAGE>
CHARGES
CONTRACT ADMINISTRATIVE CHARGE
We charge this fee for establishing and maintaining your records. We deduct
$40 from the contract value on your contract anniversary at the end of each
contract year. We prorate this charge among the subaccounts and the fixed
accounts in the same proportion your interest in each account bears to your
total contract value. Some states restrict the amount that can be allocated
to the fixed account.
We will waive this charge when your contract value is $50,000 or more on the
current contract anniversary.
If you take a full withdrawal from your contract, we will deduct this charge at
the time of withdrawal regardless of the contract value. We cannot increase the
annual contract administrative charge and it does not apply after annuity
payouts begin or when we pay death benefits.
VARIABLE ACCOUNT ADMINISTRATIVE CHARGE
We apply this charge daily to the subaccounts. It is reflected in the unit
values of your subaccounts and it totals 0.15% of their average daily net assets
on an annual basis. It covers certain administrative and operating expenses of
the subaccounts such as accounting, legal and data processing fees and expenses
involved in the preparation and distribution of reports and prospectuses. We
cannot increase the variable account administrative charge.
MORTALITY AND EXPENSE RISK FEE
We charge this fee daily to the subaccounts. The unit values of your subaccounts
reflect this fee. For qualified contracts, this fee totals 0.85% of their
average daily net assets on an annual basis. For non-qualified contracts, this
fee totals 1.10% of their average daily net assets on an annual basis. This fee
covers the mortality and expense risk that we assume. Approximately two-thirds
of this amount is for our assumption of mortality risk, and one-third is for our
assumption of expense risk. If you choose the optional Maximum Anniversary Value
Death Benefit Rider, we will charge an additional fee (see "Death Benefit Rider
fee" below). These fees do not apply to the fixed accounts. We cannot increase
these fees.
Mortality risk arises because of our guarantee to pay a death benefit and our
guarantee to make annuity payouts according to the terms of the contract, no
matter how long a specific annuitant lives and no matter how long our entire
group of annuitants live. If, as a group, annuitants outlive the life expectancy
we assumed in our actuarial tables, then we must take money from our general
assets to meet our obligations. If, as a group, annuitants do not live as long
as expected, we could profit from the mortality risk fee.
Expense risk arises because we cannot increase the contract administrative
charge or the variable account administrative charge and these charges may not
cover our expenses. We would have to make up any deficit from our general
assets. We could profit from the expense risk fee if future expenses are less
than expected.
The subaccounts pay us the mortality and expense risk fee they accrued as
follows:
- - first, to the extent possible, the subaccounts pay this fee from any
dividends distributed from the funds in which they invest;
- - then, if necessary, the funds redeem shares to cover any remaining fees
payable.
We may use any profits we realize from the subaccounts' payment to us of the
mortality and expense risk fee for any proper corporate purpose, including,
among others, payment of distribution (selling) expenses. We do not expect that
the withdrawal charge, discussed in the following paragraphs, will cover sales
and distribution expenses.
MAXIMUM ANNIVERSARY VALUE DEATH BENEFIT RIDER FEE
We charge a fee for this optional feature only if you choose this option. If
selected, we apply this fee daily to the subaccounts as part of the mortality
and expense risk fee. It is reflected in the unit values of the
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<PAGE>
subaccounts, and it totals 0.10% of their average daily net assets on an annual
basis. We cannot increase the Maximum Anniversary Value Death Benefit Rider fee.
GUARANTEED MINIMUM INCOME BENEFIT RIDER FEE
We charge a fee based on the adjusted contract value for this optional feature
only if you choose this option. If selected, we deduct the fee (currently 0.30%)
from the contract value on your contract anniversary at the end of each contract
year. We prorate this fee among the subaccounts and fixed accounts in the same
proportion your interest in each account bears to your total contract value.
We apply the fee on an adjusted contract value calculated as the contract value
plus the lesser of zero or (a) - (b), where:
(a)is the transfers from the subaccounts to the fixed accounts made in the
last six months,
(b)is the total contract value in the fixed accounts. This adjustment
allows us to base the charge largely on the subaccounts and not on the
fixed accounts.
We will deduct the fee, adjusted for the number of calendar days coverage was in
place, if the contract is terminated for any reason or when annuity payouts
begin. We cannot increase the Guaranteed Minimum Income Benefit Rider fee after
the rider effective date and it does not apply after annuity payouts begin. We
can increase the Guaranteed Minimum Income Benefit Rider fee on new contracts up
to a maximum of 0.75%.
PERFORMANCE CREDIT RIDER FEE
We charge a fee for this optional feature if you choose this option. If
selected, we deduct the fee of 0.15% of your contract value on your contract
anniversary. We prorate this fee among the subaccounts and fixed accounts in the
same proportion as your interest bears to your total contract value.
We will deduct this fee, adjusted for the number of calendar days coverage was
in place, if the contract is terminated for any reason or when annuity payouts
begin. We cannot increase the Performance Credit Rider fee.
WITHDRAWAL CHARGE
If you withdraw all or part of your contract, you may be subject to a withdrawal
charge. A withdrawal charge applies if all or part of the withdrawal amount is
from purchase payments we received within seven years before withdrawal. The
withdrawal charge percentages that apply to you are shown in your contract. In
addition, amounts withdrawn from a Guarantee Period Account prior to the end of
the applicable Guarantee Period will be subject to a MVA. (See "The Fixed
Accounts - Market Value Adjustments (MVA).")
For purposes of calculating any withdrawal charge, we treat amounts withdrawn
from your contract value in the following order:
1. First, in each contract year, we withdraw amounts totaling up to 10% of
your prior anniversary contract value. (We consider your initial purchase
payment to be the prior anniversary contract value during the first
contract year.) We do not assess a withdrawal charge on this amount.
2. Next, we withdraw contract earnings, if any, that are greater than the
annual 10% free withdrawal amount described in number one above. Contract
earnings equal contract value less purchase payments received and not
previously withdrawn. We do not assess a withdrawal charge on contract
earnings.
NOTE: We determine contract earnings by looking at the entire contract value,
not the earnings of any particular subaccount or the fixed accounts.
3. Next we withdraw purchase payments received prior to the withdrawal charge
period shown in your contract. We do not assess a withdrawal charge on
these purchase payments.
29
<PAGE>
4. Finally, if necessary, we withdraw purchase payments received that are
still within the withdrawal charge period shown in your contract. We
withdraw these payments on a first-in, first-out (FIFO) basis. We do assess
a withdrawal charge on these payments.
We determine your withdrawal charge by multiplying each of your payments
withdrawn by the applicable withdrawal charge percentage, and then adding the
total withdrawal charges.
The withdrawal charge percentage depends on the number of years since you made
the payments that are withdrawn:
<TABLE>
<CAPTION>
YEARS FROM PURCHASE PAYMENT WITHDRAWAL CHARGE
RECEIPT PERCENTAGE
<S> <C>
1 8%
2 8
3 7
4 7
5 6
6 5
7 3
Thereafter 0
</TABLE>
For a partial withdrawal that is subject to a withdrawal charge, the amount
deducted for the withdrawal charge will be a percentage of the total amount
withdrawn. We will deduct the charge from the value remaining after we pay you
the amount you requested. Example: Assume you request a withdrawal of $1,000 and
there is a 7% withdrawal charge. The withdrawal charge is $75.26 for a total
withdrawal amount of $1075.26. This charge represents 7% of the total amount
withdrawn and we deduct it from the contract value remaining after we pay you
the $1,000 you requested. If you make a full withdrawal of your contract, we
will deduct the applicable contract administrative charge.
WITHDRAWAL CHARGE UNDER ANNUITY PAYOUT PLAN E: Payouts for a specified period.
Under this payout plan, you can choose to take a withdrawal. The amount that you
can withdraw is the present value of any remaining variable payouts. With a
qualified annuity, the discount rate we use in the calculation will be 4.86% if
the assumed investment rate is 3.5% and 6.36% if the assumed investment rate is
5%. With a nonqualified annuity, the discounted rate we use in the calculation
will be 5.11% if the assumed investment rate is 3.5% and 6.61% if the assumed
investment rate is 5%. The withdrawal charge is equal to the difference in
discount values using the above discount rates and the assumed investment rate.
The withdrawal charge will not be greater than 9% of the amount available for
payouts under the plan.
WITHDRAWAL CHARGE CALCULATION EXAMPLE:
The following is an example of the calculation we would make to determine the
withdrawal charge on a contract with this history:
- - The contract date is Jan. 1, 2000 with a contract year of Jan. 1 through
Dec. 31 and with an anniversary date of Jan. 1 each year; and
- - We received these payments
- $10,000 Jan. 1, 2000;
- $8,000 Feb. 28, 2007; and
- $6,000 Feb. 20, 2008; and
- - You withdraw the contract for its total withdrawal value of $38,101 on
Aug. 5, 2010 and did not make any other withdrawals during that contract
year; and
- - The prior anniversary Jan. 1, 2009 contract value was $38,488.
30
<PAGE>
<TABLE>
<CAPTION>
Withdrawal Charge Explanation
<S> <C>
$ 0 $3,848.80 is 10% of the prior anniversary contract
value withdrawn without withdrawal charge; and
0 $10,252.20 is contract earnings in excess of the 10%
free withdrawal amount withdrawn without withdrawal
charge; and
0 $10,000 Jan. 1, 2000 payment was received seven or
more years before withdrawal and is withdrawn
without withdrawal charge; and
560 $8,000 Feb. 28, 2007 payment is in its fourth year
from receipt, withdrawn with a 7% withdrawal charge;
and
420 $6,000 Feb. 20, 2008 payment is in its third year
--- from receipt withdrawn with a 7% withdrawal charge.
$980
</TABLE>
WAIVER OF WITHDRAWAL CHARGES
We do not assess withdrawal charges for:
- - withdrawals of any contract earnings;
- - withdrawals of amounts totaling up to 10% of your prior contract
anniversary contract value to the extent it exceeds contract earnings;
- - required minimum distributions from a qualified annuity (for those amounts
required to be distributed from the contract described in this prospectus);
- - contracts settled using an annuity payout plan;
- - withdrawals made as a result of one of the "Contingent events"* described
below to the extent permitted by state law (see your contract for
additional conditions and restrictions);
- - amounts we refund to you during the free look period;* and
- - death benefits.*
*However, we will reverse certain purchase payment credits up to the
maximum withdrawal charge. (See "Buying Your Contract - Purchase payment
credits.")
CONTINGENT EVENTS
- - Withdrawals you make if you or the annuitant are confined to a hospital or
nursing home and have been for the prior 60 days. Your contract will
include this provision when the owner and annuitant are under age 76 on the
date we issue the contract. You must provide proof satisfactory to us of
the confinement as of the date you request the withdrawal.
- - To the extent permitted by state law, withdrawals you make if you or the
annuitant are diagnosed in the second or later contract years as disabled
with a medical condition that with reasonable medical certainty will result
in death within 12 months or less from the date of the licensed physician's
statement. You must provide us with a licensed physician's statement
containing the terminal illness diagnosis and the date the terminal illness
was initially diagnosed.
POSSIBLE GROUP REDUCTIONS: In some cases we may incur lower sales and
administrative expenses due to the size of the group, the average contribution
and the use of group enrollment procedures. In such cases, we may be able to
reduce or eliminate the contract administrative and withdrawal charges. However,
we expect this to occur infrequently.
PREMIUM TAXES
Certain state and local governments impose premium taxes on us (up to 3.5%).
These taxes depend upon your state of residence or the state in which the
contract was sold. Currently, we any applicable premium
31
<PAGE>
tax when annuity payouts begin, but we reserve the right to deduct this tax at
other times such as when you make purchase payments or when you make a full
withdrawal from your contract.
VALUING YOUR INVESTMENT
We value your accounts as follows:
FIXED ACCOUNTS
We value the amounts you allocated to the fixed accounts directly in dollars.
The value of a fixed account equals:
- - the sum of your purchase payments and transfer amounts allocated to the
one-year fixed account and the Guarantee Period Accounts;
- - plus any purchase payment credits allocated to the fixed accounts;
- - plus interest credited;
- - minus the sum of amounts withdrawn after the MVA (including any applicable
withdrawal charges) and amounts transferred out;
- - minus any prorated contract administrative charge;
- - minus any prorated portion of the Guaranteed Minimum Income Benefit Rider
fee (if applicable); and
- - minus any prorated portion of the Performance Credit Rider (if applicable).
SUBACCOUNTS
We convert amounts you allocated to the subaccounts into accumulation units.
Each time you make a purchase payment or transfer amounts into one of the
subaccounts or we apply any purchase payment credits, we credit a certain number
of accumulation units to your contract for that subaccount. Conversely, each
time you take a partial withdrawal, transfer amounts out of a subaccount, or we
assess a contract administrative charge or the Guaranteed Minimum Income Benefit
Rider fee, we subtract a certain number of accumulation units from your
contract.
The accumulation units are the true measure of investment value in each
subaccount during the accumulation period. They are related to, but not the same
as, the net asset value of the fund in which the subaccount invests. The dollar
value of each accumulation unit can rise or fall daily depending on the variable
account expenses, performance of the fund and on certain fund expenses.
Here is how we calculate accumulation unit values:
NUMBER OF UNITS: to calculate the number of accumulation units for a particular
subaccount, we divide your investment by the current accumulation unit value.
ACCUMULATION UNIT VALUE: the current accumulation unit value for each subaccount
equals the last value times the subaccount's current net investment factor.
WE DETERMINE THE NET INVESTMENT FACTOR BY:
- - adding the fund's current net asset value per share, plus the per share
amount of any accrued income or capital gain dividends to obtain a current
adjusted net asset value per share; then
- - dividing that sum by the previous adjusted net asset value per share; and
- - subtracting the percentage factor representing the mortality and expense
risk fee, the variable account administrative charge, any death benefit
rider fee (if selected) from the result.
Because the net asset value of the fund may fluctuate, the accumulation unit
value may increase or decrease. You bear all the investment risk in a
subaccount.
FACTORS THAT AFFECT SUBACCOUNT ACCUMULATION UNITS: accumulation units may change
in two ways - in number and in value.
32
<PAGE>
The number of accumulation units you own may fluctuate due to:
- - additional purchase payments you allocate to the subaccounts;
- - any purchase payment credits allocated to the subaccounts;
- - transfers into or out of the subaccounts;
- - partial withdrawals;
- - withdrawal charges;
- - prorated portions of the contract administrative charge;
- - prorated portions of the Guaranteed Minimum Income Benefit Rider fee (if
selected); and/or
- - prorated portion of the Performance Credit Rider fee (if selected).
Accumulation unit values will fluctuate due to:
- - changes in funds' net asset value;
- - dividends distributed to the subaccounts;
- - capital gains or losses of funds;
- - fund operating expenses; and/or
- - mortality and expense risk fee, the variable account administrative charge,
the Maximum Anniversary Value Death Benefit Rider fee (if selected).
MAKING THE MOST OF YOUR CONTRACT
AUTOMATED DOLLAR-COST AVERAGING
Currently, you can use automated transfers to take advantage of dollar-cost
averaging (investing a fixed amount at regular intervals). For example, you
might transfer a set amount monthly from a relatively conservative subaccount to
a more aggressive one, or to several others, or from the one-year fixed account
or the two-year Guarantee Period Account to one or more subaccounts. The three
to ten year Guarantee Period Accounts are not available for automated transfers.
You can also obtain the benefits of dollar-cost averaging by setting up regular
automatic SIP payments. There is no charge for dollar-cost averaging.
This systematic approach can help you benefit from fluctuations in accumulation
unit values caused by fluctuations in the market values of the funds. Since you
invest the same amount each period, you automatically acquire more units when
the market value falls and fewer units when it rises. The potential effect is to
lower your average cost per unit.
<TABLE>
<CAPTION>
HOW DOLLAR-COST AVERAGING WORKS
<S> <C> <C> <C> <C>
By investing an AMOUNT ACCUMULATION UNIT NUMBER OF UNITS
equal number of MONTH INVESTED VALUE PURCHASED
dollars each month... Jan $100 $20 5.00
Feb 100 18 5.56
you automatically buy Mar 100 17 5.88
more units when the Apr 100 15 6.67
per unit market price May 100 16 6.25
is low... Jun 100 18 5.56
Jul 100 17 5.88
and fewer units when Aug 100 19 5.26
the per unit market Sept 100 21 4.76
price is high. Oct 100 20 5.00
</TABLE>
You paid an average price of only $17.91 per unit over the 10 months, while the
average market price actually was $18.10.
Dollar-cost averaging does not guarantee that any subaccount will gain in value
nor will it protect against a decline in value if market prices fall. Because
dollar-cost averaging involves continuous investing, your success will depend
upon your willingness to continue to invest regularly through periods of low
price
33
<PAGE>
levels. Dollar-cost averaging can be an effective way to help meet your
long-term goals. For specific features contact your sales representative.
ASSET REBALANCING
You can ask us in writing to automatically rebalance the subaccount portion of
your contract value either quarterly, semi-annually or annually. The period you
select will start to run on the date we record your request. On the first
valuation date of each of these periods, we automatically will rebalance your
contract value so that the value in each subaccount matches your current
subaccount percentage allocations. These percentage allocations must be in whole
numbers. Asset rebalancing does not apply to the fixed accounts. There is no
charge for asset rebalancing. The contract value must be at least $2,000.
You can change your percentage allocations or your rebalancing period at any
time by contacting us in writing. We will restart the rebalancing period you
selected as of the date we record your change. You also can ask us in writing to
stop rebalancing your contract value. You must allow 30 days for us to change
any instructions that currently are in place. For more information on asset
rebalancing, contact your sales representative.
TRANSFERRING MONEY BETWEEN ACCOUNTS
You may transfer money from any one subaccount, or the fixed accounts, to
another subaccount before annuity payouts begin. (Certain restrictions apply to
transfers involving the fixed accounts.) We will process your transfer on the
valuation date we receive your request. We will value your transfer at the next
accumulation unit value calculated after we receive your request. There is no
charge for transfers. Before making a transfer, you should consider the risks
involved in switching investments. Transfers out of the Guarantee Period
Accounts will be subject to a MVA if done more than 30 days before the end of
the Guarantee Period.
We may suspend or modify transfer privileges at any time. Excessive trading
activity can disrupt fund management strategy and increase expenses, which are
borne by all contract owners who allocated purchase payments to the fund
regardless of their transfer activity. We may apply modifications or
restrictions in any reasonable manner to prevent transfers we believe will
disadvantage other contract owners.
These modifications could include, but not be limited to:
- - requiring a minimum time period between each transfer;
- - not accepting transfer requests of an agent acting under power of attorney
on behalf of more than one contract owner; or
- - limiting the dollar amount that a contract owner may transfer at any one
time.
For information on transfers after annuity payments begin, see "Transfer
policies" below.
TRANSFER POLICIES
- - Before annuity payouts begin, you may transfer contract values between the
subaccounts, or from the subaccounts to the fixed accounts at any time.
However, if you made a transfer from the one-year fixed account to the
subaccounts, you may not make a transfer from any subaccount back to the
one-year fixed account for six months following that transfer.
- - You may transfer contract values from the one-year fixed account to the
subaccounts or the Guarantee Period Accounts once a year on or within 30
days before or after the contract anniversary (except for automated
transfers, which can be set up at any time for certain transfer periods
subject to certain minimums). Transfers from the one-year fixed account are
not subject to a MVA.
- - You may transfer contract values from a Guarantee Period Account anytime
after 60 days of transfer or payment allocation to the Account. Transfers
made before the end of the Guarantee Period will receive a MVA, which may
result in a gain or loss of contract value.
34
<PAGE>
- - If we receive your request on or within 30 days before or after the
contract anniversary date, the transfer from the one-year fixed account to
the subaccounts or the Guarantee Period Accounts will be effective on the
valuation date we receive it.
- - We will not accept requests for transfers from the one-year fixed account
at any other time.
- - Once annuity payouts begin, you may not make transfers to or from the
one-year fixed account, but you may make transfers once per contract year
among the subaccounts. During the annuity payout period, we reserve the
right to limit the number of subaccounts in which you may invest.
- - Once annuity payouts begin, you may not make any transfers to the Guarantee
Period Accounts.
HOW TO REQUEST A TRANSFER OR WITHDRAWAL
1 Send your name, contract number, Social Security Number
BY LETTER: or Taxpayer Identification Number and signed request
for a transfer or withdrawal to:
American Enterprise Life Insurance Company
829 AXP Financial Center
Minneapolis, MN 55474
MINIMUM AMOUNT
Transfers or
withdrawals: $500 or entire account balance
MAXIMUM AMOUNT
Transfers or
withdrawals: Contract value or entire account balance
2 Your sales representative can help you set up automated
BY AUTOMATED transfers or partial withdrawals among your subaccounts or
TRANSFERS AND fixed accounts.
AUTOMATED PARTIAL You can start or stop this service by written request or
WITHDRAWALS: other method acceptable to us.
You must allow 30 days for us to change any instructions
that are currently in place.
- Automated transfers from the one-year fixed account to
any one of the subaccounts may not exceed an amount
that, if continued, would deplete the one-year fixed
account within 12 months.
- Automated withdrawals may be restricted by applicable
law under some contracts.
- You may not make additional purchase payments if
automated partial withdrawals are in effect.
- Automated partial withdrawals may result in IRS taxes
and penalties on all or part of the amount withdrawn.
MINIMUM AMOUNT
Transfers or
withdrawals: $100 monthly
$250 quarterly, semi-annually or annually
35
<PAGE>
3 Call between 8 a.m. and 6 p.m. Central time:
BY PHONE:
1-800-333-3437
MINIMUM AMOUNT
Transfers or
withdrawals: $500 or entire account balance
MAXIMUM AMOUNT
Transfers: Contract value or entire account balance
Withdrawals: $25,000
We answer telephone requests promptly, but you may experience delays when the
call volume is unusually high. If you are unable to get through, use the mail
procedure as an alternative.
We will honor any telephone transfer or withdrawal requests that we believe are
authentic and we will use reasonable procedures to confirm that they are. This
includes asking identifying questions and tape recording calls. We will not
allow a telephone withdrawal within 30 days of a phoned-in address change. As
long as we follow the procedures, we (and our affiliates) will not be liable for
any loss resulting from fraudulent requests.
Telephone transfers and withdrawals are automatically available. You may request
that telephone transfers and withdrawals NOT be authorized from your account by
writing to us.
GUARANTEED MINIMUM INCOME BENEFIT RIDER
An optional Guaranteed Minimum Income Benefit Rider may be available in many
jurisdictions for a separate annual charge (see "Charges - Guaranteed Minimum
Income Rider fee"). You cannot select this rider if you select the Performance
Credit Rider. The rider guarantees a minimum amount of fixed annuity lifetime
income during the annuity payout period if your contract has been in force for
at least seven years, subject to the conditions described below. The rider also
provides you the option of variable annuity payouts, with a guaranteed minimum
initial payment.
In some instances, we may allow you to add this rider if it was not available
when you initially purchased your contract. In these instances, we would add
this rider at the next contract anniversary and all conditions of the rider
would use this date as the effective date.
This rider does not create contract value or guarantee the performance of any
investment option. Fixed annuity payouts under the terms of this rider will
occur at the guaranteed annuity purchase rates stated in the contract. We base
first year payments from the variable annuity payout option offered under this
rider on the same factors as the fixed annuity payout option. We base subsequent
payments on the initial payment and an assumed annual return of 5%. Because this
rider is based on guaranteed actuarial factors for the fixed option, the level
of fixed lifetime income it guarantees may be less than the level that would be
provided by applying the then current annuity factors. Likewise, for the
variable annuity payout option, we base the rider on more conservative factors
resulting in a lower initial payment and lower lifetime payments than those
provided otherwise if the same benefit base were used. However, the Guaranteed
Income Benefit Base described below establishes a floor, which when higher than
the contract value, can result in a higher annuity payout level. Thus, the rider
is a guarantee of a minimum amount of annuity income.
The Guaranteed Income Benefit Base is equal to the benefit provided by the
Maximum Anniversary Value Death Benefit Rider.
36
<PAGE>
The Guaranteed Income Benefit Base, less any applicable premium tax, is the
value that will be used to determine minimum annuity payouts if the rider is
exercised.
We reserve the right to exclude subsequent payments and purchase payment credits
paid in the last five years before exercise of the benefit, in the calculation
of the Guaranteed Income Benefit Base. We would do so only if such payments and
credits total $50,000 or more or if they are 25% or more of total payments and
credits paid into the contract.
If we exclude such payments and credits, the Guaranteed Minimum Income Benefit
Base would be calculated as the greatest of:
(a) contract value less "market value adjusted prior five years of payments and
purchase payment credits";
(b) total payments and purchase payment credits less prior five years of
payments and purchase payment credits, less adjusted partial withdrawals;
or
(c) Maximum Anniversary Value immediately preceding the date of settlement,
plus payments and credits and minus adjusted partial withdrawals since that
anniversary, less the "market value adjusted prior five years of payments
and purchase payment credits";
"Market value adjusted prior five years of payments and purchase payment
credits" are calculated as the sum of each such payment or credit, multiplied by
the ratio of the current contract value over the estimated contract value on the
anniversary prior to such payment or credit. The estimated contract value at
such anniversary is calculated by assuming that payments, credits and partial
withdrawals occurring in a contract year take place at the beginning of the year
for that anniversary and every year after that to the current contract year.
CONDITIONS ON ELECTION OF THE RIDER:
- you must elect the rider at the time you purchase your contract along
with the corresponding death benefit rider option, and
- the annuitant must be age 75 or younger on the contract date.
FUND SELECTION TO CONTINUE THE RIDER: You may allocate your purchase payments to
any of the subaccounts or the fixed accounts. However, we reserve the right to
limit the amount in the AXP(SM) Variable Portfolio - Cash Management Fund to 10%
of the total amount in the subaccounts. If we are required to activate this
restriction, and you have more than 10% of your subaccount value in this fund,
we will send you notice and ask that you reallocate your contract value so that
the limitation is satisfied within 60 days. If after 60 days the limitation is
not satisfied, the rider will be terminated.
EXERCISING THE RIDER:
- you may only exercise the rider within 30 days after any contract
anniversary following the expiration of the 7 year waiting period from
the effective date of the rider,
- the annuitant on the retirement date must be between 50 and 86 years
old, and
- you can only take an annuity payout in one of the following annuity
payout plans:
- Plan A -- Life Annuity - no refund
- Plan B -- Life Annuity with ten years certain
- Plan D -- Joint and last survivor life annuity - no refund
37
<PAGE>
TERMINATING THE RIDER:
- You may terminate the rider within 30 days after the first anniversary
of the effective date of the rider.
- You may terminate the rider any time after the end of the seven year
waiting period of the rider.
- The rider will terminate on the date you make a full withdrawal from
the contract, or annuity payouts begin, or on the date that a death
benefit is payable.
- The rider will terminate on the contract anniversary after the
annuitant's 86th birthday.
EXAMPLE:
- The contract is purchased with a payment of $100,000 on Jan. 1, 2000,
and a $1,000 purchase payment credit is added to the contract.
- There are no additional purchase payments and no partial withdrawals.
- The money is fully allocated to the subaccounts.
- The annuitant is male and age 55 on the contract date. For the joint
and last survivor option (annuity payout Plan D), the joint annuitant
is female and age 55 on the contract date.
- The Maximum Anniversary Value is $180,000 on the 10th anniversary and
$220,000 on the 15th anniversary.
- The contract is within 30 days after contract anniversary.
If the Guaranteed Minimum Income Benefit Rider is exercised, the minimum fixed
annuity monthly payout or the first year variable annuity monthly payout would
be:
<TABLE>
<CAPTION>
Fixed Annuity Payout Options
Minimum Guaranteed Annual Income
CONTRACT ANNIVERSARY AT EXERCISE MINIMUM GUARANTEED BENEFIT BASE PLAN A -- PLAN B -- PLAN D --
- -------------------------------- ------------------------------- --------- --------- ---------
<S> <C> <C> <C> <C>
10 $180,000 $ 937.80 $ 912.60 $ 747.00
15 $220,000 $1,311.20 $1,249.60 $1,014.20
</TABLE>
After the first year payments, lifetime income payments on a variable annuity
payout option will depend on the investment performance of the subaccounts you
select. The payments will be higher if investment performance is greater than a
5% annual return and lower if investment performance is less than a 5% annual
return.
PERFORMANCE CREDIT RIDER
If this rider is available in your state, you may choose to add this benefit to
your contract at issue. You cannot select this rider if you select the
Guaranteed Minimum Income Benefit Rider. This feature provides certain benefits
if your contract value has not reached or exceeded a Target Value on the rider's
tenth anniversary.
If, on the tenth rider anniversary, your contract value has not reached the
Target Value (as defined below) you can choose either of the following benefits:
(a) You may choose to accept a credit to your contract equal to 5% of your
purchase payments and purchase payment credits, less adjusted partial
withdrawals and less purchase payments and purchase payment credits made in
the prior five years. Such credit is made at the tenth rider anniversary
and allocated according to your current purchase payment allocations.
(b) you may choose to begin receiving annuity payouts (only with lifetime
income plans; you may not chose Annuity Payout Plan E) within 60 days of
the tenth rider anniversary and receive an additional 5% credit (for a
total of 10% credit) as calculated in (a).
Following your tenth rider anniversary, we will inform you if your contract
value did not meet or exceed the Target Value. We will assume that you have
elected (a) unless we receive your request to begin a lifetime annuity payout
plan within 60 days after the tenth rider anniversary.
38
<PAGE>
On the tenth rider anniversary and every ten years thereafter while you have the
contract, the ten year calculation period restarts if you elect (a). We use the
contract value (after any credits) on that anniversary as the initial purchase
payment for the calculation of the Target Value and any credit. Additional
credits may then be made at the end of each ten year period as described above.
TARGET VALUE: the Target Value at each anniversary is equal to the Target Value
at the prior anniversary plus any purchase payments, purchase payment credits,
and less adjusted partial withdrawals made during the year, accumulated at an
effective annual rate of 7.2%.
ADJUSTED PARTIAL WITHDRAWALS: we calculate the adjusted partial withdrawals for
each partial withdrawal as the product of (a) times (b) where:
(a) is the ratio of the amount of partial withdrawal (including any applicable
withdrawal charge) to the contract value on the date of (but prior to) the
partial withdrawal, and
(b) is the Target Value on the date of (but prior to) the partial withdrawal.
RESET OPTION: you can elect to lock in the growth in your contract by restarting
the ten-year period on any contract anniversary. If you elect to restart the
calculation period, the contract value on the restart date is used as the
initial purchase payment for the calculation of the target value and any credit.
The next ten year calculation period will then restart at the end of the new ten
year period from the most recent restart date. We must receive your request to
restart the calculation period within 30 days after an anniversary.
FUND SELECTION EFFECT ON TARGET VALUE: you may allocate your purchase payments
to any of the subaccounts or the fixed accounts. However, we reserve the right
to limit the aggregate amount in the fixed accounts and the AXP(SM) Variable
Portfolio - Cash Management Fund to 10% of the contract value. If we are
required to activate this restriction and you have more than 10% of your
contract value in these accounts, we will send you notice and ask you that you
reallocate your contract value so that the limitation is satisfied in 60 days.
If after 60 days, the limitation is not satisfied, we will terminate the rider.
TERMINATING THE RIDER:
- You may terminate the rider within 30 days following the first
anniversary after the effective date of the rider.
- You may terminate the rider within 30 days following the tenth
anniversary of the effective date of the rider.
- The rider will terminate on the date you make a full withdrawal from
the contract, or annuity payouts begin, or on the date that a death
benefit is payable.
EXAMPLE:
- You purchase the contract with a payment of $100,000 on January 1,
2000 and we add a $1,000 purchase payment credit to the contract
- There are no additional purchase payments and no partial withdrawals
- On January 1, 2010, the contract value is $200,000
- We determine the performance credit on January 1, 2010 as:
<TABLE>
<S><C>
10
Target Value on January 1, 2010 = 101,000 x (1.072)^ = 101,000 x 2.00423 = 202,427
</TABLE>
As the target value of $202,427 is greater than the contract value of
$200,000, we add a performance credit to the contract equal to $5,050
(or 5% of the purchase payment and purchase payment credits of
$101,000). Your total contract value on January 1, 2010 would be
$205,050.
39
<PAGE>
On February 1, 2010, the contract value is $210,000 and you choose to
begin receiving annuity payouts under a lifetime income plan. We would
use the value of $215,050 ($210,000 + another performance credit of
$5,050) to determine your monthly income.
If the contract continues and annuity payouts are not started, the
benefit restarts on January 1, 2010 with the "initial purchase
payment" equal to $205,050 and the performance credit determination
made on January 1, 2020.
WITHDRAWALS
You may withdraw all or part of your contract at any time before annuity
payouts begin by sending us a written request or calling us. We will process
your withdrawal request on the valuation date we receive it. For total
withdrawals, we will compute the value of your contract at the next
accumulation unit value calculated after we receive your request. We may ask
you to return the contract. You may have to pay charges (see "Charges -
Withdrawal charge") and IRS taxes and penalties (see "Taxes"). You cannot
make withdrawals after annuity payouts begin except under Plan E (see "The
Annuity Payout Period - Annuity payout plans").
WITHDRAWAL POLICIES
If you have a balance in more than one account and you request a partial
withdrawal, we will withdraw money from all your subaccounts and/or the fixed
accounts in the same proportion as your value in each account correlates to your
total contract value, unless you request otherwise.
RECEIVING PAYMENT
By regular or express mail:
- - payable to owner;
- - mailed to address of record.
NOTE: We will charge you a fee if you request express mail delivery.
Normally, we will send the payment within seven days after receiving your
request. However, we may postpone the payment if:
- -- the withdrawal amount includes a purchase payment check that has not cleared;
- -- the NYSE is closed, except for normal holiday and weekend closings;
- -- trading on the NYSE is restricted, according to SEC rules;
- -- an emergency, as defined by SEC rules, makes it impractical to sell
securities or value the net assets of the accounts; or
- -- the SEC permits us to delay payment for the protection of security holders.
CHANGING OWNERSHIP
You may change ownership of your nonqualified annuity at any time by completing
a change of ownership form we approve and sending it to our office. The change
will become binding upon us when we receive and record it. We will honor any
change of ownership request that we believe is authentic and we will use
reasonable procedures to confirm authenticity. If we follow these procedures, we
will not take any responsibility for the validity of the change.
If you have a nonqualified annuity, you may incur income tax liability by
transferring, assigning or pledging any part of it. (See "Taxes.")
If you have a qualified annuity, you may not sell, assign, transfer, discount or
pledge your contract as collateral for a loan, or as security for the
performance of an obligation or for any other purpose except as required or
permitted by the Code. However, if the owner is a trust or custodian, or an
employer acting in a similar capacity, ownership of a contract may be
transferred to the annuitant.
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<PAGE>
BENEFITS IN CASE OF DEATH
We will pay the death benefit to your beneficiary upon the earlier of your death
or the annuitant's death. We will base the benefit paid on the death benefit
coverage you selected when you purchased the contract. If a contract has more
than one person as the owner, we will pay benefits upon the first to die of any
owner or the annuitant. If you own the contract in joint tenancy with rights of
survivorship, we will pay benefits upon the first to die of either you or the
annuitant.
RETURN OF PREMIUM DEATH BENEFIT
We require this option if either you or the annuitant are age 80 or above.
Under this option, if you or the annuitant die before annuity payouts begin
while this contract is in force, we will pay the beneficiary the greater of the
following less any purchase payment credits added to the contract in the last 12
months:
1. the contract value; or
2. the total purchase payments paid plus purchase payments credits and less
any "adjusted partial withdrawals."
ADJUSTED PARTIAL WITHDRAWALS: We calculate an "adjusted partial withdrawal" for
each partial withdrawal as the product of (a) times (b) where:
(a) is the ratio of the amount of the partial withdrawal (including
any applicable withdrawal charge) to the contract value on the date of
(but prior to) the partial withdrawal; and
(b) is the death benefit on the date of (but prior to) the partial
withdrawal.
EXAMPLE:
- - You purchase the contract with a payment of $25,000 on Jan. 1, 2000.
- - On Jan. 1, 2001 you make an additional purchase payment of $5,000.
- - On March 1, 2001 the contract value falls to $28,000. You take a $1,500
partial withdrawal leaving a contract value of $26,500.
- - On March 1, 2002 the contract value falls to $25,000.
We calculate the death benefit on March 1, 2002 as follows:
<TABLE>
<S><C>
Total payments paid: $30,000.00
minus any "adjusted partial withdrawals"
calculated as: 1,500 X 30,000 = - 1,607.14
-------------- ----------
28,000
for a death benefit of: $28,392.86
</TABLE>
MAXIMUM ANNIVERSARY VALUE DEATH BENEFIT RIDER
If this rider is available in your state and both you and the annuitant are age
79 or younger on the contract date, you may choose to add this benefit to your
contract. This rider provides that if you or the annuitant die before annuity
payouts begin while this contract is in force, we will pay the beneficiary the
greatest of the following amounts less any purchase payment credits added in the
last 12 months:
1. the contract value; or
2. the total purchase payments paid plus purchase payment credits and less any
"adjusted partial withdrawals"; or
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<PAGE>
3. the "maximum anniversary value" immediately preceding the date of death
plus the dollar amount of any payments since that anniversary plus purchase
payment credits and minus any "adjusted partial withdrawals" since that
anniversary.
MAXIMUM ANNIVERSARY VALUE: Each contract anniversary prior to the earlier of
your or the annuitant's 81st birthday, we calculate the anniversary value which
is the greater of:
(a) the contract value on that anniversary; or
(b) total purchase payments made to the contract plus purchase payment credits
and minus any "adjusted partial withdrawals."
The "maximum anniversary value" is equal to the greatest of these anniversary
values.
After the earlier of your or the annuitant's 81st birthday, the death benefit
continues to be the death benefit value as of that date, plus any subsequent
payments and purchase payment credits and minus any "adjusted partial
withdrawals."
EXAMPLE:
- - You purchase the contract with a payment of $20,000 on Jan. 1, 2000.
- - On Jan. 1, 2001 (the first contract anniversary) the contract value grows
to $24,000.
- - On March 1, 2001 the contract value falls to $22,000, at which point you
take a $1,500 partial withdrawal, leaving a contract value of $20,500.
We calculate the death benefit on March 1, 2001 as follows:
<TABLE>
<S><C>
The "maximum anniversary value" : $24,000.00
(the greatest of the anniversary values which
was the contract value on Jan. 1, 2001)
plus any purchase payments paid since that anniversary: +0.00
minus any "adjusted partial withdrawal" taken since that
anniversary, calculated as: 1,500 X 24,000 = - 1,636.36
---------------- ----------
22,000
for a death benefit of: $22,363.64
</TABLE>
TERMINATING THE RIDER:
- - You may terminate the rider within 30 days after the first anniversary of
the effective date of the rider.
- - You may terminate the rider any time after the end of the seven year
waiting period of the rider.
- - The rider will terminate on the date you make a full withdrawal from the
contract, or annuity payouts begin, or on the date that a death benefit is
payable.
- - The rider will terminate on the contract anniversary after the annuitant's
86th birthday.
IF YOUR SPOUSE IS SOLE BENEFICIARY and you die before the retirement date, your
spouse may keep the contract as owner. To do this your spouse must, within 60
days after we receive proof of death, give us written instructions to keep the
contract in force. The Guaranteed Minimum Income Benefit Rider, if selected, is
then terminated.
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<PAGE>
PAYMENTS: Under a nonqualified annuity, we will pay the beneficiary in a single
sum unless you give us other written instructions. We must fully distribute the
death benefit within five years of your death. However, the beneficiary may
receive payouts under any annuity payout plan available under this contract if:
- - the beneficiary asks us in writing within 60 days after we receive proof of
death; and
- - payouts begin no later than one year after your death, or other date as
permitted by the Code; and
- - the payout period does not extend beyond the beneficiary's life or life
expectancy.
When paying the beneficiary, we will process the death claim on the valuation
date our death claim requirements are fulfilled. We will determine the
contract's value at the next accumulation unit value calculated after our death
claim requirements are fulfilled. We pay interest, if any, from the date of
death at a rate no less than required by law. We will mail payment to the
beneficiary within seven days after our death claim requirements are fulfilled.
Other rules may apply to qualified annuities. (See "Taxes.")
THE ANNUITY PAYOUT PERIOD
As owner of the contract, you have the right to decide how and to whom annuity
payouts will be made starting at the retirement date. You may select one of the
annuity payout plans outlined below, or we may mutually agree on other payout
arrangements. We do not deduct any withdrawal charges under the payout plans
listed below.
You also decide whether we will make annuity payouts on a fixed or variable
basis, or a combination of fixed and variable. The amounts available to purchase
payouts under the plan you select is the contract value on your retirement date
(less any applicable premium tax). You may reallocate this contract value to the
one-year fixed account to provide fixed dollar payouts and/or among the
subaccounts to provide variable annuity payouts. During the annuity payout
period, we reserve the right to limit the number of subaccounts in which you may
invest. The Guarantee Period Accounts are not available during this payout
period.
Amounts of fixed and variable payouts depend on:
- - the annuity payout plan you select;
- - the annuitant's age and, in most cases, sex;
- - the annuity table in the contract; and
- - the amounts you allocated to the accounts at settlement.
In addition, for variable payouts only, amounts depend on the investment
performance of the subaccounts you select. These payouts will vary from month to
month because the performance of the funds will fluctuate. (In the case of fixed
annuities, payouts remain the same from month to month.)
For information with respect to transfers between accounts after annuity payouts
begin, see "Making the Most of Your Contract -- Transfer policies."
ANNUITY TABLE
The annuity table in your contract shows the amount of the first monthly payment
for each $1,000 of contract value according to the age and, when applicable, the
sex of the annuitant. (Where required by law, we will use a unisex table of
settlement rates.) The table assumes that the contract value is invested at the
beginning of the annuity payout period and earns a 5% rate of return, which is
reinvested and helps to support future payouts.
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<PAGE>
SUBSTITUTION OF 3.5% TABLE
If you ask us at least 30 days before the retirement date, we will substitute an
annuity table based on an assumed 3.5% investment rate for the 5% table in the
contract. The assumed investment rate affects both the amount of the first
payout and the extent to which subsequent payouts increase or decrease. Using
the 5% table results in a higher initial payment, but later payouts will
increase more slowly when annuity unit values rise and decrease more rapidly
when they decline.
ANNUITY PAYOUT PLANS
You may choose any one of these annuity payout plans by giving us written
instructions at least 30 days before contract values are used to purchase the
payout plan:
- - PLAN A -- LIFE ANNUITY - NO REFUND: We make monthly payouts until the
annuitant's death. Payouts end with the last payout before the annuitant's
death. We will not make any further payouts. This means that if the
annuitant dies after we made only one monthly payout, we will not make any
more payouts.
- - PLAN B -- LIFE ANNUITY WITH FIVE, TEN OR 15 YEARS CERTAIN: We make monthly
payouts for a guaranteed payout period of five, ten or 15 years that you
elect. This election will determine the length of the payout period to the
beneficiary if the annuitant should die before the elected period expires.
We calculate the guaranteed payout period from the retirement date. If the
annuitant outlives the elected guaranteed payout period, we will continue
to make payouts until the annuitant's death.
- - PLAN C -- LIFE ANNUITY - INSTALLMENT REFUND: We make monthly payouts until
the annuitant's death, with our guarantee that payouts will continue for
some period of time. We will make payouts for at least the number of months
determined by dividing the amount applied under this option by the first
monthly payout, whether or not the annuitant is living.
- - PLAN D -- JOINT AND LAST SURVIVOR LIFE ANNUITY - NO REFUND: We make monthly
payouts while both the annuitant and a joint annuitant are living. If
either annuitant dies, we will continue to make monthly payouts at the full
amount until the death of the surviving annuitant. Payouts end with the
death of the second annuitant.
- - PLAN E -- PAYOUTS FOR A SPECIFIED PERIOD: We make monthly payouts for a
specific payout period of ten to 30 years that you elect. We will make
payouts only for the number of years specified whether the annuitant is
living or not. Depending on the selected time period, it is foreseeable
that an annuitant can outlive the payout period selected. During the payout
period, you can elect to have us determine the present value of any
remaining variable payouts and pay it to you in a lump sum. We determine
the present value of the remaining annuity payouts which are assumed to
remain level. The discount rate we use in the calculation will vary between
4.86% and 6.61% depending on the mortality and expense risk charge and the
applicable assumed investment rate. (See "Charges-Withdrawal charge under
Annuity Payout Plan E.") You can also take a portion of the discounted
value once a year. If you do so, your monthly payouts will be reduced by
the proportion of your withdrawal to the full discounted value. A 10% IRS
penalty tax could apply if you take a withdrawal. (See "Taxes.")
RESTRICTIONS FOR SOME TAX-DEFERRED RETIREMENT PLANS: If you purchased a
qualified annuity, you may be required to select a payout plan that provides for
payouts:
- - over the life of the annuitant;
- - over the joint lives of the annuitant and a designated beneficiary;
- - for a period not exceeding the life expectancy of the annuitant; or
- - for a period not exceeding the joint life expectancies of the annuitant and
a designated beneficiary.
You have the responsibility for electing a payout plan that complies with your
contract and with applicable law.
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<PAGE>
IF WE DO NOT RECEIVE INSTRUCTIONS: You must give us written instructions for the
annuity payouts at least 30 days before the annuitant's retirement date. If you
do not, we will make payouts under Plan B, with 120 monthly payouts guaranteed.
Contract values that you allocated to the one-year fixed account will provide
fixed dollar payouts and contract values that you allocated among the
subaccounts will provide variable annuity payouts.
IF MONTHLY PAYOUTS WOULD BE LESS THAN $20: We will calculate the amount of
monthly payouts at the time the contract value is used to purchase a payout
plan. If the calculations show that monthly payouts would be less than $20, we
have the right to pay the contract value to you in a lump sum or to change the
frequency of the payouts.
DEATH AFTER ANNUITY PAYOUTS BEGIN
If you or the annuitant die after annuity payouts begin, we will pay any amount
payable to the beneficiary as provided in the annuity payout plan in effect.
TAXES
Generally, under current law, your contract has a tax deferral feature. This
means any increase in the value of the fixed accounts and/or subaccounts in
which you invest is taxable to you only when you receive a payout or withdrawal
(see detailed discussion below). Any portion of the annuity payouts and any
withdrawals you request that represent ordinary income normally are taxable. We
will send you a tax information reporting form for any year in which we made a
taxable distribution according to our records. Roth IRAs may grow and be
distributed tax free if you meet certain distribution requirements.
ANNUITY PAYOUTS UNDER NONQUALIFIED ANNUITIES: A portion of each payout will be
ordinary income and subject to tax, and a portion of each payout will be
considered a return of part of your investment and will not be taxed. All
amounts you receive after your investment in the contract is fully recovered
will be subject to tax.
Tax law requires that all nonqualified deferred annuity contracts issued by the
same company (and possibly its affiliates) to the same owner during a calendar
year be taxed as a single, unified contract when you take distributions from any
one of those contracts.
QUALIFIED ANNUITIES: Your contract may be used to fund a tax-deferred retirement
plan that is already tax-deferred under the Code. The contract will not provide
any necessary or additional tax deferral if it is used to fund a retirement plan
that is tax-deferred. Special rules apply to these retirement plans. Your rights
to benefits may be subject to the terms and conditions of these retirement plans
regardless of the terms of the contract.
Adverse tax consequences may result if you do not ensure that contributions,
distributions and other transactions under the contract comply with the law.
Qualified annuities have minimum distribution rules that govern the timing and
amount of distributions during your life (except for Roth IRAs) and after your
death. You should refer to your retirement plan or adoption agreement or consult
a tax advisor for more information about your distribution rules.
ANNUITY PAYOUTS UNDER QUALIFIED ANNUITIES (EXCEPT ROTH IRAS): Under a qualified
annuity, the entire payout generally is includable as ordinary income and is
subject to tax except to the extent that contributions were made with after-tax
dollars. If you or your employer invested in your contract with deductible or
pre-tax dollars as part of a tax-deferred retirement plan, such amounts are not
considered to be part of your investment in the contract and will be taxed when
paid to you.
PURCHASE PAYMENT CREDITS AND CREDITS UNDER THE PERFORMANCE CREDIT RIDER: These
are considered earnings and are taxed accordingly.
WITHDRAWALS: If you withdraw part or all of your contract before your annuity
payouts begin, your withdrawal payment will be taxed to the extent that the
value of your contract immediately before the
45
<PAGE>
withdrawal exceeds your investment. You also may have to pay a 10% IRS penalty
for withdrawals you make before reaching age 59 1/2 unless certain exceptions
apply. For qualified annuities, other penalties may apply if you withdraw your
contract before your plan specifies that you can receive payouts.
DEATH BENEFITS TO BENEFICIARIES: The death benefit under a contract (except a
Roth IRA) is not tax-exempt. Any amount your beneficiary receives that
represents previously deferred earnings within the contract is taxable as
ordinary income to the beneficiary in the years he or she receives the payments.
The death benefit under a Roth IRA generally is not taxable as ordinary income
to the beneficiary if certain distribution requirements are met.
ANNUITIES OWNED BY CORPORATIONS, PARTNERSHIPS OR TRUSTS: For nonqualified
annuities any annual increase in the value of annuities held by such entities
generally will be treated as ordinary income received during that year. This
provision is effective for purchase payments made after Feb. 28, 1986. However,
if the trust was set up for the benefit of a natural person only, the income
will remain tax-deferred.
PENALTIES: If you receive amounts from your contract before reaching age 59 1/2,
you may have to pay a 10% IRS penalty on the amount includable in your ordinary
income. However, this penalty will not apply to any amount received by you or
your beneficiary:
- - because of your death;
- - because you become disabled (as defined in the Code);
- - if the distribution is part of a series of substantially equal periodic
payments, made at least annually, over your life or life expectancy (or
joint lives or life expectancies of you and your beneficiary); or
- - if it is allocable to an investment before Aug. 14, 1982 (except for
qualified annuities).
For a qualified annuity, other penalties or exceptions may apply if you make
withdrawals from your contract before your plan specifies that payouts can be
made.
WITHHOLDING, GENERALLY: If you receive all or part of the contract value, we may
deduct withholding against the taxable income portion of the payment. Any
withholding represents a prepayment of your tax due for the year. You take
credit for these amounts on your annual tax return.
If the payment is part of an annuity payout plan, we generally compute the
amount of withholding using payroll tables. You may provide us with a statement
of how many exemptions to use in calculating the withholding. As long as you've
provided us with a valid Social Security Number or Taxpayer Identification
Number, you can elect not to have any withholding occur.
If the distribution is any other type of payment (such as a partial or full
withdrawal), we compute withholding using 10% of the taxable portion. Similar to
above, as long as you have provided us with a valid Social Security Number or
Taxpayer Identification Number, you can elect not to have this withholding
occur.
Some states also impose withholding requirements similar to the federal
withholding described above. If this should be the case, we may deduct state
withholding from any payment from which we deduct federal withholding. The
withholding requirements may differ if we are making payment to a non-U.S.
citizen or if we deliver the payment outside the United States.
TRANSFER OF OWNERSHIP OF A NONQUALIFIED ANNUITY: If you transfer a nonqualified
annuity without receiving adequate consideration, the transfer is a gift and
also may be a withdrawal for federal income tax purposes. If the gift is a
currently taxable event for income tax purposes, the original owner will be
taxed on the amount of deferred earnings at the time of the transfer and also
may be subject to the 10% IRS penalty discussed earlier. In this case, the new
owner's investment in the contract will be the value of the contract at the time
of the transfer.
COLLATERAL ASSIGNMENT OF A NONQUALIFIED ANNUITY: If you collaterally assign or
pledge your contract, earnings on purchase payments you made after Aug. 13, 1982
will be taxed to you like a withdrawal.
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<PAGE>
IMPORTANT: Our discussion of federal tax laws is based upon our understanding of
current interpretations of these laws. Federal tax laws or current
interpretations of them may change. For this reason and because tax consequences
are complex and highly individual and cannot always be anticipated, you should
consult a tax advisor if you have any questions about taxation of your contract.
TAX QUALIFICATION: We intend that the contract qualify as an annuity for federal
income tax purposes. To that end, the provisions of the contract are to be
interpreted to ensure or maintain such tax qualification, in spite of any other
provisions of the contract. We reserve the right to amend the contract to
reflect any clarifications that may be needed or are appropriate to maintain
such qualification or to conform the contract to any applicable changes in the
tax qualification requirements. We will send you a copy of any amendments.
VOTING RIGHTS
As a contract owner with investments in the subaccounts, you may vote on
important fund policies until annuity payouts begin. Once they begin, the person
receiving them has voting rights. We will vote fund shares according to the
instructions of the person with voting rights.
Before annuity payouts begin, the number of votes you have is determined by
applying your percentage interest in each subaccount to the total number of
votes allowed to the subaccount.
After annuity payouts begin, the number of votes you have is equal to:
- - the reserve held in each subaccount for your contract;
- - divided by the net asset value of one share of the applicable fund.
As we make annuity payouts, the reserve for the contract decreases; therefore,
the number of votes also will decrease.
We calculate votes separately for each subaccount. We will send notice of
shareholders' meetings, proxy materials and a statement of the number of votes
to which the voter is entitled. We will vote shares for which we have not
received instructions in the same proportion as the votes for which we received
instructions. We also will vote the shares for which we have voting rights in
the same proportion as the votes for which we received instructions.
SUBSTITUTION OF INVESTMENTS
We may substitute the funds in which the subaccounts invest if:
- - laws or regulations change,
- - existing funds become unavailable, or
- - in our judgment, the funds no longer are suitable for the subaccounts.
If any of these situations occur and if we believe it is in the best interest of
persons having voting rights under the contract, we have the right to substitute
funds other than those currently listed in this prospectus for other funds.
We may also:
- - add new subaccounts;
- - combine any two or more subaccounts;
- - add subaccounts investing in additional funds;
- - transfer assets to and from the subaccounts or the variable account; and
- - eliminate or close any subaccounts.
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<PAGE>
In the event of substitution or any of these changes, we may amend the contract
and take whatever action is necessary and appropriate without your consent or
approval. However, we will not make any substitution or change without the
necessary approval of the SEC and state insurance departments. We will notify
you of any substitution or change.
ABOUT THE SERVICE PROVIDERS
PRINCIPAL UNDERWRITER
American Express Financial Advisors Inc. (AEFA) serves as the principal
underwriter for the contract. Its office are located at 200 AXP Financial
Center, Minneapolis, MN 55474. AEFA is a wholly-owned subsidiary of American
Express Financial Corporation (AEFC) which is a wholly-owned subsidiary of
American Express Company.
The contracts will be distributed by broker-dealers which have entered into
distribution agreements with AEFA and American Enterprise Life.
We pay commissions for sales of the contracts of up to 7% of purchase payments
to insurance agencies or broker-dealers that are also insurance agencies.
Sometimes we pay the commissions as a combination of a certain amount of the
commission at the time of sale and a trail commission (which, when totaled,
could exceed 7% of purchase payments). In addition, we may pay certain sellers
additional compensation for selling and distribution activities under certain
circumstances. From time to time, we will pay or permit other promotional
incentives, in cash or credit or other compensation.
Other contracts issued by American Enterprise Life that are not described in
this prospectus may be available through your sales representative. The
features, investment options, sales charges and expenses of the other contracts
are different than those of this contract. Therefore, the contract values under
the other contracts may be different than your contract value under this
contract. In addition, sales commissions for the other contracts may be higher
or lower than sales commissions for this contract.
ISSUER
American Enterprise Life issues the annuities. American Enterprise Life is a
wholly-owned subsidiary of IDS Life, which is a wholly-owned subsidiary of AEFC.
AEFC is a wholly-owned subsidiary of American Express Company. American Express
Company is a financial services company principally engaged through subsidiaries
(in addition to AEFC) in travel related services, investment services and
international banking services.
American Enterprise Life is a stock life insurance company organized in 1981
under the laws of the state of Indiana. Its administrative offices are located
at 829 AXP Financial Center, Minneapolis, MN 55474. Our statutory address is 100
Capitol Center South, 201 North Illinois Street, Indianapolis, IN 46204.
American Enterprise Life conducts a conventional life insurance business.
LEGAL PROCEEDINGS
A number of lawsuits have been filed against life and health insurers in
jurisdictions in which American Enterprise Life and its affiliates do business
involving insurers' sales practices, alleged agent misconduct, failure to
properly supervise agents and other matters. IDS Life is a defendant in three
class action lawsuits of this nature. American Enterprise Life is a named
defendant in one of these suits, RICHARD W. AND ELIZABETH J. THORESEN VS.
AMERICAN EXPRESS FINANCIAL CORPORATION, AMERICAN CENTURION LIFE ASSURANCE
COMPANY, AMERICAN ENTERPRISE LIFE INSURANCE COMPANY, AMERICAN PARTNERS LIFE
INSURANCE COMPANY, IDS LIFE INSURANCE COMPANY AND IDS LIFE INSURANCE COMPANY OF
NEW YORK , which was commenced in Minnesota State Court in October, 1998. The
action was brought by individuals who purchased an annuity in a qualified plan.
The plaintiffs allege that the sale of annuities in tax-deferred contributory
retirement investment plans (E.G., IRAs) is never appropriate. The plaintiffs
purport to represent a class consisting of all persons who made similar
purchases. The plaintiffs seek damages in an unspecified amount.
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<PAGE>
American Enterprise Life is included as a party to a preliminary settlement of
all three class action lawsuits. We believe this approach will put these cases
behind us and provide a fair outcome for our clients. Our decision to settle
does not include any admission of wrongdoing. We do not anticipate that this
proposed settlement, or any other lawsuits in which American Enterprise Life is
a defendant, will have a material adverse effect on our financial condition.
ADDITIONAL INFORMATION ABOUT AMERICAN ENTERPRISE LIFE
SELECTED FINANCIAL DATA
The following selected financial data for American Enterprise Life should be
read in conjunction with the financial statements and notes.
<TABLE>
<CAPTION>
Years ended Dec. 31, (thousands)
1999 1998 1997 1996 1995
<S> <C> <C> <C> <C> <C>
Net investment income $ 322,746 $ 340,219 $ 332,268 $ 271,719 $ 223,706
Net gain/loss on 6,565 (4,788) (509) (5,258) (1,154)
investments
Other 8,338 7,662 6,329 5,753 4,214
----- ----- ----- ----- -----
Total revenues $ 337,649 $ 343,093 $ 338,088 $ 272,214 $ 226,766
========== ========== ========== ========== ==========
Income before income taxes $ 50,662 $ 36,421 $ 44,958 $ 35,735 $ 33,440
========== ========== ========== ========== ==========
Net income $ 33,987 $ 22,026 $ 28,313 $ 22,823 $ 21,748
========== ========== ========== ========== ==========
Total assets $4,603,343 $4,885,621 $4,973,413 $4,425,837 $3,570,960
========== ========== ========== ========== ==========
</TABLE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS
1999 COMPARED TO 1998:
Net income increased 54 percent to $34 million in 1999, compared to $22 million
in 1998. Earnings growth resulted primarily net realized gains of $6.6 million
in 1999, compared to net realized losses of $4.8 in 1998.
Income before income taxes totaled $51 million in 1999, compared with $36
million in 1998.
Total investment contract deposits received decreased to $336 million in 1999,
compared with $348 million in 1998. This decrease is primarily due to a decrease
in sales of variable annuities in 1999.
Total revenues decreased to $338 million in 1999, compared with $343 million in
1998. The decrease is primarily due to decreased net investment income which was
partially offset by an increase in realized gain on investments. Net investment
income, the largest component of revenues, decreased 5 percent from the prior
year, reflecting decreases in investments owned and investment yields.
Contractholder charges decreased 5 percent to $6.1 million in 1999, compared
with $6.4 million in 1998, reflecting a decrease in fixed annuities inforce. The
Company receives mortality and expense risk fees from the separate accounts.
Mortality and expense risk fees increased 77 percent to $2.3 million in 1999,
compared with $1.3 million in 1998, this reflects the increase in separate
account assets.
Net realized gain on investments was $6.6 million in 1999, compared to a net
realized loss on investments of $4.8 million in 1998. The net realized gains
were primarily due to the sale of available for sale fixed maturity investments
at a gain as well as a decrease in the allowance for mortgage loan losses based
on management's regular evaluation of allowance adequacy.
Total benefits and expenses decreased slightly to $287 million in 1999. The
largest component of expenses, interest credited on investment contracts,
decreased to $209 million, reflecting a decrease in fixed annuities
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<PAGE>
in force and lower interest rates. Amortization of deferred policy acquisition
costs decreased to $43 million, compared to $54 million in 1998. This decrease
was due primarily to decreased aggregate amounts in force, as well as the impact
of changing prospective assumptions in 1998 based on actual lapse experience on
certain fixed annuities.
Other operating expenses increased 46 percent to $35 million in 1999, compared
to $24 million in 1998. This increase is primarily reflects technology costs
related to growth initiatives.
1998 COMPARED TO 1997:
Net income decreased 22 percent to $22 million in 1998, compared to $28 million
in 1997. The decrease in earnings resulted primarily from increases in
amortization of deferred policy acquisition costs.
Income before income taxes totaled $36 million in 1998, compared with $45
million in 1997.
Total premiums and investment contract deposits received decreased to $348
million in 1998, compared with $802 million in 1997. This decrease is primarily
due to a decrease in sales of fixed annuities in 1998, reflecting the low
interest rate environment.
Total revenues increased to $343 million in 1998, compared with $338 million in
1997. The increase is primarily due to increases in net investment income and
contractholder charges. Net investment income, the largest component of
revenues, increased 2 percent from the prior year, reflecting increases in
investments owned and investment yields.
Contractholder charges, increased 12 percent to $6.4 million in 1998, compared
with $5.7 million in 1997. The Company receives mortality and expense risk fees
from the separate accounts.
Total benefits and expenses increased 4.6 percent to $307 million in 1998,
compared with 293 million in 1997. The largest component of expenses, interest
credited on contractholders investment contracts, decreased to $229 million,
reflecting a decrease in fixed annuities in force and lower interest rates.
Amortization of deferred policy acquisition costs increased to $54 million,
compared to $37 million in 1997. This increase was due primarily to the impact
of changing prospective assumptions based on actual lapse experience on certain
fixed annuities.
RISK MANAGEMENT
The sensitivity analysis of the test of market risk discussed below estimates
the effects of hypothetical sudden and sustained changes in the applicable
market conditions on the ensuing year's earnings based on year-end positions.
The market changes, assumed to occur as of year-end, is a 100 basis point
increase in market interest rates. Computations of the prospective effects of
hypothetical interest rate change based on numerous assumptions, including
relative levels of market interest rates as well as the levels of assets and
liabilities. The hypothetical changes and assumptions will be different from
what actually occurs in the future. Furthermore, the computations do not
anticipate actions that may be taken by management if the hypothetical market
changes actually occurred over time. As a result, actual earnings effects in the
future will differ from those quantified below.
The Company primarily invests in fixed income securities over a broad range of
maturities for the purpose of providing fixed annuity clients with a competitive
rate of return on their investments while minimizing risk, and to provide a
dependable and targeted spread between the interest rate earned on investments
and the interest rate credited to contractholders' accounts. The Company does
not invest in securities to generate trading profits.
The Company has an investment committee that holds regularly scheduled meetings
and, when necessary, special meetings. At these meetings, the committee reviews
models projecting different interest rate scenarios and their impact on
profitability. The objective of the committee is to structure the investment
50
<PAGE>
security portfolio based upon the type and behavior of products in the liability
portfolio so as to achieve targeted levels of profitability.
Rates credited to contractholders' accounts are generally reset at shorter
intervals than the maturity of underlying investments. Therefore, margins may be
negatively impacted by increases in the general level of interest rates. Part of
the committee's strategy includes the purchase of some types of derivatives,
such as interest rate caps, swaps and floors, for hedging purposes. These
derivatives protect margins by increasing investment returns if there is a
sudden and severe rise in interest rates, thereby mitigating the impact of an
increase in rates credited to contractholders' accounts.
The negative effect on the Company's pretax earnings of a 100 basis point
increase in interest rates, which assumes repricings and customer behavior based
on the application of proprietary models to the book of business at December 31,
1999, would be approximately $4.2 million.
LIQUIDITY AND CAPITAL RESOURCES
The liquidity requirements of the Company are met by funds provided by annuity
considerations, investment income, proceeds from sales of investments as well as
maturities and periodic repayments of investment principal.
The primary uses of funds are policy benefits, commissions and operating
expenses, policy loans, and investment purchases.
The Company has an available line of credit with American Express Financial
Corporation aggregating $50 million. The line of credit is used strictly as a
short-term source of funds. No borrowings were outstanding under the agreement
at December 31, 1999. At December 31, 1999, outstanding reverse repurchase
agreements totaled $26 million.
At December 31, 1999, investments in fixed maturities comprised 81 percent of
the Company's total invested assets. Of the fixed maturity portfolio,
approximately 32 percent is invested in GNMA, FNMA and FHLMC mortgage-backed
securities which are considered AAA/Aaa quality.
At December 31, 1999, approximately 14 percent of the Company's investments in
fixed maturities were below investment grade bonds. These investments may be
subject to a higher degree of risk than the investment grade issues because of
the borrower's generally greater sensitivity to adverse economic conditions,
such as recession or increasing interest rates, and in certain instances, the
lack of an active secondary market. Expected returns on below investment grade
bonds reflect consideration of such factors. The Company has identified those
fixed maturities for which a decline in fair value is determined to be other
than temporary, and has written them down to fair value with a charge to
earnings.
At December 31, 1999, net unrealized appreciation on fixed maturities held to
maturity included $6.3 million of gross unrealized appreciation and $29 million
of gross unrealized depreciation. Net unrealized appreciation on fixed
maturities available for sale included $9.3 million of gross unrealized
appreciation and $117 million of gross unrealized depreciation.
At December 31, 1999, the Company had an allowance for losses for mortgage loans
totaling $6.7 million.
The economy and other factors have caused a number of insurance companies to
go under regulatory supervision. This circumstance has resulted in
assessments by state guaranty associations to cover losses to policyholders
of insolvent or rehabilitated companies. Some assessments can be partially
recovered through a reduction in future premium taxes in certain states. The
Company established an asset for guaranty association assessments paid to
those states allowing a reduction in future premium taxes over a reasonable
period of time. The asset is being amortized as premium taxes are reduced.
The Company has also estimated the
51
<PAGE>
potential effect of future assessments on the Company's financial position and
results of operations and has established a reserve for such potential
assessments. The Company has adopted Statement of Position 97-3 providing
guidance when an insurer should recognize a liability for guaranty fund
assessments. The SOP is effective for fiscal years beginning after December 15,
1998. Adoption did not have a material impact on the Company's results of
operations or financial condition.
The National Association of Insurance Commissioners has established risk-based
capital standards to determine the capital requirements of a life insurance
company based upon the risks inherent in its operations. These standards require
the computation of a risk-based capital amount which is then compared to a
company's actual total adjusted capital. The computation involves applying
factors to various statutory financial data to address four primary risks: asset
default, adverse insurance experience, interest rate risk and external events.
These standards provide for regulatory attention when the percentage of total
adjusted capital to authorized control level risk-based capital is below certain
levels. As of December 31, 1999, the Company's total adjusted capital was well
in excess of the levels requiring regulatory attention.
YEAR 2000 ISSUE
The Year 2000 issue is the result of computer programs having been written using
two digits rather than four to define a year. Any programs that have
time-sensitive software may recognize a date using "00" as the year 1900 rather
than 2000. This could result in the failure of major systems or miscalculations,
which could have a material impact on the operations of American Enterprise Life
and the variable account. All of the major systems used by American Enterprise
Life and the variable account are maintained by AEFC and are utilized by
multiple subsidiaries and affiliates of AEFC. American Enterprise Life's and the
variable account's businesses are heavily dependent upon AEFC's computer systems
and have significant interaction with systems of third parties.
A comprehensive review of AEFC's computer systems and business processes,
including those specific to American Enterprise Life and the variable account,
was conducted to identify the major systems that could be affected by the Year
2000 issue. Steps were taken to resolve potential problems including
modification to existing software and the purchase of new software. As of Dec.
31, 1999, AEFC had completed its program of corrective measures on its internal
systems and applications, including Year 2000 compliance testing. As of Dec. 31,
1999, AEFC had also completed an evaluation of the Year 2000 readiness of other
third parties whose system failures could have an impact on American Enterprise
Life's and the variable account's operations.
AEFC's Year 2000 project also included establishing Year 2000 contingency plans
for all key business units. Business continuation plans, which address business
continuation in the event of a system disruption, are in place for all key
business units. As of Dec. 31, 1999, these plans had been amended to include
specific Year 2000 considerations.
In assessing its Year 2000 initiatives and the results of actual production
since Jan. 1, 2000, management believes no material adverse consequences were
experienced, and there was no material effect on American Enterprise Life's and
the variable account's business, results of operations, or financial condition
as a result of the Year 2000 issue.
RESERVES
In accordance with the insurance laws and regulations under which we operate, we
are obligated to carry on our books, as liabilities, actuarially determined
reserves to meet our obligations on our outstanding annuity contracts. We base
our reserves for deferred annuity contracts on accumulation value and for fixed
annuity contracts in a benefit status on established industry mortality tables.
These reserves are computed amounts that will be sufficient to meet our policy
obligations at their maturities.
52
<PAGE>
INVESTMENTS
Our total investments of $4,107,559 at Dec. 31, 1999, 29% was invested in
mortgage-backed securities, 53% in corporate and other bonds, 19% in primary
mortgage loans on real estate and the remaining less than 1% in other
investments.
COMPETITION
We are engaged in a business that is highly competitive due to the large number
of stock and mutual life insurance companies and other entities marketing
insurance products. There are over 1,600 stock, mutual and other types of
insurers in the life insurance business. BEST'S INSURANCE REPORTS, Life-Health
edition 1998, assigned us one of its highest classifications, A+ (Superior).
EMPLOYEES
As of Dec. 31, 1999, we had no employees.
PROPERTIES
We occupy office space in Minneapolis, MN, which is rented by AEFC. We reimburse
AEFC for rent based on direct and indirect allocation methods. Facilities
occupied by us are believed to be adequate for the purposes for which they are
used and well maintained.
STATE REGULATION
American Enterprise Life is subject to the laws of the State of Indiana
governing insurance companies and to the regulations of the Indiana Department
of Insurance. An annual statement in the prescribed form is filed with the
Indiana Department of Insurance each year covering our operation for the
preceding year and its financial condition at the end of such year. Regulation
by the Indiana Department of Insurance includes periodic examination to
determine American Enterprise's contract liabilities and reserves so that the
Indiana Department of Insurance may certify that these items are correct. The
Company's books and accounts are subject to review by the Indiana Department of
Insurance at all times. Such regulation does not, however, involve any
supervision of the account's management or the company's investment practices or
policies. In addition, American Enterprise Life is subject to regulation under
the insurance laws of other jurisdictions in which it operates. A full
examination of American Enterprise Life's operations is conducted periodically
by the National Association of Insurance Commissioners.
Under insurance guaranty fund laws, in most states, insurers doing business
therein can be assessed up to prescribed limits for policyholder losses incurred
by insolvent companies. Most of these laws do provide however, that an
assessment may be excused or deferred if it would threaten an insurer's own
financial strength.
DIRECTORS AND EXECUTIVE OFFICERS*
The directors and principal executive officers of American Enterprise Life and
the principal occupation of each during the last five years is as follows:
DIRECTORS
JAMES E. CHOAT
Born in 1947
Director, president and chief executive officer since 1996; Senior vice
president - Institutional Products Group, AEFA, 1994 to 1997.
RICHARD W. KLING
Born 1940
Director and chairman of the board since March 1989.
53
<PAGE>
PAUL S. MANNWEILER**
Born in 1949
Director since 1986; Partner at Locke Reynolds Boyd & Weisell since 1980.
PAULA R. MEYER
Born in 1954
Director and executive vice president since 1998; vice president, AEFC since
1998; Piper Capital Management (PCM) President from Oct. 1997 to May 1998; PCM
Director of Marketing from June 1995 to Oct. 1997; PCM Director of Retail
Marketing from Dec. 1993 to June 1995.
WILLIAM A. STOLTZMANN
Born in 1948
Director since Sept. 1989; vice president, general counsel and secretary since
1985.
OFFICERS OTHER THAN DIRECTORS
JEFFREY S. HORTON
Born 1961
Vice president and treasurer since Dec. 1997; vice president and corporate
treasurer, AEFC, since Dec. 1997; controller, American Express Technologies -
Financial Services, AEFC, from July 1997 to Dec. 1997; controller, Risk
Management Products, AEFC, from May 1994 to July 1997; director of finance and
analysis, Corporate Treasury, AEFC, from June 1990 to May 1994.
PHILIP C. WENTZEL
Born in 1961
Vice president and controller since 1998; vice president - Finance, Risk
Management Products, AEFC since 1997; and director of financial reporting and
analysis from 1992 to 1997.
*The address for all of the directors and principal officers is: 200 AXP
Financial Center, Minneapolis, MN 55474, except for Mr. Mannweiler who is an
independent director.
**Mr. Mannweiler's address is: 201 No. Illinois Street, Indianapolis, IN 46204
EXECUTIVE COMPENSATION
Our executive officers also may serve one or more affiliated companies. The
following table reflects cash compensation paid to the five most highly
compensated executive officers as a group for services rendered in the most
recent year to us and our affiliates. The table also shows the total cash
compensation paid to all our executive officers, as a group, who were executive
officers at any time during the most recent year.
54
<PAGE>
<TABLE>
<CAPTION>
NAME OF INDIVIDUAL OR
NUMBER IN GROUP POSITION HELD CASH COMPENSATION
<S> <C> <C>
Five most highly compensated $7,960,888
executive officers as a group:
Richard W. Kling Chairman of the Board
James E. Choat President and CEO
Stuart A. Sedlacek Executive Vice President
Lorraine R. Hart Vice President, Investments
Deborah L. Pederson Assistant Vice President, Investments
All executive officers as a group $11,535,043
(11)
</TABLE>
SECURITY OWNERSHIP OF MANAGEMENT
Our directors and officers do not beneficially own any outstanding shares of
stock of the company. All of our outstanding shares of stock are beneficially
owned by IDS Life. The percentage of shares of IDS Life owned by any director,
and by all our directors and officers as a group, does not exceed 1% of the
class outstanding.
EXPERTS
Ernst & Young LLP, independent auditors, have audited the financial statements
of American Enterprise Life Insurance Company at Dec. 31, 1999 and 1998, and for
each of the three years in the period ended Dec. 31, 1999, and the individual
and combined financial statements of American Enterprise variable Annuity
Account (comprised of subaccounts PCMG1, PMGD1, PNDM1, PSCA1, PCAP1, PVAL1,
PMDC1, PSMC1, PMSS1, PNDS1, PTRS1 and PGIN1) as of Dec. 31, 1999, and the
periods indicated therein as set forth in their reports. We've included our
financial statements in the prospectus and elsewhere in the registration
statement in reliance on Ernst & Young LLP's report, given on their authority as
experts in accounting and auditing.
55
AMERICAN ENTERPRISE LIFE INSURANCE COMPANY FINANCIAL INFORMATION
REPORT OF INDEPENDENT AUDITORS
The Board of Directors
American Enterprise Life Insurance Company
We have audited the accompanying balance sheets of American Enterprise Life
Insurance Company (a wholly owned subsidiary of IDS Life Insurance Company) as
of December 31, 1999 and 1998, and the related statements of income,
stockholder's equity and cash flows for each of the three years in the period
ended December 31, 1999. These financial statements are the responsibility of
the Company's management. Our responsibility is to express an opinion on these
financial statements based on our audits.
We conducted our audits in accordance with auditing standards generally accepted
in the United States. Those standards require that we plan and perform the audit
to obtain reasonable assurance about whether the financial statements are free
of material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements. An audit
also includes assessing the accounting principles used and significant estimates
made by management, as well as evaluating the overall financial statement
presentation. We believe that our audits provide a reasonable basis for our
opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the financial position of American Enterprise Life
Insurance Company at December 31, 1999 and 1998, and the results of its
operations and its cash flows for each of the three years in the period ended
December 31, 1999, in conformity with accounting principles generally accepted
in the United States.
/s/ Ernst & Young LLP
Ernst & Young LLP
February 3, 2000
Minneapolis, Minnesota
<PAGE>
AMERICAN ENTERPRISE LIFE INSURANCE COMPANY
BALANCE SHEETS
December 31,
($ thousands, except share amounts)
<TABLE>
<S> <C> <C>
ASSETS 1999 1998
- ------ ----------- -----------
Investments:
Fixed maturities:
Held to maturity, at amortized cost (fair value:
1999, $984,103; 1998, $1,126,732) $1,006,349 $1,081,193
Available for sale, at fair value (amortized cost:
1999, $2,411,799; 1998, $2,526,712) 2,304,487 2,594,858
----------- -----------
3,310,836 3,676,051
Mortgage loans on real estate 785,253 815,806
Other investments 11,470 12,103
----------- -----------
Total investments 4,107,559 4,503,960
Accounts receivable 316 214
Accrued investment income 56,676 61,740
Deferred policy acquisition costs 180,288 196,479
Deferred income taxes 37,501 --
Other assets 9 43
Separate account assets 220,994 123,185
----------- -----------
Total assets $4,603,343 $4,885,621
========== ==========
LIABILITIES AND STOCKHOLDER'S EQUITY
Liabilities:
Future policy benefits for fixed annuities $3,921,513 $4,166,852
Policy claims and other policyholders' funds 12,097 7,389
Deferred income taxes -- 23,199
Amounts due to brokers 25,215 54,347
Other liabilities 17,436 24,500
Separate account liabilities 220,994 123,185
----------- -----------
Total liabilities 4,197,255 4,399,472
Stockholder's equity:
Capital stock, $100 par value per share;
100,000 shares authorized,
20,000 shares issued and outstanding 2,000 2,000
Additional paid-in capital 282,872 282,872
Accumulated other comprehensive (loss) income:
Net unrealized securities (losses) gains (69,753) 44,295
Retained earnings 190,969 156,982
----------- -----------
Total stockholder's equity 406,088 486,149
----------- -----------
Total liabilities and stockholder's equity $4,603,343 $4,885,621
========== ==========
</TABLE>
<PAGE>
AMERICAN ENTERPRISE LIFE INSURANCE COMPANY
STATEMENTS OF INCOME
Years ended December 31,
($ thousands)
<TABLE>
<S> <C> <C> <C>
1999 1998 1997
--------- --------- ---------
Revenues:
Net investment income $322,746 $340,219 $332,268
Contractholder charges 6,069 6,387 5,688
Mortality and expense risk fees 2,269 1,275 641
Net realized gain (loss) on investments 6,565 (4,788) (509)
--------- --------- ---------
Total revenues 337,649 343,093 338,088
--------- --------- ---------
Benefits and expenses:
Interest credited on investment contracts 208,583 228,533 231,437
Amortization of deferred policy acquisition costs 43,257 53,663 36,803
Other operating expenses 35,147 24,476 24,890
--------- --------- ---------
Total benefits and expenses 286,987 306,672 293,130
--------- --------- ---------
Income before income taxes 50,662 36,421 44,958
Income taxes 16,675 14,395 16,645
--------- --------- ---------
Net income $ 33,987 $ 22,026 $ 28,313
========= ========= =========
</TABLE>
<PAGE>
AMERICAN ENTERPRISE LIFE INSURANCE COMPANY
STATEMENTS OF STOCKHOLDER'S EQUITY
Three years ended December 31, 1999
($ thousands)
<TABLE>
<CAPTION>
Accumulated
Other
Total Additional Comprehensive
Stockholder's Capital Paid-In (Loss) Income, Retained
Equity Stock Capital Net of Tax Earnings
------------- -------- ------------ ------------ -------------
<S> <C> <C> <C> <C> <C>
Balance, December 31, 1996 $363,858 $2,000 $242,872 $ 12,343 $106,643
Comprehensive income:
Net income 28,313 -- -- -- 28,313
Unrealized holding gains arising
during the year, net of taxes of
($19,891) 36,940 -- -- 36,940 --
Reclassification adjustment for losses
included in net income, net of tax
of ($126) 233 -- -- 233 --
------------- ------------
Other comprehensive income 37,173 -- -- 37,173 --
-------------
Comprehensive income 65,486
Capital contribution from IDS Life 40,000 -- 40,000 -- --
------------- -------- ------------ ------------ -------------
Balance, December 31, 1997 469,344 2,000 282,872 49,516 134,956
Comprehensive income:
Net income 22,026 -- -- -- 22,026
Unrealized holding losses arising
during the year, net of taxes of $3,400 (6,314) -- -- (6,314) --
Reclassification adjustment for losses
included in net income, net of tax
of ($588) 1,093 -- -- 1,093 --
------------- ------------
Other comprehensive loss (5,221) -- -- (5,221) --
-------------
Comprehensive income 16,805
------------- -------- ------------ ------------ -------------
Balance, December 31, 1998 486,149 2,000 282,872 44,295 156,982
Comprehensive loss:
Net income 33,987 -- -- -- 33,987
Unrealized holding losses arising
during the year, net of taxes of $(59,231) (110,001) -- -- (110,001) --
Reclassification adjustment for gains
included in net income, net of tax (4,047) (4,047) --
of $(2,179) ------------- ------------
Other comprehensive loss (114,048) -- -- (114,048) --
-------------
Comprehensive loss (80,061)
------------- -------- ------------ ------------ -------------
Balance, December 31, 1999 $406,088 $2,000 $282,872 $(69,753) $190,969
============= ======== ============ ============ =============
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
See accompanying notes.
AMERICAN ENTERPRISE LIFE INSURANCE COMPANY
STATEMENTS OF CASH FLOWS
Years ended December 31,
($ thousands)
<S> <C> <C> <C>
1999 1998 1997
----------- ----------- -----------
Cash flows from operating activities:
Net income $ 33,987 $ 22,026 $ 28,313
Adjustments to reconcile net income to net cash
provided by (used in) operating activities:
Change in accrued investment income 5,064 (2,152) (8,017)
Change in accounts receivable (102) 349 9,304
Change in deferred policy acquisition costs, net 16,191 28,022 (21,276)
Change in other assets 34 74 4,840
Change in policy claims and other policyholders' funds 4,708 (3,939) (16,099)
Deferred income tax (benefit) provision 711 (9,591) (2,485)
Change in other liabilities (7,064) 7,595 1,255
Amortization of premium (accretion of discount), net 2,315 122 (2,316)
Net realized (gain) loss on investments (6,565) 4,788 509
Other, net (1,562) 2,544 959
----------- ----------- -----------
Net cash provided by (used in) operating activities 47,717 49,838 (5,013)
Cash flows from investing activities:
Fixed maturities held to maturity:
Purchases -- -- (1,996)
Maturities 65,705 73,601 41,221
Sales 8,466 31,117 30,601
Fixed maturities available for sale:
Purchases (593,888) (298,885) (688,050)
Maturities 248,317 335,357 231,419
Sales 469,126 48,492 73,366
Other investments:
Purchases (28,520) (161,252) (199,593)
Sales 57,548 78,681 29,139
Change in amounts due to brokers (29,132) 19,412 (53,796)
----------- ----------- ------------
Net cash provided by (used in) investing activities 197,622 126,523 (537,689)
Cash flows from financing activities:
Activity related to investment contracts:
Considerations received 299,899 302,158 783,339
Surrenders and other benefits (753,821) (707,052) (552,903)
Interest credited to account balances 208,583 228,533 231,437
Capital contribution from parent -- -- 40,000
----------- ----------- -----------
Net cash (used in) provided by financing activities (245,339) (176,361) 501,873
----------- ----------- -----------
Net decrease in cash and cash equivalents -- -- (40,829)
Cash and cash equivalents at beginning of year -- -- 40,829
----------- ----------- -----------
Cash and cash equivalents at end of year $ -- $ -- $ --
=========== =========== ==========
See accompanying notes.
</TABLE>
<PAGE>
1. Summary of significant accounting policies
Nature of business
American Enterprise Life Insurance Company (the Company) is a stock life
insurance company that is domiciled in Indiana and is licensed to transact
insurance business in 48 states. The Company's principal product is
deferred annuities, which are issued primarily to individuals. It offers
single premium and annual premium deferred annuities on both a fixed and
variable dollar basis.
Immediate annuities are offered as well.
Basis of presentation
The Company is a wholly-owned subsidiary of IDS Life Insurance Company (IDS
Life), which is a wholly owned subsidiary of American Express Financial
Corporation (AEFC). AEFC is a wholly owned subsidiary of American Express
Company. The accompanying financial statements have been prepared in
conformity with accounting principles generally accepted in the United
States which vary in certain respects from reporting practices prescribed
or permitted by the Indiana Department of Insurance (see Note 4).
The preparation of financial statements in conformity with accounting
principles generally accepted in the United States requires management to
make estimates and assumptions that affect the reported amounts of assets
and liabilities and disclosure of contingent assets and liabilities at the
date of the financial statements and the reported amounts of revenues and
expenses during the reporting period. Actual results could differ from
those estimates.
Investments
Fixed maturities that the Company has both the positive intent and the
ability to hold to maturity are classified as held to maturity and carried
at amortized cost. All other fixed maturities are classified as available
for sale and carried at fair value. Unrealized gains and losses on
securities classified as available for sale are reported as a separate
component of accumulated other comprehensive (loss) income, net of deferred
income taxes.
Realized investment gain or loss is determined on an identified cost basis.
Prepayments are anticipated on certain investments in mortgage-backed
securities in determining the constant effective yield used to recognize
interest income. Prepayment estimates are based on information received
from brokers who deal in mortgage-backed securities.
Mortgage loans on real estate are carried at amortized cost less an
allowance for mortgage loan losses. The estimated fair value of the
mortgage loans is determined by a discounted cash flow analysis using
mortgage interest rates currently offered for mortgages of similar
maturities.
<PAGE>
1. Summary of significant accounting policies (continued)
Impairment of mortgage loans is measured as the excess of the loan's
recorded investment over its present value of expected principal and
interest payments discounted at the loan's effective interest rate, or the
fair value of collateral. The amount of the impairment is recorded in an
allowance for mortgage loan losses. The allowance for mortgage loan losses
is maintained at a level that management believes is adequate to absorb
estimated losses in the portfolio. The level of the allowance account is
determined based on several factors, including historical experience,
expected future principal and interest payments, estimated collateral
values, and current and anticipated economic and political conditions.
Management regularly evaluates the adequacy of the allowance for mortgage
loan losses.
The Company generally stops accruing interest on mortgage loans for which
interest payments are delinquent more than three months. Based on
management's judgment as to the ultimate collectibility of principal,
interest payments received are either recognized as income or applied to
the recorded investment in the loan.
The cost of interest rate caps and floors is amortized to investment income
over the life of the contracts and payments received as a result of these
agreements are recorded as investment income when realized. The amortized
cost of interest rate caps and floors is included in other investments.
When evidence indicates a decline, which is other than temporary, in the
underlying value or earning power of individual investments, such
investments are written down to the fair value by a charge to income.
Statements of cash flows
The Company considers investments with a maturity at the date of their
acquisition of three months or less to be cash equivalents. These
securities are carried principally at amortized cost which approximates
fair value.
Supplementary information to the statements of cash flows for the years
ended December 31, is summarized as follows:
1999 1998 1997
---- ----- ----
Cash paid during the year for:
Income taxes $22,007 $19,035 $19,456
Interest on borrowings 2,187 5,437 1,832
Contractholder charges
Contractholder charges include surrender charges and fees collected
regarding the issue and administration of annuity contracts.
<PAGE>
1. Summary of significant accounting policies (continued)
Deferred policy acquisition costs
The costs of acquiring new business, principally sales compensation, policy
issue costs, and certain sales expenses, have been deferred on annuity
contracts. These costs are amortized using primarily the interest method.
Amortization of deferred policy acquisition costs requires the use of
assumptions including interest margins, mortality margins, persistency
rates, maintenance expense levels and, for variable products, separate
account performance. For universal life-type insurance and deferred
annuities, actual experience is reflected in the Company's amortization
models monthly. As actual experience differs from the current assumptions,
management considers the need to change key assumptions underlying the
amortization models prospectively. The impact of changing prospective
assumptions is reflected in the period that such changes are made and is
generally referred to as an unlocking adjustment. During 1998, unlocking
adjustments resulted in a net increase in amortization of $11 million. Net
unlocking adjustments in 1999 and 1997 were not significant.
Liabilities for future policy benefits
Liabilities for universal-life type insurance and fixed and variable
deferred annuities are accumulation values.
Federal income taxes
The Company's taxable income is included in the consolidated federal income
tax return of American Express Company. The Company provides for income
taxes on a separate return basis, except that, under an agreement between
AEFC and American Express Company, tax benefit is recognized for losses to
the extent they can be used on the consolidated tax return. It is the
policy of AEFC and its subsidiaries that AEFC will reimburse subsidiaries
for all tax benefits.
Included in other liabilities at December 31, 1999 and 1998 are $2,147 and
$3,504, respectively, payable to IDS Life for federal income taxes.
Separate account business
The separate account assets and liabilities represent funds held for the
exclusive benefit of the variable annuity contract owners. The Company
receives mortality and expense risk fees from the variable annuity separate
accounts.
<PAGE>
1. Summary of significant accounting policies (continued)
The Company makes contractual mortality assurances to the variable annuity
contract owners that the net assets of the separate accounts will not be
affected by future variations in the actual life expectancy experience of
the annuitants and beneficiaries from the mortality assumptions implicit in
the annuity contracts. The Company makes periodic fund transfers to, or
withdrawals from, the separate account assets for such actuarial
adjustments for variable annuities that are in the benefit payment period.
The Company also guarantees that the rates at which administrative fees are
deducted from contract funds will not exceed contractual maximums.
Accounting changes
American Institute of Certified Public Accountants (AICPA) Statement of
Position (SOP) 98-1, "Accounting for Costs of Computer Software Developed
or Obtained for Internal Use" became effective January 1, 1999. The SOP
requires the capitalization of certain costs incurred after the date of
adoption to develop or obtain software for internal use. Software utilized
by the Company is owned by AEFC and capitalized by AEFC. As a result, the
new rule did not have a material impact on the Company's results of
operations or financial condition.
Effective January 1, 1999, the Company adopted AICPA SOP 97-3, "Accounting
by Insurance and Other Enterprises for Insurance-Related Assessments,"
providing guidance for the timing of recognition of liabilities related to
guaranty fund assessments. The Company had historically carried balance in
other liabilities on the balance sheet for potential guaranty fund
assessment exposure. Adoption of the SOP did not have a material impact on
the Company's results of operations or financial condition.
In June 1998, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards No. 133, "Accounting for Derivative
Instruments and Hedging Activities," which is effective January 1, 2001.
This Statement establishes accounting and reporting standards for
derivative instruments, including certain derivative instruments embedded
in other contracts, and for hedging activities. It requires that an entity
recognize all derivatives as either assets or liabilities in the balance
sheet and measure those instruments at fair value. The accounting for
changes in the fair value of a derivative depends on the intended use of
the derivative and the resulting designation. The ultimate financial effect
of the new rule will be measured based on the derivatives in place at
adoption and cannot be estimated at this time.
<PAGE>
2. Investments
Fair values of investments in fixed maturities represent quoted market
prices and estimated values when quoted prices are not available. Estimated
values are determined by established procedures involving, among other
things, review of market indices, price levels of current offerings of
comparable issues, price estimates and market data from independent brokers
and financial files.
The amortized cost, gross unrealized gains and losses and fair value of
investments in fixed maturities at December 31, 1999 are as follows:
<TABLE>
<S> <C> <C> <C> <C>
Gross Gross
Amortized Unrealized Unrealized Fair
Held to maturity Cost Gains Losses Value
---------------- ---------- -------- -------- ----------
U.S. Government agency obligations $ 7,514 $ 23 $ 431 $ 7,106
State and municipal obligations 3,002 44 -- 3,046
Corporate bonds and obligations 816,826 5,966 23,311 799,482
Mortgage-backed securities 179,007 296 4,834 174,469
---------- -------- -------- ----------
$1,006,349 $ 6,329 $ 28,576 $ 984,103
========== ======== ======== ==========
Available for sale
U.S. Government agency obligations $ 2,047 $ -- $ 47 $ 1,999
State and municipal obligations 2,250 -- 190 2,060
Corporate bonds and obligations 1,419,150 7,445 90,703 1,335,892
Mortgage-backed securities 988,352 1,929 25,746 964,536
------------ -------- -------- ----------
$2,411,799 $ 9,374 $116,686 $2,304,487
========== ======== ======== ==========
The amortized cost, gross unrealized gains and losses and fair value of
investments in fixed maturities at December 31, 1998 are as follows:
Gross Gross
Amortized Unrealized Unrealized Fair
Held to maturity Cost Gains Losses Value
---------------- ---------- -------- -------- ----------
U.S. Government agency obligations $ 8,652 $ 423 $ -- $ 9,075
State and municipal obligations 3,003 149 -- 3,152
Corporate bonds and obligations 877,140 48,822 6,670 919,292
Mortgage-backed securities 192,398 2,844 29 195,213
---------- -------- -------- ----------
$1,081,193 $ 52,238 $ 6,699 $1,126,732
========== ======== ======== ==========
Available for sale
U.S. Government agency obligations $ 2,062 $ 116 $ -- $ 2,178
Corporate bonds and obligations 1,472,814 69,990 34,103 1,508,701
Mortgage-backed securities 1,051,836 32,232 89 1,083,979
---------- -------- -------- ----------
$2,526,712 $102,338 $34,192 $2,594,858
========== ======== ======= ==========
</TABLE>
<PAGE>
2. Investments (continued)
The amortized cost and fair value of investments in fixed maturities at
December 31, 1999 by contractual maturity are shown below. Expected
maturities will differ from contractual maturities because borrowers may
have the right to call or prepay obligations with or without call or
prepayment penalties.
Amortized Fair
Held to maturity Cost Value
Due in one year or less $ 26,214 $ 26,334
Due from one to five years 412,533 408,638
Due from five to ten years 331,187 320,146
Due in more than ten years 57,408 54,516
Mortgage-backed securities 179,007 174,469
------------- -------------
$ 1,006,349 $ 984,103
=========== ============
Amortized Fair
Available for sale Cost Value
Due in one year or less $ 46,937 $ 47,236
Due from one to five years 75,233 73,525
Due from five to ten years 1,037,001 980,633
Due in more than ten years 264,276 238,557
Mortgage-backed securities 988,352 964,536
------------ ------------
$2,411,799 $2,304,487
During the years ended December 31, 1999, 1998 and 1997, fixed maturities
classified as held to maturity were sold with amortized cost of $8,466,
$31,117 and $29,561, respectively. Net gains and losses on these sales were
not significant. The sales of these fixed maturities were due to
significant deterioration in the issuers' creditworthiness.
In addition, fixed maturities available for sale were sold during 1999 with
proceeds of $469,126 and gross realized gains and losses of $10,374 and
$4,147 respectively. Fixed maturities available for sale were sold during
1998 with proceeds of $48,492 and gross realized gains and losses of $2,835
and $4,516, respectively. Fixed maturities available for sale were sold
during 1997 with proceeds of $73,366 and gross realized gains and losses of
$1,081 and $1,440, respectively.
At December 31, 1999, bonds carried at $3,277 were on deposit with various
states as required by law.
<PAGE>
2. Investments (continued)
At December 31, 1999, investments in fixed maturities comprised 81 percent
of the Company's total invested assets. These securities are rated by
Moody's and Standard & Poor's (S&P), except for securities carried at
approximately $486 million which are rated by AEFC internal analysts using
criteria similar to Moody's and S&P. A summary of investments in fixed
maturities, at amortized cost, by rating on December 31 is as follows:
Rating 1999 1998
---------------------- ----------- -----------
Aaa/AAA $1,168,144 $1,242,301
Aa/AA 42,859 45,526
Aa/A 52,416 60,019
A/A 422,668 422,725
A/BBB 189,072 228,656
Baa/BBB 995,152 1,030,874
Baa/BB 64,137 79,687
Below investment grade 483,700 498,117
------------ ------------
$3,418,148 $3,607,905
At December 31, 1999, approximately 94 percent of the securities rated
Aaa/AAA were GNMA, FNMA and FHLMC mortgage-backed securities. No holdings
of any other issuer were greater than one percent of the Company's total
investments in fixed maturities.
At December 31, 1999, approximately 19 percent of the Company's invested
assets were mortgage loans on real estate. Summaries of mortgage loans by
region of the United States and by type of real estate are as follows:
<TABLE>
<CAPTION>
December 31, 1999 December 31, 1998
------------------------------- --------------------------------
<S> <C> <C> <C> <C>
On Balance Commitments On Balance Commitments
Region Sheet to Purchase Sheet to Purchase
---------------------------------- ----------- ----------- ---------- -----------
South Atlantic $194,325 $ -- $198,552 $ 651
Middle Atlantic 118,699 -- 129,284 520
East North Central 126,243 -- 134,165 2,211
Mountain 103,751 -- 113,581 --
West North Central 125,891 513 119,380 9,626
New England 43,345 802 46,103 --
Pacific 41,396 -- 43,706 --
West South Central 31,153 -- 32,086 --
East South Central 7,100 -- 7,449 --
----------- ------------ ----------- ------------
791,903 1,315 824,306 13,008
Less allowance for losses 6,650 -- 8,500 --
----------- ------------ ----------- ------------
$785,253 $ 1,315 $815,806 $13,008
======== ======== ======== =======
<PAGE>
2. Investments (continued)
December 31, 1999 December 31, 1998
------------------------------ ------------------------------
On Balance Commitments On Balance Commitments
Property type Sheet to Purchase Sheet to Purchase
---------- -------------- ---------- ------------
Department/retail stores $232,449 $ 1,315 $253,380 $ 781
Apartments 181,346 -- 186,030 2,211
Office buildings 202,132 -- 206,285 9,496
Industrial buildings 83,186 -- 82,857 520
Hotels/Motels 43,839 -- 45,552 --
Medical buildings 32,284 -- 33,103 --
Nursing/retirement homes 6,608 -- 6,731 --
Mixed Use 10,059 -- 10,368 --
---------- -------------- ---------- ------------
791,903 1,315 824,306 13,008
Less allowance for losses 6,650 -- 8,500 --
----------- -------------- ----------- ------------
$785,253 $ 1,315 $815,806 $13,008
======== ========== ======== =======
</TABLE>
Mortgage loan fundings are restricted by state insurance regulatory
authorities to 80 percent or less of the market value of the real estate at
the time of origination of the loan. The Company holds the mortgage
document, which gives it the right to take possession of the property if
the borrower fails to perform according to the terms of the agreement.
Commitments to purchase mortgages are made in the ordinary course of
business. The fair value of the mortgage commitments is $nil.
At December 31, 1999, the Company's recorded investment in impaired loans
was $5,200 with an allowance of $1,250. At December 31, 1998, the Company's
recorded investment in impaired loans was $1,932 with an allowance of $500.
During 1999 and 1998, the average recorded investment in impaired loans was
$5,399 and $2,736, respectively.
The Company recognized $136, $251 and $nil of interest income related to
impaired loans for the years ended December 31, 1999, 1998 and 1997,
respectively.
The following table presents changes in the allowance for investment losses
related to all loans:
<TABLE>
<S> <C> <C> <C>
1999 1998 1997
---- ---- ----
Balance, January 1 $8,500 $3,718 $2,370
Provision (reduction) for investment losses (1,850) 4,782 1,805
Loan payoffs -- -- (457)
------ --------- -------
Balance, December 31 $6,650 $8,500 $3,718
====== ====== ======
Net investment income for the years ended December 31 is summarized as
follows:
1999 1998 1997
----- ----- ----
Interest on fixed maturities $265,199 $285,260 $278,736
Interest on mortgage loans 63,721 65,351 55,085
Interest on cash equivalents 534 137 704
Other (1,755) (2,493) 1,544
---------- ---------- ----------
327,699 348,255 336,069
Less investment expenses 4,953 8,036 3,801
--------- ---------- ----------
$322,746 $340,219 $332,268
======== ======== ========
</TABLE>
<PAGE>
2. Investments (continued)
Net realized gain (loss) on investments for the years ended December 31 is
summarized as follows:
<TABLE>
<S> <C> <C> <C>
1999 1998 1997
---- ---- ----
Fixed maturities $ 6,534 $ 863 $ 1,638
Mortgage loans (1,650) (4,816) (1,348)
Other investments (1,819) (835) (799)
--------- -------- -------
$ 3,065 $(4,788) $ (509)
========= ======= =======
Changes in net unrealized appreciation (depreciation) of investments for
the years ended December 31 are summarized as follows:
1999 1998 1997
----- ----- ----
Fixed maturities available for sale $(175,458) $(8,032) $57,188
3. Income taxes
The Company qualifies as a life insurance company for federal income tax
purposes. As such, the Company is subject to the Internal Revenue Code
provisions applicable to life insurance companies.
The income tax expense (benefit) for the years ended December 31, consists
of the following:
1999 1998 1997
---- ---- ----
Federal income taxes:
Current $ 15,531 $ 23,227 $17,668
Deferred 711 (9,591) (2,485)
-------- -------- -------
16,242 13,636 15,183
State income taxes-current 433 759 1,462
-------- -------- -------
Income tax expense $ 16,675 $ 14,395 $16,645
======== ======== =======
</TABLE>
Increases (decreases) to the federal income tax provision applicable to
pretax income based on the statutory rate, for the years ended December 31,
are attributable to:
<TABLE>
<CAPTION>
1999 1998 1997
------------------ ------------------ ---------------------
Provision Rate Provision Rate Provision Rate
--------- ----- --------- ----- --------- -----
<S> <C> <C> <C> <C> <C> <C>
Federal income taxes based
on the statutory rate $17,731 35.0% $13,972 35.0% $15,735 35.0%
Increases (decreases) are
attributable to:
Tax-excluded interest (14) -- (35) (0.1) (41) (0.1)
State tax, net of federal benefit 281 0.5 493 1.2 956 2.1
Reduction of mortgage loss
reserve (1,225) (2.4) -- -- -- --
Other, net (98) (0.2) (35) -- (5) --
------ ----- -------- ------ ---- ------
Total income taxes $16,675 32.9 % $14,395 36.1% $16,645 37.0%
======= ===== ======= ==== ======= ====
</TABLE>
<PAGE>
3. Income taxes (continued)
Significant components of the Company's deferred income tax assets and
liabilities as of December 31 are as follows:
Deferred income tax assets: 1999 1998
------- -------
Policy reserves $46,243 $51,298
Unrealized losses on investments 39,678 --
Other 1,070 2,214
-------- --------
Total deferred income tax assets 86,991 53,512
-------- --------
Deferred income tax liabilities:
Deferred policy acquisition costs 49,490 52,908
Unrealized gains on investments -- 23,803
-------- --------
Total deferred income tax liabilities 49,490 76,711
-------- --------
Net deferred income tax assets (liabilities) $37,501 ($23,199)
======= ========
The Company is required to establish a valuation allowance for any portion
of the deferred income tax assets that management believes will not be
realized. In the opinion of management, it is more likely than not that the
Company will realize the benefit of the deferred income tax assets and,
therefore, no such valuation allowance has been established.
4. Stockholder's equity
Retained earnings available for distribution as dividends to IDS Life are
limited to the Company's surplus as determined in accordance with
accounting practices prescribed by state insurance regulatory authorities.
Statutory unassigned surplus aggregated $58,223 and $45,716 as of December
31, 1999 and 1998, respectively. In addition, dividends in excess of
$15,241 would require approval by the Insurance Department of the state of
Indiana.
Statutory net income and stockholder's equity as of December 31, are
summarized as follows:
1999 1998 1997
--------- --------- -------
Statutory net income $ 15,241 $ 37,902 $ 23,589
Statutory stockholder's equity 343,094 330,588 302,264
5. Related party transactions
The Company has purchased interest rate floors from IDS Life and entered
into an interest rate swap with IDS Life to manage its exposure to interest
rate risk. The interest rate floors had a carrying amount of $8,258 and
$6,651 at December 31, 1999 and 1998, respectively. The interest rate swap
is an off balance sheet transaction.
The Company has no employees. Charges by IDS Life for services and use of
other joint facilities aggregated $38,931, $28,482 and $24,535 for the
years ended December 31, 1999, 1998 and 1997, respectively. Certain of
these costs are included in deferred policy acquisition costs.
<PAGE>
6. Lines of credit
The Company has an available line of credit with AEFC aggregating $50,000.
The rate for the line of credit is established by reference to various
indices plus 20 to 45 basis points, depending on the term. There were no
borrowings outstanding under this agreement at December 31, 1999 or 1998.
7. Derivative financial instruments
The Company enters into transactions involving derivative financial
instruments to manage its exposure to interest rate risk, including hedging
specific transactions. The Company does not hold derivative instruments for
trading purposes. The Company manages risks associated with these
instruments as described below.
Market risk is the possibility that the value of the derivative financial
instruments will change due to fluctuations in a factor from which the
instrument derives its value, primarily an interest rate. The Company is
not impacted by market risk related to derivatives held for non-trading
purposes beyond that inherent in cash market transactions. Derivatives are
largely used to manage risk and, therefore, the cash flow and income
effects of the derivatives are inverse to the effects of the underlying
transactions.
Credit risk is the possibility that the counterparty will not fulfill the
terms of the contract. The Company monitors credit risk related to
derivative financial instruments through established approval procedures,
including setting concentration limits by counterparty, and requiring
collateral, where appropriate. A vast majority of the Company's
counterparties are rated A or better by Moody's and Standard & Poor's.
Credit risk related to interest rate caps and floors is measured by
replacement cost of the contracts. The replacement cost represents the fair
value of the instruments.
The notional or contract amount of a derivative financial instrument is
generally used to calculate the cash flows that are received or paid over
the life of the agreement. Notional amounts are not recorded on the balance
sheet. Notional amounts far exceed the related credit exposure.
The Company's holdings of derivative financial instruments are as follows:
<TABLE>
<CAPTION>
Notional Carrying Fair Total Credit
December 31, 1999 Amount Amount Value Exposure
----------------- -------- -------- ------ ------------
<S> <C> <C> <C> <C>
Assets:
Interest rate caps $ 900,000 $ 3,212 $ 4,437 $ 4,437
Interest rate floors 2,000,000 8,258 2,251 2,251
Off balance sheet assets:
Interest rate swaps 2,000,000 -- 18,274 18,274
--------- -------- --------
$11,470 $24,962 $24,962
======= ======= =======
<PAGE>
7. Derivative financial instruments (continued)
Notional Carrying Fair Total Credit
December 31, 1998 Amount Amount Value Exposure
----------------- -------- -------- ------ ------------
Assets:
Interest rate caps $ 900,000 $ 5,452 $ 1,518 $ 1,518
Interest rate floors 1,000,000 6,651 17,798 17,798
Off balance sheet liabilities:
Interest rate swaps 1,000,000 -- (33,500) --
--------- ---------- --------
$12,103 ($ 14,184) $19,316
======= =========== =======
</TABLE>
The fair values of derivative financial instruments are based on market
values, dealer quotes or pricing models. All interest rate caps, floors and
swaps will expire on various dates from 2000 to 2006.
Interest rate caps, floors and swaps are used to manage the Company's
exposure to interest rate risk. These instruments are used primarily to
protect the margin between interest rates earned on investments and the
interest rates credited to related annuity contract holders.
8. Fair values of financial instruments
The Company discloses fair value information for most on- and off-balance
sheet financial instruments for which it is practicable to estimate that
value. Fair value of life insurance obligations, receivables and all
non-financial instruments, such as deferred acquisition costs are excluded.
Off-balance sheet intangible assets are also excluded. Management believes
the value of excluded assets and liabilities is significant. The fair value
of the Company, therefore, cannot be estimated by aggregating the amounts
presented.
<TABLE>
<CAPTION>
December 31,
1999 1998
-------------------------- --------------------------
Carrying Fair Carrying Fair
Financial Assets Amount Value Amount Value
---------------- ---------- --------- ---------- ----------
<S> <C> <C> <C> <C>
Investments:
Fixed maturities (Note 2):
Held to maturity $1,006,349 $984,103 $1,081,193 $1,126,732
Available for sale 2,304,487 2,304,487 2,594,858 2,594,858
Mortgage loans on real estate (Note 2) 785,253 770,095 815,806 874,064
Derivative financial instruments (Note 7) 11,470 24,962 12,103 19,316
Separate account assets (Note 1) 220,994 220,994 123,185 123,185
Financial Liabilities
Future policy benefits for fixed annuities $3,905,849 $3,778,945 $4,152,059 $4,000,789
Separate account liabilities 220,994 209,942 123,185 115,879
Derivative financial instruments (Note 7) -- -- -- 33,500
</TABLE>
At December 31, 1999 and 1998, the carrying amount and fair value of future
policy benefits for fixed annuities exclude life insurance-related
contracts carried at $15,633 and $14,793, respectively. The fair value of
these benefits is based on the status of the annuities at December 31, 1999
and 1998.
<PAGE>
8. Fair values of financial instruments (continued)
The fair values of deferred annuities and separate account liabilities are
estimated as the carrying amount less applicable surrender charges. The
fair value for annuities in non-life contingent payout status is estimated
as the present value of projected benefit payments at rates appropriate for
contracts issued in 1999 and 1998.
9. Commitments and contingencies
In January 2000, AEFC reached an agreement in principle to settle three
class-action lawsuits. The Company had been named as a co-defendant in one
of these lawsuits. It is expected the settlement will provide $215 million
of benefits to more than 2 million participants. The agreement in principle
to settle also provides for release by class members of all insurance and
annuity market conduct claims dating back to 1985 and is subject to a
number of contingencies including a definitive agreement and court
approval. The portion of the settlement allocated to the Company did not
have a material impact on the Company's financial position or results from
operations.
10. YEAR 2000 ISSUE (unaudited)
The Year 2000 issue is the result of computer programs having been written
using two digits rather than four to define a year. Any programs that have
time-sensitive software may recognize a date using "00" as the year 1900
rather than 2000. This could result in the failure of major systems or
miscalculations, which could have a material impact on the operations of
the Company. All of the major systems used by the Company are maintained by
AEFC and are utilized by multiple subsidiaries and affiliates of AEFC. The
Company's businesses are heavily dependent upon AEFC's computer systems and
have significant interaction with systems of third parties.
A comprehensive review of AEFC's computer systems and business processes,
including those specific to the Company, was conducted to identify the
major systems that could be affected by the Year 2000 issue. Steps were
taken to resolve potential problems including modification to existing
software and the purchase of new software. As of December 31, 1999, AEFC
had completed its program of corrective measures on its internal systems
and applications, including Year 2000 compliance testing. As of December
31, 1999, AEFC had also completed an evaluation of the Year 2000 readiness
of other third parties whose system failures could have an impact on the
Company's operations.
AEFC's Year 2000 project also included establishing Year 2000 contingency
plans for all key business units. Business continuation plans, which
address business continuation in the event of a system disruption, are in
place for all key business units. At December 31, 1999, these plans had
been amended to include specific Year 2000 considerations.
In assessing its Year 2000 initiatives and the results of actual production
since January 1, 2000, management believes no material adverse consequences
were experienced, and there was no material effect on the Company's
business, results of operations, or financial condition as a result of the
Year 2000 issue.
<PAGE>
TABLE OF CONTENTS OF THE STATEMENT OF ADDITIONAL INFORMATION
Performance Information.............................p.
Calculating Annuity Payouts.........................p.
Rating Agencies.....................................p.
Principal Underwriter...............................p.
Independent Auditors................................p.
Financial Statements
<PAGE>
Please check the appropriate box to receive a copy of the Statement of
Additional Information for:
[ ] American express New Solutions Variable Annuity(SM)
[ ] American Express Variable Portfolio Funds
[ ] AIM Variable Insurance Funds
[ ] Alliance variable Products Series Fund
[ ] Evergreen Variable Annuity Trust
[ ] Fidelity Variable Insurance Products Funds - Service Class
[ ] Franklin Templeton Variable Insurance Products Trust
[ ] MFS(R) Variable Insurance Trust(SM)
[ ] Putnam Variable Trust - Class IB shares
MAIL YOUR REQUEST TO:
American Enterprise Life Insurance Company
829 AXP Financial Center
Minneapolis, MN 55474
We will mail your request to:
Your name ___________________________________________________________________
Address _____________________________________________________________________
City ___________________________________State _________________Zip __________
<PAGE>
STATEMENT OF ADDITIONAL INFORMATION
for
AMERICAN EXPRESS NEW SOLUTIONS 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
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 Qualified
Annuities Without Withdrawal 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 -
UCMG1 Cash Management Fund (10/81)** 3.62% 4.00% 3.79% 5.46%
UFIF1 Federal Income Fund (9/99) -- -- -- 0.16
UMGD1 Managed Fund (4/86) 13.63 16.98 12.34 11.70
UNDM1 New Dimensions Fund(R)(5/96) 30.62 -- -- 25.02
USPF1 S&P 500 Index Fund (_/_)** -- -- -- --
USCA1 Small Cap Advantage Fund (9/99) -- -- -- 12.32
AIM V.I.
UCAP1 Capital Appreciation Fund (5/93) 43.12 24.27 -- 21.04
UDDT1 Dent Demographics Trends Fund (12/99) -- -- -- -0.11
UVAL1 Value Fund (5/93) 28.56 25.90 -- 21.77
Alliance VP
UGIP1 Growth & Income Portfolio (Class B) 10.04 22.57 -- 14.23
(1/91)
UPRG1 Premier Growth Portfolio (Class B) 30.77 34.57 -- 24.98
(6/92)
UTEC1 Technology Portfolio (Class B) (1/96) 73.89 -- -- 34.48
Evergreen VA
UEGL1 Global Leaders Fund (3/97) 23.41 -- -- 17.23
UEGI1 Growth and Income Fund (3/96) 17.32 -- -- 18.40
UEMS1 Masters Fund (1/99) -- -- -- 26.34
UEOM1 Omega Fund (3/97) 45.70 -- -- 26.46
UESC1 Small Cap Value Fund (5/98) 10.89 -- -- 4.11
UESI1 Strategic Income Fund (3/97) 0.56 -- -- 3.43
Fidelity VIP
UMDC1 III Mid Cap Portfolio (Service 47.39 -- -- 51.43
Class) (12/98)
UCOF1 Contrafund(R)Portfolio (Service 22.84 -- -- 26.35
Class) (1/95)
UHIP1 High Income Portfolio (Service 6.93 9.67 9.96 5.08
Class) (9/85)
Franklin Templeton VIP Trust
USMC1 Franklin Small Cap Fund - Class 2 104.07 -- -- 30.45
(10/95)****
UMSS1 Mutual Shares Securities Fund - 12.38 -- -- 9.67
Class 2 (11/96)****
UDMS1 Templeton Developing Markets 51.68 -- -- -6.47
Securities Fund - Class 2 (3/96)+
UINT1 Templeton International Securities 21.94 15.80 -- 14.03
Fund - Class 2 (5/92)+
MFS(R) VIT
UGRS1 Growth Series - Service Class (5/99) -- -- -- 38.51
UNDS1 New Discovery Series - Service Class 68.55 -- -- 37.79
(4/98)
UTRS1 Total Return Series - Service Class 1.99 -- -- 14.19
(1/95)
Putnam Variable Trust
UGIN1 Putnam VT Growth and Income Fund - 0.32 18.62 13.02 14.17
Class IB Shares (2/88)++
UINO1 Putnam VT International New 100.72 -- -- 50.14
Opportunities Fund - Class IB Shares
(4/98)++
UVIS1 Putnam VT Vista Fund - Class IB 51.10 -- -- 29.69
Shares (1/97)++
* Current applicable charges deducted from fund performance include a $40
contract administrative charge, a 0.85% 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.
*** Had not commenced operations as of Dec. 31, 1999.
**** 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>
+ Prior to May 1, 2000, the Templeton International Securities Fund was
called the Templeton International Fund and the Templeton Developing
Markets Securities Fund was called the Templeton Developing Markets Fund.
Class 2 shares were issued May 1, 1997. Prior to May 1, 1997, Class 2
performance represents the historical performance results of Class 1
shares. Performance of Class 2 shares for periods after May 1, 1997 reflect
Class 2's additional 12b-1 fee expense, which also affects all future
performance. Figures assume reinvestment of dividends and capital gains.
++ 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 Qualified Annuities With Withdrawal 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 -
UCMG1 Cash Management Fund (10/81)** -3.87% 2.96% 3.79% 5.46%
UFIF1 Federal Income Fund (9/99) -- -- -- -7.05
UMGD1 Managed Fund (4/86) 5.63 16.33 12.34 11.70
UNDM1 New Dimensions Fund(R)(5/96) 22.62 -- -- 23.96
USPF1 S&P 500 Index Fund (_/_)** -- -- -- --
USCA1 Small Cap Advantage Fund (9/99) -- -- -- 4.32
AIM V.I.
UCAP1 Capital Appreciation Fund (5/93) 35.12 23.76 -- 20.88
UDDT1 Dent Demographics Trends Fund (12/99) -- -- -- -7.31
UVAL1 Value Fund (5/93) 20.56 25.41 -- 21.62
Alliance VP
UGIP1 Growth & Income Portfolio (Class B) 2.04 22.04 -- 14.23
(1/91)
UPRG1 Premier Growth Portfolio (Class B) 22.77 34.21 -- 24.98
(6/92)
UTEC1 Technology Portfolio (Class B) (1/96) 65.89 -- -- 33.75
Evergreen VA
UEGL1 Global Leaders Fund (3/97) 15.41 -- -- 15.35
UEGI1 Growth and Income Fund (3/96) 9.32 -- -- 17.25
UEMS1 Masters Fund (1/99) -- -- -- 18.34
UEOM1 Omega Fund (3/97) 37.70 -- -- 24.82
UESC1 Small Cap Value Fund (5/98) 2.89 -- -- -0.47
UESI1 Strategic Income Fund (3/97) -6.69 -- -- 1.06
Fidelity VIP
UMDC1 III Mid Cap Portfolio (Service 39.39 -- -- 43.52
Class) (12/98)
UCOF1 Contrafund(R)Portfolio (Service 14.84 -- -- 25.88
Class) (1/95)
UHIP1 High Income Portfolio (Service -0.82 8.83 9.96 5.08
Class) (9/85)
Franklin Templeton VIP Trust
USMC1 Franklin Small Cap Fund - Class 2 96.07 -- -- 29.83
(10/95)****
UMSS1 Mutual Shares Securities Fund - 4.38 -- -- 7.82
Class 2 (11/96)****
UDMS1 Templeton Developing Markets 43.68 -- -- -8.11
Securities Fund - Class 2 (3/96)+
UINT1 Templeton International Securities 13.94 15.12 -- 14.03
Fund - Class 2 (5/92)+
MFS(R) VIT
UGRS1 Growth Series - Service Class (5/99) -- -- -- 30.51
UNDS1 New Discovery Series - Service Class 60.55 -- -- 33.91
(4/98)
UTRS1 Total Return Series - Service Class -5.37 -- -- 13.47
(1/95)
Putnam Variable Trust
UGIN1 Putnam VT Growth and Income Fund - -6.91 18.01 13.02 14.17
Class IB Shares (2/88)++
UINO1 Putnam VT International New 92.72 -- -- 46.47
Opportunities Fund - Class IB Shares
(4/98)++
UVIS1 Putnam VT Vista Fund - Class IB 43.10 -- -- 28.28
Shares (1/97)++
* Current applicable charges deducted from fund performance include a $40
contract administrative charge, a 0.85% mortality and expense risk fee, a
0.15% variable account administrative charge and applicable withdrawal
charges.
Premium taxes are not reflected in the above total returns.
** Commencement date of the subacount; commencement date of the Fund)
*** Had not commenced operations as of Dec. 31, 1999.
**** 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>
+ Prior to May 1, 2000, the Templeton International Securities Fund was
called the Templeton International Fund and the Templeton Developing
Markets Securities Fund was called the Templeton Developing Markets Fund.
Class 2 shares were issued May 1, 1997. Prior to May 1, 1997, Class 2
performance represents the historical performance results of Class 1
shares. Performance of Class 2 shares for periods after May 1, 1997 reflect
Class 2's additional 12b-1 fee expense, which also affects all future
performance. Figures assume reinvestment of dividends and capital gains.
++ 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 Qualified
Annuities Without Withdrawal and Selection of the Maximum Anniversary Value
Death Benefit and Guaranteed Minimum Income Benefit Riders 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 -
UCMG2 Cash Management Fund (10/81)** 3.22% 3.60% 3.39% 5.06%
UFIF2 Federal Income Fund (9/99) -- -- -- -0.17
UMGD2 Managed Fund (4/86) 13.22 16.56 11.93 11.28
UNDM2 New Dimensions Fund(R)(5/96) 30.19 -- -- 24.60
USPF2 S&P 500 Index Fund (_/_)** -- -- -- --
USCA2 Small Cap Advantage Fund (9/99) -- -- -- 11.99
AIM V.I.
UCAP2 Capital Appreciation Fund (5/93) 42.67 24.15 23.85 20.92
20.62 Dent Demographics Trends Fund (12/99) -- -- -- -0.42
UVAL2 Value Fund (5/93) 28.13 25.47 -- 21.34
Alliance VP
UGIP2 Growth & Income Portfolio (Class B) 9.63 22.15 -- 13.82
(1/91)
UPRG2 Premier Growth Portfolio (Class B) 30.34 34.14 -- 24.55
(6/92)
UTEC2 Technology Portfolio (Class B) (1/96) 73.42 -- -- 34.05
Evergreen VA
UEGL2 Global Leaders Fund (3/97) 22.98 -- -- 16.81
UEGI2 Growth and Income Fund (3/96) 16.90 -- -- 17.98
UEMS2 Masters Fund (1/99) -- -- -- 25.92
UEOM2 Omega Fund (3/97) 45.26 -- -- 26.03
UESC2 Small Cap Value Fund (5/98) 10.48 -- -- 3.71
UESI2 Strategic Income Fund (3/97) 0.16 -- -- 3.02
Fidelity VIP
UMDC2 III Mid Cap Portfolio (Service 46.95 -- -- 50.98
Class) (12/98)
UCOF2 Contrafund(R)Portfolio (Service 22.42 -- -- 25.93
Class) (1/95)
UHIP2 High Income Portfolio (Service 6.53 9.26 9.55 4.67
Class) (9/85)
Franklin Templeton VIP Trust
USMC2 Franklin Small Cap Fund - Class 2 103.57 -- -- 30.02
(10/95)****
UMSS2 Mutual Shares Securities Fund - 11.97 -- -- 9.26
Class 2 (11/96)****
UDMS2 Templeton Developing Markets 51.23 -- -- -6.86
Securities Fund - Class 2 (3/96)+
UINT2 Templeton International Securities 21.52 15.38 -- 13.61
Fund - Class 2 (5/92)+
MFS(R) VIT
UGRS2 Growth Series - Service Class (5/99) -- -- -- 38.12
UNDS2 New Discovery Series - Service Class 68.08 -- -- 37.36
(4/98)
UTRS2 Total Return Series - Service Class 1.59 -- -- 13.77
(1/95)
Putnam Variable Trust
UGIN2 Putnam VT Growth and Income Fund - -0.08 18.20 12.61 13.75
Class IB Shares (2/88)++
UINO2 Putnam VT International New 100.22 -- -- 49.69
Opportunities Fund - Class IB Shares
(4/98)++
UVIS2 Putnam VT Vista Fund - Class IB 50.65 -- -- 29.26
Shares (1/97)++
* Current applicable charges deducted from fund performance include a $40
contract administrative charge, a 0.85% mortality and expense risk fee, a
0.15% variable account administrative charge, a 0.10% Maximum Anniversary
Value 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 subacount; commencement date of the Fund)
*** Had not commenced operations as of Dec. 31, 1999.
**** 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>
+ Prior to May 1, 2000, the Templeton International Securities Fund was
called the Templeton International Fund and the Templeton Developing
Markets Securities Fund was called the Templeton Developing Markets Fund.
Class 2 shares were issued May 1, 1997. Prior to May 1, 1997, Class 2
performance represents the historical performance results of Class 1
shares. Performance of Class 2 shares for periods after May 1, 1997 reflect
Class 2's additional 12b-1 fee expense, which also affects all future
performance. Figures assume reinvestment of dividends and capital gains.
++ 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 Qualified
Annuities With Withdrawal and Selection of the Maximum Anniversary Value Death
Benefit and Guaranteed Minimum Income Benefit Riders 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 -
UCMG2 Cash Management Fund (10/81)** -4.24% 2.47% 3.39% 5.04%
UFIF2 Federal Income Fund (9/99) -- -- -- -7.66
UMGD2 Managed Fund (4/86) 5.22 15.83 11.93 11.26
UNDM2 New Dimensions Fund(R)(5/96) 22.19 -- -- 23.42
USPF2 S&P 500 Index Fund (_/_)** -- -- -- --
USCA2 Small Cap Advantage Fund (9/99) -- -- -- 3.65
AIM V.I.
UCAP2 Capital Appreciation Fund (5/93) 34.67 23.26 -- 20.40
UDDT2 Dent Demographics Trends Fund (12/99) -- -- -- -7.88
UVAL2 Value Fund (5/93) 20.13 24.90 -- 21.14
Alliance VP
UGIP2 Growth & Income Portfolio (Class B) 1.66 21.53 -- 13.78
(1/91)
UPRG2 Premier Growth Portfolio (Class B) 22.34 33.69 -- 24.50
(6/92)
UTEC2 Technology Portfolio (Class B) (1/96) 65.42 -- -- 33.20
Evergreen VA
UEGL2 Global Leaders Fund (3/97) 14.98 -- -- 14.79
UEGI2 Growth and Income Fund (3/96) 8.90 -- -- 16.73
UEMS2 Masters Fund (1/99) -- -- -- 17.55
UEOM2 Omega Fund (3/97) 37.26 -- -- 24.25
UESC2 Small Cap Value Fund (5/98) 2.48 -- -- -1.05
UESI2 Strategic Income Fund (3/97) -7.06 -- -- 0.56
Fidelity VIP
UMDC2 III Mid Cap Portfolio (Service 38.95 -- -- 42.62
Class) (12/98)
UCOF2 Contrafund(R)Portfolio (Service 14.42 -- -- 25.37
Class) (1/95)
UHIP2 High Income Portfolio (Service -1.20 8.34 9.55 4.65
Class) (9/85)
Franklin Templeton VIP Trust
USMC2 Franklin Small Cap Fund - Class 2 95.57 -- -- 29.29
(10/95)****
UMSS2 Mutual Shares Securities Fund - 3.97 -- -- 7.29
Class 2 (11/96)****
UDMS2 Templeton Developing Markets 43.23 -- -- -8.58
Securities Fund - Class 2 (3/96)+
UINT2 Templeton International Securities 13.52 14.63 -- 13.57
Fund - Class 2 (5/92)+
MFS(R) VIT
UGRS2 Growth Series - Service Class (5/99) -- -- -- 29.70
UNDS2 New Discovery Series - Service Class 60.08 -- -- 33.21
(4/98)
UTRS2 Total Return Series - Service Class -5.74 -- -- 12.98
(1/95)
Putnam Variable Trust
UGIN2 Putnam VT Growth and Income Fund - -7.27 17.51 12.61 13.73
Class IB Shares (2/88)++
UINO2 Putnam VT International New 92.22 -- -- 45.74
Opportunities Fund - Class IB Shares
(4/98)++
UVIS2 Putnam VT Vista Fund - Class IB 42.65 -- -- 27.71
Shares (1/97)++
* Current applicable charges deducted from fund performance include a $40
contract administrative charge, a 0.85% mortality and expense risk fee, a
0.15% variable account administrative charge, a 0.10% Maximum Anniversary
Value Death Benefit Rider fee, a 0.30% Guaranteed Minimum Income Benefit
Rider fee and applicable withdrawal charges.
Premium taxes are not reflected in the above total returns.
** (Commencement date of the Fund)
*** Had not commenced operations as of Dec. 31, 1999.
**** 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>
+ Prior to May 1, 2000, the Templeton International Securities Fund was
called the Templeton International Fund and the Templeton Developing
Markets Securities Fund was called the Templeton Developing Markets Fund.
Class 2 shares were issued May 1, 1997. Prior to May 1, 1997, Class 2
performance represents the historical performance results of Class 1
shares. Performance of Class 2 shares for periods after May 1, 1997 reflect
Class 2's additional 12b-1 fee expense, which also affects all future
performance. Figures assume reinvestment of dividends and capital gains.
++ 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 Nonqualified Annuities Without Withdrawal For Periods Ending
Dec. 31, 1999
<S> <C> <C> <C> <C> <C> <C> <C>
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
- ---------- ------------- ------ ------------ ------ ------- -------- ------------
AXP(SM) Variable Portfolio -
PCMG1 Cash Management Fund (11/99; 10/81)** 3.43% 0.52% 3.43% 3.76% 3.54% 5.20%
UFIF3 Federal Income Fund (9/99) -- -- -- -- -- 0.08
PMGD1 Managed Fund (11/99; 4/86) 13.35 7.04 13.35 16.68 12.06 11.42
PNDM1 New Dimensions Fund(R)(11/99; 5/96) 30.29 13.87 30.29 -- -- 24.71
USPF2 S&P 500 Index Fund (_/_)** -- -- -- -- -- --
PSCA1 Small Cap Advantage Fund (11/99; -- 8.48 -- -- -- 11.71
9/99)
AIM V.I.
PCAP1 Capital Appreciation Fund (11/99; 42.80 21.74 42.80 23.97 -- 20.74
5/93)
UDDT3 Dent Demographics Trends Fund (12/99) -- -- -- -- -- -0.12
PVAL1 Value Fund (11/99; 5/93) 28.26 10.10 28.26 25.59 -- 21.46
Alliance VP
UGIP3 Growth & Income Portfolio (Class B) -- -- 9.77 22.27 -- 13.95
(1/91)
UPRG3 Premier Growth Portfolio (Class B) -- -- 30.44 34.24 -- 24.66
(6/92)
UTEC3 Technology Portfolio (Class B) (1/96) -- -- 73.46 -- -- 34.15
Evergreen VA
UEGL3 Global Leaders Fund (3/97) -- -- 23.10 -- -- 16.94
UEGI3 Growth and Income Fund (3/96) -- -- 17.02 -- -- 18.10
UEMS3 Masters Fund (1/99) -- -- -- -- -- 26.05
UEOM3 Omega Fund (3/97) -- -- 45.34 -- -- 26.14
UESC3 Small Cap Value Fund (5/98) -- -- 10.61 -- -- 3.85
UESI3 Strategic Income Fund (3/97) -- -- 0.30 -- -- 3.17
Fidelity VIP -- --
PMDC1 III Mid Cap Portfolio (Service 46.88 19.37 46.88 -- -- 50.91
Class) (11/99; 12/98)
UCOF3 Contrafund(R)Portfolio (Service -- -- 22.54 -- -- 26.04
Class) (1/95)
UHIP3 High Income Portfolio (Service -- -- 6.67 9.40 9.68 4.81
Class) (9/85)
Franklin Templeton VIP Trust
PSMC1 Franklin Small Cap Fund - Class 2 103.67 34.13 103.67 -- -- 30.11
(11/99; 10/95)***
PMSS1 Mutual Shares Securities Fund - 12.13 3.28 12.13 -- -- 9.41
Class 2 (11/99; 11/96)****
UDMS3 Templeton Developing Markets -- -- 51.30 -- -- -6.70
Securities Fund - Class 2 (3/96)+
UINT3 Templeton International Securities -- -- 21.63 15.51 -- 13.74
Fund - Class 2 (5/92)+
MFS(R) VIT
UGRS3 Growth Series - Service Class (5/99) -- -- -- -- -- 38.28
PNDS1 New Discovery Series - Service Class 71.25 30.46 71.25 -- -- 38.97
(11/99; 4/98)
PTRS1 Total Return Series - Service Class 1.75 -0.40 1.75 -- -- 13.91
(11/99; 1/95)
Putnam Variable Trust
PGIN1 Putnam VT Growth and Income Fund - 0.19 -2.32 0.19 18.37 12.76 13.90
Class IB Shares (11/99; 2/88)++
UINO3 Putnam VT International New -- -- 100.22 -- -- 49.77
Opportunities Fund - Class IB Shares
(4/98)++
UVIS3 Putnam VT Vista Fund - Class IB -- -- 50.72 -- -- 29.36
Shares (1/97)++
* Current applicable charges deducted from fund performance include a $40
contract administrative charge, a 1.10% 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)
*** Had not commenced operations as of Dec. 31, 1999.
**** 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>
+ Prior to May 1, 2000, the Templeton International Securities Fund was
called the Templeton International Fund and the Templeton Developing
Markets Securities Fund was called the Templeton Developing Markets Fund.
Class 2 shares were issued May 1, 1997. Prior to May 1, 1997, Class 2
performance represents the historical performance results of Class 1
shares. Performance of Class 2 shares for periods after May 1, 1997 reflect
Class 2's additional 12b-1 fee expense, which also affects all future
performance. Figures assume reinvestment of dividends and capital gains.
++ 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 Nonqualified Annuities With Withdrawal For Periods Ending
Dec. 31, 1999
<S> <C> <C> <C> <C> <C> <C> <C>
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
- ---------- ------------- ------ ------------ ------ ------- -------- ------------
AXP(SM) Variable Portfolio -
PCMG1 Cash Management Fund (11/99; 10/81)** -4.05% -6.65% -4.05% 2.70% 3.54% 5.20%
UFIF3 Federal Income Fund (9/99) -- -- -- -- -- -7.13
PMGD1 Managed Fund (11/99; 4/86) 5.35 -0.66 5.35 16.03 12.06 11.42
PNDM1 New Dimensions Fund(R)(11/99; 5/96) 22.29 5.94 22.29 -- -- 23.64
USPF2 S&P 500 Index Fund (_/_)** -- -- -- -- -- --
PSCA1 Small Cap Advantage Fund (11/99; -- 0.66 -- -- -- 3.71
9/99)
AIM V.I.
PCAP1 Capital Appreciation Fund (11/99; 34.80 13.80 34.80 23.46 -- 20.58
5/93)
UDDT3 Dent Demographics Trends Fund (12/99) -- -- -- -- -- -7.31
PVAL1 Value Fund (11/99; 5/93) 20.26 2.17 20.26 25.10 -- 21.31
Alliance VP
UGIP3 Growth & Income Portfolio (Class B) -- -- 1.78 21.73 -- 13.95
(1/91)
UPRG3 Premier Growth Portfolio (Class B) -- -- 22.44 33.87 -- 24.66
(6/92)
UTEC3 Technology Portfolio (Class B) (1/96) -- -- 65.46 -- -- 33.41
Evergreen VA
UEGL3 Global Leaders Fund (3/97) -- -- 15.10 -- -- 15.04
UEGI3 Growth and Income Fund (3/96) -- -- 9.02 -- -- 16.95
UEMS3 Masters Fund (1/99) -- -- -- -- -- 18.05
UEOM3 Omega Fund (3/97) -- -- 37.34 -- -- 24.50
UESC3 Small Cap Value Fund (5/98) -- -- 2.61 -- -- -0.72
UESI3 Strategic Income Fund (3/97) -- -- -6.92 0.81
Fidelity VIP -- --
PMDC1 III Mid Cap Portfolio (Service 38.88 11.44 38.88 -- -- 43.00
Class) (11/99; 12/98)
UCOF3 Contrafund(R)Portfolio (Service -- -- 14.54 -- -- 25.56
Class) (1/95)
UHIP3 High Income Portfolio (Service -- -- -1.07 8.55 9.68 4.81
Class) (9/85)
Franklin Templeton VIP Trust
PSMC1 Franklin Small Cap Fund - Class 2 95.67 26.20 95.67 -- -- 29.48
(11/99; 10/95)***
PMSS1 Mutual Shares Securities Fund - 4.13 -4.12 4.13 -- -- 7.55
Class 2 (11/99; 11/96)****
UDMS3 Templeton Developing Markets -- -- 43.30 -- -- -8.34
Securities Fund - Class 2 (3/96)+
UINT3 Templeton International Securities -- -- 13.63 14.83 -- 13.74
Fund - Class 2 (5/92)+
MFS(R) VIT
UGRS3 Growth Series - Service Class (5/99) -- -- -- -- -- 30.28
PNDS1 New Discovery Series - Service Class 63.25 22.53 63.25 -- -- 35.10
(11/99; 4/98)
PTRS1 Total Return Series - Service Class -5.59 -7.51 -5.59 -- -- 13.18
(11/99; 1/95)
Putnam Variable Trust
PGIN1 Putnam VT Growth and Income Fund - -7.03 -9.27 -7.03 17.75 12.76 13.90
Class IB Shares (11/99; 2/88)++
UINO3 Putnam VT International New -- -- 92.22 -- -- 46.08
Opportunities Fund - Class IB Shares
(4/98)++
UVIS3 Putnam VT Vista Fund - Class IB -- -- 42.72 -- -- 27.95
Shares (1/97)++
* Current applicable charges deducted from fund performance include a $40
contract administrative charge, a 1.10% mortality and expense risk fee, a
0.15% variable account administrative charge and applicable withdrawal
charges. Premium taxes are not reflected in the above total returns.
** (Commencement date of the subacount; commencement date of the Fund)
*** Had not commenced operations as of Dec. 31, 1999.
**** 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>
+ Prior to May 1, 2000, the Templeton International Securities Fund was
called the Templeton International Fund and the Templeton Developing
Markets Securities Fund was called the Templeton Developing Markets Fund.
Class 2 shares were issued May 1, 1997. Prior to May 1, 1997,
Class 2 performance represents the historical performance results of Class
1 shares. Performance of Class 2 shares for periods after May 1, 1997
reflect Class 2's additional 12b-1 fee expense, which also affects all
future performance. Figures assume reinvestment of dividends and capital
gains.
++ 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 Nonqualified
Annuities Without Withdrawal and Selection of the Maximum Anniversary Value
Death Benefit and Guaranteed Minimum Income Benefit Riders 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 -
UCMG4 Cash Management Fund (10/81)** 2.96% 3.34% 3.13% 4.79%
UFIF4 Federal Income Fund (9/99) -- -- -- -0.25
UMGD4 Managed Fund (4/86) 12.93 16.27 11.65 11.01
UNDM4 New Dimensions Fund(R)(5/96) 29.87 -- -- 24.29
USPF4 S&P 500 Index Fund (_/_)** -- -- -- --
USCA4 Small Cap Advantage Fund (9/99) -- -- -- 11.90
AIM V.I.
UCAP4 Capital Appreciation Fund (5/93) 42.32 23.54 -- 20.31
UDDT4 Dent Demographics Trends Fund (12/99) -- -- -- -0.42
UVAL4 Value Fund (5/93) 27.81 25.15 -- 21.04
Alliance VP
UGIP4 Growth & Income Portfolio (Class B) 9.36 21.85 -- 13.53
(1/91)
UPRG4 Premier Growth Portfolio (Class B) 30.01 33.80 -- 24.24
(6/92)
UTEC4 Technology Portfolio (Class B) (1/96) 72.99 -- -- 33.71
Evergreen VA
UEGL4 Global Leaders Fund (3/97) 22.68 -- -- 16.52
UEGI4 Growth and Income Fund (3/96) 16.61 -- -- 17.68
UEMS4 Masters Fund (1/99) -- -- -- 25.63
UEOM4 Omega Fund (3/97) 44.89 -- -- 25.71
UESC4 Small Cap Value Fund (5/98) 10.20 -- -- 3.44
UESI4 Strategic Income Fund (3/97) -0.10 -- -- 2.76
Fidelity VIP
UMDC4 III Mid Cap Portfolio (Service 46.58 -- -- 50.60
Class) (12/98)
UCOF4 Contrafund(R)Portfolio (Service 22.11 -- -- 25.61
Class) (1/95)
UHIP4 High Income Portfolio (Service 6.26 8.99 9.27 4.41
Class) (9/85)
Franklin Templeton VIP Trust
USMC4 Franklin Small Cap Fund - Class 2 103.06 -- -- 29.69
(10/95)****
UMSS4 Mutual Shares Securities Fund - 11.69 -- -- 8.98
Class 2 (11/96)****
UDMS4 Templeton Developing Markets 50.85 -- -- -7.10
Securities Fund - Class 2 (3/96)+
UINT4 Templeton International Securities 21.21 15.09 -- 13.33
Fund - Class 2 (5/92)+
MFS(R) VIT
UGRS4 Growth Series - Service Class (5/99) -- -- -- 37.89
UNDS4 New Discovery Series - Service Class 67.66 -- -- 37.01
(4/98)
UTRS4 Total Return Series - Service Class 1.33 -- -- 13.49
(1/95)
Putnam Variable Trust
UGIN4 Putnam VT Growth and Income Fund - -0.33 17.90 12.33 13.47
Class IB Shares (2/88)++
UINO4 Putnam VT International New 99.71 -- -- 49.32
Opportunities Fund - Class IB Shares
(4/98)++
UVIS4 Putnam VT Vista Fund - Class IB 50.27 -- -- 28.93
Shares (1/97)++
* Current applicable charges deducted from fund performance include a $40
contract administrative charge, a 1.10% mortality and expense risk fee, a
0.15% variable account administrative charge, a 0.10% Maximum Anniversary
Value 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)
*** Had not commenced operations as of Dec. 31, 1999.
**** 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>7
+ Prior to May 1, 2000, the Templeton International Securities Fund was
called the Templeton International Fund and the Templeton Developing
Markets Securities Fund was called the Templeton Developing Markets Fund.
Class 2 shares were issued May 1, 1997. Prior to May 1, 1997, Class 2
performance represents the historical performance results of Class 1
shares. Performance of Class 2 shares for periods after May 1, 1997 reflect
Class 2's additional 12b-1 fee expense, which also affects all future
performance. Figures assume reinvestment of dividends and capital gains.
++ 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 Nonqualified
Annuities With Withdrawal and Selection of the Maximum Anniversary Value Death
Benefit and Guaranteed Minimum Income Benefit Riders 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 -
UCMG4 Cash Management Fund (10/81)** -4.48% 2.19% 3.13% 4.77%
UFIF4 Federal Income Fund (9/99) -- -- -- -7.73
UMGD4 Managed Fund (4/86) 4.93 15.53 11.65 10.98
UNDM4 New Dimensions Fund(R)(5/96) 21.87 -- -- 23.10
USPF4 S&P 500 Index Fund (_/_)** -- -- -- --
USCA4 Small Cap Advantage Fund (9/99) -- -- -- 3.57
AIM V.I.
UCAP4 Capital Appreciation Fund (5/93) 34.32 22.94 -- 20.10
UDDT4 Dent Demographics Trends Fund (12/99) -- -- -- -7.88
UVAL4 Value Fund (5/93) 19.81 24.59 -- 20.83
Alliance VP
UGIP4 Growth & Income Portfolio (Class B) 1.41 21.22 -- 13.50
(1/91)
UPRG4 Premier Growth Portfolio (Class B) 22.01 33.35 -- 24.19
(6/92)
UTEC4 Technology Portfolio (Class B) (1/96) 64.99 -- -- 32.86
Evergreen VA
UEGL4 Global Leaders Fund (3/97) 14.68 -- -- 14.49
UEGI4 Growth and Income Fund (3/96) 8.61 -- -- 16.42
UEMS4 Masters Fund (1/99) -- -- -- 17.26
UEOM4 Omega Fund (3/97) 36.89 -- -- 23.92
UESC4 Small Cap Value Fund (5/98) 2.20 -- -- -1.30
UESI4 Strategic Income Fund (3/97) -7.29 -- -- 0.31
Fidelity VIP
UMDC4 III Mid Cap Portfolio (Service 38.58 -- -- 42.25
Class) (12/98)
UCOF4 Contrafund(R)Portfolio (Service 14.11 -- -- 25.05
Class) (1/95)
UHIP4 High Income Portfolio (Service -1.44 8.06 9.27 4.39
Class) (9/85)
Franklin Templeton VIP Trust
USMC4 Franklin Small Cap Fund - Class 2 95.06 -- -- 28.96
(10/95)****
UMSS4 Mutual Shares Securities Fund - 3.69 -- -- 7.00
Class 2 (11/96)****
UDMS4 Templeton Developing Markets 42.85 -- -- -8.81
Securities Fund - Class 2 (3/96)+
UINT4 Templeton International Securities 13.21 14.33 -- 13.28
Fund - Class 2 (5/92)+
MFS(R) VIT
UGRS4 Growth Series - Service Class (5/99) -- -- -- 29.48
UNDS4 New Discovery Series - Service Class 59.66 -- -- 32.86
(4/98)
UTRS4 Total Return Series - Service Class -5.97 -- -- 12.68
(1/95)
Putnam Variable Trust
UGIN4 Putnam VT Growth and Income Fund - -7.50 17.20 12.33 13.44
Class IB Shares (2/88)++
UINO4 Putnam VT International New 91.71 -- -- 45.35
Opportunities Fund - Class IB Shares
(4/98)++
UVIS4 Putnam VT Vista Fund - Class IB 42.27 -- -- 27.38
Shares (1/97)++
* Current applicable charges deducted from fund performance include a $40
contract administrative charge, a 1.10% mortality and expense risk fee, a
0.15% variable account administrative charge, a 0.10% Maximum Anniversary
Value Death Benefit Rider fee, a 0.30% Guaranteed Minimum Income Benefit
Rider fee and applicable withdrawal charges.
Premium taxes are not reflected in the above total returns.
** (Commencement date of the Fund)
*** Had not commenced operations as of Dec. 31, 1999. **** 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>
+ Prior to May 1, 2000, the Templeton International Securities Fund was
called the Templeton International Fund and the Templeton Developing
Markets Securities Fund was called the Templeton Developing Markets Fund.
Class 2 shares were issued May 1, 1997. Prior to May 1, 1997, Class 2
performance represents the historical performance results of Class 1
shares. Performance of Class 2 shares for periods after May 1, 1997 reflect
Class 2's additional 12b-1 fee expense, which also affects all future
performance. Figures assume reinvestment of dividends and capital gains.
++ 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
Annualized Yield Based on the Seven Day Period Ended Dec. 31, 1999
Subaccount Investing In Simple Yield Compound Yield
PCMG1 AXP(SM) Variable Portfolio -
Cash Management Fund 4.62% 4.73%
<PAGE>
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.
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.
<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 - American Express New Solutions
Variable Annuity (SM)
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 PCMG1, PMGD1, PNDM1, PSCA1, PCAP1, PVAL1, PMDC1,
PSMC1, PMSS1, PNDS1, PTRS1 and PGIN1) 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 -- American Express New Solutions
Variable Annuity (SM)
Statements of Net Assets
December 31, 1999
Segregated Asset Subaccounts
Assets PCMG1 PMGD1 PNDM1 PSCA1 PCAP1 PVAL1
Investments in shares of mutual funds and
portfolios:
<S> <C> <C> <C> <C> <C> <C>
at cost $ 261 $ 273 $ 262 $ 261 $ 266 $ 264
----- ----- ----- ----- ----- -----
at market value $ 261 $ 279 $ 296 $ 282 $ 317 $ 287
Dividends receivable 1 -- -- -- -- --
- -- --- --- --- ---
Total assets 262 279 296 282 317 287
=== === === === === ===
Net assets applicable to contracts in
accumulation period $ 262 $ 279 $ 296 $ 282 $ 317 $ 287
===== ===== ===== ===== ===== =====
Accumulation units outstanding 260 259 257 254 251 258
=== === === === === ===
Net asset value per accumulation unit $1.01 $1.08 $1.15 $1.11 $1.26 $1.11
===== ===== ===== ===== ===== =====
Combined
Variable
Assets PMDC1 PSMC1 PMSS1 PNDS1 PTRS1 PGIN1 Account
Investments in shares of mutual funds and
portfolios:
at cost $ 196 $ 260 $ 260 $ 265 $ 260 $ 260 $ 3,088
----- ----- ----- ----- ----- ----- -------
at market value $ 233 $ 349 $ 269 $ 339 $ 259 $ 254 $ 3,425
Dividends receivable -- -- -- -- -- -- 1
--- ---- ---- ---- ---- ---- -----
Total assets 233 349 269 339 259 254 3,426
=== === === === === === =====
Net assets applicable to contracts in
accumulation period $ 233 $ 349 $ 269 $ 339 $ 259 $ 254 $ 3,426
===== ===== ===== ===== ===== ===== =======
Accumulation units outstanding 188 243 260 238 259 262
=== === === === === ===
Net asset value per accumulation unit $1.24 $1.43 $1.03 $1.43 $1.00 $0.97
===== ===== ===== ===== ===== =====
See accompanying notes to financial statements.
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
American Enterprise Variable Annuity Account -- American Express New Solutions
Variable Annuity (SM)
Statements of Operations
Period ended December 31, 1999
Segregated Asset Subaccounts
Investment income PCMG11 PMGD11 PNDM11 PSCA11 PCAP12 PVAL12
Dividend income from mutual funds and
<S> <C> <C> <C> <C> <C> <C>
portfolios $ 2 $ 13 $ 2 $ 2 $ 7 $ 5
Mortality and expense risk fee 1 1 1 1 1 1
- - - - - -
Investment income (loss) - net 1 12 1 1 6 4
= == = = = =
Realized and unrealized gain (loss) on investments - net
Realized gain (loss) on sales of investments
in mutual funds and portfolios:
Proceeds from sales -- -- -- -- -- --
Cost of investments sold -- -- -- -- -- --
--- --- --- --- --- ---
Net realized gain (loss) on investments -- -- -- -- -- --
Net change in unrealized appreciation or
depreciation of investments -- 6 34 21 51 23
--- - -- -- -- --
Net gain (loss) on investments -- 6 34 21 51 23
--- - -- -- -- --
Net increase (decrease) in net assets
resulting from operations $ 1 $18 $ 35 $ 22 $ 57 $ 27
=== === ==== ==== ==== ====
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.
Combined
Variable
Investment income PMDC1 PSMC1 PMSS1 PNDS1 PTRS1 PGIN1 Account
Dividend income from mutual funds and
portfolios $ 1 $-- $-- $ 6 $-- $-- $ 38
Mortality and expense risk fee -- -- -- 1 -- -- 7
--- --- --- - --- --- -
Investment income (loss) - net 1 -- -- 5 -- -- 31
= === === == === === ===
Realized and unrealized gain (loss) on investments - net
Realized gain (loss) on sales of investments
in mutual funds and portfolios:
Proceeds from sales -- -- -- -- -- -- --
Cost of investments sold -- -- -- -- -- -- --
--- --- --- --- --- --- ---
Net realized gain (loss) on investments -- -- -- -- -- -- --
Net change in unrealized appreciation or
depreciation of investments 37 89 9 74 (1) (6) 337
-- -- - -- -- -- ---
Net gain (loss) on investments 37 89 9 74 (1) (6) 337
-- -- - -- -- -- ---
Net increase (decrease) in net assets
resulting from operations $ 38 $ 89 $ 9 $ 79 $ (1) $ (6) $ 368
==== ==== === ==== ==== ==== =====
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 -- American Express New Solutions Variable AnnuitySM
Statements of Changes in Net Assets
Period ended December 31, 1999
Segregated Asset Subaccounts
Operations PCMG11 PMGD11 PNDM11 PSCA11 PCAP12 PVAL12
<S> <C> <C> <C> <C> <C> <C>
Investment income (loss) - net $ 1 $ 12 $ 1 $ 1 $ 6 $ 4
Net change in unrealized appreciation or
depreciation of investments -- 6 34 21 51 23
--- - -- -- -- --
Net increase (decrease) in net assets
resulting from operations 1 18 35 22 57 27
= == == == == ==
Contract transactions
Contract purchase payments 261 261 261 260 260 260
--- --- --- --- --- ---
Net assets at beginning of year -- -- -- -- -- --
--- --- --- --- --- ---
Net assets at end of year $ 262 $ 279 $ 296 $ 282 $ 317 $ 287
===== ===== ===== ===== ===== =====
Accumulation unit activity
Units outstanding at beginning of year -- -- -- -- -- --
Contract purchase payments 260 259 257 254 251 258
--- --- --- --- --- ---
Units outstanding at end of year 260 259 257 254 251 258
=== === === === === ===
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.
Combined
Variable
Operations PMDC1 PSMC1 PMSS1 PNDS1 PTRS1 PGIN1 Accounts
Investment income (loss) - net $ 1 $-- $-- $ 5 $-- $-- $ 31
Net change in unrealized appreciation or
deprciation of investments 37 89 9 74 (1) (6) 337
-- -- - -- -- -- ---
Net increase (decrease) in net assets
resulting from operations 38 89 9 79 (1) (6) 368
== == = == == == ===
Contract transactions
Contract purchase payments 195 260 260 260 260 260 3,058
--- --- --- --- --- --- -----
Net assets at beginning of year -- -- -- -- -- -- --
--- --- --- --- --- --- -----
Net assets at end of year $ 233 $ 349 $ 269 $ 339 $ 259 $ 254 $ 3,426
===== ===== ===== ===== ===== ===== =======
Accumulation unit activity
Units outstanding at beginning of year -- -- -- -- -- --
Contract purchase payments 188 243 260 238 259 262
--- --- --- --- --- ---
Units outstanding at end of year 188 243 260 238 259 262
=== === === === === ===
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 - American Express New Solutions
Variable Annuity (SM)
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 or portfolios (collectively,
the Funds), which are registered under the 1940 Act as diversified, open-end
management investment companies and have the following investment managers.
<S> <C> <C>
Subaccount Invests exclusively in shares of Investment Manager
PCMG1 AXPSM Variable Portfolio-- Cash Management Fund IDS Life Insurance Company 1
PMGD1 AXPSM Variable Portfolio-- Managed Fund IDS Life Insurance Company 1
PNDM1 AXPSM Variable Portfolio-- New Dimensions Fund(R) IDS Life Insurance Company 1
PSCA1 AXPSM 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.
PMDC1 Fidelity VIP Mid Cap Portfolio - Service Class FMR 3
PSMC1 FTVIPT Franklin Small Cap Fund - Class 2 Franklin Advisers, Inc.
PMSS1 FTVIPT Mutual Shares Securities Fund - Class 2 Franklin Mutual Advisers, LLC
PNDS1 MFS(R)New Discovery Series MFS Investment Management(R)
PTRS1 MFS(R)Total Return Series MFS Investment Management(R)
PGIN1 Putnam VT Growth and Income 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.
3 FMR U.K. and FMR Far East are the sub-investment advisors.
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 0.85% or 1.10% of the average
daily net assets of the subaccounts, depending on whether the contract is
qualified or non-qualified.
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 $40 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 $40 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 seven payment years following a purchase
payment. 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.
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
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>
PCMG1 AXPSM Variable Portfolio-- Cash Management Fund 261 1.00
PMGD1 AXPSM Variable Portfolio-- Managed Fund 14 19.82
PNDM1 AXPSM Variable Portfolio-- New Dimensions Fund(R) 13 22.86
PSCA1 AXPSM 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
PMDC1 Fidelity VIP Mid Cap Portfolio - Service Class 15 15.24
PSMC1 FTVIPT Franklin Small Cap Fund - Class 2 13 26.79
PMSS1 FTVIPT Mutual Shares Securities Fund - Class 2 20 13.25
PNDS1 MFS(R)New Discovery Series 20 17.27
PTRS1 MFS(R)Total Return Series 15 17.75
PGIN1 Putnam VT Growth and Income Fund - Class IB Shares 9 26.75
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
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>
PCMG11 AXPSM Variable Portfolio-- Cash Management Fund $261
PMGD11 AXPSM Variable Portfolio-- Managed Fund 273
PNDM11 AXPSM Variable Portfolio-- New Dimensions Fund(R) 262
PSCA11 AXPSM Variable Portfolio-- Small Cap Advantage Fund 261
PCAP12 AIM V.I. Capital Appreciation Fund 266
PVAL12 AIM V.I. Value Fund 264
PMDC12 Fidelity VIP Mid Cap Portfolio - Service Class 196
PSMC12 FTVIPT Franklin Small Cap Fund - Class 2 260
PMSS12 FTVIPT Mutual Shares Securities Fund - Class 2 260
PNDS12 MFS(R)New Discovery Series 265
PTRS12 MFS(R)Total Return Series 260
PGIN12 Putnam VT Growth and Income Fund - Class IB Shares 260
Combined Variable Account $3,088
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>
PART C.
Item 24. Financial Statements and Exhibits
(a) Financial Statements included in Part A of this Registration Statement:
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 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.
1.2 Resolution of the Board of Directors of American Enterprise Life
establishing 15 additional Subaccounts within the separate account
dated Feb. 2, 2000, filed electronically as Exhibit 1.2 to American
Enterprise Variable Annuity Account's Pre-Effective Amendment No. 1 to
Registration Statement no. 333-92297 filed on or about Feb. 11, 2000,
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. Form of Selling Agreement, filed electronically herewith.
4.1 Form of Deferred Annuity Contract (form 240343), filed electronically
as Exhibit 4.1 to American Enterprise Variable Annuity Account's
Pre-Effective Amendment No. 1 to Registration Statement no. 333-92297
filed on or about Feb. 11, 2000, is incorporated by reference.
4.2 Form of Performance Credit Rider (form 240349), filed electronically
as Exhibit 4.2 to American Enterprise Variable Annuity Account's
Pre-Effective Amendment No. 1 to Registration Statement no. 333-92297
filed on or about Feb 11, 2000, is incorporated by reference.
4.3 Form of Maximum Anniversary Value Death Benefit Rider (240346), filed
electronically as Exhibit 4.3 to American Enterprise Variable Annuity
Account's Pre-Effective Amendment No. 1 to Registration Statement no.
333-92297 filed on or about Feb 11, 2000, is incorporated by
reference.
<PAGE>
4.4 Form of Guaranteed Minimum Income Benefit Rider (form 240350), filed
electronically as Exhibit 4.4 to American Enterprise Variable Annuity
Account's Pre-Effective Amendment No. 1 to Registration Statement no.
333-92297 filed on or about Feb. 11, 2000, is incorporated by
reference.
4.5 Form of Roth IRA Endorsement (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.
4.6 Form of SEP-IRA (form 43433) filed electronically as Exhibit 4.3 to
American Enterprise Variable Annuity Account's Pre-Effective Amendment
No. 1 to Registration Statement No. 333-74865, filed on or about Aug.
4, 1999, is incorporated by reference.
5. Form of Variable Annuity Application (form 240345), filed
electronically as Exhibit 5 to American Enterprise Variable Annuity
Account's Pre-Effective Amendment No. 1 to Registration Statement no.
333-92297 filed on or about Feb. 11, 2000, 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. Copy of Participation Agreement to be filed by amendment.
9. Opinion of counsel and consent to its use as to the legality of the
securities being registered dated April 28, 2000, filed electronically
herewith.
10. Consent of Independent Auditors dated April 24, 2000, filed
electronically herewith.
11. None.
12. Not applicable.
13. Copy of schedule for computation of each performance quotation provided
in the Registration Statement in response to Item 21, filed
electronically 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.
Item 25. Directors and Officers of the Depositor
(American Enterprise Life Insurance Company)
<TABLE>
<S> <C> <C>
Name Principal Business Address Positions and Offices with Depositor
- -------------------------- -------------------------------------- --------------------------------------
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
<PAGE>
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.
Jurisdiction of
Name of Subsidiary Incorporation
------------------ ---------------
I. Travel Related Services
American Express Travel Related Services Company, Inc. New York
II. International Banking Services
American Express Bank Ltd. Connecticut
III. Companies engaged in Financial Services
Advisory Capital Strategies Group Inc. Minnesota
American Centurion Life Assurance Company New York
American Enterprise Investment Services Inc. Minnesota
American Enterprise Life Insurance Company Indiana
American Express Asset Management Group Inc. Minnesota
American Express Asset Management International Inc. Delaware
<PAGE>
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
Item 27. Number of Contract owners
Not applicable.
Item 28. Indemnification
The By-Laws of the depositor provide that the Corporation shall have
the power to indemnify a director, officer, agent or employee of the
Corporation pursuant to the provisions of applicable statues or
pursuant to contract.
The Corporation may purchase and maintain insurance on behalf of any
director, officer, agent or employee of the Corporation against any
liability asserted against or incurred by the director, officer,
agent or employee in such capacity or arising out of the director's,
officer's, agent's or employee's status as such, whether or not the
Corporation would have the power to indemnify the director, officer,
agent or employee against such liability under the provisions of
applicable law.
<PAGE>
The By-Laws of the depositor provide that it shall indemnify a
director, officer, agent or employee of the depositor pursuant to the
provisions of applicable statutes or pursuant to contract.
Insofar as indemnification for liability arising under the Securities
Act of 1933 may be permitted to directors, officers and controlling
persons of the registrant pursuant to the foregoing provisions, or
otherwise, the registrant has been advised that in the opinion of the
Securities and Exchange Commission such indemnification is against
public policy as expressed in the Act and is, therefore,
unenforceable. In the event that a claim for indemnification against
such liabilities (other than the payment by the registrant of
expenses incurred or paid by a director, officer or controlling
person of the registrant in the successful defense of any action,
suit or proceeding) is asserted by such director, officer or
controlling person in connection with the securities being
registered, the registrant will, unless in the opinion of its counsel
the matter has been settled by controlling precedent, submit to a
court of appropriate jurisdiction the question whether such
indemnification by it is against public policy as expressed in the
Act and will be governed by the final adjudication of such issue.
Item 29. Principal Underwriters.
(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
John M. Baker Vice President - Plan Sponsor
200 AXP Financial Center Services
Minneapolis, MN 55474
<PAGE>
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
Kenneth J. Ciak Vice President and General
IDS Property Casualty Manager - IDS Property Casualty
1400 Lombardi Avenue
Green Bay, WI 54304
<PAGE>
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
Phillip W. Evans, Group Vice President - Rocky
Suite 600 Mountain
6985 Union Park Center
Midvale, UT 84047-4177
<PAGE>
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
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
<PAGE>
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
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
<PAGE>
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
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
<PAGE>
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
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
<PAGE>
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
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
<PAGE>
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
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
<PAGE>
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
Item 29(c)
<TABLE>
<S> <C> <C> <C> <C>
Net Underwriting
Name of Principal Discounts and Compensation on Brokerage
Underwriter Commissions Redemption Commissions Compensation
American Express $5,924,368 $479,554 None None
Financial Advisors
Inc.
</TABLE>
Item 30. Location of Accounts and Records
American Enterprise Life Insurance Company
829 AXP Financial Center
Minneapolis, MN 55474
<PAGE>
Item 31. Management Services
Not applicable.
Item 32. Undertakings
(a) Registrant undertakes that it will file a post-effective
amendment to this registration statement as frequently as is
necessary to ensure that the audited financial statements in
the registration statement are never more than 16 months old
for so long as payments under the variable annuity contracts
may be accepted.
(b) Registrant undertakes that it will include either (1) as part
of any application to purchase a contract offered by the
prospectus, a space that an applicant can check to request a
Statement of Additional Information, or (2) a post card or
similar written communication affixed to or included in the
prospectus that the applicant can remove to send for a
Statement of Additional Information.
(c) Registrant undertakes to deliver any Statement of Additional
Information and any financial statements required to be made
available under this Form promptly upon written or oral
request to American Enterprise Life Contract Owner Service at
the address or phone number listed in the prospectus.
(d) Registrant represents that it is relying upon the no-action
assurance given to the American Council of Life Insurance
(pub. avail. Nov. 28, 1998). Further, Registrant represents
that it has complied with the provisions of paragraphs (1)-(4)
of that no-action letter.
(e) The sponsoring insurance company represents that the fees and
charges deducted under the contract, in the aggregate, are
reasonable in relation to the services rendered, the expenses
expected to be incurred, and the risks assumed by the
insurance company.
<PAGE>
SIGNATURES
As required by the Securities Act of 1933 and the Investment Company Act of
1940, American Enterprise Life Insurance Company, on behalf of the Registrant,
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: _________________________
Mary Ellyn Minenko
<PAGE>
CONTENTS OF POST-EFFECTIVE AMENDMENT NO. 1 TO REGISTRATION STATEMENT
NO. 333-92297
This Registration Statement is comprised of the following papers and documents:
The Cover Page.
Part A.
The prospectus.
Part B.
Statement of Additional Information.
Part C.
Other Information.
The signatures.
Exhibits.
<PAGE>
EXHIBIT INDEX
Exhibit 1.3 Resolution of the Board of Directors of American Enterprise Life
dated July 15, 1987
Exhibit 3 Form of Selling Agreement
Exhibit 9 Opinion of Counsel
Exhibit 10 Consent of Independent Auditors
Exhibit 13 Schedule of computation of each performance quotation provided
in the Registration Statement in response to Item 21
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:
AXPsm Variable Portfolio - Blue Chip Advantage Fund (1 subaccount)
AXPsm Variable Portfolio - Diversified Equity Income Fund (1 subaccount)
AXPsm Variable Portfolio - Federal Income Fund (2 subaccounts)
AXPsm Variable Portfolio - Growth Fund (1 subaccount
AXPsm Variable Portfolio - S&P 500 Index Fund (4 subaccounts)
AXPsm Variable Portfolio - Small Cap Advantage Fund (1subaccount
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
SELLING AGREEMENT
FOR
AMERICAN ENTERPRISE LIFE INSURANCE COMPANY
This SELLING AGREEMENT ("Agreement") is entered into as of May 15, 2000
("Effective Date") by and between American Enterprise Life Insurance Company
("Company"), American Express Financial Advisors Inc. ("Distributor", together
with Company, "American Express"), and First Union Brokerage Services, Inc.,
("Broker-Dealer"), First Union Mortgage Corporation and affiliated insurance
agencies identified on Exhibit A who have also executed this Agreement or an
Affiliate Participation Agreement (each an "Agency").
Recitals
The purpose of this Agreement is to establish the terms and conditions under
which Broker-Dealer and Agency (referred to and defined further in Section 1.1
herein as "Authorized Selling Firm") will market and sell Company's variable
annuity and/or variable life insurance products. American Express and Authorized
Selling Firm intend that Authorized Selling Firm will be responsible for
managing and supervising the marketing and sales of Company's variable annuity
and/or variable life insurance products by its Producers pursuant to this
Agreement.
In consideration of the mutual covenants contained herein, the parties agree as
follows:
1. DEFINITIONS. As used in this Agreement, the following terms shall have
the following meanings:
1.1 "Authorized Selling Firm" means the Broker-Dealer taken together with
the Agency or Agencies, with respect to the sale of Products under this
Agreement, in accordance with the terms and conditions of the SEC
no-action letter First of America Brokerage Service, Inc. (dated
September 28, 1995).
1.2 "Broker-Dealer" is an entity duly registered as a broker-dealer with
the Securities and Exchange Commission ("SEC"), the National
Association of Securities Dealers ("NASD"), and states where required.
1.3 "Company Rules" mean any written instructions, bulletins, manuals,
training materials, and any underwriting or suitability guidelines
provided to Authorized Selling Firm by the Company that directly relate
to the marketing and selling of Company's variable annuity or variable
life insurance products under this Agreement.
1.4 "Producer" is a duly licensed individual who sells Products as an
employee or independent contractor of Agency and who is appropriately
registered with the NASD and licensed and appointed in accordance with
all applicable insurance laws.
1.5 "Products" are those variable annuity and/or life insurance products
issued by Company which will be marketed or sold by Agency,
Broker-Dealer and their Producers under this Agreement, and which are
set forth in the Product Exhibit(s) attached hereto.
1.6 "Replacement" is the sale of a Product which is funded by the purchaser
with money obtained from the liquidation of another life insurance
policy or annuity contract, either of which was previously issued
either by Company or by any other life insurance company.
1.7 "Agency" is an insurance agency licensed in one or more states, and
affiliated with Broker-Dealer by ownership or contract with respect to
the sale of Products under this Agreement. Broker-Dealer may also act
as "Agency".
1.8 "Territory" may be any 48 of the 50 United States (all states other
than New York and New Hampshire), and the District of Columbia, but
includes only those jurisdictions in which Agency is authorized to
market and sell the Products under this Agreement, as shown on each of
the Product Exhibits attached and, as updated from time to time.
1.9 "Contract" is the variable annuity or variable life insurance policy
validly issued by Company to a purchaser meeting underwriting standards
of the Company.
<PAGE>
2. TERM OF AGREEMENT. This Agreement shall remain in effect beginning upon the
Effective Date, until such time it is terminated pursuant to Section 9,
"Termination."
3. APPOINTMENT AND AUTHORIZATION OF AGENCY AND BROKER-DEALER.
3.1 Appointment and Authorization of Agency and Broker-Dealer. Company and
Distributor hereby appoint Agency and hereby authorize Broker-Dealer to
solicit sales of and sell Products in accordance with the terms and
conditions of this Agreement as an Authorized Selling Firm, and Agency
and Broker-Dealer hereby accept the appointment and authorization.
These two appointments, taken together, constitute the appointment of
Authorized Selling Firm. Authorized Selling Firm's authority will be
nonexclusive, and will be limited to the performance of the services
and responsibilities set forth in this Agreement.
4. DUTIES, OBLIGATIONS AND LIMITATIONS OF AUTHORIZED SELLING FIRM. Commencing
on the Effective Date, Authorized Selling Firm will faithfully perform all
of Authorized Selling Firm's duties within the scope of the agency
relationship created under this Agreement to the best of Authorized Selling
Firm's knowledge, skill and judgment. As Authorized Selling Firm, Agency
and Broker-Dealer shall be jointly and severally responsible and liable to
American Express for the faithful performance of all obligations and duties
except those which this Agreement specifically identifies as duties of
Broker-Dealer. Authorized Selling Firm's duties shall include, but not be
limited to the following:
4.1 Recruitment of Producers. Authorized Selling Firm may recruit Producers
to sell under the supervision of Authorized Selling Firm. A Producer so
recruited may not solicit or sell Products prior to acquiring any
required state insurance license(s) in the state(s) where such Producer
will solicit and sell Products, being registered with the NASD as a
representative of the Broker-Dealer, being appointed by Company as an
agent, and completing the training described in Section 4.4.11.
4.2 Licensing, Registration and Appointment of Agency and Producers. Agency
shall be responsible for the preparation and submission of proper
licensing forms and the assurance that all Producers recruited by
Authorized Selling Firm are appropriately licensed as insurance agents
in the state(s) where such Producers will solicit and sell Products.
Broker-Dealer shall be responsible for the preparation and submission
to the NASD of proper representative registration forms and the
assurance that all Producers are and remain registered as
representatives of Broker-Dealer with the NASD. Authorized Selling Firm
shall recommend Producers for appointment with Company, but Company
shall retain sole authority to make appointments and may, by written
notice to Authorized Selling Firm, refuse to permit any Producer to
solicit contracts for the sale of the Products. Company shall be
responsible for the preparation and submission of proper appointment
forms and the payment of appointment fees in those states that require
the Company to appoint Producers.
4.3 Compliance with Company Policies and Applicable Laws. Authorized
Selling Firm will comply with all Company Rules and with all applicable
federal and state laws and regulations.
4.4 Supervision and Administration. Authorized Selling Firm shall have
full, joint and several responsibility for the training and supervision
of all of its Producers who are engaged directly or indirectly in the
offer or sale of the Products, and all such Producers shall be subject
to the control of Authorized Selling Firm with respect to their
securities and insurance regulated activities in connection with the
Products. Authorized Selling Firm shall be responsible for all acts or
omissions of Producers. Agency's supervisory and administrative
responsibilities include, but are not limited to:
4.4.1 ensuring that Producers comply with Company Rules and all
federal and state laws and regulations applicable to the
Products;
4.4.2 ensuring that Producers comply with all terms of the Agreement
in soliciting, selling and providing service for Products;
4.4.3 supplying sales literature and application forms approved by
Company to Producers;
4.4.4 assisting Producers in responding to customer inquiries;
<PAGE>
4.4.5 promptly delivering to Producers relevant Company
communications and Company Rules concerning Products, such as
changes in rates, regulatory notices or new Product
announcements;
4.4.6 on all Replacement sales, ensuring that Producers provide
Product applicants sufficient information and disclosures to
ensure the suitability of the Replacement sale. Such
information includes that which is required by the rules of
the NASD and any state insurance authority but is not limited
to:
(a) all fees, expenses and possible charges, such as surrender
charges, on both the new and the surrendered investments;
(b) any change in the investment risk to the Product
applicant;
(c) any change in the nature or the provider of any guarantees
associated with the Product and/or the surrendered product;
All such information will be retained by Agency for seven
years from the date of the completion and signature of any
application, and will be made available to Company as is shown
in Section 4.8, "Accurate Record; Audit," herein
4.4.7 notifying Company if any Agency or Producer fails to maintain
the required state insurance license or becomes inactive;
4.4.8 promptly informing Company of any violation of law or Company
Rules by Authorized Selling Firm or Producer, or of any
allegation by Contract holder or regulatory agency of
wrongdoing as regards the activities of Authorized Selling
Firm, or a Producer with respect to the Products; and
4.4.9 any other duties necessary or appropriate to perform
Authorized Selling Firm's obligations under this Agreement.
4.4.10 Broker-Dealer will fully comply with and will ensure Agency's
and Producers' compliance with the requirements of the NASD,
the SEC and all other applicable federal and state laws, and,
with Agency, will establish and maintain such rules and
procedures as may be necessary to cause diligent supervision
of the securities activities of Agency and Producers.
Broker-Dealer's duties with respect to Agency and Producers'
securities activities, include, but are not limited to:
(a) delivering to each person submitting an application a
prospectus for the Product to be furnished by American
Express in the form required by the applicable federal
laws or by the acts or statutes of any applicable state,
province or country;
(b) reviewing all Product applications for accuracy and
completeness, and to determine the suitability of the
sale, which includes reasonable efforts to obtain
information concerning the applicant's financial and tax
status, investment objectives and any other information
used or considered reasonable in making a Product
recommendation;
(c) complying with all applicable requirements of the
Securities Exchange Act of 1934 ("1934 Act") and the NASD,
including the requirements to maintain and preserve books
and records pursuant to Section 17(a) of the 1934 Act and
the rules thereunder and making such records and files
available to staff of American Express and personnel of
state insurance departments, the NASD, SEC or other
regulatory agencies which have authority over American
Express.
4.4.11 Authorized Selling Firm shall be responsible for ensuring
that their Producers who market and sell the Products are
trained on (i) the product specifications and features, (ii)
all Company Rules and other requirements communicated to
Authorized Selling Firm that American Express has adopted to
satisfy insurance laws and regulations regarding
replacements, and (iii) standards that American Express has
established for and communicated to Authorized Selling Firms
and their Producers to use in meeting their respective
duties to ensure suitable sales of the Products before they
begin to solicit or sell Products. If Authorized Selling
Firm chooses not to use Company-provided materials in
training their Representatives on (i), (ii) and (iii) above,
then Authorized Selling Firm shall provide to American
Express, for approval, documentation of its own form and
content of training to be used, prior to the execution of
this Agreement.
<PAGE>
After the execution of this Agreement, to the extent that
Authorized Selling Firm uses training material related to the
sale of the Products that is materially different from that
contained in the Company-provided training material,
Authorized Selling Firm must provide that training material to
American Express for approval prior to use. Authorized Selling
Firm shall also be responsible for assuring that its Producers
comply with all Company-provided materials, and with the
applicable suitability requirements of the National
Association of Securities Dealers, Inc. ("NASD"), and any
state or federal law, as amended from time to time, in selling
the Products.
4.5 Collection and Submission of Premiums. American Express and Authorized
Selling Firm agree that Authorized Selling Firm will assure its
Producers' collection and timely remittance of premiums received from
the sale of Products. All premiums associated with sales of variable
life insurance policies will be remitted using the Check with
Application method described below. Generally, five methods of
collection and remittance are available for variable annuity sales.
Authorized Selling Firm will decide which of the methods listed below
it will employ for variable annuity sales.
4.5.1 Check with Application: in which the premium is paid in a
check from the applicant payable to Company.
4.5.2 Gross Sweep: in which the premium will be deposited into a
Company-owned account. Company, upon notification of a sale,
will deposit the premium into its own premium receipt account.
4.5.3 Gross ACH Through Clearing Broker: in which the Authorized
Selling Firm contracts with a Clearing Broker to transfer and
clear funds from sales (the "Clearing Broker"). The Clearing
Broker will remit the entire premium to Company using the ACH
transfer facility available to financial institutions. If this
method is chosen, then Section 7.1.4 is applicable.
4.5.4 Net Wire: in which the Authorized Selling Firm transfers and
clears premiums from sales, retaining its commission and
forwarding the net amount only to Company.
4.5.5 Net Wire Through Clearing Broker: in which the Authorized
Selling Firm contracts with a Clearing Broker to transfer and
clear funds from sales (the "Clearing Broker"). The Clearing
Broker remits the premium (net of commissions) to Company, and
remits the remaining portion of the premium (commission) to
Agency. If this method is chosen, then Section 7.1.4 is
applicable.
4.6 Solicitation. Authorized Selling Firm, through Producers, will solicit
applicants who appear to meet Company's and Distributor's underwriting
and suitability standards, provided that nothing in this Agreement
shall be deemed to require Authorized Selling Firm to solicit any
particular customer's application for an annuity.
4.7 Company Property. Authorized Selling Firm will safeguard, maintain and
account for all policies, forms, manuals, equipment, supplies,
advertising and sales literature furnished to Authorized Selling Firm
and Producers by American Express and will destroy or return the same
to American Express promptly upon request.
4.8 Accurate Record; Audit. As required by applicable laws and Company's
policies and procedures, Authorized Selling Firm will keep identifiable
and accurate records and accounts of all business and transactions
effected pursuant to this Agreement. Upon reasonable notice and at
reasonable times, continuing during a period of one year following the
termination of this Agreement, Authorized Selling Firm will permit
American Express to visit, inspect, examine, audit and verify, at
Authorized Selling Firms offices or elsewhere, any of the properties,
accounts, files, documents, books, reports, work papers and other
records belonging to or in the possession or control of Authorized
Selling Firm relating to the business covered by this Agreement, and to
make copies thereof and extracts therefrom, provided that such audit
shall not unreasonably interfere with Authorized Selling Firm's normal
course of business.
4.9 Approved Advertising. No sales promotions, promotional materials, or
any advertising relating to Products or Company or Distributor ("Sales
<PAGE>
Material") shall be used by Authorized Selling Firm or Producers unless
the specific item has been approved in writing by Company and/or
Distributor before use. Any promotional material developed by
Authorized Selling Firm will become the sole property of Company and/or
Distributor once approved. Any modification of the promotional
materials to enable the use of such in a financial institution setting
must also be approved in accordance with this section.
4.10 Fidelity Bond. Authorized Selling Firm represents and warrants that all
directors, officers, employees and representatives of Agency who are
appointed pursuant to this Agreement as Producers for Company or who
have access to funds of Company, including but not limited to funds
submitted with applications for Products or funds being returned to
owners, are and shall be covered by a blanket fidelity bond, including
coverage for larceny and embezzlement, issued by a reputable bonding
company acceptable to Company. Broker-Dealer shall maintain the bond at
Broker-Dealer and/or Agency's expense. Company may require evidence,
satisfactory to it, that such coverage is in force. Authorized Selling
Firm shall give prompt written notice to Company of cancellation or
change of coverage.
4.11 Limitations. Authorized Selling Firm shall have no authority with
respect to American Express, nor shall it represent itself as having
such authority, other than as is specifically set forth in this
Agreement. Without limiting the foregoing, neither Agency nor
Broker-Dealer shall, without the express written consent of Company
and/or Distributor, as applicable:
4.11.1 make, waive, alter or change any term, rate or condition
stated in any Company Contract or Company or Distributor
approved form, or discharge any Contract in the name of
Company;
4.11.2 waive a forfeiture;
4.11.3 extend the time for the payment of premiums or other monies
due Company;
4.11.4 institute, prosecute or maintain any legal proceedings on
behalf of Company or Distributor in connection with any matter
pertaining to Company's business, nor accept service of
process on behalf of Company or Distributor;
4.11.5 transact business in contravention of the rules and
regulations of any insurance department and/or other
governmental authorities having jurisdiction over any subject
matter embraced by this Agreement;
4.11.6 make, accept or endorse notes, or endorse checks payable to
Company or Distributor, or otherwise incur any expense or
liability on behalf of Company or Distributor;
4.11.7 offer to pay or pay, directly or indirectly, any rebate of
premium or any other inducement not specified in the Products
to any Contract holder;
4.11.8 misrepresent the Products for the purpose of inducing a
Contract holder in any other company to lapse, forfeit or
surrender his/her insurance therewith;
4.11.9 give or offer to give any advice or opinion regarding the
taxation of any customer's income or estate in connection with
the purchase of any Product;
4.11.10 enter into an agreement with any person or entity to market or
sell the Products without the written consent of Company and
Distributor;
4.11.11 use Company's or Distributor's names, logos, trademarks,
service marks or any other proprietary designation without the
prior written permission of Company; or
4.11.12 engage in any program designed to replace Products with any
variable annuity or variable life insurance products of other
companies, at any time while this Agreement is in force; or
provide data to any other person or organization which would
allow or facilitate such replacement of Company's Products.
Nothing herein shall preclude the replacement of Company's
fixed annuity products with Company's own variable annuity or
variable insurance products, so long as such sales are
suitable and documented according to Section 4.4.6,
Replacement Sales. (See also Section 9.3, Post Termination
Limitations, and Section 11, Confidentiality, generally.)
5. COMPANY AND DISTRIBUTOR REPRESENTATIONS AND RESPONSIBILITIES.
5.1 Representations.
5.1.1 Company represents and warrants that (a) it is duly
incorporated in the State of Indiana and licensed in all
states in the Territory; (b) that all Products, and all Sales
Material (as defined in Section 4.9, above) provided by
Company or Distributor have been filed and approved as
required by state insurance departments shown in the Product
Exhibit(s); and (c) that these materials comply with all
applicable laws and regulations and rules of the NASD.
5.1.2 Distributor represents and warrants that it is duly registered
as a broker-dealer with the SEC, the NASD, all fifty states
and the District of Columbia, and is qualified to do business
in all states in which Company is licensed and qualified to do
business.
5.1.3 Distributor and Company represent and warrant that Company, as
issuer and on behalf of the underlying investment account(s),
has registered the underlying investment account(s) of the
Products with the SEC as a security under the Securities Act
of 1933 ("1933 Act") and as a unit investment trust under the
Investment Company Act of 1940.
5.1.4 Company represents and warrants that the prospectuses and
registration statements relating to the Products do not
contain any untrue statements of material fact or any omission
to state a material fact, the omission of which makes any
statement contained in the prospectuses and registration
statements misleading.
5.2 Prospectuses, Sales Literature and Advertising. American Express will
provide to Authorized Selling Firm, without any expense to Authorized
Selling Firm, prospectuses for the Products and such other Sales
Material (as defined is Section 4.9, above) as American Express
determines is necessary or desirable for use in connection with sales
of the Products.
5.3 Transmission of Contracts for Delivery to Contract Owners. Company will
transmit variable annuity contracts directly to Contract holders.
Variable life insurance policies will be transmitted to Producers for
delivery to Contract holders.
5.4 Confirmations. Upon Company's acceptance of any payment for a Product,
Company as agent for Distributor will deliver to each contract owner a
statement confirming the transaction in accordance with Rule 10b-10
under the 1934 Act.
5.5 Contract Holder Services. Company shall provide administrative,
accounting and other services to Contract holders as necessary and
appropriate, in the same manner as such services are provided to
Company's other Contract holders.
5.6 Reservation of Rights. Notwithstanding any other provision of this
Agreement or any other agreement between Company and/or Distributor and
Agency and/or Broker-Dealer, Company reserves the unconditional right
to modify any of the Products in any respect whatsoever or to suspend
the sale of any Products in whole or in part at any time and without
prior notice. Company reserves the unconditional rights to refuse to
accept applications procured by Authorized Selling Firm or Producers
which fail to meet underwriting or other standards of Company.
5.7 Company Rules. American Express shall provide Authorized Selling Firm
with Company Rules as soon as is practicable. Company and Distributor
shall provide all revisions, modifications and replacements of such
Company Rules to Authorized Selling Firm promptly after issuance by
Company and/or Distributor.
5.8 Compliance with Applicable Laws. Company will comply with all
applicable federal and state laws and regulations.
6. COMPENSATION. Company shall pay a total compensation on premiums collected
pursuant to this Agreement based on the rates of commission set forth on
the attached Product Exhibit(s). No compensation will be paid on the sale
of a product under this Agreement if that sale involves replacement of an
asset or investment issued by Company or by another insurance company owned
or controlled by American Express Company. The Product Exhibit(s) included
in this Agreement are subject to change by Company at anytime, but only
upon written notice to Agency. No such change shall affect compensation for
any Products(s) sold whose applications are received by Company in
Minneapolis, MN prior to effective date of such change.
6.1 Product Exhibits. Any Product Exhibit(s) included in this Agreement or
subsequently made a part hereof may provide other or additional
conditions regarding compensation and, if so, will be controlling to
the extent of such other or additional conditions.
6.2 Expenses. Except as otherwise provided in this Agreement, or
subsequently agreed to in writing by American Express, Authorized
Selling Firm will be responsible for all costs and expenses of any kind
and nature incurred by Authorized Selling Firm in the performance of
its duties under this Agreement.
6.3 For Cause Termination Compensation Obligations. In the event of
termination of this Agreement for one or more of the reasons specified
below in Section 9.1, Termination for Cause, no further compensation
shall thereafter be payable.
6.4 Post Termination Compensation Obligations. Upon termination of this
Agreement, Company's obligation to pay compensation to Agency or
Producers shall immediately cease except that:
6.4.1 Company will pay compensation, as the same become due and
payable, upon Products for which the application has been
taken and the required premium has been collected (or has
become irrevocably collectable from a third party) as of the
date of termination, and for which the Company subsequently
issues a policy.
6.4.2 Company will charge back against those commissions due
identified in Product Exhibit(s) in the event of surrenders of
Products sold prior to the termination of this Agreement by
Authorized Selling Firm or Producers. Company will invoice
Agency unless Company and Agency agree upon another method of
payment of such amounts.
6.4.3 Subject to Section 6.4.1, above, Company will pay Supplemental
Trail Commissions as set forth in and as provided by any
Product Exhibit in effect as of the time of the effective date
of termination of this Agreement.
6.5 Compensation Limitations. Agency will not pay or share commissions with
any person or entity that is not appropriately licensed and/or
appointed to sell Products, if such action would violate any applicable
law, rule, or regulation.
6.6 Advance Commissions on IRS Section 2-1035 Exchanges. Company will
advance commissions monthly, in accordance to the Base Commission
schedules identified in the variable annuity Product Exhibit(s), based
on premium expected to be deposited with Company to effect an IRS
Section 2-1035 exchange of one investment product for a variable
annuity product sold under this Agreement. In the event that the
expected premium does not reach Company within 90 days of the date of
the contract application, the entire commission for the transaction
will be charged back during the next normal commission cycle.
7. INDEMNIFICATION.
7.1 Indemnification of Company and Distributor. Authorized Selling Firm
shall indemnify, defend and hold harmless American Express and any of
its officers, directors and employees, from and against any and all
losses, claims, damages, liabilities, actions, costs or expenses to
which American Express, or any of its officers, directors and
employees, may become subject (including any reasonable legal or other
reasonable expenses incurred by it in connection with investigating any
claim against it and defending any action and, provided Authorized
Selling Firm will have given prior written approval of such settlement
or compromise, which consent will not be unreasonably withheld or
delayed, any amounts paid in settlement or compromise) insofar as such
losses, claims, damages, liabilities, actions, costs or expenses arise
out of or are based upon:
7.1.1 The acts or omissions of Authorized Selling Firm or any of its
employees, agents or Producers while acting (whether under
actual or apparent authority, or otherwise) on behalf of
Authorized Selling Firm or American Express in connection with
this Agreement;
7.1.2 Any breach of any covenant or agreement made by Authorized
Selling Firm under this Agreement; or
7.1.3 The inaccuracy or breach of any representation or warranty made
by Authorized Selling Firm under this Agreement.
7.1.4 The acts or omissions of the Clearing Broker or any employee or
agent of Clearing Broker while performing the activities
covered by this Agreement. The indemnity obligation of this
paragraph will extend to any regulatory penalties incurred by
Company as a result of said activities.
This indemnification obligation shall not apply to the extent
that such alleged act or omission is attributable to American
Express either because (1) American Express directed the act or
omission, or (2) the act or omission by Authorized Selling Firm
or any of its employees, agents or Producers was the result of
their compliance with the Company Rules.
7.2 Indemnification of Agency and Broker-Dealer. American Express shall
indemnify, defend and hold harmless Authorized Selling Firm, any of its
officers, directors and employees, from and against any and all losses,
claims, damages, liabilities, actions, costs or expenses to which
Authorized Selling Firm, or any of its officers, directors and
employees, may become subject (including any reasonable legal or other
reasonable expenses incurred by it in connection with investigating any
claim against it and defending any action and, provided American
Express will have given prior written approval of such settlement or
compromise, which consent will not be unreasonably withheld or delayed,
any amounts paid in settlement or compromise) insofar as such losses,
claims, damages, liabilities, actions, costs or expenses arise out of
or are based upon:
7.2.1 The acts or omissions of American Express, or any employee or
agent of American Express, (excluding Authorized Selling Firm
or Producers) while acting (whether under actual or apparent
authority or otherwise) on behalf of American Express in
connection with this Agreement;
7.2.2 Any breach of any covenant or agreement made by American
Express under this Agreement; or
7.2.3 The inaccuracy or breach of any representation or warranty
made by American Express under this Agreement.
7.3 Limitation of Liability. Except as expressly stated herein, as between
the parties, in no event will any party to this Agreement be
responsible to any other party for any incidental, indirect,
consequential, punitive, or exemplary damages of any kind arising from
this Agreement, including without limitation, lost revenues, loss of
profits or loss of business. The parties agree that the losses and
damages arising under and/or covered by Section 7.1 and 7.2 shall be
subject to this limitation.
<PAGE>
8. ARBITRATION. The parties agree to attempt to settle any misunderstandings
or disputes arising out of this Agreement through consultation and
negotiation in good faith and a spirit of mutual cooperation. However, if
those attempts fail, the parties agree that any misunderstandings or
disputes arising from this Agreement will be decided by arbitration which
will be conducted, upon request of either party, before three arbitrators
(unless both parties agree on one arbitrator) designated by the American
Arbitration Association located in the city of Company's principal place of
business. The parties further agree that the arbitrator(s) will decide
which party must bear the expenses of the arbitration. This agreement to
arbitrate shall not preclude either party from obtaining provisional
remedies such as injunctive relief or the appointment of a receiver from a
court having jurisdiction, before, during or after the pendency of the
arbitration. The institution and maintenance of such provisional remedies
shall not constitute a waiver of the right of a party to submit a dispute
to arbitration.
9. TERMINATION.
9.1 Termination for Cause. At any time during the Term of this Agreement,
American Express or Authorized Selling Firm may terminate this
Agreement immediately for cause upon written notice of such termination
to the other party. Such written notice shall state the cause with
specificity. As used in this Section, the term "cause" shall include
any one or more of the following:
9.1.1 the conviction of any party, its officers or supervisory
personnel of any felony, of fraud, or of any crime involving
dishonesty;
9.1.2 the intentional misappropriation by a party of funds or
property of any other party, or of funds received for it or
for annuity Contract holders;
9.1.3 the cancellation, or the refusal to renew by the issuing
insurance regulatory authority of, any license, certificate or
other regulatory approval required in order for any party to
perform its duties under this Agreement;
9.1.4 any action by a regulatory authority with jurisdiction over
the activities of a party that would place the party in
receivership or conservatorship or otherwise substantially
interfere or prevent such party from continuing to engage in
the lines of business relevant to the subject matter hereof;
or
9.1.5 a party becoming a debtor in bankruptcy (whether voluntary or
involuntary) or the subject of an insolvency proceeding.
9.2 Termination without Cause. American Express or Authorized Selling Firm
may terminate this Agreement without cause upon 30 days prior written
notice to the other parties.
9.3 Post Termination Limitation. For a period of one year after termination
of this Agreement, Authorized Selling Firm and Producers shall not
knowingly induce or cause, or attempt to induce or cause, any concerted
or organized effort to recommend, promote, encourage or endorse the
termination, surrender, or cancellation of any Product sold pursuant to
this Agreement.
10. INDEPENDENT CONTRACTOR. This Agreement is not a contract of employment.
Nothing contained in this Agreement shall be construed or deemed to create
the relationship of joint venture, partnership, or employer and employee
between American Express and Authorized Selling Firm. Each party is an
independent contractor and shall be free, subject to the terms and
conditions of this Agreement, to exercise judgment and discretion with
regard to the conduct of business.
11. CONFIDENTIALITY.
11.1 Each party agrees that, during the term of this Agreement and at all
times thereafter, it will not disclose to any unaffiliated person,
firm, corporation or other entity, nor use for its own account, any of
the other parties' trade secrets or confidential information,
including, without limitation, the terms of this Agreement; non-public
program materials; member or customer lists; proprietary information;
information as to the other party's business methods, operations or
affairs, or the processes and systems used in its operations and
affairs, or the processes and systems used in any aspect of the
operation of its business; all whether now known or subsequently
learned by it. If this Agreement is terminated, each party, within 60
days after such termination, will return to the other parties,
respectively, any and all copies, in whatever form or medium, of any
material disclosing any of the other parties' trade secrets or
confidential information as described above.
Nothing in this Agreement shall require a party to keep confidential
any information that:
11.1.1 the party can prove was known to it prior to any disclosure by
any other party;
11.1.2 is or becomes publicly available through no fault of the
party;
11.1.3 the party can prove was independently developed by it outside
the scope of this Agreement and with no access to any
confidential or proprietary information of any other party;
11.1.4 is required to be disclosed to governmental regulators or
pursuant to judicial or administrative process or subpoena;
11.1.5 is required in order to perform that party's obligation
under this Agreement;
11.1.6 is required to be disclosed by any applicable law; or
11.1.7 is mutually agreed upon by all parties to this Agreement.
11.2 In the event Authorized Selling Firm during the term of this Agreement
and for a period of one year after the effective date of its
termination, engages in a concerted effort to promote, recommend or
encourage the termination, surrender, or cancellation of any Product
sold under this Agreement, without reasonable grounds to believe that
such termination, cancellation or surrender is in each individual
customer's best interest, then American Express will have the right to
contact present and former purchasers of the Products sold under this
Agreement with a view to retaining the assets in their accounts with
Company, without being found in violation of this Section 11.
12. ASSIGNMENT. The parties to this Agreement may not assign, either wholly
or partially, this Agreement or any of the benefits accrued or to accrue
under it, or subcontract their interests or obligations under this
Agreement, without the written approval of all parties.
13. AMENDMENT OF AGREEMENT. American Express reserves the right to amend this
Agreement at any time, but no amendment shall be effective until approved
in writing by Authorized Selling Firm, subject to the provisions of
Section 5.6, "Reservation of Rights," Section 6, "Compensation" and
Section 12, "Assignment," in this Agreement. Any affiliated insurance
agency signing below or which has executed an Affiliate Participation
Agreement acknowledges and agrees that Agency shall be authorized to
execute any amendment to this Agreement, including all Exhibits, Addenda,
Schedules and Product Exhibit(s), on its behalf, and that such execution
will be binding upon it.
14. MISCELLANEOUS.
14.1 Applicable Law. This Agreement shall be governed by and interpreted
under the laws of the State of Minnesota.
14.2 Severability. Should any part of this Agreement be declared
invalid, the remainder of this Agreement shall remain in full force
and effect, as if the Agreement had originally been executed
without the invalid provisions.
14.3 Notice. Any notice hereunder shall be in writing and shall be
deemed to have been duly given if sent by certified or registered
mail, postage prepaid, or via a national courier service with the
capacity to track its shipments, to the following addresses:
<TABLE>
<S> <C>
If to Company: If to Distributor:
American Enterprise Life Insurance Company American Express Financial Advisors Inc.
80 South 8th Street 80 South 8th Street
Minneapolis, MN 55440 Minneapolis, MN 55440
Attn: Compliance Officer (Unit 1818) Attn: Compliance Officer (Unit 1818)
If to Agency: If to Broker-Dealer:
First Union Insurance Group First Union Securities Inc.
401 S. Tryon Street 401 S. Tryon Street
Charlotte, NC 28288-1207 Charlotte, NC 28288-1207
Attn: Geoff Southwell, VP Annuity Products Attn: Geoff Southwell, VP Annuity Products
</TABLE>
14.4 Binding Effect. This Agreement shall be binding upon and inure to the
benefit of the parties hereto and their respective successors and
assigns, subject to the provisions of this Agreement limiting
assignment.
14.5 Headings. The headings in this Agreement are for convenience only
and are not intended to have any legal effect.
14.6 Defined Terms. The terms defined in this Agreement are to be
interpreted in accordance with this Agreement. Such defined terms are
not intended to conform to specific statutory definitions of any
state.
14.7 Entire Agreement. This Agreement constitutes the entire agreement of
the parties with respect to the subject matter hereof and supersedes
all previous communications, representations, understandings and
agreements, either oral or written, between the parties or any
official representative thereof.
14.8 Survival. All terms and conditions of Section 6.4, "Post Termination
Compensation Obligations"; Section 7, "Indemnification"; Section 9.3
"Post Termination Limitations"; Section 11, "Confidentiality," and
(subject to Section 6.4.3) the Supplemental Trail Commission
provisions of any Product Exhibits in effect as of termination of
this Agreement, will survive termination of this Agreement.
14.9 No Waiver. No failure to enforce, nor any breach of any term or
condition of this Agreement, shall operate as a waiver of such term
or condition, or of any other term or condition, nor constitute nor
be deemed a waiver or release of any other rights at law or in
equity, or of claims which any party may have against any other
party, for anything arising out of, connected with, or based upon
this Agreement. Any waiver, including a waiver of this Section, must
be in writing and signed by the parties hereto.
(Signatures on following page)
<PAGE>
American Enterprise Life Insurance Company First Union Securities Inc.
Company Broker-Dealer
By: By:
Title: Title:
Date: Date:
American Express Financial Advisors Inc. First Union Mortgage Corporation
Distributor Agency
By: By:
Title: Title:
Date: Date:
First Fidelity Insurance Services, Inc. Old York Agency, Inc.
Agency Agency
By: By:
Title: Title:
Date: Date:
Water Street Insurance Agency, Inc.
Agency
By:
Title:
Date:
<PAGE>
EXHIBIT A
Agency and Affiliated Agencies, Authorized States,
Product Description and Premium Remittance
Effective Date of Agreement: Effective Date of Agreement
SUMMARY:
This Exhibit is intended to summarize the Authorized Selling Firm's Agency and
its affiliated insurance agencies, the states in which the Agency and Affiliated
Agencies holds an insurance license to sell Product, the Product Description and
the method of Premium remittance.
- ------------------------------------------------------------ -------------------
Agency or Affiliated Agencies Authorized States of Agency
or Affiliated Agencies
- ------------------------------------------------------------ -------------------
First Union Mortgage Corporation CT, DE, DC, GA, MD, NC, SC,
VA, TN
First Fidelity Insurance Services, Inc. NJ only
Old York Agency, Inc. PA only
Water Street Insurance Agency, Inc. FL only
- ------------------------------------------------------------ -------------------
- ------------------------------------------------ --------------------------
Product Description Remittance of Premiums
(See Product Exhibits to identify states where (See Section 4.5)
product is available)
- ------------------------------------------------ --------------------------
American Express New Solutions Variable Annuity Net Wire
- ------------------------------------------------ --------------------------
Effective Revision Date: Effective Date of Revision
Purpose of Revision: Purpose of Revision
<PAGE>
AEL Product Exhibit:
American Express New Solutionssm Variable Annuity
States of: AK, AZ, CO, DE, DC, GA, HI, IA, ID, KS, KY, LA, ME, MS, MO, NE,
NM, NV, OH, RI, TN, WI, WV, WY
The Product to be offered through Authorized Selling Firm is a flexible premium
variable annuity known as the American Express New Solutionssm Variable Annuity,
that may be offered only in those states shown above in which the product has
been filed and approved.
Effective Revision Date:
Purpose of Last Revision:
COMMISSION
1. The commission payable for contracts described in this Product Exhibit will
be paid according to the following commission schedule.
<TABLE>
<S> <C> <C>
------------------------------------------------------ --------------- -- --------------
Non Qualified (No Trail Available) Issue Ages: Issue Ages:
0-80 (Older 81+ (Older of
of Annuitant Annuitant or
or Owner) Owner)
Accumulative Premium Paid $0 - $100,000 6.50% 3.15%
Accumulative Premium Paid $100,000 + 6.00% 2.65%
Qualified (No Trail Available)
Accumulative Premium Paid $0 - $100,000 6.00% 2.65%
Accumulative Premium Paid $100,000 + 5.50% 2.15%
------------------------------------------------------ --------------- -- -------------
</TABLE>
2. No commission is payable for contracts described in this Product Exhibit
where the issue age of either the annuitant or owner exceeds age 85
(qualified or non-qualified).
3. Advance Commissions on IRS Section 2-1035 exchanges. Subject to #4 below,
Company will advance commissions monthly based on premium expected to be
deposited with Company to effect an IRS Section 2-1035 exchange of one
investment product for a Product sold under this Agreement. In the event
that the expected premium does not reach Company within 90 days of the date
of the application, the entire commission for the transaction will be
charged back during the next normal commission cycle.
4. No commission is payable on the sale of Products under this Agreement if
that sale involves replacement of an asset or investment issued by Company
or by any other insurance company owned or controlled by American Express
Company.
<PAGE>
CHARGEBACKS
In the event of the surrender of an annuity within six months of each premium
payment date, there will be a chargeback of commissions paid with respect to
premiums received, according to the following schedule:
----------------------------------- --------------------------
Time Elapsed Since Premium Chargeback Percentage
Payment Date
----------------------------------- --------------------------
0-6 Months 100%
7-12 Months 50%
Over 12 Months 0%
----------------------------------- --------------------------
Chargebacks will be assessed in their entirety against Agency. The chargeback
will be waived in the events of death of an annuitant or owner, or in case of
annuitization or partial withdrawal. The chargeback schedule applies separately
to each payment upon cancellation or full withdrawal. The chargeback schedule
applies during the free look period, or for any full withdrawal.
April 28, 2000
American Enterprise Life Insurance Company
829 AXP Financial Center
Minneapolis, MN 55474
RE: American Enterprise Variable Annuity Account
Post-Effective Amendment No. 1
File Nos.: 333-92297/811-7195
Ladies and Gentlemen:
I am familiar with the establishment of the American Enterprise Variable Annuity
Account ("Account"), which is a separate account of American Enterprise Life
Insurance Company ("Company") established by the Company's Board of Directors
according to applicable insurance law. I also am familiar with the
above-referenced Registration Statement filed by the Company on behalf of the
Account with the Securities and Exchange Commission.
I have made such examination of law and examined such documents and records as
in my judgment are necessary and appropriate to enable me to give the following
opinion:
1. The Company is duly incorporated, validly existing and in good standing
under applicable state law and is duly licensed or qualified to do business
in each jurisdiction where it transacts business. The Company has all
corporate powers required to carry on its business and to issue the
contracts.
2. The Account is a validly created and existing separate account of the
Company and is duly authorized to issue the securities registered.
3. The contracts issued by the Company, when offered and sold in accordance
with the prospectuses 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,
- -------------------------
Mary Ellyn Minenko
Group Counsel
Consent of Independent Auditors
We consent to the references to our firm under the captions "Experts" in the
Prospectus and "Independent Auditors" in the Statement 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 - American Express New Solutions
Variable Annuity, included in Post-Effective Amendment No. 1 to the Registration
Statement (Form N-4, No. 333-92297) and related Prospectus for the registration
of the American Express New Solutions Variable AnnuitySM Contracts, to be
offered by American Enterprise Life Insurance Company.
/s/ Ernst & Young LLP
Minneapolis, MN
April 24, 2000
American Enterprise Life - New Solutions 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 schedule is stated below.
Seven year schedule
Years from purchase
payment receipt Surrender charge
percentage
----------------------- -------------------------
1 8%
2 8
3 7
4 7
5 6
6 5
7 3
8 0
