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 (File No. 333-82149) [X]
and/or
REGISTRATION STATEMENT UNDER THE INVESTMENT COMPANY ACT OF 1940
Amendment No. 3 (File No. 811-7195) [X]
(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
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Mary Ellyn Minenko, 200 AXP Financial Center, Minneapolis, MN 55474
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(Name and Address of Agent for Service)
It is proposed that this filing will become effective (check appropriate box)
[ ] immediately upon filing pursuant to paragraph (b) of Rule 485
[X] on May 1, 2000 pursuant to paragraph (b) of Rule 485
[ ] 60 days after filing pursuant to paragraph (a)(1) of Rule 485
[ ] on (date) pursuant to paragraph (a)(1) 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 PINNACLE VARIABLE ANNUITY
INDIVIDUAL FLEXIBLE PREMIUM DEFERRED COMBINATION FIXED/VARIABLE ANNUITY
AMERICAN ENTERPRISE VARIABLE ANNUITY ACCOUNT
ISSUED BY: AMERICAN ENTERPRISE LIFE INSURANCE COMPANY (AMERICAN ENTERPRISE LIFE)
829 AXP Financial Center
Minneapolis, MN 55474
Telephone: 800-333-3437
This prospectus contains information that you should know before investing. You
also will receive the prospectuses for:
- - American Express-Registered Trademark- Variable Portfolio Funds
- - AIM Variable Insurance Funds
- - Fidelity Variable Insurance Products - Service Class
- - Franklin Templeton Variable Insurance Products Trust (FTVIPT) - Class 2
- - MFS-Registered Trademark- Variable Insurance Trust-SM-
- - Putnam Variable Trust - Class IB Shares
Please read the prospectuses carefully and keep them for future reference. This
contract is available for nonqualified annuities, Individual Retirement
Annuities (IRAs) (including Roth IRAs) and Simplified Employee Pension (SEP)
plans.
THE SECURITIES AND EXCHANGE COMMISSION (SEC) HAS NOT APPROVED OR DISAPPROVED
THESE SECURITIES OR PASSED UPON THE ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY
REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE.
AN INVESTMENT IN THIS CONTRACT IS NOT A DEPOSIT OF A BANK OR FINANCIAL
INSTITUTION AND IS NOT INSURED OR GUARANTEED BY THE FEDERAL DEPOSIT INSURANCE
CORPORATION OR ANY OTHER GOVERNMENT AGENCY. AN INVESTMENT IN THIS CONTRACT
INVOLVES INVESTMENT RISK INCLUDING THE POSSIBLE LOSS OF PRINCIPAL.
A Statement of Additional Information (SAI), dated the same date as this
prospectus, is incorporated by reference into this prospectus. It is filed with
the SEC and is available without charge by contacting American Enterprise Life
at the telephone number above or by completing and sending the order form on the
last page of this prospectus. The table of contents of the SAI is on the last
page of this prospectus.
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PROSPECTUS -- MAY 1, 2000 1
<PAGE>
TABLE OF CONTENTS
<TABLE>
<S> <C>
KEY TERMS........................................................................... 3
THE CONTRACT IN BRIEF............................................................... 5
EXPENSE SUMMARY..................................................................... 7
CONDENSED FINANCIAL INFORMATION (UNAUDITED)......................................... 12
FINANCIAL STATEMENTS................................................................ 23
PERFORMANCE INFORMATION............................................................. 23
THE VARIABLE ACCOUNT AND THE FUNDS.................................................. 24
THE FIXED ACCOUNT................................................................... 28
BUYING YOUR CONTRACT................................................................ 29
CHARGES............................................................................. 32
VALUING YOUR INVESTMENT............................................................. 36
MAKING THE MOST OF YOUR CONTRACT.................................................... 38
WITHDRAWALS......................................................................... 42
CHANGING OWNERSHIP.................................................................. 43
BENEFITS IN CASE OF DEATH........................................................... 44
THE ANNUITY PAYOUT PERIOD........................................................... 47
TAXES............................................................................... 50
VOTING RIGHTS....................................................................... 52
SUBSTITUTION OF INVESTMENTS......................................................... 53
ABOUT THE SERVICE PROVIDERS......................................................... 54
YEAR 2000........................................................................... 55
TABLE OF CONTENTS OF THE STATEMENT OF ADDITIONAL INFORMATION........................ 56
</TABLE>
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2 AMERICAN EXPRESS PINNACLE VARIABLE ANNUITY
<PAGE>
KEY TERMS
THESE TERMS CAN HELP YOU UNDERSTAND DETAILS ABOUT YOUR CONTRACT.
ACCUMULATION UNIT -- A measure of the value of each subaccount before annuity
payouts begin.
ANNUITANT -- The person on whose life or life expectancy the annuity payouts are
based.
ANNUITY PAYOUTS -- An amount paid at regular intervals under one of several
plans.
BENEFICIARY -- The person you designate to receive benefits in case of the
owner's or annuitant's death while the contract is in force and before annuity
payouts begin.
CLOSE OF BUSINESS -- When the New York Stock Exchange (NYSE) closes, normally 4
p.m. Eastern time.
CONTRACT -- A deferred annuity contract 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 ACCOUNT -- An account to which you may allocate purchase payments.
Amounts you allocate to this account earn interest at rates that we declare
periodically.
FUNDS -- Investment options under your contract. You may allocate your
purchase payments into subaccounts investing in shares of any or all of these
funds.
OWNER (YOU, YOUR) -- The person who controls the contract (decides on
investment allocations, transfers, payout options, etc.). Usually, but not
always, the owner is also the annuitant. The owner is responsible for taxes,
regardless of whether he or she receives the contract's benefits.
QUALIFIED ANNUITY -- A contract that you purchase 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 408 A of the Code
- - Simplified Employee Pension (SEP) plans under Section 408(k) of the Code
A qualified annuity will not provide any necessary or additional tax deferral if
it is used to fund a retirement plan that is already tax-deferred.
All other contracts are considered NONQUALIFIED ANNUITIES.
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PROSPECTUS -- MAY 1, 2000 3
<PAGE>
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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4 AMERICAN EXPRESS PINNACLE VARIABLE ANNUITY
<PAGE>
THE CONTRACT IN BRIEF
PURPOSE: The purpose of the contract is to allow you to accumulate money for
retirement. You do this by making one or more purchase payments; you may
allocate your purchase payments to the fixed account and/or subaccounts under
the contract. These accounts, in turn, may earn returns that increase the
value of the contract. Beginning at a specified time in the future called the
retirement date, the contract provides lifetime or other forms of payouts of
your contract value (less any applicable premium tax). As in the case of
other annuities, it may not be advantageous for you to purchase this contract
as a replacement for, or in addition to, an existing annuity.
A qualified annuity will not provide any necessary or additional tax deferral
if it is used to fund a retirement plan that is tax-deferred. However, the
contract has features other than tax deferral that may make it an appropriate
investment for your retirement plan. You should compare these features and
their costs with other investment options before deciding to purchase this
contract.
FREE LOOK PERIOD: You may return your contract to your sales representative
or to our office within the time stated on the first page of your contract
and receive a full refund of the contract value. We will not deduct any
charges. However, you bear the investment risk from the time of purchase
until you return the contract; the refund amount may be more or less than the
payment you made. (Exception: If the law requires, we will refund all of your
purchase payments.)
ACCOUNTS: Currently, you may allocate your purchase payments among any or all
of:
- - the subaccounts, each of which invests in a fund with a particular investment
objective. The value of each subaccount varies with the performance of the
particular fund in which it invests. We cannot guarantee that the value at
the retirement date will equal or exceed the total purchase payments you
allocate to the subaccounts. (p.24)
- - the fixed account, which earns interest at a rate that we adjust
periodically. (p.28)
BUYING YOUR CONTRACT: Your sales representative will help you complete and
submit an application. Applications are subject to acceptance at our office.
You may buy a nonqualified annuity or a qualified annuity. After your initial
purchase payment, you have the option of making additional purchase payments
in the future. Some states have time limitations for making additional
payments. (p.29)
- - Minimum initial purchase payment --
$5,000 in Texas, Washington and South Carolina;
$2,000 in all other states
- - Minimum additional purchase payment -- $100 ($50 for Systematic Investment
Plans)
- - Maximum total purchase payments (without prior approval) --
$1,000,000 (for issue ages up to 85)
$100,000 (for issue ages 86 to 90)
TRANSFERS: Subject to certain restrictions you currently may redistribute
your money among the accounts without charge at any time until annuity
payouts begin, and once per contract year among the subaccounts after annuity
payouts begin. You may establish automated transfers among the accounts.
Fixed account transfers are subject to special restrictions. (p.39)
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 withdrawals are made prior to your reaching
age 59 1/2) and may have other tax consequences; also, certain restrictions
apply. (p.42)
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PROSPECTUS -- MAY 1, 2000 5
<PAGE>
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.43)
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.44)
ANNUITY PAYOUTS: You can apply your contract value to an annuity payout plan
that begins on the retirement date. You may choose from a variety of plans to
make sure that payouts continue as long as you like. If you purchased a
qualified annuity, the payout schedule must meet the requirements of the
qualified plan. We can make payouts on a fixed or variable basis, or both.
Total monthly payouts may include amounts from each subaccount and the fixed
account. (p.47)
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.50)
CHARGES: We assess certain charges in connection with your contract:
- - $30 annual contract administrative charge;
- - 0.15% variable account administrative charge;
- - 1.00% mortality and expense risk fee (if you allocate money to one or more
subaccounts) if death benefit Option A applies; or
- - 1.10% mortality and expense risk fee (if you allocate money to one or more
subaccounts) if death benefit Option B applies;
- - withdrawal charge;
- - any premium taxes that may be imposed on us by state or local governments
(Currently, we deduct any applicable premium tax when annuity payouts begin,
but we reserve the right to deduct this tax at other times such as when you
make purchase payments or when you make a total withdrawal); and
- - the operating expenses of the funds in which the subaccounts invest.
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6 AMERICAN EXPRESS PINNACLE VARIABLE ANNUITY
<PAGE>
EXPENSE SUMMARY
The purpose of the following information is to help you understand the various
costs and expenses associated with your contract.
You pay no sales charge when you purchase your contract. We show all costs that
we deduct directly from your contract or indirectly from the subaccounts and
funds below. Some expenses may vary as we explain under "Charges." Please see
the fund prospectuses for more information on the operating expenses for each
fund.
CONTRACT OWNER EXPENSES
WITHDRAWAL CHARGE (contingent deferred sales charge as a percentage of
purchase payment withdrawn)
<TABLE>
<CAPTION>
YEARS FROM PURCHASE WITHDRAWAL CHARGE
PAYMENT RECEIPT PERCENTAGE
<S> <C>
1 8%
2 8
3 7
4 6
5 5
6 4
7 2
Thereafter 0
</TABLE>
WITHDRAWAL CHARGE UNDER ANNUITY PAYOUT PLAN E -- PAYOUTS FOR A SPECIFIED PERIOD:
The amount equal to the difference in the present value of remaining payments
using the assumed investment rate and such present value using the assumed
investment rate plus 1.60%. In no event would your withdrawal charge exceed 9%
of the amount available for payouts under the plan.
ANNUAL CONTRACT ADMINISTRATIVE CHARGE $30*
*We will waive this charge when your contract value is $50,000 or more on the
current contract anniversary.
ANNUAL VARIABLE ACCOUNT EXPENSES
(as a percentage of average subaccount value and will vary depending on the
death option that applies):
<TABLE>
<CAPTION>
OPTION A OPTION B
<S> <C> <C>
VARIABLE ACCOUNT ADMINISTRATIVE CHARGE 0.15% 0.15%
MORTALITY AND EXPENSE RISK FEE 1.00% 1.10%
----- -----
TOTAL ANNUAL VARIABLE ACCOUNT EXPENSES 1.15% 1.25%
</TABLE>
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PROSPECTUS -- MAY 1, 2000 7
<PAGE>
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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)
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<TABLE>
<CAPTION>
MANAGEMENT 12B-1 OTHER
FEES FEES EXPENSES TOTAL
<S> <C> <C> <C> <C>
AXP-SM- Variable Portfolio -
Blue Chip Advantage Fund .56% .13 .26 .95%(1)
Bond Fund .60% .13 .08 .81%(2)
Cash Management Fund .51% .13 .05 .69%(2)
Diversified Equity Income Fund .56% .13 .26 .95%(1)
Extra Income Fund .62% .13 .08 .83%(2)
Managed Fund .59% .13 .04 .76%(2)
New Dimensions Fund-Registered
Trademark- .61% .13 .07 .81%(2)
Small Cap Advantage Fund .79% .13 .31 1.23%(1)
AIM V.I.
Capital Appreciation Fund .62% -- .11 .73%(3)
Value Fund .61% -- .15 .76%(3)
Fidelity VIP
III Balanced Portfolio
(Service Class) .43% .10 .14 .67%(4)
Growth Portfolio
(Service Class) .58% .10 .09 .77%(4)
III Growth & Income Portfolio
(Service Class) .48% .10 .12 .70%(4)
III Mid Cap Portfolio
(Service Class) .57% .10 .40 1.07%(5)
FTVIPT
Franklin Small Cap Fund - Class 2 .55% .25 .27 1.07%(6),(7)
Franklin Value Securities
Fund - Class 2 .60% .25 .21 1.06%(6)
Mutual Shares Securities
Fund - Class 2 .60% .25 .19 1.04%(6),(8)
Templeton International Securities
Fund - Class 2 .69% .25 .19 1.13%(6),(9)
MFS-Registered Trademark-
Growth with Income Series .75% -- .13 .88%(10)
New Discovery Series .90% -- .17 1.07%(10),(11)
Total Return Series .75% -- .15 .90%(10)
Utilities Series .75% -- .16 .91%(10)
Putnam Variable Trust
Putnam VT Growth and Income
Fund - Class IB Shares .46% .15 .04 .65%(3)
Putnam VT Income Fund - Class
IB Shares(12) .60% .15 .07 .82%(3)
Putnam VT International Growth
Fund - Class IB Shares .80% .15 .22 1.17%(3)
Putnam VT Vista Fund - Class
IB Shares .65% .15 .10 .90%(3)
</TABLE>
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8 AMERICAN EXPRESS PINNACLE VARIABLE ANNUITY
<PAGE>
(1) Based on estimated expenses after fee waivers and expense reimbursements.
Without fee waivers and expense reimbursements "Other Expenses" and "Total"
would be 0.39% and 1.08% for AXP-SM- Variable Portfolio - Blue Chip
Advantage and AXP-SM- Variable Portfolio - Diversified Equity Income Funds
and 0.43% and 1.35% for AXP-SM- Variable Portfolio - Small Cap Advantage
Fund.
(2) The fund's expense figures are based on actual expenses for the fiscal
year ended Aug. 31, 1999 restated to include a Rule 12b-1 distribution
fee of .125% that went into effect Sept. 21, 1999.
(3) Figures in "Management Fees", "12b-1 Fees", "Other Expenses" and "Total"
are based on actual expenses for the fiscal year ended Dec. 31, 1999.
(4) A portion of the brokerage commissions that certain funds pay was used to
reduce fund expenses. In addition, through arrangements with certain funds'
custodian, credits realized as a result of uninvested cash balances were
used to reduce a portion of each applicable funds' expenses. With these
reductions, "Other Expenses" and "Total" presented in the table would
have been 0.13% and 0.66% for Balanced Portfolio, 0.07% and 0.75% for
Growth Portfolio, and 0.11% and 0.69% for Growth & Income Portfolio.
(5) 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%, 2.47% and 3.41%, respectively.
(6) The fund's class 2 distribution plan or "Rule 12b-1 plan" is described in
the fund's prospectus.
(7) On Feb. 8, 2000 a merger and reorganization was approved that combined the
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%.
(8) 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%.
(9) Previously Templeton International Fund. On Feb. 8, 2000, shareholders
approved a merger and reorganization that combined the fund with the
Templeton International Equity Fund, effective May 1, 2000. The shareholders
of that fund 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 the assets of the funds 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%.
(10)Each series has an expense offset arrangement which reduces the series'
custodian fee based upon the amount of cash maintained by the series with
its custodian and dividend disbursing agent. Each series may enter into
other such arrangements and directed brokerage arrangements, which would
also have the effect of reducing the series' expenses. "Other Expenses"
do not take into account these expense reductions, and are therefore higher
than the actual expenses of the series. Had these fee reductions been
taken into account, "Net Expenses" would be lower for certain series and
would equal: 0.87% for Growth with Income Series, 1.05% for New Discovery
Series, 0.89% for Total Return Series, and 0.90% for Utilities Series.
(11)MFS has contractually agreed, subject to reimbursement, to bear expenses
for these series such that each such series' "Other Expenses" (after taking
into account the expense offset arrangement described above), do not exceed
the following percentages of the average daily net assets of the series
during the current fiscal year 0.15% for the New Discovery Series. Without
this agreement, "Other" and "Total Expenses" would be 1.59% and 2.49%. These
contractual fee arrangements will continue until at least May 1, 2000,
unless changed with the consent of the board of trustees which oversees
the series.
(12)Prior to April 9, 1999 was known as Putnam VT U.S. Government and High
Quality Bond Fund.
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PROSPECTUS -- MAY 1, 2000 9
<PAGE>
EXAMPLES:*
You would pay the following expenses on a $1,000 investment in an annuity with
death benefit Option A and 1.00% mortality and expense risk fee, assuming a 5%
annual return and....
<TABLE>
<CAPTION>
FULL WITHDRAWAL AT THE
END OF EACH TIME PERIOD
1 YEAR 3 YEARS 5 YEARS 10 YEARS
- ------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
AXP(SM) Variable Portfolio -
Blue Chip Advantage Fund $102.21 $138.50 $167.40 $252.05
Bond Fund 100.78 134.17 160.14 237.33
Cash Management Fund 99.55 130.44 153.87 224.55
Diversified Equity Income Fund 102.21 138.50 167.40 252.05
Extra Income Fund 100.98 134.79 161.18 239.45
Managed Fund 100.26 132.62 157.53 232.02
New Dimensions Fund-Registered Trademark- 100.78 134.17 160.14 237.33
Small Cap Advantage Fund 105.08 147.14 181.82 280.90
AIM V.I.
Capital Appreciation Fund 99.96 131.69 155.96 228.83
Value Fund 100.26 132.62 157.53 232.02
Fidelity VIP
III Balanced Portfolio (Service Class) 99.34 129.82 152.82 222.40
Growth Portfolio (Service Class) 100.37 132.93 158.05 233.09
III Growth & Income Portfolio (Service Class) 99.65 130.75 154.39 225.62
III Mid Cap Portfolio (Service Class) 103.44 142.21 173.60 264.51
FTVIPT
Franklin Small Cap Fund - Class 2 103.44 142.21 173.60 264.51
Franklin Value Securities Fund - Class 2 103.34 141.90 173.09 263.48
Mutual Shares Securities Fund - Class 2 103.13 141.28 172.06 261.41
Templeton International Securities Fund - Class 2 104.06 144.06 176.69 270.69
MFS-Registered Trademark-
Growth with Income Series 101.49 136.34 163.78 244.72
New Discovery Series 103.44 142.21 173.60 264.51
Total Return Series 101.70 136.96 164.81 246.82
Utilities Series 101.80 137.27 165.33 247.87
Putnam Variable Trust
Putnam VT Growth and Income Fund - Class IB Shares 99.14 129.20 151.78 220.26
Putnam VT Income Fund - Class IB Shares 100.88 134.48 160.66 238.39
Putnam VT International Growth Fund - Class IB Shares 104.47 145.29 178.74 274.78
Putnam VT Vista Fund - Class IB Shares 101.70 136.96 164.81 246.82
</TABLE>
<TABLE>
<CAPTION>
NO WITHDRAWAL OR SELECTION
OF AN ANNUITY PAYOUT PLAN AT THE
END OF EACH TIME PERIOD
1 YEAR 3 YEARS 5 YEARS 10 YEARS
- --------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
AXP(SM) Variable Portfolio -
Blue Chip Advantage Fund $22.21 $68.50 $117.40 $252.05
Bond Fund 20.78 64.17 110.14 237.33
Cash Management Fund 19.55 60.44 103.87 224.55
Diversified Equity Income Fund 22.21 68.50 117.40 252.05
Extra Income Fund 20.98 64.79 111.18 239.45
Managed Fund 20.26 62.62 107.53 232.02
New Dimensions Fund-Registered Trademark- 20.78 64.17 110.14 237.33
Small Cap Advantage Fund 25.08 77.14 131.82 280.90
AIM V.I.
Capital Appreciation Fund 19.96 61.69 105.96 228.83
Value Fund 20.26 62.62 107.53 232.02
Fidelity VIP
III Balanced Portfolio (Service Class) 19.34 59.82 102.82 222.40
Growth Portfolio (Service Class) 20.37 62.93 108.05 233.09
III Growth & Income Portfolio (Service Class) 19.65 60.75 104.39 225.62
III Mid Cap Portfolio (Service Class) 23.44 72.21 123.60 264.51
FTVIPT
Franklin Small Cap Fund - Class 2 23.44 72.21 123.60 264.51
Franklin Value Securities Fund - Class 2 23.34 71.90 123.09 263.48
Mutual Shares Securities Fund - Class 2 23.13 71.28 122.06 261.41
Templeton International Securities Fund - Class 2 24.06 74.06 126.69 270.69
MFS-Registered Trademark-
Growth with Income Series 21.49 66.34 113.78 244.72
New Discovery Series 23.44 72.21 123.60 264.51
Total Return Series 21.70 66.96 114.81 246.82
Utilities Series 21.80 67.27 115.33 247.87
Putnam Variable Trust
Putnam VT Growth and Income Fund - Class IB Shares 19.14 59.20 101.78 220.26
Putnam VT Income Fund - Class IB Shares 20.88 64.48 110.66 238.39
Putnam VT International Growth Fund - Class IB Shares 24.47 75.29 128.74 274.78
Putnam VT Vista Fund - Class IB Shares 21.70 66.96 114.81 246.82
</TABLE>
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10 AMERICAN EXPRESS PINNACLE VARIABLE ANNUITY
<PAGE>
You would pay the following expenses on a $1,000 investment in an annuity with
death benefit Option B and 1.10% mortality and expense risk fee, assuming a 5%
annual return and....
<TABLE>
<CAPTION>
TOTAL WITHDRAWAL AT THE
END OF EACH TIME PERIOD
1 YEAR 3 YEARS 5 YEARS 10 YEARS
- ----------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
AXP(SM) Variable Portfolio -
Blue Chip Advantage Fund $103.24 $141.59 $172.57 $262.45
Bond Fund 101.80 137.27 165.33 247.87
Cash Management Fund 100.57 133.55 159.09 235.21
Diversified Equity Income Fund 103.24 141.59 172.57 262.45
Extra Income Fund 102.01 137.89 166.37 249.96
Managed Fund 101.29 135.72 162.74 242.61
New Dimensions Fund-Registered Trademark- 101.80 137.27 165.33 247.87
Small Cap Advantage Fund 106.11 150.21 186.92 291.00
AIM V.I.
Capital Appreciation Fund 100.98 134.79 161.18 239.45
Value Fund 101.29 135.72 162.74 242.61
Fidelity VIP
III Balanced Portfolio (Service Class) 100.37 132.93 158.05 233.09
Growth Portfolio (Service Class) 101.39 136.03 163.26 243.67
III Growth & Income Portfolio (Service Class) 100.67 133.86 159.61 236.27
III Mid Cap Portfolio (Service Class) 104.47 145.29 178.74 274.78
FTVIPT
Franklin Small Cap Fund - Class 2 104.47 145.29 178.74 274.78
Franklin Value Securities Fund - Class 2 104.36 144.98 178.23 273.76
Mutual Shares Securities Fund - Class 2 104.16 144.37 177.20 271.71
Templeton International Securities Fund - Class 2 105.08 147.14 181.82 280.90
MFS-Registered Trademark-
Growth with Income Series 102.52 139.43 168.96 255.18
New Discovery Series 104.47 145.29 178.74 274.78
Total Return Series 102.72 140.05 169.99 257.26
Utilities Series 102.83 140.36 170.51 258.30
Putnam Variable Trust
Putnam VT Growth and Income Fund - Class IB Shares 100.16 132.31 157.01 230.96
Putnam VT Income Fund - Class IB Shares 101.90 137.58 165.85 248.92
Putnam VT International Growth Fund - Class IB Shares 105.49 148.36 183.86 284.95
Putnam VT Vista Fund - Class IB Shares 102.72 140.05 169.99 257.26
</TABLE>
<TABLE>
<CAPTION>
NO WITHDRAWAL OR SELECTION
OF AN ANNUITY PAYOUT PLAN AT THE
END OF EACH TIME PERIOD
1 YEAR 3 YEARS 5 YEARS 10 YEARS
- ------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
AXP(SM) Variable Portfolio -
Blue Chip Advantage Fund $23.24 $71.59 $122.57 $262.45
Bond Fund 21.80 67.27 115.33 247.87
Cash Management Fund 20.57 63.55 109.09 235.21
Diversified Equity Income Fund 23.24 71.59 122.57 262.45
Extra Income Fund 22.01 67.89 116.37 249.96
Managed Fund 21.29 65.72 112.74 242.61
New Dimensions Fund-Registered Trademark- 21.80 67.27 115.33 247.87
Small Cap Advantage Fund 26.11 80.21 136.92 291.00
AIM V.I.
Capital Appreciation Fund 20.98 64.79 111.18 239.45
Value Fund 21.29 65.72 112.74 242.61
Fidelity VIP
III Balanced Portfolio (Service Class) 20.37 62.93 108.05 233.09
Growth Portfolio (Service Class) 21.39 66.03 113.26 243.67
III Growth & Income Portfolio (Service Class) 20.67 63.86 109.61 236.27
III Mid Cap Portfolio (Service Class) 24.47 75.29 128.74 274.78
FTVIPT
Franklin Small Cap Fund - Class 2 24.47 75.29 128.74 274.78
Franklin Value Securities Fund - Class 2 24.36 74.98 128.23 273.76
Mutual Shares Securities Fund - Class 2 24.16 74.37 127.20 271.71
Templeton International Securities Fund - Class 2 25.08 77.14 131.82 280.90
MFS-Registered Trademark-
Growth with Income Series 22.52 69.43 118.96 255.18
New Discovery Series 24.47 75.29 128.74 274.78
Total Return Series 22.72 70.05 119.99 257.26
Utilities Series 22.83 70.36 120.51 258.30
Putnam Variable Trust
Putnam VT Growth and Income Fund - Class IB Shares 20.16 62.31 107.01 230.96
Putnam VT Income Fund - Class IB Shares 21.90 67.58 115.85 248.92
Putnam VT International Growth Fund - Class IB Shares 25.49 78.36 133.86 284.95
Putnam VT Vista Fund - Class IB Shares 22.72 70.05 119.99 257.26
</TABLE>
* In these examples, the $30 contract administrative charge is approximated as a
0.067% charge based on our average contract size. Premium taxes imposed by some
state and local governments are not reflected in this table. We entered into
certain arrangements under which we are compensated by the funds' advisors
and/or distributors for the administrative services we provide to the funds.
YOU SHOULD NOT CONSIDER THESE EXAMPLES AS REPRESENTATIONS OF PAST OR FUTURE
EXPENSES. ACTUAL EXPENSES MAY BE MORE OR LESS THAN THOSE SHOWN.
- ------------------------------------------------------------------------------
PROSPECTUS - MAY 1, 2000 11
<PAGE>
CONDENSED FINANCIAL INFORMATION
(UNAUDITED)
The following tables give per-unit information about the financial history of
each subaccount.
<TABLE>
<CAPTION>
YEAR ENDED DEC. 31, 1999
<S> <C>
SUBACCOUNT PBCA1(1) (INVESTING IN SHARES OF AXP(SM) VARIABLE PORTFOLIO - BLUE CHIP ADVANTAGE FUND)
Accumulation unit value at beginning of period $1.00
Accumulation unit value at end of period $1.09
Number of accumulation units outstanding at end of period 259
Ratio of operating expense to average net assets 1.25%
- ----------------------------------------------------------------------------------------------------------------------------------
SUBACCOUNT PBCA2(2) (INVESTING IN SHARES OF AXP(SM) VARIABLE PORTFOLIO - BLUE CHIP ADVANTAGE FUND)
Accumulation unit value at beginning of period $1.00
Accumulation unit value at end of period $1.09
Number of accumulation units outstanding at end of period 259
Ratio of operating expense to average net assets 1.15%
- ----------------------------------------------------------------------------------------------------------------------------------
SUBACCOUNT PBND1(1) (INVESTING IN SHARES OF AXP(SM) VARIABLE PORTFOLIO - BOND FUND)
Accumulation unit value at beginning of period $1.00
Accumulation unit value at end of period $1.01
Number of accumulation units outstanding at end of period 258
Ratio of operating expense to average net assets 1.25%
- ----------------------------------------------------------------------------------------------------------------------------------
SUBACCOUNT PBND2(2) (INVESTING IN SHARES OF AXP(SM) VARIABLE PORTFOLIO - BOND FUND)
Accumulation unit value at beginning of period $1.00
Accumulation unit value at end of period $1.01
Number of accumulation units outstanding at end of period 258
Ratio of operating expense to average net assets 1.15%
- -----------------------------------------------------------------------------------------------------------------------------------
SUBACCOUNT PCMG1(1) (INVESTING IN SHARES OF AXP(SM) VARIABLE PORTFOLIO - CASH MANAGEMENT FUND)
Accumulation unit value at beginning of period $1.00
Accumulation unit value at end of period $1.01
Number of accumulation units outstanding at end of period 260
Ratio of operating expense to average net assets 1.25%
Simple yield(3) 4.62%
Compound yield(3) 4.73%
- -----------------------------------------------------------------------------------------------------------------------------------
</TABLE>
- ------------------------------------------------------------------------------
12 AMERICAN EXPRESS PINNACLE VARIABLE ANNUITY
<PAGE>
<TABLE>
<CAPTION>
YEAR ENDED DEC. 31, 1999
<S> <C>
SUBACCOUNT PCMG2(2) (INVESTING IN SHARES OF AXP(SM) VARIABLE PORTFOLIO - CASH MANAGEMENT FUND)
Accumulation unit value at beginning of period $1.00
Accumulation unit value at end of period $1.01
Number of accumulation units outstanding at end of period 260
Ratio of operating expense to average net assets 1.15%
Simple yield(3) 4.82%
Compound yield(3) 4.93%
- --------------------------------------------------------------------------------------------------------------------------------
SUBACCOUNT PDEI1(1) (INVESTING IN SHARES OF AXP(SM) VARIABLE PORTFOLIO - DIVERSIFIED EQUITY INCOME FUND)
Accumulation unit value at beginning of period $1.00
Accumulation unit value at end of period $1.02
Number of accumulation units outstanding at end of period 262
Ratio of operating expense to average net assets 1.25%
- --------------------------------------------------------------------------------------------------------------------------------
SUBACCOUNT PDEI2(2) (INVESTING IN SHARES OF AXP(SM) VARIABLE PORTFOLIO - DIVERSIFIED EQUITY INCOME FUND)
Accumulation unit value at beginning of period $1.00
Accumulation unit value at end of period $1.02
Number of accumulation units outstanding at end of period 262
Ratio of operating expense to average net assets 1.15%
- -------------------------------------------------------------------------------------------------------------------------------
SUBACCOUNT PEXI1(1) (INVESTING IN SHARES OF AXP(SM) VARIABLE PORTFOLIO - EXTRA INCOME FUND)
Accumulation unit value at beginning of period $1.00
Accumulation unit value at end of period $1.03
Number of accumulation units outstanding at end of period 259
Ratio of operating expense to average net assets 1.25%
- -------------------------------------------------------------------------------------------------------------------------------
SUBACCOUNT PEXI2(2) (INVESTING IN SHARES OF AXP(SM) VARIABLE PORTFOLIO - EXTRA INCOME FUND)
Accumulation unit value at beginning of period $1.00
Accumulation unit value at end of period $1.03
Number of accumulation units outstanding at end of period 259
Ratio of operating expense to average net assets 1.15%
- --------------------------------------------------------------------------------------------------------------------------------
</TABLE>
- ------------------------------------------------------------------------------
PROSPECTUS - MAY 1, 2000 13
<PAGE>
<TABLE>
<CAPTION>
YEAR ENDED DEC. 31, 1999
<S> <C>
SUBACCOUNT PMGD1(1) (INVESTING IN SHARES OF AXP(SM) VARIABLE PORTFOLIO - MANAGED FUND)
Accumulation unit value at beginning of period $1.00
Accumulation unit value at end of period $1.08
Number of accumulation units outstanding at end of period 259
Ratio of operating expense to average net assets 1.25%
- ------------------------------------------------------------------------------------------------------------------------
SUBACCOUNT PMGD2(2) (INVESTING IN SHARES OF AXP(SM) VARIABLE PORTFOLIO - MANAGED FUND)
Accumulation unit value at beginning of period $1.00
Accumulation unit value at end of period $1.08
Number of accumulation units outstanding at end of period 259
Ratio of operating expense to average net assets 1.15%
- ------------------------------------------------------------------------------------------------------------------------
SUBACCOUNT PNDM1(1) (INVESTING IN SHARES OF AXP(SM) VARIABLE PORTFOLIO - NEW
DIMENSIONS FUND-REGISTERED TRADEMARK-)
Accumulation unit value at beginning of period $1.00
Accumulation unit value at end of period $1.15
Number of accumulation units outstanding at end of period 257
Ratio of operating expense to average net assets 1.25%
- -----------------------------------------------------------------------------------------------------------------------
SUBACCOUNT PNDM2(2) (INVESTING IN SHARES OF AXP(SM) VARIABLE PORTFOLIO - NEW
DIMENSIONS FUND-REGISTERED TRADEMARK-)
Accumulation unit value at beginning of period $1.00
Accumulation unit value at end of period $1.15
Number of accumulation units outstanding at end of period 257
Ratio of operating expense to average net assets 1.15%
- -----------------------------------------------------------------------------------------------------------------------
SUBACCOUNT PSCA1(1) (INVESTING IN SHARES OF AXP(SM) VARIABLE PORTFOLIO - SMALL CAP ADVANTAGE FUND)
Accumulation unit value at beginning of period $1.00
Accumulation unit value at end of period $1.11
Number of accumulation units outstanding at end of period 254
Ratio of operating expense to average net assets 1.25%
- ----------------------------------------------------------------------------------------------------------------------
</TABLE>
- ------------------------------------------------------------------------------
14 AMERICAN EXPRESS PINNACLE VARIABLE ANNUITY
<PAGE>
<TABLE>
<CAPTION>
YEAR ENDED DEC. 31, 1999
<S> <C>
SUBACCOUNT PSCA2(2) (INVESTING IN SHARES OF AXP(SM) VARIABLE PORTFOLIO - SMALL CAP ADVANTAGE FUND)
Accumulation unit value at beginning of period $1.00
Accumulation unit value at end of period $1.11
Number of accumulation units outstanding at end of period 254
Ratio of operating expense to average net assets 1.15%
- -------------------------------------------------------------------------------------------------------------------------
SUBACCOUNT PCAP1(4) (INVESTING IN SHARES OF AIM V.I. CAPITAL APPRECIATION FUND)
Accumulation unit value at beginning of period $1.00
Accumulation unit value at end of period $1.26
Number of accumulation units outstanding at end of period 251
Ratio of operating expense to average net assets 1.25%
- -------------------------------------------------------------------------------------------------------------------------
SUBACCOUNT PCAP2(5) (INVESTING IN SHARES OF AIM V.I. CAPITAL APPRECIATION FUND)
Accumulation unit value at beginning of period $1.00
Accumulation unit value at end of period $1.26
Number of accumulation units outstanding at end of period 251
Ratio of operating expense to average net assets 1.15%
- --------------------------------------------------------------------------------------------------------------------------
SUBACCOUNT PVAL1(4) (INVESTING IN SHARES OF AIM V.I. VALUE FUND)
Accumulation unit value at beginning of period $1.00
Accumulation unit value at end of period $1.11
Number of accumulation units outstanding at end of period 258
Ratio of operating expense to average net assets 1.25%
- --------------------------------------------------------------------------------------------------------------------------
SUBACCOUNT PVAL2(5) (INVESTING IN SHARES OF AIM V.I. VALUE FUND)
Accumulation unit value at beginning of period $1.00
Accumulation unit value at end of period $1.11
Number of accumulation units outstanding at end of period 258
Ratio of operating expense to average net assets 1.15%
- --------------------------------------------------------------------------------------------------------------------------
</TABLE>
- ------------------------------------------------------------------------------
PROSPECTUS - MAY 1, 2000 15
<PAGE>
<TABLE>
<CAPTION>
YEAR ENDED DEC. 31, 1999
<S> <C>
- --------------------------------------------------------------------------------------------------------------------------
SUBACCOUNT PBAL1(4) (INVESTING IN SHARES OF FIDELITY VIP III BALANCED PORTFOLIO -
SERVICE CLASS)
Accumulation unit value at beginning of period $1.00
Accumulation unit value at end of period $1.02
Number of accumulation units outstanding at end of period 196
Ratio of operating expense to average net assets 1.25%
- --------------------------------------------------------------------------------------------------------------------------
SUBACCOUNT PBAL2(5) (INVESTING IN SHARES OF FIDELITY VIP III BALANCED PORTFOLIO -
SERVICE CLASS)
Accumulation unit value at beginning of period $1.00
Accumulation unit value at end of period $1.02
Number of accumulation units outstanding at end of period 196
Ratio of operating expense to average net assets 1.15%
- -------------------------------------------------------------------------------------------------------------------------
SUBACCOUNT PGRO1(4) (INVESTING IN SHARES OF FIDELITY VIP GROWTH PORTFOLIO - SERVICE CLASS)
Accumulation unit value at beginning of period $1.00
Accumulation unit value at end of period $1.16
Number of accumulation units outstanding at end of period 191
Ratio of operating expense to average net assets 1.25%
- --------------------------------------------------------------------------------------------------------------------------
SUBACCOUNT PGRO2(5) (INVESTING IN SHARES OF FIDELITY VIP GROWTH PORTFOLIO - SERVICE CLASS)
Accumulation unit value at beginning of period $1.00
Accumulation unit value at end of period $1.16
Number of accumulation units outstanding at end of period 191
Ratio of operating expense to average net assets 1.15%
- --------------------------------------------------------------------------------------------------------------------------
SUBACCOUNT PGRI1(4) (INVESTING IN SHARES OF FIDELITY VIP III GROWTH AND INCOME
PORTFOLIO - SERVICE CLASS)
Accumulation unit value at beginning of period $1.00
Accumulation unit value at end of period $1.03
Number of accumulation units outstanding at end of period 195
Ratio of operating expense to average net assets 1.25%
- --------------------------------------------------------------------------------------------------------------------------
</TABLE>
- ------------------------------------------------------------------------------
16 AMERICAN EXPRESS PINNACLE VARIABLE ANNUITY
<PAGE>
<TABLE>
<CAPTION>
YEAR ENDED DEC. 31, 1999
<S> <C>
SUBACCOUNT PGRI2(5) (INVESTING IN SHARES OF FIDELITY VIP III GROWTH AND INCOME
PORTFOLIO - SERVICE CLASS)
Accumulation unit value at beginning of period $1.00
Accumulation unit value at end of period $1.03
Number of accumulation units outstanding at end of period 195
Ratio of operating expense to average net assets 1.15%
- ---------------------------------------------------------------------------------------------------------------------------
SUBACCOUNT PMDC1(4) (INVESTING IN SHARES OF FIDELITY VIP III MID CAP PORTFOLIO - SERVICE CLASS)
Accumulation unit value at beginning of period $1.00
Accumulation unit value at end of period $1.24
Number of accumulation units outstanding at end of period 188
Ratio of operating expense to average net assets 1.25%
- ---------------------------------------------------------------------------------------------------------------------------
SUBACCOUNT PMDC2(5) (INVESTING IN SHARES OF FIDELITY VIP III MID CAP PORTFOLIO - SERVICE CLASS)
Accumulation unit value at beginning of period $1.00
Accumulation unit value at end of period $1.24
Number of accumulation units outstanding at end of period 188
Ratio of operating expense to average net assets 1.15%
- ---------------------------------------------------------------------------------------------------------------------------
SUBACCOUNT PSMC1(4) (INVESTING IN SHARES OF FTVIPT FRANKLIN SMALL CAP FUND - CLASS 2)
Accumulation unit value at beginning of period $1.00
Accumulation unit value at end of period $1.43
Number of accumulation units outstanding at end of period 243
Ratio of operating expense to average net assets 1.25%
- ---------------------------------------------------------------------------------------------------------------------------
SUBACCOUNT PSMC2(5) (INVESTING IN SHARES OF FTVIPT FRANKLIN SMALL CAP FUND - CLASS 2)
Accumulation unit value at beginning of period $1.00
Accumulation unit value at end of period $1.43
Number of accumulation units outstanding at end of period 243
Ratio of operating expense to average net assets 1.15%
- ---------------------------------------------------------------------------------------------------------------------------
</TABLE>
- ------------------------------------------------------------------------------
PROSPECTUS - MAY 1, 2000 17
<PAGE>
<TABLE>
<CAPTION>
YEAR ENDED DEC. 31, 1999
<S> <C>
SUBACCOUNT PVAS1(4) (INVESTING IN SHARES OF FTVIPT FRANKLIN VALUE SECURITIES FUND - CLASS 2)
Accumulation unit value at beginning of period $1.00
Accumulation unit value at end of period $1.04
Number of accumulation units outstanding at end of period 259
Ratio of operating expense to average net assets 1.25%
- ---------------------------------------------------------------------------------------------------------------------------
SUBACCOUNT PVAS2(5) (INVESTING IN SHARES OF FTVIPT FRANKLIN VALUE SECURITIES FUND - CLASS 2)
Accumulation unit value at beginning of period $1.00
Accumulation unit value at end of period $1.04
Number of accumulation units outstanding at end of period 259
Ratio of operating expense to average net assets 1.15%
- ---------------------------------------------------------------------------------------------------------------------------
SUBACCOUNT PMSS1(4) (INVESTING IN SHARES OF FTVIPT MUTUAL SHARES SECURITIES FUND -
CLASS 2)
Accumulation unit value at beginning of period $1.00
Accumulation unit value at end of period $1.03
Number of accumulation units outstanding at end of period 260
Ratio of operating expense to average net assets 1.25%
- ---------------------------------------------------------------------------------------------------------------------------
SUBACCOUNT PMSS2(5) (INVESTING IN SHARES OF FTVIPT MUTUAL SHARES SECURITIES FUND - CLASS 2)
Accumulation unit value at beginning of period $1.00
Accumulation unit value at end of period $1.03
Number of accumulation units outstanding at end of period 260
Ratio of operating expense to average net assets 1.15%
- ---------------------------------------------------------------------------------------------------------------------------
SUBACCOUNT PINT1(4) (INVESTING IN SHARES OF FTVIPT TEMPLETON INTERNATIONAL
SECURITIES FUND - CLASS 2)
Accumulation unit value at beginning of period $1.00
Accumulation unit value at end of period $1.13
Number of accumulation units outstanding at end of period 254
Ratio of operating expense to average net assets 1.25%
- ---------------------------------------------------------------------------------------------------------------------------
</TABLE>
- ------------------------------------------------------------------------------
18 AMERICAN EXPRESS PINNACLE VARIABLE ANNUITY
<PAGE>
<TABLE>
<CAPTION>
YEAR ENDED DEC. 31, 1999
<S> <C>
SUBACCOUNT PINT2(5) (INVESTING IN SHARES OF FTVIPT TEMPLETON INTERNATIONAL FUND - CLASS 2)
Accumulation unit value at beginning of period $1.00
Accumulation unit value at end of period $1.13
Number of accumulation units outstanding at end of period 254
Ratio of operating expense to average net assets 1.15%
- ---------------------------------------------------------------------------------------------------------------------------
SUBACCOUNT PGIS1(4) (INVESTING IN SHARES OF MFS-REGISTERED TRADEMARK- GROWTH WITH INCOME SERIES)
Accumulation unit value at beginning of period $1.00
Accumulation unit value at end of period $1.05
Number of accumulation units outstanding at end of period 261
Ratio of operating expense to average net assets 1.25%
- ---------------------------------------------------------------------------------------------------------------------------
SUBACCOUNT PGIS2(5) (INVESTING IN SHARES OF MFS-REGISTERED TRADEMARK- GROWTH WITH INCOME SERIES)
Accumulation unit value at beginning of period $1.00
Accumulation unit value at end of period $1.05
Number of accumulation units outstanding at end of period 261
Ratio of operating expense to average net assets 1.15%
- ---------------------------------------------------------------------------------------------------------------------------
SUBACCOUNT PNDS1(4) (INVESTING IN SHARES OF MFS-REGISTERED TRADEMARK- NEW DISCOVERY SERIES)
Accumulation unit value at beginning of period $1.00
Accumulation unit value at end of period $1.43
Number of accumulation units outstanding at end of period 238
Ratio of operating expense to average net assets 1.25%
- ---------------------------------------------------------------------------------------------------------------------------
SUBACCOUNT PNDS2(5) (INVESTING IN SHARES OF MFS-REGISTERED TRADEMARK- NEW DISCOVERY SERIES)
Accumulation unit value at beginning of period $1.00
Accumulation unit value at end of period $1.43
Number of accumulation units outstanding at end of period 238
Ratio of operating expense to average net assets 1.15%
- ---------------------------------------------------------------------------------------------------------------------------
</TABLE>
- ------------------------------------------------------------------------------
PROSPECTUS - MAY 1, 2000 19
<PAGE>
<TABLE>
<CAPTION>
YEAR ENDED DEC. 31, 1999
<S> <C>
SUBACCOUNT PTRS1(4) (INVESTING IN SHARES OF MFS-REGISTERED TRADEMARK- TOTAL RETURN SERIES)
Accumulation unit value at beginning of period $1.00
Accumulation unit value at end of period $1.00
Number of accumulation units outstanding at end of period 259
Ratio of operating expense to average net assets 1.25%
- ---------------------------------------------------------------------------------------------------------------------------
SUBACCOUNT PTRS2(5) (INVESTING IN SHARES OF MFS-REGISTERED TRADEMARK- TOTAL RETURN SERIES)
Accumulation unit value at beginning of period $1.00
Accumulation unit value at end of period $1.00
Number of accumulation units outstanding at end of period 259
Ratio of operating expense to average net assets 1.15%
- ---------------------------------------------------------------------------------------------------------------------------
SUBACCOUNT PUTS1(4) (INVESTING IN SHARES OF MFS-REGISTERED TRADEMARK- UTILITIES SERIES)
Accumulation unit value at beginning of period $1.00
Accumulation unit value at end of period $1.14
Number of accumulation units outstanding at end of period 255
Ratio of operating expense to average net assets 1.25%
- ---------------------------------------------------------------------------------------------------------------------------
SUBACCOUNT PUTS2(5) (INVESTING IN SHARES OF MFS-REGISTERED TRADEMARK- UTILITIES SERIES)
Accumulation unit value at beginning of period $1.00
Accumulation unit value at end of period $1.14
Number of accumulation units outstanding at end of period 255
Ratio of operating expense to average net assets 1.15%
- ---------------------------------------------------------------------------------------------------------------------------
SUBACCOUNT PGIN1(4) (INVESTING IN SHARES OF PUTNAM VT GROWTH AND INCOME FUND - CLASS IB SHARES)
Accumulation unit value at beginning of period $1.00
Accumulation unit value at end of period $0.97
Number of accumulation units outstanding at end of period 262
Ratio of operating expense to average net assets 1.25%
- ---------------------------------------------------------------------------------------------------------------------------
</TABLE>
- ------------------------------------------------------------------------------
20 AMERICAN EXPRESS PINNACLE VARIABLE ANNUITY
<PAGE>
<TABLE>
<CAPTION>
YEAR ENDED DEC. 31, 1999
<S> <C>
SUBACCOUNT PGIN2(5) (INVESTING IN SHARES OF PUTNAM VT GROWTH AND INCOME FUND - CLASS IB SHARES)
Accumulation unit value at beginning of period $1.00
Accumulation unit value at end of period $0.97
Number of accumulation units outstanding at end of period 262
Ratio of operating expense to average net assets 1.15%
- ---------------------------------------------------------------------------------------------------------------------------
SUBACCOUNT PINC1(4) (INVESTING IN SHARES OF PUTNAM VT INCOME FUND - CLASS IB SHARES)
Accumulation unit value at beginning of period $1.00
Accumulation unit value at end of period $0.99
Number of accumulation units outstanding at end of period 258
Ratio of operating expense to average net assets 1.25%
- ---------------------------------------------------------------------------------------------------------------------------
SUBACCOUNT PINC2(5) (INVESTING IN SHARES OF PUTNAM VT INCOME FUND - CLASS IB SHARES)
Accumulation unit value at beginning of period $1.00
Accumulation unit value at end of period $0.99
Number of accumulation units outstanding at end of period 258
Ratio of operating expense to average net assets 1.15%
- ---------------------------------------------------------------------------------------------------------------------------
SUBACCOUNT PIGR1(4) (INVESTING IN SHARES OF PUTNAM VT INTERNATIONAL GROWTH FUND - CLASS IB SHARES)
Accumulation unit value at beginning of period $1.00
Accumulation unit value at end of period $1.29
Number of accumulation units outstanding at end of period 252
Ratio of operating expense to average net assets 1.25%
- ---------------------------------------------------------------------------------------------------------------------------
SUBACCOUNT PIGR2(5) (INVESTING IN SHARES OF PUTNAM VT INTERNATIONAL GROWTH FUND - CLASS IB SHARES)
Accumulation unit value at beginning of period $1.00
Accumulation unit value at end of period $1.29
Number of accumulation units outstanding at end of period 252
Ratio of operating expense to average net assets 1.15%
- ---------------------------------------------------------------------------------------------------------------------------
</TABLE>
- ------------------------------------------------------------------------------
PROSPECTUS - MAY 1, 2000 21
<PAGE>
<TABLE>
<CAPTION>
YEAR ENDED DEC. 31, 1999
<S> <C>
SUBACCOUNT PVIS1(4) (INVESTING IN SHARES OF PUTNAM VT VISTA FUND - CLASS IB SHARES)
Accumulation unit value at beginning of period $1.00
Accumulation unit value at end of period $1.30
Number of accumulation units outstanding at end of period 253
Ratio of operating expense to average net assets 1.25%
- ---------------------------------------------------------------------------------------------------------------------------
SUBACCOUNT PVIS2(5) (INVESTING IN SHARES OF PUTNAM VT VISTA FUND - CLASS IB SHARES)
Accumulation unit value at beginning of period $1.00
Accumulation unit value at end of period $1.30
Number of accumulation units outstanding at end of period 253
Ratio of operating expense to average net assets 1.15%
- ---------------------------------------------------------------------------------------------------------------------------
</TABLE>
(1) Operations commenced on Nov. 10, 1999.
(2) Operations commenced on Nov. 12, 1999.
(3) Net of annual contract administrative charge and mortality and expense risk
fee.
(4) Operations commenced on Nov. 9, 1999.
(5) Operations commenced on Nov. 11, 1999.
- ------------------------------------------------------------------------------
22 AMERICAN EXPRESS PINNACLE VARIABLE ANNUITY
<PAGE>
FINANCIAL STATEMENTS
You can find our audited financial statements and the audited financial
statements of the subaccounts in the SAI.
PERFORMANCE INFORMATION
Performance information for the subaccounts may appear from time to time in
advertisements or sales literature. This information reflects the performance of
a hypothetical investment in a particular subaccount during a specified time
period. We show actual performance from the date the subaccounts began investing
in funds. We also show performance from the commencement date of the funds as if
the contract existed at that time, which it did not. Although we base
performance figures on historical earnings, past performance does not guarantee
future results.
We include non-recurring charges (such as withdrawal charges) in total return
figures, but not in yield quotations. Excluding non-recurring charges in yield
calculations increases the reported value.
Total return figures reflect deduction of all applicable charges, including:
- - contract administrative charge,
- - variable account administrative charge,
- - mortality and expense risk fee, and
- - withdrawal charge (assuming a full withdrawal at the end of the illustrated
period).
We also show optional total return quotations that do not reflect a withdrawal
charge deduction (assuming no withdrawal). We may show total return quotations
by means of schedules, charts or graphs.
AVERAGE ANNUAL TOTAL RETURN is the average annual compounded rate of return of
the investment over a period of one, five and ten years (or up to the life of
the subaccount if it is less than ten years old).
CUMULATIVE TOTAL RETURN is the cumulative change in the value of an investment
over a specified time period. We assume that income earned by the investment is
reinvested. Cumulative total return generally will be higher than average annual
total return.
ANNUALIZED SIMPLE YIELD (FOR SUBACCOUNTS INVESTING IN MONEY MARKET FUNDS)
"annualizes" the income generated by the investment over a given seven-day
period. That is, we assume the amount of income generated by the investment
during the period will be generated each seven-day period for a year. We show
this as a percentage of the investment.
ANNUALIZED COMPOUND YIELD (FOR SUBACCOUNTS INVESTING IN MONEY MARKET FUNDS)
is calculated like simple yield except that we assume the income is
reinvested when we annualize it. Compound yield will be higher than the
simple yield because of the compounding effect of the assumed reinvestment.
ANNUALIZED YIELD (FOR SUBACCOUNTS INVESTING IN INCOME FUNDS) divides the net
investment income (income less expenses) for each accumulation unit during a
given 30-day period by the value of the unit on the last day of the period.
We then convert the result to an annual percentage.
You should consider performance information in light of the investment
objectives, policies, characteristics and quality of the fund in which the
subaccount invests and the market conditions during the specified time
period. Advertised yields and total return figures include charges that
reduce advertised performance. Therefore, you should not compare subaccount
performance to that of mutual funds that sell their shares directly to the
public. (See the SAI for a further description of methods used to determine
total return and yield.)
If you would like additional information about actual performance, please
contact us at the address or telephone number on the first page of this
prospectus.
- ------------------------------------------------------------------------------
PROSPECTUS - MAY 1, 2000 23
<PAGE>
THE VARIABLE ACCOUNT AND THE FUNDS
You may allocate payments to any or all of the subaccounts of the variable
account that invest in shares of the following funds:
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------------------------------------------------------
SUBACCOUNT INVESTING IN INVESTMENT OBJECTIVES AND POLICIES INVESTMENT ADVISOR OR MANAGER
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
PBCA1 AXP(SM) Variable Portfolio - Objective: long-term total return exceeding IDS Life Insurance Company
PBCA2 Blue Chip Advantage Fund that of the U.S. stock market. Invests (IDS Life), investment manager;
primarily in common stocks of companies American Express Financial
included in the unmanaged S&P 500 Index. Corporation (AEFC)
investment advisor.
- ------------------------------------------------------------------------------------------------------------------------------------
PBND1 AXP(SM) Variable Portfolio - Objective: high level of current income IDS Life, investment manager;
PBND2 Bond Fund while conserving the value of the investment AEFC investment advisor.
and continuing a high level of income for
the longest time period. Invests primarily
in bonds and other debt obligations.
- ------------------------------------------------------------------------------------------------------------------------------------
PCMG1 AXP(SM) Variable Portfolio - Objective: maximum current income consistent IDS Life, investment manager;
PCMG2 Cash Management Fund with liquidity and conservation of capital. AEFC investment advisor.
Invests in money market securities.
- ------------------------------------------------------------------------------------------------------------------------------------
PDEI1 AXP(SM) Variable Portfolio - Objective: high level of current income IDS Life, investment manager;
PDEI2 Diversified Equity Income and, as a secondary goal, steady growth AEFC investment advisor.
Fund of capital. Invests primarily in
dividend-paying common and preferred
stocks.
- ------------------------------------------------------------------------------------------------------------------------------------
PEXI1 AXP(SM) Variable Portfolio - Objective: high current income, with capital IDS Life, investment manager;
PEXI2 Extra Income Fund growth as a secondary objective. Invests AEFC investment advisor.
primarily in high-yielding, high-risk
corporate bonds issued by U.S. and foreign
companies and governments.
- ------------------------------------------------------------------------------------------------------------------------------------
PMGD1 AXP(SM) Variable Portfolio - Objective: maximum total investment return IDS Life, investment manager;
PMGD2 Managed Fund through a combination of capital growth AEFC investment advisor.
and current income. Invests primarily in a
combination of common and preferred stocks,
convertible securities, bonds and other debt
securities.
- ------------------------------------------------------------------------------------------------------------------------------------
PNDM1 AXP(SM) Variable Portfolio - Objective: long-term growth of capital. IDS Life, investment manager;
PNDM2 New Dimensions Fund-Registered Invests primarily in common stocks of U.S. AEFC investment advisor.
Trademark- and foreign companies showing potential for
significant growth.
- ------------------------------------------------------------------------------------------------------------------------------------
PSCA1 AXP(SM) Variable Portfolio - Objective: long-term capital growth. Invests IDS Life, investment manager;
PSCA2 Small Cap Advantage Fund primarily in equity stocks of small companies AEFC investment advisor. Kenwood
that are often included in the S&P SmallCap Capital Management LLC is the
600 Index or the Russell 2000 Index. sub-investment advisor.
- ------------------------------------------------------------------------------------------------------------------------------------
PCAP1 AIM V.I. Capital Objective: growth of capital. Invests A I M Advisors, Inc.
PCAP2 Appreciation Fund primarily in common stocks, with emphasis
on medium- or small-sized growth companies.
- ------------------------------------------------------------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
24 AMERICAN EXPRESS PINNACLE VARIABLE ANNUITY
<PAGE>
<CAPTION>
- ------------------------------------------------------------------------------------------------------------------------------------
SUBACCOUNT INVESTING IN INVESTMENT OBJECTIVES AND POLICIES INVESTMENT ADVISOR OR MANAGER
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
PVAL1 AIM V.I. Value Fund Objective: long-term growth of capital with A I M Advisors, Inc.
PVAL2 income as a secondary objective. Invests
primarily in equity securities judged to be
undervalued relative to the investment
advisor's appraisal of the current or
projected earnings of the companies issuing
the securities, or relative to current market
values of assets owned by the companies
issuing the securities, or relative to the
equity market generally.
- ------------------------------------------------------------------------------------------------------------------------------------
PBAL1 Fidelity VIP III Balanced Objective: income and growth of capital. Fidelity Management & Research
PBAL2 Portfolio (Service Class) Invests primarily in a diversified portfolio Company (FMR), investment manager;
of equity and fixed-income securities with FMR U.K., FMR Far East and Fidelity
income, growth of income, and capital Investments Money Market Management
appreciation potential. Inc. (FIMM), sub-investment advisors.
- ------------------------------------------------------------------------------------------------------------------------------------
PGRO1 Fidelity VIP Growth Portfolio Objective: capital appreciation. Invests FMR, investment manager; FMR U.K.,
PGRO2 (Service Class) primarily in common stocks of the companies FMR Far East and FIMM,
that the manager believes have above-average sub-investment advisors.
growth potential.
- ------------------------------------------------------------------------------------------------------------------------------------
PGRI1 Fidelity VIP III Growth & Objective: high total return through a FMR, investment manager;
PGRI2 Income Portfolio combination of current income and capital FMR U.K. and FMR Far East,
(Service Class) appreciation. Invests primarily in common sub-investment advisors.
stocks with a focus on those that pay
current dividends and show potential for
capital appreciation.
- ------------------------------------------------------------------------------------------------------------------------------------
PMDC1 Fidelity VIP III Mid Cap Objective: long-term growth of capital. FMR, investment manager;
PMDC2 Portfolio (Service Class) Invests primarily in medium market FMR U.K. and FMR Far East,
capitalization common stocks. sub-investment advisors.
- ------------------------------------------------------------------------------------------------------------------------------------
PSMC1 FTVIPT Franklin Small Objective: long-term capital growth. Franklin Advisers, Inc.
PSMC2 Cap Fund - Class 2 Invests primarily in equity securities of
U.S. small capitalization (small cap) growth
companies.
- ------------------------------------------------------------------------------------------------------------------------------------
PVAS1 FTVIPT Franklin Value Objective: long-term total return. Franklin Advisory Services, LLC
PVAS2 Securities Fund - Class 2 Invests primarily in equity securities of
companies the manager believes are
undervalued.
- ------------------------------------------------------------------------------------------------------------------------------------
PMSS1 FTVIPT Mutual Shares Objective: capital appreciation with income Franklin Mutual Advisers, LLC
PMSS2 Securities Fund - Class 2 as a secondary goal. Invests primarily in
equity securities of companies that the
manager believes are available at market
prices less than their value based on
certain recognized or objective criteria
(intrinsic value).
- ------------------------------------------------------------------------------------------------------------------------------------
PINT1 FTVIPT Templeton Objective: long-term capital growth. Invests Templeton Investment
PINT2 International Securities primarily in equity securities of non-U.S. Counsel, Inc.
Fund - Class 2 (previously companies, including those in emerging
Templeton International Fund) markets.
- ------------------------------------------------------------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
PROSPECTUS -- MAY 1, 2000 25
<PAGE>
<CAPTION>
- ------------------------------------------------------------------------------------------------------------------------------------
SUBACCOUNT INVESTING IN INVESTMENT OBJECTIVES AND POLICIES INVESTMENT ADVISOR OR MANAGER
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
PGIS1 MFS-Registered Trademark- Objective: current income and long-term Massachusetts Financial Services
PGIS2 Growth with Income Series growth of capital and income. Invests Company (MFS) Investment
primarily in common stocks and related Management-Registered Trademark-
securities, such as preferred stocks,
convertible and depository receipts for
those securities.
- ------------------------------------------------------------------------------------------------------------------------------------
PNDS1 MFS-Registered Trademark- Objective: capital appreciation. Invests MFS Investment
PNDS2 New Discovery Series primarily in equity securities of emerging Management-Registered Trademark-
growth companies.
- ------------------------------------------------------------------------------------------------------------------------------------
PTRS1 MFS-Registered Trademark- Objective: above-average income consistent MFS Investment
PTRS2 Total Return Series with the prudent employment of capital, with Management-Registered Trademark-
growth of capital and income as a secondary
objective. Invests primarily in a
combination of equity and fixed income
securities.
- ------------------------------------------------------------------------------------------------------------------------------------
PUTS1 MFS-Registered Trademark- Objective: capital growth and current income. MFS Investment
PUTS2 Utilities Series Invests primarily in equity and debt Management-Registered Trademark-
securities of domestic and foreign companies
in the utilities industry.
- ------------------------------------------------------------------------------------------------------------------------------------
PGIN1 Putnam VT Growth and Income Objective: capital growth and current income. Putnam Investment
PGIN2 Fund - Class IB Shares Invests primarily in common stocks that offer Management, Inc.
potential for capital growth, current income
or both.
- ------------------------------------------------------------------------------------------------------------------------------------
PINC1 Putnam VT Income Fund - Objective: high current income consistent Putnam Investment
PINC2 Class IB Shares with what Putnam Investment Management Inc. Management, Inc.
(Putnam Management) believes to be prudent
risk. The fund will normally invest mostly
in bonds and other debt securities, and,
to a lesser degree, in preferred stocks.
- ------------------------------------------------------------------------------------------------------------------------------------
PIGR1 Putnam VT International Objective: capital appreciation. Invests Putnam Investment
PIGR2 Growth Fund - Class IB primarily in equity securities of companies Management, Inc.
Shares located in a country other than the United
States.
- ------------------------------------------------------------------------------------------------------------------------------------
PVIS1 Putnam VT Vista Fund - Objective: capital appreciation. Invests Putnam Investment
PVIS2 Class IB Shares primarily in a diversified portfolio of Management, Inc.
common stocks that Putnam Management
believes have the potential for above
average capital appreciation.
- ------------------------------------------------------------------------------------------------------------------------------------
</TABLE>
- --------------------------------------------------------------------------------
26 AMERICAN EXPRESS PINNACLE VARIABLE ANNUITY
<PAGE>
The investment objectives and policies of some of the funds are similar to the
investment objectives and policies of other mutual funds that an investment
advisor or its affiliates manage. Although the objectives and policies may be
similar, each fund will have its own portfolio holdings and its own fees and
expenses. Accordingly, each fund will have its own investment results and those
results may differ significantly from other funds with similar investment
objectives and policies.
The investment managers and advisors cannot guarantee that the funds will meet
their investment objectives. Please read the fund prospectuses for facts you
should know before investing. These prospectuses are also available by
contacting us at the address or telephone number on the first page of this
prospectus.
All funds are available to serve as the underlying investments for variable
annuities. Some funds also are available to serve as investment options for
variable life insurance policies and tax-deferred retirement plans. It is
possible that in the future, it may be disadvantageous for variable annuity
accounts and variable life insurance accounts and/or tax-deferred retirement
plans to invest in the available funds simultaneously.
Although the insurance company and the funds do not currently foresee any such
disadvantages, the boards of directors or trustees of the appropriate funds will
monitor events in order to identify any material conflicts between annuity
owners, policy owners and tax-deferred retirement plans and to determine what
action, if any, should be taken in response to a conflict. If a board were to
conclude that it should establish separate funds for the variable annuity,
variable life insurance and tax-deferred retirement plan accounts, you would not
bear any expenses associated with establishing separate funds. Please refer to
the fund prospectuses for risk disclosure regarding simultaneous investments by
variable annuity, variable life insurance and tax-deferred retirement plan
accounts.
The Internal Revenue Service (IRS) issued final regulations relating to the
diversification requirements under Section 817(h) of the Code. Each fund intends
to comply with these requirements.
The variable account was established under Indiana law on July 15, 1987, and the
subaccounts are registered together as a single unit investment trust under the
Investment Company Act of 1940 (the 1940 Act). This registration does not
involve any supervision of our management or investment practices and policies
by the SEC. All obligations arising under the contracts are general obligations
of American Enterprise Life.
The variable account meets the definition of a separate account under federal
securities laws. We credit or charge income, capital gains and capital losses of
each subaccount only to that subaccount. State insurance law prohibits us from
charging a subaccount with liabilities of any other subaccount or of our general
business. The variable account includes other subaccounts that are available
under contracts that are not described in this prospectus.
The U.S. Treasury and the IRS indicated that they may provide additional
guidance on investment control. This concerns how many variable subaccounts an
insurance company may offer and how many exchanges among subaccounts it may
allow before the contract owner would be currently taxed on income earned within
subaccount assets. At this time, we do not know what the additional guidance
will be or when action will be taken. We reserve the right to modify the
contract, as necessary, so that the owner will not be subject to current
taxation as the owner of the subaccount assets.
We intend to comply with all federal tax laws so that the contract continues to
qualify as an annuity for federal income tax purposes. We reserve the right to
modify the contract as necessary to comply with any new tax laws.
- --------------------------------------------------------------------------------
PROSPECTUS -- MAY 1, 2000 27
<PAGE>
THE FIXED ACCOUNT
You also may allocate purchase payments to the fixed account. We back the
principal and interest guarantees relating to the fixed account. The value of
the fixed account increases as we credit interest to the account. Purchase
payments and transfers to the fixed account become part of our general account.
We credit and compound interest daily. We will change the interest rates from
time to time at our discretion. These rates will be based on various factors
including, but not limited to, the interest rate environment, returns earned on
investments backing these annuities, the rates currently in effect for new and
existing company annuities, product design, competition, and the company's
revenues and expenses.
Interests in the fixed account are not required to be registered with the SEC.
The SEC staff does not review the disclosures in this prospectus on the fixed
account. Disclosures regarding the fixed account, however, may be subject to
certain 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 fixed account.)
- --------------------------------------------------------------------------------
28 AMERICAN EXPRESS PINNACLE VARIABLE ANNUITY
<PAGE>
BUYING YOUR CONTRACT
You can fill out an application and send it along with your initial purchase
payment to our office. As the owner, you have all rights and may receive all
benefits under the contract. You can own a nonqualified annuity in joint tenancy
with rights of survivorship only in spousal situations. You cannot own a
qualified annuity in joint tenancy. You can buy a contract or be the annuitant
if you are 90 or younger. (In Pennsylvania, the annuitant must be age 80 or
younger.)
When you apply, you may select:
- - the fixed account and/or subaccounts in which you want to invest;
- - how you want to make purchase payments;
- - the date you want to start receiving annuity payouts (the retirement date);
- - a death benefit option; and
- - a beneficiary.
The contract provides for allocation of purchase payments to the subaccounts
and/or to the fixed account in even 1% increments.
If your application is complete, we will process it and apply your purchase
payment to the fixed account and subaccounts you selected within two business
days after we receive it at our office. If we accept your application, we will
send you a contract. If we cannot accept your application within five business
days, we will decline the application and return your payment. We will credit
the additional purchase payments you make to your accounts on the valuation date
we receive them. We will value the additional payments at the next accumulation
unit value calculated after we receive your payments at our office.
You may make monthly payments to your contract under a Systematic Investment
Plan (SIP). You must make an initial purchase payment of at least $5,000 in
Texas, Washington or South Carolina and $2,000 in all other states. Then, to
begin the SIP, you will complete and send a form and your first SIP payment
along with your application. There is no charge for SIP. You can stop your SIP
payments at any time.
In most states, you may make additional purchase payments to nonqualified and
qualified annuities until the retirement date. In Maryland and Washington, you
may make additional purchase payments to nonqualified annuities until the later
of the annuitant's 63rd birthday or the third contract anniversary, and you may
make additional purchase payments to qualified annuities until the annuitant's
63rd birthday. In Massachusetts, you may make additional purchase payments for
ten years only.
- --------------------------------------------------------------------------------
PROSPECTUS -- MAY 1, 2000 29
<PAGE>
THE RETIREMENT DATE
Annuity payouts are to begin on the retirement date. You can align this date
with your actual retirement from a job, or it can be a different future date,
depending on your needs and goals and on certain restrictions. You also can
change the date, provided you send us written instructions at least 30 days
before annuity payouts begin.
FOR NONQUALIFIED ANNUITIES AND ROTH IRAs, the retirement date must be:
- - no earlier than the 60th day after the contract's effective date; and
- - no later than the annuitant's 85th birthday (or the tenth contract
anniversary, if later).
FOR QUALIFIED ANNUITIES (EXCEPT ROTH IRAs), to avoid IRS penalty taxes, the
retirement date generally must be:
- - on or after the date the annuitant reaches age 59 1/2; and
- - for IRAs and SEPs, by April 1 of the year following the calendar year when
the annuitant reaches age 70 1/2.
If you are taking the minimum IRA distributions as required by the Code from
another tax-qualified investment, or in the form of partial withdrawals from
this contract, annuity payouts can start as late as the annuitant's 85th
birthday or the tenth contract anniversary, if later. (In Pennsylvania, annuity
payouts must start no later than annuitant's 82nd birthday or the eighth
contract anniversary.)
BENEFICIARY
If death benefits become payable before the retirement date while the contract
is in force and before annuity payouts begin, we will pay your named beneficiary
all or part of the contract value. If there is no named beneficiary, then you or
your estate will be the beneficiary. (See "Benefits in Case of Death" for more
about beneficiaries.)
PURCHASE PAYMENTS
MINIMUM ALLOWABLE PURCHASE PAYMENTS:
Initial purchase payments (includes SIPs):
$5,000 in Texas, Washington and South Carolina
$2,000 in all other states
Additional purchase payments:
$100 for regular purchase payments
$50 for SIPs
MAXIMUM ALLOWABLE PURCHASE PAYMENTS:
$1,000,000 for issue ages up to 85 (without prior approval)
$100,000 for issue ages 86 to 90 (without prior approval)
- --------------------------------------------------------------------------------
30 AMERICAN EXPRESS PINNACLE VARIABLE ANNUITY
<PAGE>
HOW TO MAKE PURCHASE PAYMENTS
- -------------------------------------------------------------------------------
1 BY LETTER
Send your check along with your name and contract number to:
AMERICAN ENTERPRISE LIFE INSURANCE COMPANY
829 AXP FINANCIAL CENTER
MINNEAPOLIS, MN 55474
- -------------------------------------------------------------------------------
2 BY SIP
Contact your sales representative to complete the necessary SIP paperwork.
- -------------------------------------------------------------------------------
PROSPECTUS -- MAY 1, 2000 31
<PAGE>
CHARGES
CONTRACT ADMINISTRATIVE CHARGE
We charge this fee for establishing and maintaining your records. We deduct $30
from the contract value on your contract anniversary at the end of each contract
year. We prorate this charge among the subaccounts and the fixed account in the
same proportion your interest in each account bears to your total contract
value. Some states restrict the amount that you can allocate to the fixed
account.
We will waive this charge when your contract value, or total purchase payments
less any payments withdrawn, 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 or purchase payments
made. We cannot increase the annual contract administrative charge and it does
not apply after annuity payouts begin or when we pay death benefits.
VARIABLE ACCOUNT ADMINISTRATIVE CHARGE
We apply this charge daily to the subaccounts. It is reflected in the unit
values of your subaccounts and it totals 0.15% of their average daily net assets
on an annual basis. It covers certain administrative and operating expenses of
the subaccounts such as accounting, legal and data processing fees and expenses
involved in the preparation and distribution of reports and prospectuses. We
cannot increase the variable account administrative charge.
MORTALITY AND EXPENSE RISK FEE
We charge this fee daily to the subaccounts. The unit values of your subaccounts
reflect this fee and it totals either 1.00% or 1.10% of their average daily net
assets on an annual basis depending on the death benefit option that applies to
your contract. If death benefit Option A applies, the mortality and expense risk
fee is 1.00%. If death Option B applies, the mortality and expense risk fee is
1.10%. This fee covers the mortality and expense risk that we assume.
Approximately two-thirds of this amount is for our assumption of mortality risk,
and one-third is for our assumption of expense risk. This fee does not apply to
the fixed account.
Mortality risk arises because of our guarantee to pay a death benefit and our
guarantee to make annuity payouts according to the terms of the contract, no
matter how long a specific annuitant lives and no matter how long our entire
group of annuitants live. If, as a group, annuitants outlive the life expectancy
we assumed in our actuarial tables, then we must take money from our general
assets to meet our obligations. If, as a group, annuitants do not live as long
as expected, we could profit from the mortality risk fee.
Expense risk arises because we cannot increase the contract administrative
charge and variable account administrative charge and these charges may not
cover our expenses. We would have to make up any deficit from our general
assets. 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.
- -------------------------------------------------------------------------------
32 AMERICAN EXPRESS PINNACLE VARIABLE ANNUITY
<PAGE>
WITHDRAWAL CHARGE
If you withdraw part or all of your contract, you may be subject to a withdrawal
charge. We calculate the withdrawal charge by drawing from your total contract
value in the following order:
- - First, in each contract year, we withdraw amounts totaling up to 10% of your
prior anniversary contract value. (We consider your initial purchase payment
to be the prior anniversary contract value during the first contract year.)
We do not assess a withdrawal charge on this amount.
- - Next, we withdraw contract earnings, if any, that are greater than the annual
10% free withdrawal amount described above. Contract earnings equal contract
value less purchase payments received and not previously withdrawn. We do not
assess a withdrawal charge on contract earnings.
NOTE: We determine contract earnings by looking at the entire contract value,
not the earnings of any particular subaccount or the fixed account.
- - Next, we withdraw purchase payments we received eight or more years before
the withdrawal and not previously withdrawn. We do not assess a withdrawal
charge on these purchase payments.
- - Finally, if necessary, we withdraw purchase payments received in the seven
years before the withdrawal on a "first-in, first-out" (FIFO) basis. There is
a withdrawal charge on these payments. We determine your withdrawal charge by
multiplying each of these payments by the applicable withdrawal charge
percentage, and then totaling the withdrawal charges.
The withdrawal charge percentage depends on the number of years since you made
the payments withdrawn.
<TABLE>
<CAPTION>
YEARS FROM PURCHASE WITHDRAWAL CHARGE
PAYMENT RECEIPT PERCENTAGE
<S> <C>
1 8%
2 8
3 7
4 6
5 5
6 4
7 2
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 $1,075.26. This charge represents 7% of the total amount
withdrawn and we deduct it from the contract value remaining after we pay you
the $1,000 you requested.
WITHDRAWAL CHARGE UNDER ANNUITY PAYOUT PLAN E: Payouts for a specified period.
Under this payout plan, you can choose to take a withdrawal. The amount that you
can withdraw is the present value of any remaining variable payouts. The
discount rate we use in the calculation will be 5.10% if the assumed investment
rate is 3.5% and 6.60% if the assumed investment rate is 5%. The withdrawal
charge is equal to the difference in discount values using the above discount
rates and the assumed investment rate. In no event would your withdrawal charge
exceed 9% of the amount available for payouts under the plan.
- -------------------------------------------------------------------------------
PROSPECTUS -- MAY 1, 2000 33
<PAGE>
WITHDRAWAL CHARGE CALCULATION EXAMPLE
The following is an example of the calculation we would make to determine the
withdrawal charge on a contract with this history:
- - The contract date is July 1, 2000 with a contract year of July 1 through
June 30 and with an anniversary date of July 1 each year; and
- - We received these payments:
-- $10,000 July 1, 2000;
-- $8,000 Dec. 31, 2005;
-- $6,000 Feb. 20, 2008; and
- - The owner withdraws the contract for its total withdrawal value of $38,101
on Aug. 5, 2010 and had not made any other withdrawals during that contract
year; and
- - The prior anniversary July 1, 2010 contract value was $38,488.
<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 July 1, 2000 payment was received eight or more years before withdrawal and is withdrawn
without withdrawal charge; and
400 $8,000 Dec. 31, 2005 payment is in its fifth year from receipt, withdrawn with a 5% withdrawal
charge; and
420 $6,000 Feb. 20, 2008 payment is in its third year from receipt, withdrawn with a 7% withdrawal
charge.
-----------
$820
</TABLE>
- -------------------------------------------------------------------------------
34 AMERICAN EXPRESS PINNACLE VARIABLE ANNUITY
<PAGE>
WAIVER OF WITHDRAWAL CHARGE
We do not assess a withdrawal charge for:
- - withdrawals of any contract earnings;
- - withdrawals of amounts totaling up to 10% of your prior contract anniversary
contract value to the extent they exceed contract earnings;
- - required minimum distributions from a qualified annuity (for those amounts
required to be distributed from the contract described in this prospectus);
- - contracts settled using an annuity payout plan;
- - death benefits;
- - withdrawals you make under your contract's "Waiver of Withdrawal Charges"
provision. To the extent permitted by state law, your contract will include
this provision when the owner and annuitant are under age 76 on the date we
issue the contract. We will waive withdrawal charges that we normally assess
upon full or partial withdrawal if you provide proof satisfactory to us that,
as of the date you request the withdrawal, you or the annuitant are confined
to a hospital or nursing home and have been for the prior 60 days. (See your
contract for additional conditions and restrictions on this waiver); and
- - to the extent permitted by state law, withdrawals you make if you or the
annuitant are diagnosed in the second or later contract years as disabled
with a medical condition that with reasonable medical certainty will result
in death within 12 months or less from the date of the licensed physician's
statement. You must provide us with a licensed physician's statement
containing the terminal illness diagnosis and the date the terminal illness
was initially diagnosed.
POSSIBLE GROUP REDUCTIONS: In some cases we may incur lower sales and
administrative expenses due to the size of the group, the average contribution
and the use of group enrollment procedures. In such cases, we may be able to
reduce or eliminate the contract administrative and withdrawal charges. However,
we expect this to occur infrequently.
PREMIUM TAXES
Certain state and local governments impose premium taxes on us (up to 3.5%).
These taxes depend upon your state of residence or the state in which the
contract was sold. Currently, we deduct any applicable premium tax when annuity
payouts begin, but we reserve the right to deduct this tax at other times such
as when you make purchase payments or when you make a full withdrawal from your
contract.
- -------------------------------------------------------------------------------
PROSPECTUS -- MAY 1, 2000 35
<PAGE>
VALUING YOUR INVESTMENT
We value your accounts as follows:
FIXED ACCOUNT
We value the amounts you allocated to the fixed account directly in dollars. The
fixed account value equals:
- - the sum of your purchase payments and transfer amounts allocated to the
fixed account;
- - plus interest credited;
- - minus the sum of amounts withdrawn (including any applicable withdrawal
charges) and amounts transferred out; and
- - minus any prorated contract administrative charge.
SUBACCOUNTS
We convert amounts you allocated to the subaccounts into accumulation units.
Each time you make a purchase payment or transfer amounts into one of the
subaccounts, we credit a certain number of accumulation units to your contract
for that subaccount. Conversely, each time you take a partial withdrawal,
transfer amounts out of a subaccount or we assess a contract administrative
charge, we subtract a certain number of accumulation units from your contract.
The accumulation units are the true measure of investment value in each
subaccount during the accumulation period. They are related to, but not the same
as, the net asset value of the fund in which the subaccount invests. The dollar
value of each accumulation unit can rise or fall daily depending on the variable
account expenses, performance of the fund and on certain fund expenses. Here is
how we calculate accumulation unit values:
NUMBER OF UNITS: to calculate the number of accumulation units for a particular
subaccount we divide your investment by the current accumulation unit value.
ACCUMULATION UNIT VALUE: the current accumulation unit value for each variable
subaccount equals the last value times the subaccount's current net investment
factor.
WE DETERMINE THE NET INVESTMENT FACTOR BY:
- - adding the fund's current net asset value per share, plus the per share
amount of any accrued income or capital gain dividends to obtain a current
adjusted net asset value per share; then
- - dividing that sum by the previous adjusted net asset value per share; and
- - subtracting the percentage factor representing the mortality and expense
risk fee and the variable account administrative charge from the result.
Because the net asset value of the fund may fluctuate, the accumulation unit
value may increase or decrease. You bear all the investment risk in a
subaccount.
- -------------------------------------------------------------------------------
36 AMERICAN EXPRESS PINNACLE VARIABLE ANNUITY
<PAGE>
FACTORS THAT AFFECT SUBACCOUNT ACCUMULATION UNITS: accumulation units may
change in two ways - in number and in value.
The number of accumulation units you own may fluctuate due to:
- - additional purchase payments you allocated to the subaccounts;
- - transfers into or out of the subaccounts;
- - partial withdrawals;
- - withdrawal charges; and/or
- - prorated portions of contract administrative charge.
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;
- - mortality and expense risk fees; and/or
- - variable account administrative charges.
- -------------------------------------------------------------------------------
PROSPECTUS -- MAY 1, 2000 37
<PAGE>
MAKING THE MOST OF YOUR CONTRACT
AUTOMATED DOLLAR-COST AVERAGING
Currently, you can use automated transfers to take advantage of dollar-cost
averaging (investing a fixed amount at regular intervals). For example, you
might transfer a set amount monthly from a relatively conservative subaccount to
a more aggressive one, or to several others, or from the fixed account to one or
more subaccounts. You also can obtain the benefits of dollar-cost averaging by
setting up regular automatic SIP payments. There is no charge for dollar-cost
averaging.
This systematic approach can help you benefit from fluctuations in accumulation
unit values caused by fluctuations in the market values of the funds. Since you
invest the same amount each period, you automatically acquire more units when
the market value falls and fewer units when it rises. The potential effect is to
lower your average cost per unit.
- -------------------------------------------------------------------------------
HOW DOLLAR-COST AVERAGING WORKS
<TABLE>
<CAPTION>
MONTH AMOUNT ACCUMULATION NUMBER OF UNITS
INVESTED UNIT VALUE PURCHASED
- --------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
By investing an Jan $100 $20 5.00
equal number of Feb 100 18 5.56
dollars each month... Mar 100 17 5.88
you automatically ----> Apr 100 15 6.67
buy more units May 100 16 6.25
when the per unit Jun 100 18 5.56
market price is low... Jul 100 17 5.88
and fewer units Aug 100 19 5.26
when the per unit ----> Sep 100 21 4.76
market price is high. Oct 100 20 5.00
</TABLE>
You paid an average price of only $17.91 per unit over the 10 months, while the
average market price actually was $18.10.
Dollar-cost averaging does not guarantee that any subaccount will gain in value
nor will it protect against a decline in value if market prices fall. Because
dollar-cost averaging involves continuous investing, your success will depend
upon your willingness to continue to invest regularly through periods of low
price levels. Dollar-cost averaging can be an effective way to help meet your
long-term goals. For specific features contact your sales representative.
ASSET REBALANCING
You can ask us in writing to have the variable subaccount portion of your
contract value allocated according to the percentages (in whole percentage
amounts) that you choose. We automatically will rebalance this variable
subaccount portion of your contract value either quarterly, semi-annually or
annually. The period you select will start to run on the date we record your
request. On the first valuation date of each of these periods, we automatically
will rebalance your contract value so that the value in each subaccount matches
your current subaccount percentage allocations. These percentage allocations
must be in whole numbers. Asset rebalancing does not apply to the fixed account.
There is no charge for asset rebalancing. The contract value must be at least
$2,000.
- -------------------------------------------------------------------------------
38 AMERICAN EXPRESS PINNACLE VARIABLE ANNUITY
<PAGE>
You can change your percentage allocations or your rebalancing period at any
time by contacting us in writing. We will restart the rebalancing period you
selected as of the date we record your change. You also can ask us in writing to
stop rebalancing your contract value. You must allow 30 days for us to change
any instructions that currently are in place. For more information on asset
rebalancing, contact your sales representative.
TRANSFERRING MONEY BETWEEN ACCOUNTS
You may transfer money from any one subaccount, or the fixed account, to another
subaccount before annuity payouts begin. (Certain restrictions apply to
transfers involving the fixed account.) We will process your transfer on the
valuation date we receive your request. We will value your transfer at the next
accumulation unit value calculated after we receive your request. There is no
charge for transfers. Before making a transfer, you should consider the risks
involved in switching investments.
We may suspend or modify transfer privileges at any time. Excessive trading
activity can disrupt fund management strategy and increase expenses, which are
borne by all contract owners who allocated purchase payments to the fund
regardless of their transfer activity. We may apply modifications or
restrictions in any reasonable manner to prevent transfers we believe will
disadvantage other contract owners. These modifications could include, but not
be limited to:
- - requiring a minimum time period between each transfer;
- - not accepting transfer requests of an agent acting under power of attorney on
behalf of more than one contract owner; or
- - limiting the dollar amount that a contract owner may transfer at any one time.
For information on transfers after annuity payouts begin, see "Transfer
policies" below.
TRANSFER POLICIES
- - Before annuity payouts begin, you may transfer contract values between the
subaccounts or from the subaccounts to the fixed account at any time.
However, if you made a transfer from the fixed account to the subaccounts,
you may not make a transfer from any subaccount back to the fixed account for
six months following that transfer.
- - You may transfer contract values from the fixed account to the subaccounts on
or within 30 days before or after the contract anniversary (except for
automated transfers, which can be set up at any time for certain transfer
periods subject to certain minimums). The transfer from the fixed account to
the subaccounts will be effective on the valuation date we receive it.
- - We will not accept requests for transfers from the fixed account at any other
time.
- - Once annuity payouts begin, you may not make transfers to or from the fixed
account, but you may make transfers once per contract year among the
subaccounts. During the annuity payout period, we reserve the right to limit
the number of subaccounts in which you may invest.
- -------------------------------------------------------------------------------
PROSPECTUS -- MAY 1, 2000 39
<PAGE>
HOW TO REQUEST A TRANSFER OR WITHDRAWAL
- --------------------------------------------------------------------------------
1 BY LETTER
Send your name, contract number, Social Security Number or Taxpayer
Identification Number and signed request for a transfer or withdrawal to:
AMERICAN ENTERPRISE LIFE INSURANCE COMPANY
829 AXP FINANCIAL CENTER
MINNEAPOLIS, MN 55474
MINIMUM AMOUNT
Transfers or withdrawals: $500 or entire account balance
MAXIMUM AMOUNT
Transfers or withdrawals: Contract value or the entire account balance
- --------------------------------------------------------------------------------
2 BY AUTOMATED TRANSFERS AND AUTOMATED PARTIAL WITHDRAWALS
Your sales representative can help you set up automated transfers among your
subaccounts or fixed account or partial withdrawals from the accounts.
You can start or stop this service by written request or other method acceptable
to us. You must allow 30 days for us to change any instructions that are
currently in place.
- - Automated transfers may not exceed an amount that, if continued, would deplete
the fixed account or subaccounts from which you are transferring within 12
months.
- - Automated transfers and automated partial withdrawals are subject to all of
the contract provisions and terms, including transfer of contract values
between accounts.
- - 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, semiannually or annually
MAXIMUM AMOUNT
Transfers or withdrawals: Contract value (except for
automated transfers from the
fixed account)
- -------------------------------------------------------------------------------
40 AMERICAN EXPRESS PINNACLE VARIABLE ANNUITY
<PAGE>
- --------------------------------------------------------------------------------
3 BY PHONE
Call between 8 a.m. and 6 p.m. Central time:
1-800-333-3437
MINIMUM AMOUNT
Transfers or withdrawals: $500 or entire subaccount or fixed account balance
MAXIMUM AMOUNT
Transfers: Contract value or the entire subaccount or fixed
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 surrender within 30 days of an address change. As long as we
follow the procedures, we (and our affiliates) will not be liable for any loss
resulting from fraudulent requests.
Telephone transfers and withdrawals are automatically available. You may request
that telephone transfers and withdrawals not be authorized from your account by
writing to us.
- -------------------------------------------------------------------------------
PROSPECTUS -- MAY 1, 2000 41
<PAGE>
WITHDRAWALS
You may withdraw all or part of your contract at any time before annuity payouts
begin by sending us a written request or calling us. We will process your
withdrawal request on the valuation date we receive it. For total withdrawals,
we will compute the value of your contract at the next accumulation unit value
calculated after we receive your request. We may ask you to return the contract.
You may have to pay withdrawal 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
account 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 you.
- - 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.
- -------------------------------------------------------------------------------
42 AMERICAN EXPRESS PINNACLE VARIABLE ANNUITY
<PAGE>
CHANGING OWNERSHIP
You may change ownership of your nonqualified annuity at any time by completing
a change of ownership form we approve and sending it to our office. The change
will become binding upon us when we receive and record it. We will honor any
change of ownership request that we believe is authentic and we will use
reasonable procedures to confirm authenticity. If we follow these procedures, we
will not take any responsibility for the validity of the change.
If you have a nonqualified annuity, you may incur income tax liability by
transferring, assigning or pledging any part of it. (See "Taxes.")
If you have a qualified annuity, you may not sell, assign, transfer, discount or
pledge your contract as collateral for a loan, or as security for the
performance of an obligation or for any other purpose except as required or
permitted by the Code. However, if the owner is a trust or custodian, or an
employer acting in similar capacity, ownership of the contract may be
transferred to the annuitant.
- -------------------------------------------------------------------------------
PROSPECTUS -- MAY 1, 2000 43
<PAGE>
BENEFITS IN CASE OF DEATH
There are two death benefit options under this contract. If both you and the
annuitant are age 79 or older on the contract date, Option A will apply. If both
you and the annuitant are under age 79 on the contract date, you can elect
either Option A or Option B on your application. Once you elect an option, you
cannot change it. We show the option that applies in your contract. The death
benefit option that applies determines the mortality and expense risk fee that
is assessed against the subaccounts. (See "Charges -- Mortality and expense risk
fee").
Under either option, we will pay the death benefit to your beneficiary upon the
earlier of your death or the annuitant's death. If a contract has more than one
person as the owner, we will pay benefits upon the first to die of any owner or
the annuitant. Other rules apply to qualified annuities. (See "Taxes").
OPTION A
We will pay the beneficiary the greater of:
1. the contract value; or
2. the total purchase payment paid less "adjusted partial withdrawals."
OPTION B
We will pay the beneficiary the greatest of:
1. the contract value; or
2. the total purchase payments paid less "adjusted partial withdrawals;" or
3. the highest contract value on any prior contract anniversary before either
you or the annuitant's 81st birthday, plus any purchase payments made since that
contract anniversary and less any "adjusted partial withdrawals" since that
contract anniversary. After either you or the annuitant's 81st birthday, this
value will only change due to additional payments or "adjusted partial
withdrawals."
ADJUSTED PARTIAL WITHDRAWALS: Under either Option A or Option B, we calculate
"adjusted partial withdrawals" for each partial withdrawal as the product of (a)
times (b) where:
(a) is the ratio of the amount of the partial withdrawal (including any
applicable withdrawal charge) to the contract value on the date of (but
prior to) the partial withdrawal; and
(b) is the death benefit on the date of (but prior to) the partial
withdrawal.
- -------------------------------------------------------------------------------
44 AMERICAN EXPRESS PINNACLE VARIABLE ANNUITY
<PAGE>
EXAMPLE:
- - You purchase the contract for $25,000 on January 1, 2000.
- - On January 1, 2001 (the first contract anniversary), the contract value grows
to $29,000.
- - On March 1, 2001, the contract value falls to $22,000, at which point you
take a $1,500 partial withdrawal, leaving a contract value of $20,500.
We calculate the death benefit for Option A on March 1, 2001 as follows:
<TABLE>
<S> <C> <C>
Total purchase payments paid: $25,000.00
minus any "adjusted partial withdrawal"
calculated as: 1,500 x 29,000 = - 1,977.27
---------------- ----------
22,000
for a death benefit of: $23,295.45
</TABLE>
We calculate the death benefit for Option B on March 1, 2001 as follows:
<TABLE>
<S> <C> <C>
The "maximum anniversary value" (the greatest of the $29,000.00
anniversary values which was the contract value on
Jan. 1, 2001):
plus any purchase payments paid since that anniversary: 0
minus any "adjusted partial withdrawals" taken since
that anniversary, calculated as: 1,500 x 29,000 = - 1,977.27
---------------- ----------
22,000
for a death benefit of: $27,022.72
</TABLE>
IF YOUR SPOUSE IS SOLE BENEFICIARY under a nonqualified annuity and you die
before the retirement date, your spouse may keep the contract as owner. To do
this your spouse must, within 60 days after we receive proof of death, give us
written instructions to keep the contract in force.
Under a qualified annuity, if the annuitant dies before the Code requires
distributions to begin, and the spouse is the only beneficiary, the spouse may
keep the contract as owner. To do this, the spouse must give us written
instructions within 60 days after we receive proof of death.
- -------------------------------------------------------------------------------
PROSPECTUS -- MAY 1, 2000 45
<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.")
- -------------------------------------------------------------------------------
46 AMERICAN EXPRESS PINNACLE VARIABLE ANNUITY
<PAGE>
THE ANNUITY PAYOUT PERIOD
As owner of the contract, you have the right to decide how and to whom annuity
payouts will be made starting at the retirement date. You may select one of the
annuity payout plans outlined below, or we may mutually agree on other payout
arrangements. We do not deduct withdrawal charges under the payout plans listed
below.
You also decide whether we will make annuity payouts on a fixed or variable
basis, or a combination of fixed and variable. The amount available to purchase
payouts under the plan you select is the contract value on your retirement date
(less any applicable premium tax). You may reallocate this contract value to the
fixed account to provide fixed dollar payouts and/or among the subaccounts to
provide variable annuity payouts. During the annuity payout period, we reserve
the right to limit the number of subaccounts in which you may invest.
Amounts of fixed and variable payouts depend on:
- - 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 underlying funds will fluctuate. (In the
case of fixed annuities, payouts remain the same from month to month).
For information with respect to transfers between accounts after annuity payouts
begin, see "Making the Most of Your Contract -- Transfer policies."
ANNUITY TABLE
The annuity table in your contract shows the amount of the first monthly payment
for each $1,000 of contract value according to the age and, when applicable, the
sex of the annuitant. (Where required by law, we will use a unisex table of
settlement rates). The table assumes that the contract value is invested at the
beginning of the annuity payout period and earns a 5% rate of return, which is
reinvested and helps to support future payouts.
SUBSTITUTION OF 3.5% TABLE
If you ask us at least 30 days before the retirement date, we will substitute an
annuity table based on an assumed 3.5% investment rate for the 5% table in the
contract. The assumed investment rate affects both the amount of the first
payout and the extent to which subsequent payouts increase or decrease. Using
the 5% table results in a higher initial payment, but later payouts will
increase more slowly when annuity unit values are rising and decrease more
rapidly when they decline.
- --------------------------------------------------------------------------------
PROSPECTUS -- MAY 1, 2000 47
<PAGE>
ANNUITY PAYOUT PLANS
You may choose any one of these annuity payout plans by giving us written
instructions at least 30 days before contract values are used to purchase the
payout plan:
- - PLAN A -- LIFE ANNUITY -- NO REFUND: We make monthly payouts until the
annuitant's death. Payouts end with the last payout before the annuitant's
death. We will not make any further payouts. This means that if the annuitant
dies after we made only one monthly payout, we will not make any more
payouts.
- - PLAN B -- LIFE ANNUITY WITH FIVE, TEN OR 15 YEARS CERTAIN: We make monthly
payouts for a guaranteed payout period of five, ten or 15 years that you
elect. This election will determine the length of the payout period to the
beneficiary if the annuitant should die before the elected period expires. We
calculate the guaranteed payout period from the retirement date. If the
annuitant outlives the elected guaranteed payout period, we will continue to
make payouts until the annuitant's death.
- - PLAN C -- LIFE ANNUITY -- INSTALLMENT REFUND: We make monthly payouts until
the annuitant's death, with our guarantee that payouts will continue for some
period of time. We will make payouts for at least the number of months
determined by dividing the amount applied under this option by the first
monthly payout, whether or not the annuitant is living.
- - PLAN D -- JOINT AND LAST SURVIVOR LIFE ANNUITY -- NO REFUND: We make monthly
payouts while both the annuitant and a joint annuitant are living. If either
annuitant dies, we will continue to make monthly payouts at the full amount
until the death of the surviving annuitant. Payouts end with the death of the
second annuitant.
- - PLAN E -- PAYOUTS FOR A SPECIFIED PERIOD: We make monthly payouts for a
specific payout period of ten to 30 years that you elect. We will make
payouts only for the number of years specified whether the annuitant is
living or not. Depending on the selected time period, it is foreseeable that
an annuitant can outlive the payout period selected. During the payout
period, you can elect to have us determine the present value of any remaining
variable payouts and pay it to you in a lump sum. We determine the present
value of the remaining annuity payouts which are assumed to remain level at
the initial payment. The discount rate we use in the calculation will vary
between 5.10% and 6.60% depending on the applicable assumed investment rate.
(See "Charges -- Withdrawal charge under Annuity Payout Plan E.") You can
also take a portion of the discounted value once a year. If you do so, your
monthly payouts will be reduced by the proportion of your withdrawal to the
full discounted value. A 10% IRS penalty tax could apply if you take a
withdrawal. (See "Taxes.")
RESTRICTIONS FOR SOME TAX-DEFERRED RETIREMENT PLANS: If you purchased a
qualified annuity, you may be required to select a payout plan that provides for
payouts:
- - over the life of the annuitant;
- - over the joint lives of the annuitant and a designated beneficiary;
- - for a period not exceeding the life expectancy of the annuitant; or
- - for a period not exceeding the joint life expectancies of the annuitant and
a designated beneficiary.
You have the responsibility for electing a payout plan that complies with your
contract and with applicable law.
- -------------------------------------------------------------------------------
48 AMERICAN EXPRESS PINNACLE VARIABLE ANNUITY
<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 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 the owner in a lump sum or to change
the frequency of the payouts.
DEATH AFTER ANNUITY PAYOUTS BEGIN
If you or the annuitant die after annuity payouts begin, we will pay any amount
payable to the beneficiary as provided in the annuity payout plan in effect.
- --------------------------------------------------------------------------------
PROSPECTUS -- MAY 1, 2000 49
<PAGE>
TAXES
Generally, under current law, your contract has a tax deferral feature. This
means, any increase in the value of the fixed account and/or subaccounts in
which you invest is taxable to you only when you receive a payout or withdrawal
(see detailed discussion below). Any portion of the annuity payouts and any
withdrawals you request that represent ordinary income normally are taxable. We
will send you a tax information reporting form for any year in which we made a
taxable distribution according to our records. Roth IRAs may grow and be
distributed tax free if you meet certain distribution requirements.
ANNUITY PAYOUTS UNDER NONQUALIFIED ANNUITIES: A portion of each payout will be
ordinary income and subject to tax, and a portion of each payout will be
considered a return of part of your investment and will not be taxed. All
amounts you receive after your investment in the contract is fully recovered
will be subject to tax.
Tax law requires that all nonqualified deferred annuity contracts issued by the
same company (and possibly its affiliates) to the same owner during a calendar
year be taxed as a single, unified contract when you take distributions from any
one of those contracts.
QUALIFIED ANNUITIES: Your contract may be used to fund a tax-deferred retirement
plan that is already tax-deferred under the Code. The contract will not provide
any necessary or additional tax deferral if it is used to fund a retirement plan
that is tax-deferred. Special rules apply to these retirement plans. Your rights
to benefits may be subject to the terms and conditions of these retirement plans
regardless of the terms of the contract.
Adverse tax consequences may result if you do not ensure that contributions,
distributions and other transactions under the contract comply with the law.
Qualified annuities have minimum distribution rules that govern the timing and
amount of distributions during your life (except for Roth IRAs) and after your
death. You should refer to your retirement plan or adoption agreement, or
consult a tax advisor for more information about these distribution rules.
ANNUITY PAYOUTS UNDER QUALIFIED ANNUITIES (EXCEPT ROTH IRAS): Under a qualified
annuity, the entire payout generally is includable as ordinary income and is
subject to tax except to the extent that contributions were made with after-tax
dollars. If you or your employer invested in your contract with deductible or
pre-tax dollars as part of a qualified retirement plan, such amounts are not
considered to be part of your investment in the contract and will be taxed when
paid to you.
WITHDRAWALS: If you withdraw part or all of your contract before your annuity
payouts begin, your withdrawal payment will be taxed to the extent that the
value of your contract immediately before the withdrawal exceeds your
investment. You also may have to pay a 10% IRS penalty for withdrawals you make
before reaching age 591/2 unless certain exceptions apply. For qualified
annuities, other penalties may apply if you make withdrawals from your contract
before your plan specifies that you can receive payouts.
DEATH BENEFITS TO BENEFICIARIES: The death benefit under a contract (except a
Roth IRA) is not tax exempt. Any amount your beneficiary receives that
represents previously deferred earnings within the contract is taxable as
ordinary income to the beneficiary in the years he or she receives the payments.
The death benefit under a Roth IRA generally is not taxable as ordinary income
to the beneficiary if certain distribution requirements are met.
ANNUITIES OWNED BY CORPORATIONS, PARTNERSHIPS OR TRUSTS: For nonqualified
annuities any annual increase in the value of annuities held by such entities
generally will be treated as ordinary income received during that year. This
provision is effective for purchase payments made after Feb. 28, 1986. However,
if the trust was set up for the benefit of a natural person only, the income
will remain tax deferred.
- -------------------------------------------------------------------------------
50 AMERICAN EXPRESS PINNACLE VARIABLE ANNUITY
<PAGE>
PENALTIES: If you receive amounts from your contract before reaching age 59 1/2,
you may have to pay a 10% IRS penalty on the amount includable in your ordinary
income. However, this penalty will not apply to any amount received by you or
your beneficiary:
- - because of your death;
- - because you become disabled (as defined in the Code);
- - if the distribution is part of a series of substantially equal periodic
payments, made at least annually, over your life or life expectancy
(or joint lives or life expectancies of you and your beneficiary); or
- - if it is allocable to an investment before Aug. 14, 1982
(except for qualified annuities).
For a qualified annuity, other penalties or exceptions may apply if you make
withdrawals from your contract before your plan specifies that payouts can be
made.
WITHHOLDING, GENERALLY: If you receive all or part of the contract value, we may
deduct withholding against the taxable income portion of the payment. Any
withholding represents a prepayment of your tax due for the year. You take
credit for these amounts on your annual tax return.
If the payment is part of an annuity payout plan, we generally compute the
amount of withholding using payroll tables. You may provide us with a statement
of how many exemptions to use in calculating the withholding. As long as you've
provided us with a valid Social Security Number or Taxpayer Identification
Number, you can elect not to have any withholding occur.
If the distribution is any other type of payment (such as a partial or full
withdrawal) we compute withholding using 10% of the taxable portion. Similar to
above, as long as you have provided us with a valid Social Security Number or
Taxpayer Identification Number, you can elect not to have this withholding
occur.
Some states also may impose withholding requirements similar to the federal
withholding described above. If this should be the case, we may deduct state
withholding from any payment from which we deduct federal withholding. The
withholding requirements may differ if we are making payment to a non-U.S.
citizen or if we deliver the payment outside the United States.
TRANSFER OF OWNERSHIP OF A NONQUALIFIED ANNUITY: If you transfer a nonqualified
annuity without receiving adequate consideration, the transfer is a gift and
also may be a withdrawal for federal income tax purposes. If the gift is a
currently taxable event for income tax purposes, the original owner will be
taxed on the amount of deferred earnings at the time of the transfer and also
may be subject to the 10% IRS penalty discussed earlier. In this case, the new
owner's investment in the contract will be the value of the contract at the time
of the transfer.
COLLATERAL ASSIGNMENT OF A NONQUALIFIED ANNUITY: If you collaterally assign or
pledge your contract, earnings on purchase payments you made after Aug. 13, 1982
will be taxed to you like a withdrawal.
IMPORTANT: Our discussion of federal tax laws is based upon our understanding of
current interpretations of these laws. Federal tax laws or current
interpretations of them may change. For this reason and because tax consequences
are complex and highly individual and cannot always be anticipated, you should
consult a tax advisor if you have any questions about taxation of your contract.
TAX QUALIFICATION
We intend that the contract qualify as an annuity for federal income tax
purposes. To that end, the provisions of the contract are to be interpreted to
ensure or maintain such tax qualification, in spite of any other provisions of
the contract. We reserve the right to amend the contract to reflect any
clarifications that may be needed or are appropriate to maintain such
qualification or to conform the contract to any applicable changes in the tax
qualification requirements. We will send you a copy of any amendments.
- --------------------------------------------------------------------------------
PROSPECTUS -- MAY 1, 2000 51
<PAGE>
VOTING RIGHTS
As a contract owner with investments in the subaccounts, you may vote on
important fund policies until annuity payouts begin. Once they begin, the person
receiving them has voting rights. We will vote fund shares according to the
instructions of the person with voting rights.
Before annuity payouts begin, the number of votes you have is determined by
applying your percentage interest in each subaccount to the total number of
votes allowed to the subaccount.
After annuity payouts begin, the number of votes you have is equal to:
- - 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.
- -------------------------------------------------------------------------------
52 AMERICAN EXPRESS PINNACLE VARIABLE ANNUITY
<PAGE>
SUBSTITUTION OF INVESTMENTS
We may substitute the funds in which the subaccounts invest if:
- - laws or regulations change;
- - the existing funds become unavailable; or
- - in our judgment, the funds no longer are suitable for the subaccounts.
If any of these situations occur, and if we believe it is in the best interest
of persons having voting rights under the contract, we have the right to
substitute the funds currently listed in this prospectus for other funds.
We may also:
- - add new subaccounts;
- - combine any two or more subaccounts;
- - make additional subaccounts investing in additional funds;
- - transfer assets to and from the subaccounts or the variable account; and
- - eliminate or close any subaccounts.
In the event of substitution or any of these changes, we may amend the contract
and take whatever action is necessary and appropriate without your consent or
approval. However, we will not make any substitution or change without the
necessary approval of the SEC and state insurance departments. We will notify
you of any substitution or change.
- --------------------------------------------------------------------------------
PROSPECTUS -- MAY 1, 2000 53
<PAGE>
ABOUT THE SERVICE PROVIDERS
PRINCIPAL UNDERWRITER
American Express Financial Advisors Inc. (AEFA) serves as the principal
underwriter for the contract. Its offices are located at 200 AXP Financial
Center, Minneapolis, MN 55474. AEFA is a wholly-owned subsidiary of American
Express Financial Corporation (AEFC) which is a wholly-owned subsidiary of
American Express Company.
The contracts will be distributed by broker-dealers which have entered into
distribution agreements with AEFA and American Enterprise Life.
American Enterprise Life pays commissions for sales of the contracts of up to 7%
of purchase payments to insurance agencies or broker-dealers that are also
insurance agencies. Sometimes we pay the commissions as a combination of a
certain amount of the commission at the time of sale and a trail commission
(which, when totaled, could exceed 7% of purchase payments). In addition, we may
pay certain sellers additional compensation for selling and distribution
activities under certain circumstances. From time to time, we will pay or permit
other promotional incentives, in cash or credit or other compensation.
Other contracts issued by American Enterprise Life that are not described in
this prospectus may be available through your sales representative. The
features, investment options, sales charges and expenses of the other contracts
are different than those of this contract. Therefore, the contract values under
the other contracts may be different than your contract value under this
contract. In addition, sales commissions for the other contracts may be higher
or lower than sales commissions for this contract.
ISSUER
American Enterprise Life issues the annuities. American Enterprise Life is a
wholly-owned subsidiary of IDS Life, which is a wholly-owned subsidiary of AEFC.
AEFC is a wholly-owned subsidiary of American Express Company. American Express
Company is a financial services company principally engaged through subsidiaries
(in addition to AEFC) in travel related services, investment services and
international banking services.
American Enterprise Life is a stock life insurance company organized in 1981
under the laws of the state of Indiana. Our administrative offices are located
at 829 AXP Financial Center, Minneapolis, MN 55474. Its statutory address is 100
Capitol Center South, 201 North Illinois Street, Indianapolis, IN 46204.
American Enterprise Life conducts a conventional life insurance business.
LEGAL PROCEEDINGS
A number of lawsuits have been filed against life and health insurers in
jurisdictions in which American Enterprise Life and its affiliates do business
involving insurers' sales practices, alleged agent misconduct, failure to
properly supervise agents and other matters. IDS Life is a defendant in three
class action lawsuits of this nature. American Enterprise Life is a named
defendant in one of these suits, RICHARD W. AND ELIZABETH J. THORESEN VS.
AMERICAN EXPRESS FINANCIAL CORPORATION, AMERICAN CENTURION LIFE ASSURANCE
COMPANY, AMERICAN ENTERPRISE LIFE INSURANCE COMPANY, AMERICAN PARTNERS LIFE
INSURANCE COMPANY, IDS LIFE INSURANCE COMPANY AND IDS LIFE INSURANCE COMPANY OF
NEW YORK which was commenced in Minnesota State Court in October 1998. The
action was brought by individuals who purchased an annuity in a qualified plan.
The plaintiffs allege that the sale of annuities in tax-deferred contributory
retirement investment plans (e.g., IRAs) is never appropriate. The plaintiffs
purport to represent a class consisting of all persons who made similar
purchases. The plaintiffs seek damages in an unspecified amount.
American Enterprise Life is included as a party to preliminary settlement of all
three class action lawsuits. We believe this approach will put these cases
behind us and provide a fair outcome for our clients. Our decision to settle
does not include any admission of wrongdoing. We do not anticipate that this
proposed settlement, or any other lawsuits in which American Enterprise Life is
a defendant, will have a material adverse effect on our financial condition.
- -------------------------------------------------------------------------------
54 AMERICAN EXPRESS PINNACLE VARIABLE ANNUITY
<PAGE>
YEAR 2000
The Year 2000 issue is the result of computer programs having been written using
two digits rather than four to define a year. Any programs that have
time-sensitive software may recognize a date using "00" as the year 1900 rather
than 2000. This could result in the failure of major systems or miscalculations,
which could have a material impact on the operations of American Enterprise Life
and the variable account. All of the major systems used by American Enterprise
Life and the variable account are maintained by AEFC and are utilized by
multiple subsidiaries and affiliates of AEFC. American Enterprise Life 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.
- --------------------------------------------------------------------------------
PROSPECTUS - MAY 1, 2000 55
<PAGE>
TABLE OF CONTENTS OF THE STATEMENT OF
ADDITIONAL INFORMATION
<TABLE>
<S> <C>
Performance Information..................................... p .3
Calculating Annuity Payouts................................. p .9
Rating Agencies............................................. p .9
Principal Underwriter....................................... p .11
Independent Auditors........................................ p .11
Financial Statements
</TABLE>
- -------------------------------------------------------------------------------
56 AMERICAN EXPRESS PINNACLE VARIABLE ANNUITY
<PAGE>
Please check the appropriate box to receive a copy of the Statement of
Additional Information for:
/ / American Express Pinnacle Variable Annuity -SM-
/ / American Express Variable Portfolio Funds
/ / AIM Variable Insurance Funds, Inc.
/ / Fidelity Variable Insurance Products - Service Class
/ / Franklin Templeton Variable Insurance Products Trust
/ / MFS-Registered Trademark- 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 PINNACLE VARIABLE ANNUITYsm
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 you can
obtain from your sales representative or by writing or calling us at the address
or telephone number below. The prospectus is incorporated into this SAI by
reference.
American Enterprise Life Insurance Company
829 AXP Financial Center
Minneapolis, MN 55474
800-333-3437
<PAGE>
TABLE OF CONTENTS
Performance Information..................................................p.3
Calculating Annuity Payouts..............................................p.9
Rating Agencies.........................................................p.10
Principal Underwriter...................................................p.11
Independent Auditors....................................................p.11
Financial Statements
<PAGE>
PERFORMANCE INFORMATION
The subaccounts may quote various performance figures to illustrate past
performance. We base total return and current yield quotations (if applicable)
on standardized methods of computing performance as required by the Securities
and Exchange Commission (SEC). An explanation of the methods used to compute
performance follows below.
Average Annual Total Return
We will express quotations of average annual total return for the subaccounts in
terms of the average annual compounded rate of return of a hypothetical
investment in the contract over a period of one, five and ten years (or, if
less, up to the life of the subaccounts), calculated according to the following
formula:
P(1+T)n = ERV
where: P = a hypothetical initial payment of $1,000
T = average annual total return
n = number of years
ERV = Ending Redeemable Value of a hypothetical $1,000
payment made at the beginning of the period, at the
end of the period (or fractional portion thereof)
We calculated the following performance figures on the basis of historical
performance of each fund. We show actual performance from the date the
subaccounts began investing in the funds. We also show performance from the
commencement date of the funds as if the contract existed at that time, which it
did not. Although we base performance figures on historical earnings, past
performance does not guarantee future results.
<PAGE>
Average Annual Total Return For Periods Ending Dec. 31, 1999
Average Annual Total Return without Withdrawal for annuities with 1.00%
mortality and expense risk fee
<TABLE>
<CAPTION>
Performance Since
Commencement of the Fund**
Since
Subaccount Investing In: 1 Year 5 Years 10 Years Commencement
<S> <C> <C> <C> <C> <C>
AXPSM VARIABLE PORTFOLIO -
PBCA 2 Blue Chip Advantage Fund (9/99) * --% --% -- % 10.62%
PBND 2 Bond Fund (10/81) 0.40 6.70 6.87 9.38
PCMG 2 Cash Management Fund (10/81) 3.48 3.85 3.64 5.31
PDEI 2 Diversified Equity Income Fund (9/99) -- -- -- 1.78
PEXI 2 Extra Income Fund (5/96) 4.96 -- -- 4.24
PMGD 2 Managed Fund (4/86) 13.46 16.80 12.18 11.53
PNDM 2 New Dimensions Fund(R)(5/96) 30.42 -- -- 24.84
PSCA 2 Small Cap Advantage Fund (9/99) -- -- -- 11.70
AIM V. I.
PCAP 2 Capital Appreciation Fund (5/93) 42.90 24.08 -- 20.86
PVAL 2 Value Fund (5/93) 28.34 25.70 -- 21.58
FIDELITY VIP
PBAL 2 III Balanced Portfolio (Service Class) (1/95) 3.15 -- -- 12.06
PGRO 2 Growth Portfolio (Service Class) (10/86) 35.65 28.15 18.49 17.33
PGRI 2 III Growth & Income Portfolio (Service Class) 6.51 -- -- 20.08
(12/96)
PMDC 2 III Mid Cap Portfolio (Service Class) (12/98) 46.97 -- -- 51.01
FRANKLIN TEMPLETON VIP TRUST
PSMC 2 Franklin Small Cap Fund - Class 2 (10/95)1 103.82 -- -- 30.24
PMSS 2 Franklin Value Securities Fund - Class 2 -0.09 -- -- -14.39
(5/98)1
PINT 2 Mutual Shares Securities Fund - Class 2 12.20 -- -- 9.50
(11/96)1
PVAS 2 Templeton International Securities Fund - 21.74 15.63 -- 13.87
Class 2 (5/92)2
MFS(R)
PGIS 2 Growth with Income Series (10/95) 5.39 -- -- 19.64
PNDS 2 New Discovery Series (4/98) 71.38 -- -- 39.09
PTRS 2 Total Return Series (1/95) 1.82 -- -- 14.02
PUTS 2 Utilities Series (1/95) 29.25 -- -- 24.96
PUTNAM VARIABLE TRUST
PGIN 2 Putnam VT Growth and Income Fund - Class IB -0.77 18.24 12.75 13.91
Shares (1/88) ***
PINC 2 Putnam VT Income Fund - Class IB Shares -3.34 5.85 6.11 6.29
(1/88)++ ***
PIGR 2 Putnam VT International Growth Fund - Class 58.15 -- -- 28.56
IB Shares(1/97)
PVIS 2 Putnam VT Vista Fund - Class IB Shares 50.88 -- -- 29.51
(1/97)***
</TABLE>
* (Commencement date of the funds)
** Current applicable charges deducted from fund performance include a $30
contract administrative charge, a 1.00% mortality and expense risk fee, and
a 0.15% variable account administrative charge. Premium taxes are not
reflected.
*** Each of the above Class IB shares commenced operations on April 30, 1998.
For periods prior to the inception of Class IB shares, performance
information for Class IB shares is based upon performance of Class IA
shares (not offered) of the fund, adjusted to reflect the fees paid by
Class IB shares, including a 12b-1 fee of 0.15%
++ Prior to April 9, 1999, was known as Putnam VT U.S. Government and High
Quality Bond Fund.
1 Because no class 2 shares were issued until Jan. 6, 1999, Class 2
performance represents the historical results of Class 1 shares.
Performance of Class 2 shares for periods after its January 6, 1999
inception will reflect Class 2's additional 12b-1 fee expense which also
affects all future performance. Figures assume reinvestment of dividends
and capital gains.
2 Standardized performance for Class 2 shares reflect a "blended" figure,
combining (a) for periods prior to Class 2's inception on 5/1/97,
historical results of Class 1 shares, and (b) for periods after 5/1/97,
Class 2's results reflecting an additional 12b-1 fee expense which also
affects all future performance. Blended figures assume reinvestment of
dividends and capital gains.
<PAGE>
Average Annual Total Return with Withdrawal for annuities with a 1.00% mortality
and expense risk fee
<TABLE>
<CAPTION>
Performance Since
Commencement of the Fund**
Since
Subaccount Investing In: 1 Year 5 Years 10 Years Commencement
<S> <C> <C> <C> <C> <C>
AXPSM VARIABLE PORTFOLIO -
PBCA 2 Blue Chip Advantage Fund (9/99) * --% --% --% 2.62%
PBND 2 Bond Fund (10/81) -6.83 5.91 6.87 9.38
PCMG 2 Cash Management Fund (10/81) -4.00 2.98 3.64 5.31
PDEI 2 Diversified Equity Income Fund (9/99) -- -- -- -5.60
PEXI 2 Extra Income Fund (5/96) -2.63 -- -- 2.75
PMGD 2 Managed Fund (4/86) 5.46 16.26 12.18 11.53
PNDM 2 New Dimensions Fund(R)(5/96) 22.42 -- -- 23.92
PSCA 2 Small Cap Advantage Fund (9/99) -- -- -- 3.70
AIM V. I.
PCAP 2 Capital Appreciation Fund (5/93) 34.90 23.66 -- 20.75
PVAL 2 Value Fund (5/93) 20.34 25.30 -- 21.48
FIDELITY VIP
PBAL 2 III Balanced Portfolio (Service Class) (1/95) -4.30 -- -- 11.41
PGRO 2 Growth Portfolio (Service Class) (10/86) 27.65 27.78 18.49 17.33
PGRI 2 III Growth & Income Portfolio (Service Class) -1.21 -- -- 18.44
(12/96)
PMDC 2 III Mid Cap Portfolio (Service Class) (12/98) 38.97 -- -- 43.10
FRANKLIN TEMPLETON VIP TRUST
PSMC 2 Franklin Small Cap Fund - Class 2 (10/95)1 95.82 -- -- 29.72
PMSS 2 Franklin Value Securities Fund - Class 2 -7.29 -- -- -18.12
(5/98)1
PINT 2 Mutual Shares Securities Fund - Class 2 4.20 -- -- 7.92
(11/96)1
PVAS 2 Templeton International Securities Fund - 13.74 15.07 -- 13.87
Class 2 (5/92)2
MFS(R)
PGIS 2 Growth with Income Series (10/95) -2.24 -- -- 18.97
PNDS 2 New Discovery Series (4/98) 63.38 -- -- 35.22
PTRS 2 Total Return Series (1/95) -5.52 -- -- 13.42
PUTS 2 Utilities Series (1/95) 21.25 -- -- 24.54
PUTNAM VARIABLE TRUST
PGIN 2 Putnam VT Growth and Income Fund - Class IB -7.91 17.72 12.75 13.91
Shares (1/88) ***
PINC 2 Putnam VT Income Fund - Class IB Shares -10.28 5.05 6.11 6.29
(1/88)++ ***
PIGR 2 Putnam VT International Growth Fund - Class 50.15 -- -- 27.13
IB Shares (1/97)
PVIS 2 Putnam VT Vista Fund - Class IB Shares 42.88 -- -- 28.10
(1/97)***
</TABLE>
* (Commencement date of the funds)
** Current applicable charges deducted from fund performance include a $30
contract administrative charge, a 1.00% mortality and expense risk fee, and
a 0.15% variable account administrative charge. Premium taxes are not
reflected.
*** Each of the above Class IB shares commenced operations on April 30, 1998.
For periods prior to the inception of Class IB shares, performance
information for Class IB shares is based upon performance of Class IA
shares (not offered) of the fund, adjusted to reflect the fees paid by
Class IB shares, including a 12b-1 fee of 0.15%
++ Prior to April 9, 1999, was known as Putnam VT U.S. Government and High
Quality Bond Fund.
1 Because no class 2 shares were issued until Jan. 6, 1999, Class 2
performance represents the historical results of Class 1 shares.
Performance of Class 2 shares for periods after its January 6, 1999
inception will reflect Class 2's additional 12b-1 fee expense which also
affects all future performance. Figures assume reinvestment of dividends
and capital gains.
2 Standardized performance for Class 2 shares reflect a "blended" figure,
combining (a) for periods prior to Class 2's inception on 5/1/97,
historical results of Class 1 shares, and (b) for periods after 5/1/97,
Class 2's results reflecting an additional 12b-1 fee expense which also
affects all future performance. Blended figures assume reinvestment of
dividends and capital gains.
<PAGE>
Average Annual Total Return without Withdrawal for annuities with 1.10%
mortality and expense risk fee
<TABLE>
<CAPTION>
Performance Since
Commencement of the Fund**
Since
Subaccount Investing In: 1 Year 5 Years 10 Years Commencement
<S> <C> <C> <C> <C> <C>
AXPSM VARIABLE PORTFOLIO -
PBCA 2 Blue Chip Advantage Fund (9/99) * --% --% --% 10.86%
PBND 2 Bond Fund (10/81) 0.37 6.60 6.77 9.27
PCMG 2 Cash Management Fund (10/81) 3.40 3.75 3.54 5.20
PDEI 2 Diversified Equity Income Fund (9/99)+ -- -- -- 2.42
PEXI 2 Extra Income Fund (5/96) 4.86 -- -- 4.14
PMGD 2 Managed Fund (4/86) 13.36 16.69 12.07 11.42
PNDM 2 New Dimensions Fund(R)(5/96) 30.30 -- -- 24.71
PSCA 2 Small Cap Advantage Fund (9/99) -- -- -- 12.24
AIM V. I.
PCAP 2 Capital Appreciation Fund (5/93) 42.81 23.97 -- 20.74
PVAL 2 Value Fund (5/93) 28.25 25.58 -- 21.46
FIDELITY VIP
PBAL 2 III Balanced Portfolio (Service Class) (1/95) 3.08 -- -- 11.95
PGRO 2 Growth Portfolio (Service Class) (10/86) 35.56 28.03 18.37 17.22
PGRI 2 III Growth & Income Portfolio (Service Class) 6.44 -- -- 19.97
(12/96)
PMDC 2 III Mid Cap Portfolio (Service Class) (12/98) 46.88 -- -- 50.91
FRANKLIN TEMPLETON VIP TRUST
PSMC 2 Franklin Small Cap Fund - Class 2 (10/95)1 89.71 -- -- 30.18
PMSS 2 Franklin Value Securities Fund - Class 2 -0.16 -- -- -14.46
(5/98)1
PINT 2 Mutual Shares Securities Fund - Class 2 12.13 -- -- 9.41
(11/96)1
PVAS 2 Templeton International Securities Fund - 21.67 15.53 -- 13.76
Class 2 (5/92)2
MFS(R)
PGIS 2 Growth with Income Series (10/95) 5.31 -- -- 19.52
PNDS 2 New Discovery Series (4/98) 71.26 -- -- 38.97
PTRS 2 Total Return Series (1/95) 1.75 -- -- 13.91
PUTS 2 Utilities Series (1/95) 29.15 -- -- 24.84
PUTNAM VARIABLE TRUST
PGIN 2 Putnam VT Growth and Income Fund - Class IB 0.19 18.37 12.76 13.90
Shares (1/88) ***
PINC 2 Putnam VT Income Fund - Class IB Shares -3.31 5.78 6.01 6.19
(1/88)++ ***
PIGR 2 Putnam VT International Growth Fund - Class 58.04 -- -- 28.45
IB Shares (1/97)
PVIS 2 Putnam VT Vista Fund - Class IB Shares 50.77 -- -- 29.39
(1/97)***
</TABLE>
* (Commencement date of the funds)
** Current applicable charges deducted from fund performance include a $30
contract administrative charge, a 1.00% mortality and expense risk fee, and
a 0.15% variable account administrative charge. Premium taxes are not
reflected.
*** Each of the above Class IB shares commenced operations on April 30, 1998.
For periods prior to the inception of Class IB shares, performance
information for Class IB shares is based upon performance of Class IA
shares (not offered) of the fund, adjusted to reflect the fees paid by
Class IB shares, including a 12b-1 fee of 0.15%
++ Prior to April 9, 1999, was known as Putnam VT U.S. Government and High
Quality Bond Fund.
1 Because no class 2 shares were issued until Jan. 6, 1999, Class 2
performance represents the historical results of Class 1 shares.
Performance of Class 2 shares for periods after its January 6, 1999
inception will reflect Class 2's additional 12b-1 fee expense which also
affects all future performance. Figures assume reinvestment of dividends
and capital gains.
2 Standardized performance for Class 2 shares reflect a "blended" figure,
combining (a) for periods prior to Class 2's inception on 5/1/97,
historical results of Class 1 shares, and (b) for periods after 5/1/97,
Class 2's results reflecting an additional 12b-1 fee expense which also
affects all future performance. Blended figures assume reinvestment of
dividends and capital gains.
<PAGE>
Average Annual Total Return with Withdrawal for annuities with a 1.10% mortality
and expense risk fee
<TABLE>
<CAPTION>
Performance Since
Commencement of the Fund**
Since
Subaccount Investing In: 1 Year 5 Years 10 Years Commencement
<S> <C> <C> <C> <C> <C>
AXPSM VARIABLE PORTFOLIO -
PBCA 2 Blue Chip Advantage Fund (9/99) * --% --% --% 2.86%
PBND 2 Bond Fund (10/81) -6.86 5.82 6.77 9.27
PCMG 2 Cash Management Fund (10/81) -4.07 2.87 3.54 5.20
PDEI 2 Diversified Equity Income Fund (9/99)+ -- -- -- -5.00
PEXI 2 Extra Income Fund (5/96) -2.73 -- -- 2.64
PMGD 2 Managed Fund (4/86) 5.36 16.14 12.07 11.42
PNDM 2 New Dimensions Fund(R)(5/96) 22.30 -- -- 23.80
PSCA 2 Small Cap Advantage Fund (9/99) -- -- -- 4.24
AIM V. I.
PCAP 2 Capital Appreciation Fund (5/93) 34.81 23.54 -- 20.64
PVAL 2 Value Fund (5/93) 20.25 25.18 -- 21.36
FIDELITY VIP
PBAL 2 III Balanced Portfolio (Service Class) (1/95) -4.37 -- -- 11.31
PGRO 2 Growth Portfolio (Service Class) (10/86) 27.56 27.66 18.37 17.22
PGRI 2 III Growth & Income Portfolio (Service Class) -1.27 -- -- 18.33
(12/96)
PMDC 2 III Mid Cap Portfolio (Service Class) (12/98) 38.88 -- -- 43.00
FRANKLIN TEMPLETON VIP TRUST
PSMC 2 Franklin Small Cap Fund - Class 2 (10/95)1 81.71 -- -- 29.66
PMSS 2 Franklin Value Securities Fund - Class 2 -7.35 -- -- -18.19
(5/98)1
PINT 2 Mutual Shares Securities Fund - Class 2 4.13 -- -- 7.82
(11/96)1
PVAS 2 Templeton International Securities Fund - 13.67 14.96 -- 13.76
Class 2 (5/92)2
MFS(R)
PGIS 2 Growth with Income Series (10/95) -2.32 -- -- 18.85
PNDS 2 New Discovery Series (4/98) 63.26 -- -- 35.11
PTRS 2 Total Return Series (1/95) -5.59 -- -- 13.31
PUTS 2 Utilities Series (1/95) 21.15 -- -- 24.42
PUTNAM VARIABLE TRUST
PGIN 2 Putnam VT Growth and Income Fund - Class IB -7.03 17.86 12.76 13.90
Shares (1/88) ***
PINC 2 Putnam VT Income Fund - Class IB Shares -10.25 4.96 6.01 6.19
(1/88)++ ***
PIGR 2 Putnam VT International Growth Fund - Class 50.04 -- -- 27.01
IB Shares (1/97)
PVIS 2 Putnam VT Vista Fund - Class IB Shares 42.77 -- -- 27.98
(1/97)***
</TABLE>
* (Commencement date of the funds)
** Current applicable charges deducted from fund performance include a $30
contract administrative charge, a 1.00% mortality and expense risk fee, and
a 0.15% variable account administrative charge. Premium taxes are not
reflected.
*** Each of the above Class IB shares commenced operations on April 30, 1998.
For periods prior to the inception of Class IB shares, performance
information for Class IB shares is based upon performance of Class IA
shares (not offered) of the fund, adjusted to reflect the fees paid by
Class IB shares, including a 12b-1 fee of 0.15%
++ Prior to April 9, 1999, was known as Putnam VT U.S. Government and High
Quality Bond Fund.
1 Because no class 2 shares were issued until Jan. 6, 1999, Class 2
performance represents the historical results of Class 1 shares.
Performance of Class 2 shares for periods after its January 6, 1999
inception will reflect Class 2's additional 12b-1 fee expense which also
affects all future performance. Figures assume reinvestment of dividends
and capital gains.
2 Standardized performance for Class 2 shares reflect a "blended" figure,
combining (a) for periods prior to Class 2's inception on 5/1/97,
historical results of Class 1 shares, and (b) for periods after 5/1/97,
Class 2's results reflecting an additional 12b-1 fee expense which also
affects all future performance. Blended figures assume reinvestment of
dividends and capital gains.
<PAGE>
Cumulative Total Return
Cumulative total return represents the cumulative change in value of an
investment for a given period (reflecting change in a subaccount's accumulation
unit value). We compute cumulative total return using the following formula:
ERV - P
P
where: P = a hypothetical initial payment of $1,000
ERV = Ending Redeemable Value of a hypothetical $1,000 payment
made at the beginning of the one-, five-, or 10- year (or
other) period at the end of the one-, five-, or 10- year (or
other) period (or fractional portion thereof)
Total return figures reflect the deduction of the withdrawal charge which
assumes you withdraw the entire contract value at the end of the one-, five- and
10- year periods (or, if less, up to the life of the variable subaccount). We
also may show performance figures without the deduction of a withdrawal charge.
In addition, all total return figures reflect the deduction of all other
applicable charges (except premium taxes) including the contract administrative
charge, the variable account administrative charge and the mortality and expense
risk fee.
Calculation of Yield for Variable Subaccounts Investing in Money Market Funds
Annualized Simple Yield
For subaccounts investing in money market funds, we base quotations of simple
yield on:
(a) the change in the value of a hypothetical subaccount
(exclusive of capital changes and income other than investment
income) at the beginning of a particular seven-day period:
(b) less, a pro rata share of the subaccount expenses accrued over
the period;
(c) dividing the difference by the value of the subaccount at the
beginning of the period to obtain the base period return; and
(d) multiplying the base period return by 365/7.
The subaccount's value includes:
o any declared dividends;
o the value of any shares purchased with dividends paid during the period;
and o any dividends declared for such shares.
It does not include:
o the effect of any applicable withdrawal charge; or
o any realized or unrealized gains or losses.
Annualized Compound Yield
We calculate compound yield using the base period return described above, which
we then compound according to the following formula:
Compound Yield = [(Base Period Return + 1)365/7] - 1
Annualized Yields based on the Seven-Day Period Ending Dec. 31, 1999
<TABLE>
<CAPTION>
Subaccount Investing In Simple Yield Compound Yield
- ---------- ------------ ------------ --------------
<S> <C> <C> <C>
PCMG1 AXPSM Variable Portfolio - Cash Management Fund 4.62% 4.73%
PCMG2 AXPSM Variable Portfolio - Cash Management Fund 4.82 4.93
</TABLE>
<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 guarantee 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 in which the subaccount
invests.
Annualized Yields Based on 30-Day Period Ending Dec. 31, 1999
Subaccount Investing In Yield
- ---------- ------------ -----
PBND1 AXPSM Variable Portfolio - Bond Fund 7.44%
PBND2 AXPSM Variable Portfolio - Bond Fund 7.44
PEXI1 AXPSM Variable Portfolio - Extra Income Fund 11.28
PEXI2 AXPSM Variable Portfolio - Extra Income Fund 11.19
CALCULATING ANNUITY PAYOUTS
The Variable Account
We do the following calculations separately for each of the subaccounts of the
variable account. The separate monthly payouts, added together, make up your
total variable annuity payout.
Initial Payout: To compute your first monthly payment, we:
o determine the dollar value of your annuity on the valuation date and then
deduct any applicable premium tax; then
o apply the result to the annuity table contained in the contract or another
table at least as favorable.
The annuity table shows the amount of the first monthly payment for each $1,000
of value which depends on factors built into the table, as described below.
Annuity Units: We then convert the value of your subaccount to annuity units. To
compute the number of units credited to you, we divide the first monthly payment
by the annuity unit value (see below) on the valuation date. The number of units
in your subaccount is fixed. The value of the units fluctuates with the
performance of the underlying fund.
<PAGE>
Subsequent Payouts: To compute later payouts, we multiply:
o the annuity unit value on the valuation date; by
o the fixed number of annuity units credited to you.
Annuity Unit Values: We originally set this value at $1 for each subaccount. To
calculate later value we multiply the last annuity value by the product of:
o the net investment factor; and
o the neutralizing factor.
The purpose of the neutralizing factor is to offset the effect of the assumed
investment rate built into the annuity table. With an assumed investment rate of
5%, the neutralizing factor is 0.999866 for a one day valuation period.
Net Investment Factor
We determine the net investment factor by:
o adding the fund's current net asset value per share, plus the per-share
amount of any accrued income or capital gain dividends to obtain a current
adjusted net asset value per share; then
o dividing that sum by the previous adjusted net asset value per share; and
o subtracting the percentage factor representing the mortality and expense
risk fee and the variable account administrative charge from the result.
Because the net asset value of the fund may fluctuate, the net investment factor
may be greater or less than one, and the annuity unit value may increase or
decrease. You bear this investment risk in a subaccount.
The Fixed Account
We guarantee your fixed annuity payout amounts. Once calculated, your payout
will remain the same and never change. To calculate your annuity payouts we:
o take the value of your fixed account at the retirement date or the date you
have selected to begin receiving your annuity payouts; then
o using an annuity table, we apply the value according to the annuity payout
plan you select.
The annuity payout table we use will be the one in effect at the time you choose
to begin your annuity payouts. The values in the table will be equal to or
greater than the table in your contract.
RATING AGENCIES
The following chart reflects the ratings given to us by independent rating
agencies. These agencies evaluate the financial soundness and claims-paying
ability of insurance companies based on a number of different factors. This
information does not relate to the management or performance of the variable
subaccounts of the annuity. This information relates only to the fixed account
and reflects our ability to make annuity payouts and to pay death benefits and
other distributions from the annuities.
Rating agency Rating
A.M. Best A+
(Superior)
Duff & Phelps AAA
Moody's Aa2
<PAGE>
PRINCIPAL UNDERWRITER
The principal underwriter for the contract is American Express Financial
Advisors Inc. (AEFA) which offers the contract on a continuous basis.
Withdrawal charges received by AEFA for the last year aggregated total $479,554.
Commissions paid by AEL for the last year aggregated total $5,924,368.
The contract is new as of 1999, and therefore, we do not have three years of
history for withdrawal charges received or commissions paid.
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 Pinnacle
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 PBCA1, PBCA2, PBND1, PBND2, PCMG1, PCMG2, PDEI1,
PDEI2, PEXI1, PEXI2, PMGD1, PMGD2, PNDM1, PNDM2, PSCA1, PSCA2, PCAP1, PCAP2,
PVAL1, PVAL2, PBAL1, PBAL2, PGRO1, PGRO2, PGRI1, PGRI2, PMDC1, PMDC2, PSMC1,
PSMC2, PVAS1, PVAS2, PMSS1, PMSS2, PINT1, PINT2, PGIS1, PGIS2, PNDS1, PNDS2,
PTRS1, PTRS2, PUTS1, PUTS2, PGIN1, PGIN2, PINC1, PINC2, PIGR1, PIGR2, PVIS1 and
PVIS2) 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.
/s/ Ernst & Young LLP
Ernst & Young LLP
Minneapolis, Minnesota
March 17, 2000
<PAGE>
<TABLE>
<CAPTION>
American Enterprise Variable Annuity Account -- American Express Pinnacle
Variable Annuity(SM)
Statements of Net Assets
December 31, 1999
Segregated Asset Subaccounts
Assets PBCA1 PBCA2 PBND1 PBND2 PCMG1 PCMG2
Investments in shares of mutual funds and
portfolios:
<S> <C> <C> <C> <C> <C> <C>
at cost $ 260 $ 263 $ 261 $ 261 $ 261 $ 261
----- ----- ----- ----- ----- -----
at market value $ 282 $ 282 $ 259 $ 259 $ 261 $ 261
Dividends receivable -- -- 2 2 1 1
Total assets 282 282 261 261 262 262
--- --- --- --- --- ---
Net assets applicable to contracts in
accumulation period $ 282 $ 282 $ 261 $ 261 $ 262 $ 262
----- ----- ----- ----- ----- -----
Accumulation units outstanding 259 259 258 258 260 260
=== === === === === ===
Net asset value per accumulation unit $1.09 $1.09 $1.01 $1.01 $1.01 $1.01
===== ===== ===== ===== ===== =====
Assets PDEI1 PDEI2 PEXI1 PEXI2 PMGD1 PMGD2
Investments in shares of mutual funds and
portfolios:
at cost $ 261 $ 262 $ 261 $ 261 $ 273 $ 275
----- ----- ----- ----- ----- -----
at market value $ 267 $ 267 $ 265 $ 265 $ 279 $ 279
Dividends receivable -- -- 2 2 -- --
--- --- - - --- ---
Total assets 267 267 267 267 279 279
=== === === === === ===
Net assets applicable to contracts in
accumulation period $ 267 $ 267 $ 267 $ 267 $ 279 $ 279
----- ----- ----- ----- ----- -----
Accumulation units outstanding 262 262 259 259 259 259
=== === === === === ===
Net asset value per accumulation unit $1.02 $1.02 $1.03 $1.03 $1.08 $1.08
===== ===== ===== ===== ===== =====
Assets PNDM1 PNDM2 PSCA1 PSCA2 PCAP1 PCAP2
Investments in shares of mutual funds and
portfolios:
at cost $ 262 $ 266 $ 261 $ 260 $ 266 $ 271
----- ----- ----- ----- ----- -----
at market value $ 296 $ 296 $ 282 $ 282 $ 317 $ 317
Dividends receivable -- -- -- -- -- --
--- --- --- --- --- ---
Total assets 296 296 282 282 317 317
=== === === === === ===
Net assets applicable to contracts in
accumulation period $ 296 $ 296 $ 282 $ 282 $ 317 $ 317
===== ===== ===== ===== ===== =====
Accumulation units outstanding 257 257 254 254 251 251
=== === === === === ===
Net asset value per accumulation unit $1.15 $1.15 $1.11 $1.11 $1.26 $1.26
===== ===== ===== ===== ===== =====
Assets PVAL1 PVAL2 PBAL1 PBAL2 PGRO1 PGRO2
Investments in shares of mutual funds and
portfolios:
at cost $ 264 $ 269 $ 195 $ 196 $ 194 $ 198
----- ----- ----- ----- ----- -----
at market value $ 287 $ 287 $ 199 $ 199 $ 222 $ 222
Dividends receivable -- -- -- -- -- --
--- --- --- --- --- ---
Total assets 287 287 199 199 222 222
=== === === === === ===
Net assets applicable to contracts in
accumulation period $ 287 $ 287 $ 199 $ 199 $ 222 $ 222
===== ===== ===== ===== ===== =====
Accumulation units outstanding 258 258 196 196 191 191
=== === === === === ===
Net asset value per accumulation unit $1.11 $1.11 $1.02 $1.02 $1.16 $1.16
===== ===== ===== ===== ===== =====
Assets PGRI1 PGRI2 PMDC1 PMDC2 PSMC1 PSMC2
Investments in shares of mutual funds and
portfolios:
at cost $ 195 $ 196 $ 196 $ 199 $ 260 $ 266
----- ----- ----- ----- ----- -----
at market value $ 200 $ 200 $ 233 $ 233 $ 349 $ 349
Dividends receivable -- -- -- -- -- --
--- --- --- --- --- ---
Total assets 200 200 233 233 349 349
=== === === === === ===
Net assets applicable to contracts in
accumulation period $ 200 $ 200 $ 233 $ 233 $ 349 $ 349
===== ===== ===== ===== ===== =====
Accumulation units outstanding 195 195 188 188 243 243
=== === === === === ===
Net asset value per accumulation unit $1.03 $1.03 $1.24 $1.24 $1.43 $1.43
===== ===== ===== ===== ===== =====
Assets PVAS1 PVAS2 PMSS1 PMSS2 PINT1 PINT2
Investments in shares of mutual funds and
portfolios:
at cost $ 259 $ 258 $ 260 $ 259 $ 260 $ 263
----- ----- ----- ----- ----- -----
at market value $ 270 $ 270 $ 269 $ 269 $ 286 $ 286
Dividends receivable -- -- -- -- -- --
--- --- --- --- --- ---
Total assets 270 270 269 269 286 286
=== === === === === ===
Net assets applicable to contracts in
accumulation period $ 270 $ 270 $ 269 $ 269 $ 286 $ 286
===== ===== ===== ===== ===== =====
Accumulation units outstanding 259 259 260 260 254 254
=== === === === === ===
Net asset value per accumulation unit $1.04 $1.04 $1.03 $1.03 $1.13 $1.13
===== ===== ===== ===== ===== =====
Assets PGIS1 PGIS2 PNDS1 PNDS2 PTRS1 PTRS2
Investments in shares of mutual funds and
portfolios:
at cost $ 260 $ 261 $ 265 $ 273 $ 260 $ 260
----- ----- ----- ----- ----- -----
at market value $ 274 $ 274 $ 339 $ 339 $ 259 $ 259
Dividends receivable -- -- -- -- -- --
--- --- --- --- --- ---
Total assets 274 274 339 339 259 259
=== === === === === ===
Net assets applicable to contracts in
accumulation period $ 274 $ 274 $ 339 $ 339 $ 259 $ 259
===== ===== ===== ===== ===== =====
Accumulation units outstanding 261 261 238 238 259 259
=== === === === === ===
Net asset value per accumulation unit $1.05 $1.05 $1.43 $1.43 $1.00 $1.00
===== ===== ===== ===== ===== =====
See accompanying notes to financial statements.
Assets PUTS1 PUTS2 PGIN1 PGIN2 PINC1 PINC2
Investments in shares of mutual funds and
portfolios:
at cost $ 260 $ 264 $ 260 $ 259 $ 260 $ 259
----- ----- ----- ----- ----- -----
at market value $ 291 $ 291 $ 254 $ 254 $ 257 $ 257
Dividends receivable -- -- -- -- -- --
--- --- --- --- --- ---
Total assets 291 291 254 254 257 257
=== === === === === ===
Net assets applicable to contracts in
accumulation period $ 291 $ 291 $ 254 $ 254 $ 257 $ 257
===== ===== ===== ===== ===== =====
Accumulation units outstanding 255 255 262 262 258 258
=== === === === === ===
Net asset value per accumulation unit $1.14 $1.14 $0.97 $0.97 $0.99 $0.99
===== ===== ===== ===== ===== =====
Combined
Variable
Assets PIGR1 PIGR2 PVIS1 PVIS2 Account
Investments in shares of mutual funds and
portfolios:
at cost $ 260 $ 268 $ 284 $ 290 $ 13,176
----- ----- ----- ----- --------
at market value $ 324 $ 324 $ 329 $ 329 $ 14,300
Dividends receivable -- -- -- -- 10
--- --- --- --- --
Total assets 324 324 329 329 14,310
=== === === === ======
Net assets applicable to contracts in
accumulation period $ 324 $ 324 $ 329 $ 329 $ 14,310
===== ===== ===== ===== ========
Accumulation units outstanding 252 252 253 253
=== === === ===
Net asset value per accumulation unit $1.29 $1.29 $1.30 $1.30
===== ===== ===== =====
See accompanying notes to financial statements.
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
American Enterprise Variable Annuity Account -- American Express Pinnacle
Variable Annuity(SM)
Statements of Operations
Period ended December 31, 1999
Segregated Asset Subaccounts
Investment income PBCA11 PBCA22 PBND11 PBND22 PCMG11 PCMG22
<S> <C> <C> <C> <C> <C> <C>
Dividend income from mutual funds and portfolios $-- $-- $ 3 $ 3 $ 2 $ 2
Mortality and expense risk fee 1 1 1 1 1 1
- - - - - -
Investment income (loss) - net (1) (1) 2 2 1 1
== == = = = =
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 22 19 (2) (2) -- --
-- -- -- -- --- ---
Net gain (loss) on investments 22 19 (2) (2) -- --
-- -- -- -- --- ---
Net increase (decrease) in net assets
resulting from operation $21 $ 18 $-- $-- $ 1 $ 1
=== ==== === === === ===
1For the period Nov. 10, 1999 (commencement of operations) to Dec. 31, 1999.
2For the period Nov. 12, 1999 (commencement of operations) to Dec. 31, 1999.
Investment income PDEI11 PDEI22 PEXI11 PEXI22 PMGD11 PMGD22
Dividend income from mutual funds and portfolios $ 1 $ 1 $ 4 $ 4 $ 13 $ 13
Mortality and expense risk fee 1 1 1 1 1 1
- - - - - -
Investment income (loss) - net -- -- 3 3 12 12
=== === = = == ==
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 5 4 4 6 4
- - - - - -
Net gain (loss) on investments 6 5 4 4 6 4
- - - - - -
Net increase (decrease) in net assets resulting
from operations $ 6 $ 5 $ 7 $ 7 $ 18 $ 16
=== === === === ==== ====
1For the period Nov. 10, 1999 (commencement of operations) to Dec. 31, 1999.
2For the period Nov. 12, 1999 (commencement of operations) to Dec. 31, 1999.
Investment income PNDM11 PNDM22 PSCA11 PSCA22 PCAP13 PCAP24
Dividend income from mutual funds and portfolios $ 2 $ 2 $ 2 $ 2 $ 7 $ 7
Mortality and expense risk fee 1 1 1 1 1 1
- - - - - -
Investment income (loss) - net 1 1 1 1 6 6
= = = = = =
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 34 30 21 22 51 46
-- -- -- -- -- --
Net gain (loss) on investments 34 30 21 22 51 46
-- -- -- -- -- --
Net increase (decrease) in net assets resulting
from operation $ 35 $ 31 $ 22 $ 23 $ 57 $ 52
==== ==== ==== ==== ==== ====
1For the period Nov. 10, 1999 (commencement of operations) to Dec. 31, 1999.
2For the period Nov. 12, 1999 (commencement of operations) to Dec. 31, 1999.
3For the period Nov. 9, 1999 (commencement of operations) to Dec. 31, 1999.
4For the period Nov. 11, 1999 (commencement of operations) to Dec. 31, 1999.
Investment income PVAL11 PVAL22 PBAL11 PBAL22 PGRO11 PGRO22
Dividend income from mutual funds and portfolios $ 5 $ 5 $-- $-- $-- $--
Mortality and expense risk fee 1 1 -- -- 1 1
- - -- -- - -
Investment income (loss) - net 4 4 -- -- (1) (1)
= = === === == ==
Realized and unrealized gain (loss) on investments - net
Realized gain (loss) on sales of investments in
mutual funds and portfolios:
Proceeds from sales -- 1 1 -- 1 --
Cost of investments sold -- 1 1 -- 1 --
--- - - --- - ---
Net realized gain (loss) on investments -- -- -- -- -- --
Net change in unrealized appreciation or
depreciation of investments 23 18 4 3 28 24
-- -- - - -- --
Net gain (loss) on investments 23 18 4 3 28 24
-- -- - - -- --
Net increase (decrease) in net assets resulting
from operation $ 27 $ 22 $ 4 $ 3 $ 27 $ 23
==== ==== === === ==== ====
1For the period Nov. 9, 1999 (commencement of operations) to Dec. 31, 1999.
2For the period Nov. 11, 1999 (commencement of operations) to Dec. 31, 1999.
Investment income PGRI11 PGRI22 PMDC11 PMDC22 PSMC11 PSMC22
Dividend income from mutual funds and portfolios $-- $-- $ 1 $ 1 $-- $--
Mortality and expense risk fee -- -- -- -- -- --
--- --- --- --- --- ---
Investment income (loss) - net -- -- 1 1 -- --
--- --- -- -- --- ---
Realized and unrealized gain (loss) on investments - net
Realized gain (loss) on sales of investments in
mutual funds and portfolios:
Proceeds from sales 1 -- -- -- -- --
Cost of investments sold 1 -- -- -- -- --
-- --- --- --- --- ---
Net realized gain (loss) on investments -- -- -- -- -- --
Net change in unrealized appreciation or
depreciation of investments 5 4 37 34 89 83
- - -- -- -- --
Net gain (loss) on investments 5 4 37 34 89 83
- - -- -- -- --
Net increase (decrease) in net assets resulting
from operations $ 5 $ 4 $ 38 $ 35 $ 89 $ 83
=== === ==== ==== ==== ====
1For the period Nov. 9, 1999 (commencement of operations) to Dec. 31, 1999.
2For the period Nov. 11, 1999 (commencement of operations) to Dec. 31, 1999.
Investment income PVAS11 PVAS22 PMSS11 PMSS22 PINT11 PINT22
Dividend income from mutual funds and portfolios $-- $-- $-- $-- $-- $--
Mortality and expense risk fee 1 1 -- -- -- --
Investment income (loss) - net (1) (1) -- -- -- --
Realized and unrealized gain (loss) on investments - net
Realized gain (loss) on sales of investments in
mutual funds and portfolios:
Proceeds from sales 1 -- -- -- -- --
Cost of investments sold 1 -- -- -- -- --
Net realized gain (loss) on investments -- -- -- -- -- --
Net change in unrealized appreciation or
depreciation of investments 11 12 9 10 26 23
-- -- - -- -- --
Net gain (loss) on investments 11 12 9 10 26 23
-- -- - -- -- --
Net increase (decrease) in net assets resulting
from operation $ 10 $ 11 $ 9 $ 10 $ 26 $ 23
==== ==== === ==== ==== ====
1For the period Nov. 9, 1999 (commencement of operations) to Dec. 31, 1999.
2For the period Nov. 11, 1999 (commencement of operations) to Dec. 31, 1999.
Investment income PGIS11 PGIS22 PNDS11 PNDS22 PTRS11 PTRS22
Dividend income from mutual funds and portfolios $-- $-- $ 6 $ 6 $-- $--
Mortality and expense risk fee -- -- 1 1 -- --
--- --- --- --- --- ---
Investment income (loss) - net -- -- 5 5 -- --
=== === === === === ===
Realized and unrealized gain (loss) on investments - net
Realized gain (loss) on sales of investments in
mutual funds and portfolios:
Proceeds from sales -- -- -- 1 -- --
Cost of investments sold -- -- -- 1 -- --
--- --- --- --- --- ---
Net realized gain (loss) on investments -- -- -- -- -- --
Net change in unrealized appreciation or
depreciation of investments 14 13 74 66 (1) (1)
-- -- -- -- -- --
Net gain (loss) on investments 14 13 74 66 (1) (1)
-- -- -- -- -- --
Net increase (decrease) in net assets resulting
from operation $ 14 $ 13 $ 79 $ 71 $ (1) $ (1)
==== ==== ==== ==== ==== ====
1For the period Nov. 9, 1999 (commencement of operations) to Dec. 31, 1999.
2For the period Nov. 11, 1999 (commencement of operations) to Dec. 31, 1999.
Investment income PUTS11 PUTS22 PGIN11 PGIN22 PINC11 PINC22
Dividend income from mutual funds and portfolios $-- $-- $-- $-- $-- $--
Mortality and expense risk fee -- -- -- -- -- --
--- --- --- --- --- ---
Investment income (loss) - net -- -- -- -- -- --
=== === === === === ===
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 31 27 (6) (5) (3) (2)
-- -- -- -- -- --
Net gain (loss) on investments 31 27 (6) (5) (3) (2)
-- -- -- -- -- --
Net increase (decrease) in net assets resulting
from operation $ 31 $ 27 $ (6) $ (5) $ (3) $ (2)
==== ==== ==== ==== ==== ====
1For the period Nov. 9, 1999 (commencement of operations) to Dec. 31, 1999.
2For the period Nov. 11, 1999 (commencement of operations) to Dec. 31, 1999.
Combined
Variable
Investment income PIGR11 PIGR22 PVIS11 PVIS22 Account
Dividend income from mutual funds and portfolios $-- $-- $ 24 $ 24 $ 140
Mortality and expense risk fee -- -- -- -- 26
--- --- --- --- ---
Investment income (loss) - net -- -- 24 24 114
=== === == == ===
Realized and unrealized gain (loss) on investments - net
Realized gain (loss) on sales of investments in
mutual funds and portfolios:
Proceeds from sales -- 1 -- -- 7
Cost of investments sold -- 1 -- -- 7
--- --- --- --- ---
Net realized gain (loss) on investments -- -- -- -- --
Net change in unrealized appreciation or
depreciation of investments 64 56 45 39 1,124
-- -- -- -- -----
Net gain (loss) on investments 64 56 45 39 1,124
-- -- -- -- -----
Net increase (decrease) in net assets resulting
from operation $ 64 $ 56 $ 69 $ 63 $ 1,238
==== ==== ==== ==== =======
1For the period Nov. 9, 1999 (commencement of operations) to Dec. 31, 1999.
2For the period Nov. 11, 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 Pinnacle
Variable Annuity(SM)
Statements of Changes in Net Assets
Period ended December 31, 1999
Segregated Asset Subaccounts
Operations PBCA11 PBCA22 PBND11 PBND22 PCMG11 PCMG22
<S> <C> <C> <C> <C> <C> <C>
Investment income (loss) - net $ (1) $ (1) $ 2 $ 2 $ 1 $ 1
Net change in unrealized appreciation or
depreciation of investments 22 19 (2) (2) -- --
-- -- -- -- --- ---
Net increase (decrease) in net assets resulting
from operations 21 18 -- -- 1 1
== == === === = =
Contract transactions
Contract purchase payments 261 264 261 261 261 261
--- --- --- --- --- ---
Net assets at beginning of year -- -- -- -- -- --
--- --- --- --- --- ---
Net assets at end of year $ 282 $ 282 $ 261 $ 261 $ 262 $ 262
===== ===== ===== ===== ===== =====
Accumulation unit activity
Units outstanding at beginning of year -- -- -- -- -- --
Contract purchase payments 259 259 258 258 260 260
--- --- --- --- --- ---
Units outstanding at end of year 259 259 258 258 260 260
=== === === === === ===
1For the period Nov. 10, 1999 (commencement of operations) to Dec. 31, 1999.
2For the period Nov. 12, 1999 (commencement of operations) to Dec. 31, 1999.
Operations PDEI11 PDEI22 PEXI11 PEXI22 PMGD11 PMGD22
Investment income (loss) - net $-- $-- $ 3 $ 3 $ 12 $ 12
Net change in unrealized appreciation or
depreciation of investmeets 6 5 4 4 6 4
- - - - - -
Net increase (decrease) in net assets resulting
from operations 6 5 7 7 18 16
= = = = == ==
Contract transactions
Contract purchase payments 261 262 260 260 261 263
--- --- --- --- --- ---
Net assets at beginning of year -- -- -- -- -- --
--- --- --- --- --- ---
Net assets at end of year $ 267 $ 267 $ 267 $ 267 $ 279 $ 279
===== ===== ===== ===== ===== =====
Accumulation unit activity
Units outstanding at beginning of year -- -- -- -- -- --
Contract purchase payments 262 262 259 259 259 259
--- --- --- --- --- ---
Units outstanding at end of year 262 262 259 259 259 259
=== === === === === ===
1For the period Nov. 10, 1999 (commencement of operations) to Dec. 31, 1999.
2For the period Nov. 12, 1999 (commencement of operations) to Dec. 31, 1999.
Operations PNDM11 PNDM22 PSCA11 PSCA22 PCAP13 PCAP24
Investment income (loss) - net $ 1 $ 1 $ 1 $ 1 $ 6 $ 6
Net change in unrealized appreciation or
depreciation of investments 34 30 21 22 51 46
-- -- -- -- -- --
Net increase (decrease) in net assets resulting
from operations 35 31 22 23 57 52
== == == == == ==
Contract transactions
Contract purchase payments 261 265 260 259 260 265
--- --- --- --- --- ---
Net assets at beginning of year -- -- -- -- -- --
--- --- --- --- --- ---
Net assets at end of year $ 296 $ 296 $ 282 $ 282 $ 317 $ 317
===== ===== ===== ===== ===== =====
Accumulation unit activity
Units outstanding at beginning of year -- -- -- -- -- --
Contract purchase payments 257 257 254 254 251 251
--- --- --- --- --- ---
Units outstanding at end of year 257 257 254 254 251 251
=== === === === === ===
1For the period Nov. 10, 1999 (commencement of operations) to Dec. 31, 1999.
2For the period Nov. 12, 1999 (commencement of operations) to Dec. 31, 1999.
3For the period Nov. 9, 1999 (commencement of operations) to Dec. 31, 1999.
4For the period Nov. 11, 1999 (commencement of operations) to Dec. 31, 1999.
Operations PVAL11 PVAL22 PBAL11 PBAL22 PGRO11 PGRO22
Investment income (loss) - net $ 4 $ 4 $-- $-- $ (1) $ (1)
Net change in unrealized appreciation or
depreciation of investments 23 18 4 3 28 24
-- -- - - -- --
Net increase (decrease) in net assets resulting
from operations 27 22 4 3 27 23
== == = = == ==
Contract transactions
Contract purchase payments 260 265 195 196 195 199
--- --- --- --- --- ---
Net assets at beginning of year -- -- -- -- -- --
--- --- --- --- --- ---
Net assets at end of year $ 287 $ 287 $ 199 $ 199 $ 222 $ 222
===== ===== ===== ===== ===== =====
Accumulation unit activity
Units outstanding at beginning of year -- -- -- -- -- --
Contract purchase payments 258 258 196 196 191 191
--- --- --- --- --- ---
Units outstanding at end of year 258 258 196 196 191 191
=== === === === === ===
1For the period Nov. 9, 1999 (commencement of operations) to Dec. 31, 1999.
2For the period Nov. 11, 1999 (commencement of operations) to Dec. 31, 1999.
Operations PGRI11 PGRI22 PMDC11 PMDC22 PSMC11 PSMC22
Investment income (loss) - net $-- $-- $ 1 $ 1 $-- $--
Net change in unrealized appreciation or
depreciation of investments 5 4 37 34 89 83
- - -- -- -- --
Net increase (decrease) in net assets resulting
fromm operations 5 4 38 35 89 83
= = == == == ==
Contract transactions
Contract purchase payments 195 196 195 198 260 266
--- --- --- --- --- ---
Net assets at beginning of year -- -- -- -- -- --
--- --- --- --- --- ---
Net assets at end of year $ 200 $ 200 $ 233 $ 233 $ 349 $ 349
===== ===== ===== ===== ===== =====
Accumulation unit activity
Units outstanding at beginning of year -- -- -- -- -- --
Contract purchase payments 195 195 188 188 243 243
--- --- --- --- --- ---
Units outstanding at end of year 195 195 188 188 243 243
=== === === === === ===
1For the period Nov. 9, 1999 (commencement of operations) to Dec. 31, 1999.
2For the period Nov. 11, 1999 (commencement of operations) to Dec. 31, 1999.
Operations PVAS11 PVAS22 PMSS11 PMSS22 PINT11 PINT22
Investment income (loss) - net $ (1) $ (1) $-- $-- $-- $--
Net change in unrealized appreciation or
depreciation of investments 11 12 9 10 26 23
-- -- - -- -- --
Net increase (decrease) in net assets resulting
from operations 10 11 9 10 26 23
== == = == == ==
Contract transactions
Contract purchase payments 260 259 260 259 260 263
--- --- --- --- --- ---
Net assets at beginning of year -- -- -- -- -- --
--- --- --- --- --- ---
Net assets at end of year $ 270 $ 270 $ 269 $ 269 $ 286 $ 286
===== ===== ===== ===== ===== =====
Accumulation unit activity
Units outstanding at beginning of year -- -- -- -- -- --
Contract purchase payments 259 259 260 260 254 254
--- --- --- --- --- ---
Units outstanding at end of year 259 259 260 260 254 254
=== === === === === ===
1For the period Nov. 9, 1999 (commencement of operations) to Dec. 31, 1999.
2For the period Nov. 11, 1999 (commencement of operations) to Dec. 31, 1999.
Operations PGIS11 PGIS22 PNDS11 PNDS22 PTRS11 PTRS22
Investment income (loss) - net $-- $-- $ 5 $ 5 $-- $--
Net change in unrealized appreciation or
depreciation of investments 14 13 74 66 (1) (1)
-- -- -- -- -- --
Net increase (decrease) in net assets resulting
from operations 14 13 79 71 (1) (1)
== == == == == ==
Contract transactions
Contract purchase payments 260 261 260 268 260 260
--- --- --- --- --- ---
Net assets at beginning of year -- -- -- -- -- --
--- --- --- --- --- ---
Net assets at end of year $ 274 $ 274 $ 339 $ 339 $ 259 $ 259
===== ===== ===== ===== ===== =====
Accumulation unit activity
Units outstanding at beginning of year -- -- -- -- -- --
Contract purchase payments 261 261 238 238 259 259
--- --- --- --- --- ---
Units outstanding at end of year 261 261 238 238 259 259
=== === === === === ===
1For the period Nov. 9, 1999 (commencement of operations) to Dec. 31, 1999.
2For the period Nov. 11, 1999 (commencement of operations) to Dec. 31, 1999.
Operations PUTS11 PUTS22 PGIN11 PGIN22 PINC11 PINC22
Investment income (loss) - net $-- $-- $-- $-- $-- $--
Net change in unrealized appreciation or
depreciation of investments 31 27 (6) (5) (3) (2)
-- -- -- -- -- --
Net increase (decrease) in net assets resulting
from operations 31 27 (6) (5) (3) (2)
== == == == == ==
Contract transactions
Contract purchase payments 260 264 260 259 260 259
--- --- --- --- --- ---
Net assets at beginning of year -- -- -- -- -- --
--- --- --- --- --- ---
Net assets at end of year $ 291 $ 291 $ 254 $ 254 $ 257 $ 257
===== ===== ===== ===== ===== =====
Accumulation unit activity
Units outstanding at beginning of year -- -- -- -- -- --
Contract purchase payments 255 255 262 262 258 258
--- --- --- --- --- ---
Units outstanding at end of year 255 255 262 262 258 258
=== === === === === ===
1For the period Nov. 9, 1999 (commencement of operations) to Dec. 31, 1999.
2For the period Nov. 11, 1999 (commencement of operations) to Dec. 31, 1999.
Combined
Variable
Operations PIGR11 PIGR22 PVIS11 PVIS22 Account
Investment income (loss) - net $-- $-- $ 24 $ 24 $ 114
Net change in unrealized appreciation or
depreciation of investments 64 56 45 39 1,124
-- -- -- -- -----
Net increase (decrease) in net assets resulting
from operations 64 56 69 63 1,238
== == == == =====
Contract transactions
Contract purchase payments 260 268 260 266 13,072
--- --- --- --- ------
Net assets at beginning of year -- -- -- -- --
--- --- --- --- ----
Net assets at end of year $ 324 $ 324 $ 329 $ 329 $ 14,310
Accumulation unit activity
Units outstanding at beginning of year -- -- -- --
Contract purchase payments 252 252 253 253
--- --- --- ---
Units outstanding at end of year 252 252 253 253
=== === === ===
1For the period Nov. 9, 1999 (commencement of operations) to Dec. 31, 1999.
2For the period Nov. 11, 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 Pinnacle
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
PBCA1 AXPSM Variable Portfolio-- Blue Chip Advantage Fund IDS Life Insurance Company 1
PBCA2
PBND1 AXPSM Variable Portfolio-- Bond Fund IDS Life Insurance Company 1
PBND2
PCMG1 AXPSM Variable Portfolio-- Cash Management Fund IDS Life Insurance Company 1
PCMG2
PDEI1 AXPSM Variable Portfolio-- Diversified Equity Income IDS Life Insurance Company 1
PDEI2 Fund
PEXI1 AXPSM Variable Portfolio-- Extra Income Fund IDS Life Insurance Company 1
PEXI2
PMGD1 AXPSM Variable Portfolio-- Managed Fund IDS Life Insurance Company 1
PMGD2
PNDM1 AXPSM Variable Portfolio-- New Dimensions Fund IDS Life Insurance Company 1
PNDM2
PSCA1 AXPSM Variable Portfolio-- Small Cap Advantage Fund IDS Life Insurance Company 2
PSCA2
PCAP1 AIM V.I. Capital Appreciation Fund A I M Advisors, Inc.
PCAP2
PVAL1 AIM V.I. Value Fund A I M Advisors, Inc.
PVAL2
PBAL1 Fidelity VIP Balanced Portfolio - Service Class Fidelity Management & Research
PBAL2 Company (FMR) 3
PGRO1 Fidelity VIP Growth Portfolio - Service Class FMR 4
PGRO2
PGRI1 Fidelity VIP Growth & Income Portfolio - Service Class FMR 5
PGRI2
PMDC1 Fidelity VIP Mid Cap Portfolio - Service Class FMR 5
PMDC2
PSMC1 FTVIPT Franklin Small Cap Fund - Class 2 Franklin Advisers, Inc.
PSMC2
PVAS1 FTVIPT Franklin Value Securities Fund - Class 2 Franklin Advisory Services, LLC
PVAS2
PMSS1 FTVIPT Mutual Shares Securities Fund - Class 2 Franklin Mutual Advisers, LLC
PMSS2
PINT1 FTVIPT Templeton International Securities Fund - Class 2 Templeton Investment Counsel, Inc.
PINT2
PGIS1 MFS(R) Growth with Income Series Massachusetts Financial Services
PGIS2 Company (MFS) Investment Management(R)
PNDS1 MFS(R) New Discovery Series MFS Investment Management(R)
PNDS2
PTRS1 MFS(R) Total Return Series MFS Investment Management(R)
PTRS2
PUTS1 MFS(R) Utilities Series MFS Investment Management(R)
PUTS2
PGIN1 Putnam VT Growth and Income Fund - Class IB Shares Putnam Investment Management, Inc.
PGIN2
PINC1 Putnam VT Income Fund - Class IB Shares Putnam Investment Management, Inc.
PINC2
PIGR1 Putnam VT International Growth Fund - Class IB Shares Putnam Investment Management, Inc.
PIGR2
PVIS1 Putnam VT Vista Fund - Class IB Shares Putnam Investment Management, Inc.
PVIS2
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., FMR Far East and Fidelity Investments Money Market Management
Inc. (FIMM) are the sub-investment advisors.
4 FMR U.K. and FMR Far East and FIMM are the sub-investment advisors.
5 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.
</TABLE>
<PAGE>
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Investments in the Funds
Investments in shares of the Funds are stated at market value which is the net
asset value per share as determined by the respective Funds. Investment
transactions are accounted for on the date the shares are purchased and sold.
The cost of investments sold and redeemed is determined on the average cost
method. Dividend distributions received from the Funds are reinvested in
additional shares of the Funds and are recorded as income by the subaccounts on
the ex-dividend date.
Unrealized appreciation or depreciation of investments in the accompanying
financial statements represents the subaccounts' share of the Funds'
undistributed net investment income, undistributed realized gain or loss and the
unrealized appreciation or depreciation on their investment securities.
Use of Estimates
The preparation of financial statements in conformity with accounting principles
generally accepted in the United States requires management to make estimates
and assumptions that affect the reported amounts of assets and liabilities and
disclosures of contingent assets and liabilities at the date of the financial
statements and the reported amounts of increase and decrease in net assets from
operations during the period. Actual results could differ from those estimates.
Federal Income Taxes
American Enterprise Life is taxed as a life insurance company. The Account is
treated as part of American Enterprise Life for federal income tax purposes.
Under existing federal income tax law, no income taxes are payable with respect
to any investment income of the Account.
3. MORTALITY AND EXPENSE RISK FEE
American Enterprise Life makes contractual assurances to the Account that
possible future adverse changes in administrative expenses and mortality
experience of the contract owners and annuitants will not affect the Account.
The mortality and expense risk fee paid to American Enterprise Life is computed
daily and is equal, on an annual basis, to either 1.00% or 1.10% of the average
daily net assets of the subaccounts, depending on the death benefit option that
applies to the contract.
4. ADMINISTRATIVE CHARGE
American Enterprise Life deducts a daily charge equal, on an annual basis, to
0.15% of the average daily net assets of each subaccount as an administrative
charge. This charge covers certain administrative and operating expenses of the
subaccounts incurred by American Enterprise Life such as accounting, legal and
data processing fees, and expenses involved in the preparation and distribution
of reports and prospectuses. This charge cannot be increased.
5. CONTRACT ADMINISTRATIVE CHARGE
American Enterprise Life deducts a contract administrative charge of $30 per
year on each contract anniversary. This charge cannot be increased and does not
apply after annuity payouts begin. American Enterprise Life does not expect to
profit from this charge. This charge reimburses American Enterprise Life for
expenses incurred in establishing and maintaining the annuity records. This
charge is waived when the contract value is $50,000 or more on the current
contract anniversary. The $30 annual charge is deducted at the time of any full
withdrawal.
6. WITHDRAWAL CHARGE
American Enterprise Life will use a withdrawal charge to help it recover certain
expenses relating to the sale of the annuity. The withdrawal charge is deducted
for withdrawals up to the first 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>
<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>
PBCA1 AXPSM Variable Portfolio-- Blue Chip Advantage Fund 25 $11.08
PBCA2 25 11.08
PBND1 AXPSM Variable Portfolio-- Bond Fund 25 10.54
PBND2 25 10.54
PCMG1 AXPSM Variable Portfolio-- Cash Management Fund 261 1.00
PCMG2 261 1.00
PDEI1 AXPSM Variable Portfolio-- Diversified Equity Income Fund 26 10.19
PDEI2 26 10.19
PEXI1 AXPSM Variable Portfolio-- Extra Income Fund 31 8.58
PEXI2 31 8.58
PMGD1 AXPSM Variable Portfolio-- Managed Fund 14 19.82
PMGD2 14 19.82
PNDM1 AXPSM Variable Portfolio-- New Dimensions Fund 13 22.86
PNDM2 13 22.86
PSCA1 AXPSM Variable Portfolio-- Small Cap Advantage Fund 25 11.13
PSCA2 25 11.13
PCAP1 AIM V.I. Capital Appreciation Fund 9 35.58
PCAP2 9 35.58
PVAL1 AIM V.I. Value Fund 9 33.50
PVAL2 9 33.50
PBAL1 Fidelity VIP Balanced Portfolio - Service Class 12 15.94
PBAL2 12 15.94
PGRO1 Fidelity VIP Growth Portfolio - Service Class 4 54.80
PGRO2 4 54.80
PGRI1 Fidelity VIP Growth & Income Portfolio - Service Class 12 17.24
PGRI2 12 17.24
PMDC1 Fidelity VIP Mid Cap Portfolio - Service Class 15 15.24
PMDC2 15 15.24
PSMC1 FTVIPT Franklin Small Cap Fund - Class 2 13 26.79
PSMC2 13 26.79
PVAS1 FTVIPT Franklin Value Securities Fund - Class 2 34 7.88
PVAS2 34 7.88
PMSS1 FTVIPT Mutual Shares Securities Fund - Class 2 20 13.25
PMSS2 20 13.25
PINT1 FTVIPT Templeton International Securities Fund - Class 2 13 22.13
PINT2 13 22.13
PGIS1 MFS(R)Growth with Income Series 13 21.31
PGIS2 13 21.31
PNDS1 MFS(R)New Discovery Series 20 17.27
PNDS2 20 17.27
PTRS1 MFS(R)Total Return Series 15 17.75
PTRS2 15 17.75
PUTS1 MFS(R)Utilities Series 12 24.16
PUTS2 12 24.16
PGIN1 Putnam VT Growth and Income Fund - Class IB Shares 9 26.75
PGIN2 9 26.75
PINC1 Putnam VT Income Fund - Class IB Shares 21 12.51
PINC2 21 12.51
PIGR1 Putnam VT International Growth Fund - Class IB Shares 15 21.62
PIGR2 15 21.62
PVIS1 Putnam VT Vista Fund - Class IB Shares 16 20.65
PVIS2 16 20.65
</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>
PBCA11 AXPSM Variable Portfolio-- Blue Chip Advantage Fund $260
PBCA22 263
PBND11 AXPSM Variable Portfolio-- Bond Fund 261
PBND22 261
PCMG11 AXPSM Variable Portfolio-- Cash Management Fund 261
PCMG22 261
PDEI11 AXPSM Variable Portfolio-- Diversified Equity Income Fund 261
PDEI22 262
PEXI11 AXPSM Variable Portfolio-- Extra Income Fund 261
PEXI22 261
PMGD11 AXPSM Variable Portfolio-- Managed Fund 273
PMGD22 275
PNDM11 AXPSM Variable Portfolio-- New Dimensions Fund 262
PNDM22 266
PSCA11 AXPSM Variable Portfolio-- Small Cap Advantage Fund 261
PSCA22 260
PCAP13 AIM V.I. Capital Appreciation Fund 266
PCAP24 271
PVAL13 AIM V.I. Value Fund 264
PVAL24 270
PBAL13 Fidelity VIP Balanced Portfolio - Service Class 196
PBAL24 196
PGRO13 Fidelity VIP Growth Portfolio - Service Class 195
PGRO24 198
PGRI13 Fidelity VIP Growth & Income Portfolio - Service Class 196
PGRI24 196
PMDC13 Fidelity VIP Mid Cap Portfolio - Service Class 196
PMCD24 199
PSMC13 FTVIPT Franklin Small Cap Fund - Class 2 260
PSMC24 266
PVAS13 FTVIPT Franklin Value Securities Fund - Class 2 260
PVAS24 258
PMSS13 FTVIPT Mutual Shares Securities Fund - Class 2 260
PMSS24 259
PINT13 FTVIPT Templeton International Securities Fund - Class 2 260
PINT24 263
PGIS13 MFS(R)Growth and Income Series 260
PGIS24 261
PNDS13 MFS(R)New Discovery Series 265
PNDS24 274
PTRS13 MFS(R)Total Return Series 260
PTRS24 260
PUTS13 MFS(R) Utilities Series 260
PUTS24 264
PGIN13 Putnam VT Growth and Income Fund - Class IB Shares 260
PGIN24 259
PINC13 Putnam VT Income Fund - Class IB Shares 260
PINC24 259
PIGR13 Putnam VT International Growth Fund - Class IB Shares 260
PIGR24 269
PVIS13 Putnam VT Vista Fund - Class IB Shares 284
PVIS24 290
Combined Variable Account $13,183
1 Operations commenced on Nov. 10, 1999.
2 Operations commenced on Nov. 12, 1999.
3 Operations commenced on Nov. 9, 1999.
4 Operations commenced on Nov. 11, 1999.
</TABLE>
<PAGE>
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.
<PAGE>
AMERICAN ENTERPRISE LIFE INSURANCE COMPANY FINANCIAL INFORMATION
REPORT OF INDEPENDENT AUDITORS
The Board of Directors
American Enterprise Life Insurance Company
We have audited the accompanying balance sheets of American Enterprise Life
Insurance Company (a wholly owned subsidiary of IDS Life Insurance Company) as
of December 31, 1999 and 1998, and the related statements of income,
stockholder's equity and cash flows for each of the three years in the period
ended December 31, 1999. These financial statements are the responsibility of
the Company's management. Our responsibility is to express an opinion on these
financial statements based on our audits.
We conducted our audits in accordance with auditing standards generally accepted
in the United States. Those standards require that we plan and perform the audit
to obtain reasonable assurance about whether the financial statements are free
of material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements. An audit
also includes assessing the accounting principles used and significant estimates
made by management, as well as evaluating the overall financial statement
presentation. We believe that our audits provide a reasonable basis for our
opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the financial position of American Enterprise Life
Insurance Company at December 31, 1999 and 1998, and the results of its
operations and its cash flows for each of the three years in the period ended
December 31, 1999, in conformity with accounting principles generally accepted
in the United States.
/s/ Ernst & Young LLP
Ernst & Young LLP
February 3, 2000
Minneapolis, Minnesota
<PAGE>
AMERICAN ENTERPRISE LIFE INSURANCE COMPANY
BALANCE SHEETS
December 31,
($ thousands, except share amounts)
<TABLE>
<S> <C> <C>
ASSETS 1999 1998
- ------ ----------- -----------
Investments:
Fixed maturities:
Held to maturity, at amortized cost (fair value:
1999, $984,103; 1998, $1,126,732) $1,006,349 $1,081,193
Available for sale, at fair value (amortized cost:
1999, $2,411,799; 1998, $2,526,712) 2,304,487 2,594,858
----------- -----------
3,310,836 3,676,051
Mortgage loans on real estate 785,253 815,806
Other investments 11,470 12,103
----------- -----------
Total investments 4,107,559 4,503,960
Accounts receivable 316 214
Accrued investment income 56,676 61,740
Deferred policy acquisition costs 180,288 196,479
Deferred income taxes 37,501 --
Other assets 9 43
Separate account assets 220,994 123,185
----------- -----------
Total assets $4,603,343 $4,885,621
========== ==========
LIABILITIES AND STOCKHOLDER'S EQUITY
Liabilities:
Future policy benefits for fixed annuities $3,921,513 $4,166,852
Policy claims and other policyholders' funds 12,097 7,389
Deferred income taxes -- 23,199
Amounts due to brokers 25,215 54,347
Other liabilities 17,436 24,500
Separate account liabilities 220,994 123,185
----------- -----------
Total liabilities 4,197,255 4,399,472
Stockholder's equity:
Capital stock, $100 par value per share;
100,000 shares authorized,
20,000 shares issued and outstanding 2,000 2,000
Additional paid-in capital 282,872 282,872
Accumulated other comprehensive (loss) income:
Net unrealized securities (losses) gains (69,753) 44,295
Retained earnings 190,969 156,982
----------- -----------
Total stockholder's equity 406,088 486,149
----------- -----------
Total liabilities and stockholder's equity $4,603,343 $4,885,621
========== ==========
</TABLE>
<PAGE>
AMERICAN ENTERPRISE LIFE INSURANCE COMPANY
STATEMENTS OF INCOME
Years ended December 31,
($ thousands)
<TABLE>
<S> <C> <C> <C>
1999 1998 1997
--------- --------- ---------
Revenues:
Net investment income $322,746 $340,219 $332,268
Contractholder charges 6,069 6,387 5,688
Mortality and expense risk fees 2,269 1,275 641
Net realized gain (loss) on investments 6,565 (4,788) (509)
--------- --------- ---------
Total revenues 337,649 343,093 338,088
--------- --------- ---------
Benefits and expenses:
Interest credited on investment contracts 208,583 228,533 231,437
Amortization of deferred policy acquisition costs 43,257 53,663 36,803
Other operating expenses 35,147 24,476 24,890
--------- --------- ---------
Total benefits and expenses 286,987 306,672 293,130
--------- --------- ---------
Income before income taxes 50,662 36,421 44,958
Income taxes 16,675 14,395 16,645
--------- --------- ---------
Net income $ 33,987 $ 22,026 $ 28,313
========= ========= =========
</TABLE>
<PAGE>
AMERICAN ENTERPRISE LIFE INSURANCE COMPANY
STATEMENTS OF STOCKHOLDER'S EQUITY
Three years ended December 31, 1999
($ thousands)
<TABLE>
<CAPTION>
Accumulated
Other
Total Additional Comprehensive
Stockholder's Capital Paid-In (Loss) Income, Retained
Equity Stock Capital Net of Tax Earnings
------------- -------- ------------ ------------ -------------
<S> <C> <C> <C> <C> <C>
Balance, December 31, 1996 $363,858 $2,000 $242,872 $ 12,343 $106,643
Comprehensive income:
Net income 28,313 -- -- -- 28,313
Unrealized holding gains arising
during the year, net of taxes of
($19,891) 36,940 -- -- 36,940 --
Reclassification adjustment for losses
included in net income, net of tax
of ($126) 233 -- -- 233 --
------------- ------------
Other comprehensive income 37,173 -- -- 37,173 --
-------------
Comprehensive income 65,486
Capital contribution from IDS Life 40,000 -- 40,000 -- --
------------- -------- ------------ ------------ -------------
Balance, December 31, 1997 469,344 2,000 282,872 49,516 134,956
Comprehensive income:
Net income 22,026 -- -- -- 22,026
Unrealized holding losses arising
during the year, net of taxes of $3,400 (6,314) -- -- (6,314) --
Reclassification adjustment for losses
included in net income, net of tax
of ($588) 1,093 -- -- 1,093 --
------------- ------------
Other comprehensive loss (5,221) -- -- (5,221) --
-------------
Comprehensive income 16,805
------------- -------- ------------ ------------ -------------
Balance, December 31, 1998 486,149 2,000 282,872 44,295 156,982
Comprehensive loss:
Net income 33,987 -- -- -- 33,987
Unrealized holding losses arising
during the year, net of taxes of $(59,231) (110,001) -- -- (110,001) --
Reclassification adjustment for gains
included in net income, net of tax (4,047) (4,047) --
of $(2,179) ------------- ------------
Other comprehensive loss (114,048) -- -- (114,048) --
-------------
Comprehensive loss (80,061)
------------- -------- ------------ ------------ -------------
Balance, December 31, 1999 $406,088 $2,000 $282,872 $(69,753) $190,969
============= ======== ============ ============ =============
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
See accompanying notes.
AMERICAN ENTERPRISE LIFE INSURANCE COMPANY
STATEMENTS OF CASH FLOWS
Years ended December 31,
($ thousands)
<S> <C> <C> <C>
1999 1998 1997
----------- ----------- -----------
Cash flows from operating activities:
Net income $ 33,987 $ 22,026 $ 28,313
Adjustments to reconcile net income to net cash
provided by (used in) operating activities:
Change in accrued investment income 5,064 (2,152) (8,017)
Change in accounts receivable (102) 349 9,304
Change in deferred policy acquisition costs, net 16,191 28,022 (21,276)
Change in other assets 34 74 4,840
Change in policy claims and other policyholders' funds 4,708 (3,939) (16,099)
Deferred income tax (benefit) provision 711 (9,591) (2,485)
Change in other liabilities (7,064) 7,595 1,255
Amortization of premium (accretion of discount), net 2,315 122 (2,316)
Net realized (gain) loss on investments (6,565) 4,788 509
Other, net (1,562) 2,544 959
----------- ----------- -----------
Net cash provided by (used in) operating activities 47,717 49,838 (5,013)
Cash flows from investing activities:
Fixed maturities held to maturity:
Purchases -- -- (1,996)
Maturities 65,705 73,601 41,221
Sales 8,466 31,117 30,601
Fixed maturities available for sale:
Purchases (593,888) (298,885) (688,050)
Maturities 248,317 335,357 231,419
Sales 469,126 48,492 73,366
Other investments:
Purchases (28,520) (161,252) (199,593)
Sales 57,548 78,681 29,139
Change in amounts due to brokers (29,132) 19,412 (53,796)
----------- ----------- ------------
Net cash provided by (used in) investing activities 197,622 126,523 (537,689)
Cash flows from financing activities:
Activity related to investment contracts:
Considerations received 299,899 302,158 783,339
Surrenders and other benefits (753,821) (707,052) (552,903)
Interest credited to account balances 208,583 228,533 231,437
Capital contribution from parent -- -- 40,000
----------- ----------- -----------
Net cash (used in) provided by financing activities (245,339) (176,361) 501,873
----------- ----------- -----------
Net decrease in cash and cash equivalents -- -- (40,829)
Cash and cash equivalents at beginning of year -- -- 40,829
----------- ----------- -----------
Cash and cash equivalents at end of year $ -- $ -- $ --
=========== =========== ==========
See accompanying notes.
</TABLE>
<PAGE>
1. Summary of significant accounting policies
Nature of business
American Enterprise Life Insurance Company (the Company) is a stock life
insurance company that is domiciled in Indiana and is licensed to transact
insurance business in 48 states. The Company's principal product is
deferred annuities, which are issued primarily to individuals. It offers
single premium and annual premium deferred annuities on both a fixed and
variable dollar basis.
Immediate annuities are offered as well.
Basis of presentation
The Company is a wholly-owned subsidiary of IDS Life Insurance Company (IDS
Life), which is a wholly owned subsidiary of American Express Financial
Corporation (AEFC). AEFC is a wholly owned subsidiary of American Express
Company. The accompanying financial statements have been prepared in
conformity with accounting principles generally accepted in the United
States which vary in certain respects from reporting practices prescribed
or permitted by the Indiana Department of Insurance (see Note 4).
The preparation of financial statements in conformity with accounting
principles generally accepted in the United States requires management to
make estimates and assumptions that affect the reported amounts of assets
and liabilities and disclosure of contingent assets and liabilities at the
date of the financial statements and the reported amounts of revenues and
expenses during the reporting period. Actual results could differ from
those estimates.
Investments
Fixed maturities that the Company has both the positive intent and the
ability to hold to maturity are classified as held to maturity and carried
at amortized cost. All other fixed maturities are classified as available
for sale and carried at fair value. Unrealized gains and losses on
securities classified as available for sale are reported as a separate
component of accumulated other comprehensive (loss) income, net of deferred
income taxes.
Realized investment gain or loss is determined on an identified cost basis.
Prepayments are anticipated on certain investments in mortgage-backed
securities in determining the constant effective yield used to recognize
interest income. Prepayment estimates are based on information received
from brokers who deal in mortgage-backed securities.
Mortgage loans on real estate are carried at amortized cost less an
allowance for mortgage loan losses. The estimated fair value of the
mortgage loans is determined by a discounted cash flow analysis using
mortgage interest rates currently offered for mortgages of similar
maturities.
<PAGE>
1. Summary of significant accounting policies (continued)
Impairment of mortgage loans is measured as the excess of the loan's
recorded investment over its present value of expected principal and
interest payments discounted at the loan's effective interest rate, or the
fair value of collateral. The amount of the impairment is recorded in an
allowance for mortgage loan losses. The allowance for mortgage loan losses
is maintained at a level that management believes is adequate to absorb
estimated losses in the portfolio. The level of the allowance account is
determined based on several factors, including historical experience,
expected future principal and interest payments, estimated collateral
values, and current and anticipated economic and political conditions.
Management regularly evaluates the adequacy of the allowance for mortgage
loan losses.
The Company generally stops accruing interest on mortgage loans for which
interest payments are delinquent more than three months. Based on
management's judgment as to the ultimate collectibility of principal,
interest payments received are either recognized as income or applied to
the recorded investment in the loan.
The cost of interest rate caps and floors is amortized to investment income
over the life of the contracts and payments received as a result of these
agreements are recorded as investment income when realized. The amortized
cost of interest rate caps and floors is included in other investments.
When evidence indicates a decline, which is other than temporary, in the
underlying value or earning power of individual investments, such
investments are written down to the fair value by a charge to income.
Statements of cash flows
The Company considers investments with a maturity at the date of their
acquisition of three months or less to be cash equivalents. These
securities are carried principally at amortized cost which approximates
fair value.
Supplementary information to the statements of cash flows for the years
ended December 31, is summarized as follows:
1999 1998 1997
---- ----- ----
Cash paid during the year for:
Income taxes $22,007 $19,035 $19,456
Interest on borrowings 2,187 5,437 1,832
Contractholder charges
Contractholder charges include surrender charges and fees collected
regarding the issue and administration of annuity contracts.
<PAGE>
1. Summary of significant accounting policies (continued)
Deferred policy acquisition costs
The costs of acquiring new business, principally sales compensation, policy
issue costs, and certain sales expenses, have been deferred on annuity
contracts. These costs are amortized using primarily the interest method.
Amortization of deferred policy acquisition costs requires the use of
assumptions including interest margins, mortality margins, persistency
rates, maintenance expense levels and, for variable products, separate
account performance. For universal life-type insurance and deferred
annuities, actual experience is reflected in the Company's amortization
models monthly. As actual experience differs from the current assumptions,
management considers the need to change key assumptions underlying the
amortization models prospectively. The impact of changing prospective
assumptions is reflected in the period that such changes are made and is
generally referred to as an unlocking adjustment. During 1998, unlocking
adjustments resulted in a net increase in amortization of $11 million. Net
unlocking adjustments in 1999 and 1997 were not significant.
Liabilities for future policy benefits
Liabilities for universal-life type insurance and fixed and variable
deferred annuities are accumulation values.
Federal income taxes
The Company's taxable income is included in the consolidated federal income
tax return of American Express Company. The Company provides for income
taxes on a separate return basis, except that, under an agreement between
AEFC and American Express Company, tax benefit is recognized for losses to
the extent they can be used on the consolidated tax return. It is the
policy of AEFC and its subsidiaries that AEFC will reimburse subsidiaries
for all tax benefits.
Included in other liabilities at December 31, 1999 and 1998 are $2,147 and
$3,504, respectively, payable to IDS Life for federal income taxes.
Separate account business
The separate account assets and liabilities represent funds held for the
exclusive benefit of the variable annuity contract owners. The Company
receives mortality and expense risk fees from the variable annuity separate
accounts.
<PAGE>
1. Summary of significant accounting policies (continued)
The Company makes contractual mortality assurances to the variable annuity
contract owners that the net assets of the separate accounts will not be
affected by future variations in the actual life expectancy experience of
the annuitants and beneficiaries from the mortality assumptions implicit in
the annuity contracts. The Company makes periodic fund transfers to, or
withdrawals from, the separate account assets for such actuarial
adjustments for variable annuities that are in the benefit payment period.
The Company also guarantees that the rates at which administrative fees are
deducted from contract funds will not exceed contractual maximums.
Accounting changes
American Institute of Certified Public Accountants (AICPA) Statement of
Position (SOP) 98-1, "Accounting for Costs of Computer Software Developed
or Obtained for Internal Use" became effective January 1, 1999. The SOP
requires the capitalization of certain costs incurred after the date of
adoption to develop or obtain software for internal use. Software utilized
by the Company is owned by AEFC and capitalized by AEFC. As a result, the
new rule did not have a material impact on the Company's results of
operations or financial condition.
Effective January 1, 1999, the Company adopted AICPA SOP 97-3, "Accounting
by Insurance and Other Enterprises for Insurance-Related Assessments,"
providing guidance for the timing of recognition of liabilities related to
guaranty fund assessments. The Company had historically carried balance in
other liabilities on the balance sheet for potential guaranty fund
assessment exposure. Adoption of the SOP did not have a material impact on
the Company's results of operations or financial condition.
In June 1998, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards No. 133, "Accounting for Derivative
Instruments and Hedging Activities," which is effective January 1, 2001.
This Statement establishes accounting and reporting standards for
derivative instruments, including certain derivative instruments embedded
in other contracts, and for hedging activities. It requires that an entity
recognize all derivatives as either assets or liabilities in the balance
sheet and measure those instruments at fair value. The accounting for
changes in the fair value of a derivative depends on the intended use of
the derivative and the resulting designation. The ultimate financial effect
of the new rule will be measured based on the derivatives in place at
adoption and cannot be estimated at this time.
<PAGE>
2. Investments
Fair values of investments in fixed maturities represent quoted market
prices and estimated values when quoted prices are not available. Estimated
values are determined by established procedures involving, among other
things, review of market indices, price levels of current offerings of
comparable issues, price estimates and market data from independent brokers
and financial files.
The amortized cost, gross unrealized gains and losses and fair value of
investments in fixed maturities at December 31, 1999 are as follows:
<TABLE>
<S> <C> <C> <C> <C>
Gross Gross
Amortized Unrealized Unrealized Fair
Held to maturity Cost Gains Losses Value
---------------- ---------- -------- -------- ----------
U.S. Government agency obligations $ 7,514 $ 23 $ 431 $ 7,106
State and municipal obligations 3,002 44 -- 3,046
Corporate bonds and obligations 816,826 5,966 23,311 799,482
Mortgage-backed securities 179,007 296 4,834 174,469
---------- -------- -------- ----------
$1,006,349 $ 6,329 $ 28,576 $ 984,103
========== ======== ======== ==========
Available for sale
U.S. Government agency obligations $ 2,047 $ -- $ 47 $ 1,999
State and municipal obligations 2,250 -- 190 2,060
Corporate bonds and obligations 1,419,150 7,445 90,703 1,335,892
Mortgage-backed securities 988,352 1,929 25,746 964,536
------------ -------- -------- ----------
$2,411,799 $ 9,374 $116,686 $2,304,487
========== ======== ======== ==========
The amortized cost, gross unrealized gains and losses and fair value of
investments in fixed maturities at December 31, 1998 are as follows:
Gross Gross
Amortized Unrealized Unrealized Fair
Held to maturity Cost Gains Losses Value
---------------- ---------- -------- -------- ----------
U.S. Government agency obligations $ 8,652 $ 423 $ -- $ 9,075
State and municipal obligations 3,003 149 -- 3,152
Corporate bonds and obligations 877,140 48,822 6,670 919,292
Mortgage-backed securities 192,398 2,844 29 195,213
---------- -------- -------- ----------
$1,081,193 $ 52,238 $ 6,699 $1,126,732
========== ======== ======== ==========
Available for sale
U.S. Government agency obligations $ 2,062 $ 116 $ -- $ 2,178
Corporate bonds and obligations 1,472,814 69,990 34,103 1,508,701
Mortgage-backed securities 1,051,836 32,232 89 1,083,979
---------- -------- -------- ----------
$2,526,712 $102,338 $34,192 $2,594,858
========== ======== ======= ==========
</TABLE>
<PAGE>
2. Investments (continued)
The amortized cost and fair value of investments in fixed maturities at
December 31, 1999 by contractual maturity are shown below. Expected
maturities will differ from contractual maturities because borrowers may
have the right to call or prepay obligations with or without call or
prepayment penalties.
Amortized Fair
Held to maturity Cost Value
Due in one year or less $ 26,214 $ 26,334
Due from one to five years 412,533 408,638
Due from five to ten years 331,187 320,146
Due in more than ten years 57,408 54,516
Mortgage-backed securities 179,007 174,469
------------- -------------
$ 1,006,349 $ 984,103
=========== ============
Amortized Fair
Available for sale Cost Value
Due in one year or less $ 46,937 $ 47,236
Due from one to five years 75,233 73,525
Due from five to ten years 1,037,001 980,633
Due in more than ten years 264,276 238,557
Mortgage-backed securities 988,352 964,536
------------ ------------
$2,411,799 $2,304,487
During the years ended December 31, 1999, 1998 and 1997, fixed maturities
classified as held to maturity were sold with amortized cost of $8,466,
$31,117 and $29,561, respectively. Net gains and losses on these sales were
not significant. The sales of these fixed maturities were due to
significant deterioration in the issuers' creditworthiness.
In addition, fixed maturities available for sale were sold during 1999 with
proceeds of $469,126 and gross realized gains and losses of $10,374 and
$4,147 respectively. Fixed maturities available for sale were sold during
1998 with proceeds of $48,492 and gross realized gains and losses of $2,835
and $4,516, respectively. Fixed maturities available for sale were sold
during 1997 with proceeds of $73,366 and gross realized gains and losses of
$1,081 and $1,440, respectively.
At December 31, 1999, bonds carried at $3,277 were on deposit with various
states as required by law.
<PAGE>
2. Investments (continued)
At December 31, 1999, investments in fixed maturities comprised 81 percent
of the Company's total invested assets. These securities are rated by
Moody's and Standard & Poor's (S&P), except for securities carried at
approximately $486 million which are rated by AEFC internal analysts using
criteria similar to Moody's and S&P. A summary of investments in fixed
maturities, at amortized cost, by rating on December 31 is as follows:
Rating 1999 1998
---------------------- ----------- -----------
Aaa/AAA $1,168,144 $1,242,301
Aa/AA 42,859 45,526
Aa/A 52,416 60,019
A/A 422,668 422,725
A/BBB 189,072 228,656
Baa/BBB 995,152 1,030,874
Baa/BB 64,137 79,687
Below investment grade 483,700 498,117
------------ ------------
$3,418,148 $3,607,905
At December 31, 1999, approximately 94 percent of the securities rated
Aaa/AAA were GNMA, FNMA and FHLMC mortgage-backed securities. No holdings
of any other issuer were greater than one percent of the Company's total
investments in fixed maturities.
At December 31, 1999, approximately 19 percent of the Company's invested
assets were mortgage loans on real estate. Summaries of mortgage loans by
region of the United States and by type of real estate are as follows:
<TABLE>
<CAPTION>
December 31, 1999 December 31, 1998
------------------------------- --------------------------------
<S> <C> <C> <C> <C>
On Balance Commitments On Balance Commitments
Region Sheet to Purchase Sheet to Purchase
---------------------------------- ----------- ----------- ---------- -----------
South Atlantic $194,325 $ -- $198,552 $ 651
Middle Atlantic 118,699 -- 129,284 520
East North Central 126,243 -- 134,165 2,211
Mountain 103,751 -- 113,581 --
West North Central 125,891 513 119,380 9,626
New England 43,345 802 46,103 --
Pacific 41,396 -- 43,706 --
West South Central 31,153 -- 32,086 --
East South Central 7,100 -- 7,449 --
----------- ------------ ----------- ------------
791,903 1,315 824,306 13,008
Less allowance for losses 6,650 -- 8,500 --
----------- ------------ ----------- ------------
$785,253 $ 1,315 $815,806 $13,008
======== ======== ======== =======
<PAGE>
2. Investments (continued)
December 31, 1999 December 31, 1998
------------------------------ ------------------------------
On Balance Commitments On Balance Commitments
Property type Sheet to Purchase Sheet to Purchase
---------- -------------- ---------- ------------
Department/retail stores $232,449 $ 1,315 $253,380 $ 781
Apartments 181,346 -- 186,030 2,211
Office buildings 202,132 -- 206,285 9,496
Industrial buildings 83,186 -- 82,857 520
Hotels/Motels 43,839 -- 45,552 --
Medical buildings 32,284 -- 33,103 --
Nursing/retirement homes 6,608 -- 6,731 --
Mixed Use 10,059 -- 10,368 --
---------- -------------- ---------- ------------
791,903 1,315 824,306 13,008
Less allowance for losses 6,650 -- 8,500 --
----------- -------------- ----------- ------------
$785,253 $ 1,315 $815,806 $13,008
======== ========== ======== =======
</TABLE>
Mortgage loan fundings are restricted by state insurance regulatory
authorities to 80 percent or less of the market value of the real estate at
the time of origination of the loan. The Company holds the mortgage
document, which gives it the right to take possession of the property if
the borrower fails to perform according to the terms of the agreement.
Commitments to purchase mortgages are made in the ordinary course of
business. The fair value of the mortgage commitments is $nil.
At December 31, 1999, the Company's recorded investment in impaired loans
was $5,200 with an allowance of $1,250. At December 31, 1998, the Company's
recorded investment in impaired loans was $1,932 with an allowance of $500.
During 1999 and 1998, the average recorded investment in impaired loans was
$5,399 and $2,736, respectively.
The Company recognized $136, $251 and $nil of interest income related to
impaired loans for the years ended December 31, 1999, 1998 and 1997,
respectively.
The following table presents changes in the allowance for investment losses
related to all loans:
<TABLE>
<S> <C> <C> <C>
1999 1998 1997
---- ---- ----
Balance, January 1 $8,500 $3,718 $2,370
Provision (reduction) for investment losses (1,850) 4,782 1,805
Loan payoffs -- -- (457)
------ --------- -------
Balance, December 31 $6,650 $8,500 $3,718
====== ====== ======
Net investment income for the years ended December 31 is summarized as
follows:
1999 1998 1997
----- ----- ----
Interest on fixed maturities $265,199 $285,260 $278,736
Interest on mortgage loans 63,721 65,351 55,085
Interest on cash equivalents 534 137 704
Other (1,755) (2,493) 1,544
---------- ---------- ----------
327,699 348,255 336,069
Less investment expenses 4,953 8,036 3,801
--------- ---------- ----------
$322,746 $340,219 $332,268
======== ======== ========
</TABLE>
<PAGE>
2. Investments (continued)
Net realized gain (loss) on investments for the years ended December 31 is
summarized as follows:
<TABLE>
<S> <C> <C> <C>
1999 1998 1997
---- ---- ----
Fixed maturities $ 6,534 $ 863 $ 1,638
Mortgage loans (1,650) (4,816) (1,348)
Other investments (1,819) (835) (799)
--------- -------- -------
$ 3,065 $(4,788) $ (509)
========= ======= =======
Changes in net unrealized appreciation (depreciation) of investments for
the years ended December 31 are summarized as follows:
1999 1998 1997
----- ----- ----
Fixed maturities available for sale $(175,458) $(8,032) $57,188
3. Income taxes
The Company qualifies as a life insurance company for federal income tax
purposes. As such, the Company is subject to the Internal Revenue Code
provisions applicable to life insurance companies.
The income tax expense (benefit) for the years ended December 31, consists
of the following:
1999 1998 1997
---- ---- ----
Federal income taxes:
Current $ 15,531 $ 23,227 $17,668
Deferred 711 (9,591) (2,485)
-------- -------- -------
16,242 13,636 15,183
State income taxes-current 433 759 1,462
-------- -------- -------
Income tax expense $ 16,675 $ 14,395 $16,645
======== ======== =======
</TABLE>
Increases (decreases) to the federal income tax provision applicable to
pretax income based on the statutory rate, for the years ended December 31,
are attributable to:
<TABLE>
<CAPTION>
1999 1998 1997
------------------ ------------------ ---------------------
Provision Rate Provision Rate Provision Rate
--------- ----- --------- ----- --------- -----
<S> <C> <C> <C> <C> <C> <C>
Federal income taxes based
on the statutory rate $17,731 35.0% $13,972 35.0% $15,735 35.0%
Increases (decreases) are
attributable to:
Tax-excluded interest (14) -- (35) (0.1) (41) (0.1)
State tax, net of federal benefit 281 0.5 493 1.2 956 2.1
Reduction of mortgage loss
reserve (1,225) (2.4) -- -- -- --
Other, net (98) (0.2) (35) -- (5) --
------ ----- -------- ------ ---- ------
Total income taxes $16,675 32.9 % $14,395 36.1% $16,645 37.0%
======= ===== ======= ==== ======= ====
</TABLE>
<PAGE>
3. Income taxes (continued)
Significant components of the Company's deferred income tax assets and
liabilities as of December 31 are as follows:
Deferred income tax assets: 1999 1998
------- -------
Policy reserves $46,243 $51,298
Unrealized losses on investments 39,678 --
Other 1,070 2,214
-------- --------
Total deferred income tax assets 86,991 53,512
-------- --------
Deferred income tax liabilities:
Deferred policy acquisition costs 49,490 52,908
Unrealized gains on investments -- 23,803
-------- --------
Total deferred income tax liabilities 49,490 76,711
-------- --------
Net deferred income tax assets (liabilities) $37,501 ($23,199)
======= ========
The Company is required to establish a valuation allowance for any portion
of the deferred income tax assets that management believes will not be
realized. In the opinion of management, it is more likely than not that the
Company will realize the benefit of the deferred income tax assets and,
therefore, no such valuation allowance has been established.
4. Stockholder's equity
Retained earnings available for distribution as dividends to IDS Life are
limited to the Company's surplus as determined in accordance with
accounting practices prescribed by state insurance regulatory authorities.
Statutory unassigned surplus aggregated $58,223 and $45,716 as of December
31, 1999 and 1998, respectively. In addition, dividends in excess of
$15,241 would require approval by the Insurance Department of the state of
Indiana.
Statutory net income and stockholder's equity as of December 31, are
summarized as follows:
1999 1998 1997
--------- --------- -------
Statutory net income $ 15,241 $ 37,902 $ 23,589
Statutory stockholder's equity 343,094 330,588 302,264
5. Related party transactions
The Company has purchased interest rate floors from IDS Life and entered
into an interest rate swap with IDS Life to manage its exposure to interest
rate risk. The interest rate floors had a carrying amount of $8,258 and
$6,651 at December 31, 1999 and 1998, respectively. The interest rate swap
is an off balance sheet transaction.
The Company has no employees. Charges by IDS Life for services and use of
other joint facilities aggregated $38,931, $28,482 and $24,535 for the
years ended December 31, 1999, 1998 and 1997, respectively. Certain of
these costs are included in deferred policy acquisition costs.
<PAGE>
6. Lines of credit
The Company has an available line of credit with AEFC aggregating $50,000.
The rate for the line of credit is established by reference to various
indices plus 20 to 45 basis points, depending on the term. There were no
borrowings outstanding under this agreement at December 31, 1999 or 1998.
7. Derivative financial instruments
The Company enters into transactions involving derivative financial
instruments to manage its exposure to interest rate risk, including hedging
specific transactions. The Company does not hold derivative instruments for
trading purposes. The Company manages risks associated with these
instruments as described below.
Market risk is the possibility that the value of the derivative financial
instruments will change due to fluctuations in a factor from which the
instrument derives its value, primarily an interest rate. The Company is
not impacted by market risk related to derivatives held for non-trading
purposes beyond that inherent in cash market transactions. Derivatives are
largely used to manage risk and, therefore, the cash flow and income
effects of the derivatives are inverse to the effects of the underlying
transactions.
Credit risk is the possibility that the counterparty will not fulfill the
terms of the contract. The Company monitors credit risk related to
derivative financial instruments through established approval procedures,
including setting concentration limits by counterparty, and requiring
collateral, where appropriate. A vast majority of the Company's
counterparties are rated A or better by Moody's and Standard & Poor's.
Credit risk related to interest rate caps and floors is measured by
replacement cost of the contracts. The replacement cost represents the fair
value of the instruments.
The notional or contract amount of a derivative financial instrument is
generally used to calculate the cash flows that are received or paid over
the life of the agreement. Notional amounts are not recorded on the balance
sheet. Notional amounts far exceed the related credit exposure.
The Company's holdings of derivative financial instruments are as follows:
<TABLE>
<CAPTION>
Notional Carrying Fair Total Credit
December 31, 1999 Amount Amount Value Exposure
----------------- -------- -------- ------ ------------
<S> <C> <C> <C> <C>
Assets:
Interest rate caps $ 900,000 $ 3,212 $ 4,437 $ 4,437
Interest rate floors 2,000,000 8,258 2,251 2,251
Off balance sheet assets:
Interest rate swaps 2,000,000 -- 18,274 18,274
--------- -------- --------
$11,470 $24,962 $24,962
======= ======= =======
<PAGE>
7. Derivative financial instruments (continued)
Notional Carrying Fair Total Credit
December 31, 1998 Amount Amount Value Exposure
----------------- -------- -------- ------ ------------
Assets:
Interest rate caps $ 900,000 $ 5,452 $ 1,518 $ 1,518
Interest rate floors 1,000,000 6,651 17,798 17,798
Off balance sheet liabilities:
Interest rate swaps 1,000,000 -- (33,500) --
--------- ---------- --------
$12,103 ($ 14,184) $19,316
======= =========== =======
</TABLE>
The fair values of derivative financial instruments are based on market
values, dealer quotes or pricing models. All interest rate caps, floors and
swaps will expire on various dates from 2000 to 2006.
Interest rate caps, floors and swaps are used to manage the Company's
exposure to interest rate risk. These instruments are used primarily to
protect the margin between interest rates earned on investments and the
interest rates credited to related annuity contract holders.
8. Fair values of financial instruments
The Company discloses fair value information for most on- and off-balance
sheet financial instruments for which it is practicable to estimate that
value. Fair value of life insurance obligations, receivables and all
non-financial instruments, such as deferred acquisition costs are excluded.
Off-balance sheet intangible assets are also excluded. Management believes
the value of excluded assets and liabilities is significant. The fair value
of the Company, therefore, cannot be estimated by aggregating the amounts
presented.
<TABLE>
<CAPTION>
December 31,
1999 1998
-------------------------- --------------------------
Carrying Fair Carrying Fair
Financial Assets Amount Value Amount Value
---------------- ---------- --------- ---------- ----------
<S> <C> <C> <C> <C>
Investments:
Fixed maturities (Note 2):
Held to maturity $1,006,349 $984,103 $1,081,193 $1,126,732
Available for sale 2,304,487 2,304,487 2,594,858 2,594,858
Mortgage loans on real estate (Note 2) 785,253 770,095 815,806 874,064
Derivative financial instruments (Note 7) 11,470 24,962 12,103 19,316
Separate account assets (Note 1) 220,994 220,994 123,185 123,185
Financial Liabilities
Future policy benefits for fixed annuities $3,905,849 $3,778,945 $4,152,059 $4,000,789
Separate account liabilities 220,994 209,942 123,185 115,879
Derivative financial instruments (Note 7) -- -- -- 33,500
</TABLE>
At December 31, 1999 and 1998, the carrying amount and fair value of future
policy benefits for fixed annuities exclude life insurance-related
contracts carried at $15,633 and $14,793, respectively. The fair value of
these benefits is based on the status of the annuities at December 31, 1999
and 1998.
<PAGE>
8. Fair values of financial instruments (continued)
The fair values of deferred annuities and separate account liabilities are
estimated as the carrying amount less applicable surrender charges. The
fair value for annuities in non-life contingent payout status is estimated
as the present value of projected benefit payments at rates appropriate for
contracts issued in 1999 and 1998.
9. Commitments and contingencies
In January 2000, AEFC reached an agreement in principle to settle three
class-action lawsuits. The Company had been named as a co-defendant in one
of these lawsuits. It is expected the settlement will provide $215 million
of benefits to more than 2 million participants. The agreement in principle
to settle also provides for release by class members of all insurance and
annuity market conduct claims dating back to 1985 and is subject to a
number of contingencies including a definitive agreement and court
approval. The portion of the settlement allocated to the Company did not
have a material impact on the Company's financial position or results from
operations.
10. YEAR 2000 ISSUE (unaudited)
The Year 2000 issue is the result of computer programs having been written
using two digits rather than four to define a year. Any programs that have
time-sensitive software may recognize a date using "00" as the year 1900
rather than 2000. This could result in the failure of major systems or
miscalculations, which could have a material impact on the operations of
the Company. All of the major systems used by the Company are maintained by
AEFC and are utilized by multiple subsidiaries and affiliates of AEFC. The
Company's businesses are heavily dependent upon AEFC's computer systems and
have significant interaction with systems of third parties.
A comprehensive review of AEFC's computer systems and business processes,
including those specific to the Company, was conducted to identify the
major systems that could be affected by the Year 2000 issue. Steps were
taken to resolve potential problems including modification to existing
software and the purchase of new software. As of December 31, 1999, AEFC
had completed its program of corrective measures on its internal systems
and applications, including Year 2000 compliance testing. As of December
31, 1999, AEFC had also completed an evaluation of the Year 2000 readiness
of other third parties whose system failures could have an impact on the
Company's operations.
AEFC's Year 2000 project also included establishing Year 2000 contingency
plans for all key business units. Business continuation plans, which
address business continuation in the event of a system disruption, are in
place for all key business units. At December 31, 1999, these plans had
been amended to include specific Year 2000 considerations.
In assessing its Year 2000 initiatives and the results of actual production
since January 1, 2000, management believes no material adverse consequences
were experienced, and there was no material effect on the Company's
business, results of operations, or financial condition as a result of the
Year 2000 issue.
<PAGE>
PART C.
Item 24. Financial Statements and Exhibits
(a) Financial Statements included in Part B of this Registration Statement:
The audited financial statements of the variable account including:
Statements of net assets as of December 31, 1999;
Statements of operations for the period ended Dec. 31, 1999; and
Statements of changes in net assets for the period ended Dec. 31, 1999.
Notes to Financial Statements.
Report of Independent Auditors dated March 17, 2000.
The audited financial statements of American Enterprise Life Insurance Company
including:
Balance sheets as of Dec. 31, 1999 and 1998; and
Related statements of income, stockholder's equity and cash flows for
the years ended Dec. 31, 1999, 1998, and 1997.
Notes to Financial Statements.
Report of Independent Auditors dated Feb. 3, 2000.
(b) Exhibits:
1.1 Resolution of the Executive Committee of the Board of Directors of American
Enterprise Life establishing the American Enterprise Variable Annuity
Account dated July 15, 1987, filed electronically as Exhibit 1 to the
Initial Registration Statement No. 33-54471, filed on or about July 5,
1994, is incorporated herein by reference.
1.2 Resolution of the Board of Directors of American Enterprise Life
establishing 236 additional subaccounts within the separate account, dated
September 8, 1999 filed electronically as Exhibit 1.2 to Pre-Effective
Amendment No. 1 to Registration Statement No. 333-82149, filed on or about
Sept. 21, 1999, is incorporated herein by reference.
2. Not applicable.
3. Form of Selling Agreement for American Enterprise Life Insurance Company
Variable Annuities filed electronically as Exhibit 3 to Pre-Effective
Amendment No. 1 to Registration Statement No. 333-82149, filed on or about
Sept. 21, 1999, is incorporated herein by reference.
4.1 Form of Deferred Annuity Contract (form 44170) filed electronically as
Exhibit 4.1 to Pre-Effective Amendment No. 1 to Registration Statement No.
333-82149, filed on or about Sept. 21, 1999, is incorporated herein by
reference.
4.2 Form of Roth IRA Endorsement (form 43094) filed electronically as Exhibit
4.2 to Pre-Effective Amendment No. 1 to Registration Statement No.
33-74865, filed on or about August 4, 1999, is incorporated herein by
reference.
4.3 Form of SEP-IRA Endorsement (form 43412) filed electronically as Exhibit
4.3 to Pre-Effective Amendment No. 1 to Registration Statement No.
33-72777, is incorporated herein by reference.
5. Form of Variable Annuity Application (form 44171) filed electronically as
Exhibit 5 to Pre-Effective Amendment No. 1 to Registration Statement No.
333-82149, filed on or about Sept. 21, 1999, is incorporated herein by
reference.
<PAGE>
6.1 Amendment and Restatement of Articles of Incorporation of American
Enterprise Life dated July 29, 1986, filed electronically as Exhibit 6.1 to
the Initial Registration Statement No. 33-54471, filed on or about July 5,
1994, is incorporated herein by reference.
6.2 Amended By-Laws of American Enterprise Life, filed electronically as
Exhibit 6.2 to the Initial Registration Statement No. 33-54471, filed on or
about July 5, 1994, is incorporated herein by reference.
7. Not applicable.
8.1 Form of Participation Agreement among Variable Insurance Products Fund,
Fidelity Distribution Corporation and IDS Life Insurance Company filed
electronically as Exhibit 8.1 to Pre-Effective Amendment No. 1 to
Registration Statement No. 333-82149, filed on or about Sept. 21, 1999, is
incorporated herein by reference.
8.2 Form of Participation agreement among Variable Insurance Products Fund III,
Fidelity Distributors Corporation and IDS Life Insurance Company filed
electronically as Exhibit 8.2 to Pre-Effective Amendment No. 1 to
Registration Statement No. 333-82149, filed on or about Sept. 21, 1999, is
incorporated herein by reference.
9. Opinion of counsel and consent to its use as to the legality of the
securities being registered is filed electronically herewith.
10. Consent of Independent Auditors is filed electronically herewith.
11. None.
12. Not applicable.
13. Copy of schedule for computation of each performance quotation provided in
the Registration Statement in response to Item 21, filed electronically as
Exhibit 13 to the Initial Registration Statement No. 33-54471, filed on or
about July 5, 1994, is incorporated herein by reference.
14. Not applicable.
15.1 Power of Attorney to sign this Registration Statement, dated April 9, 1998,
filed electronically as Exhibit 15.2 to Post-Effective Amendment No. 10 to
Registration Statement No. 33-54471, is incorporated herein by reference.
15.2 Power of Attorney to sign this Registration Statement, dated July 29, 1999,
filed electronically as Exhibit 15.3 to Pre-Effective Amendment No. 1 to
Registration Statement No. 33-74865, is incorporated herein by reference.
Item 25. Directors and Officers of the Depositor (American Enterprise Life
Insurance Company)
<TABLE>
<CAPTION>
<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.
<TABLE>
<CAPTION>
<S> <C>
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
<PAGE>
American Express Asset Management International Inc. Delaware
American Express Asset Management International (Japan) Ltd. Japan
American Express Asset Management Ltd. England
American Express Client Service Corporation Minnesota
American Express Corporation Delaware
American Express Financial Advisors Inc. Delaware
American Express Financial Corporation Delaware
American Express Insurance Agency of Arizona Inc. Arizona
American Express Insurance Agency of Idaho Inc. Idaho
American Express Insurance Agency of Nevada Inc. Nevada
American Express Insurance Agency of Oregon Inc. Oregon
American Express Minnesota Foundation Minnesota
American Express Property Casualty Insurance Agency of Kentucky Inc. Kentucky
American Express Property Casualty Insurance Agency of Maryland Inc. Maryland
American Express Property Casualty Insurance Agency of Pennsylvania Inc. Pennsylvania
American Express Trust Company Minnesota
American Partners Life Insurance Company Arizona
IDS Cable Corporation Minnesota
IDS Cable II Corporation Minnesota
IDS Capital Holdings Inc. Minnesota
IDS Certificate Company Delaware
IDS Futures Corporation Minnesota
IDS Insurance Agency of Alabama Inc. Alabama
IDS Insurance Agency of Arkansas Inc. Arkansas
IDS Insurance Agency of Massachusetts Inc. Massachusetts
IDS Insurance Agency of New Mexico Inc. New Mexico
IDS Insurance Agency of North Carolina Inc. North Carolina
IDS Insurance Agency of Utah Inc. Utah
IDS Insurance Agency of Wyoming Inc. Wyoming
IDS Life Insurance Company Minnesota
IDS Life Insurance Company of New York New York
IDS Management Corporation Minnesota
IDS Partnership Services Corporation Minnesota
IDS Plan Services of California, Inc. Minnesota
IDS Property Casualty Insurance Company Wisconsin
IDS Real Estate Services, Inc. Delaware
IDS Realty Corporation Minnesota
IDS Sales Support Inc. Minnesota
IDS Securities Corporation Delaware
Investors Syndicate Development Corp. Nevada
Public Employee Payment Company Minnesota
</TABLE>
Item 27. Number of Contract owners
As of March 31, 2000 there were 3 contract owners of non-qualified
contracts and 1 contract owner of qualified contract.
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
<PAGE>
employee's status as such, whether or not the Corporation would have
the power to indemnify the director, officer, agent or employee
against such liability under the provisions of applicable law.
The By-Laws of the depositor provide that it shall indemnify a
director, officer, agent or employee of the depositor pursuant to the
provisions of applicable statutes or pursuant to contract. Insofar as
indemnification for liability arising under the Securities Act of 1933
may be permitted to directors, officers and controlling persons of the
registrant pursuant to the foregoing provisions, or otherwise, the
registrant has been advised that in the opinion of the Securities and
Exchange Commission such indemnification is against public policy as
expressed in the Act and is, therefore, unenforceable. In the event
that a claim for indemnification against such liabilities (other than
the payment by the registrant of expenses incurred or paid by a
director, officer or controlling person of the registrant in the
successful defense of any action, suit or proceeding) is asserted by
such director, officer or controlling person in connection with the
securities being registered, the registrant will, unless in the
opinion of its counsel the matter has been settled by controlling
precedent, submit to a court of appropriate jurisdiction the question
whether such indemnification by it is against public policy as
expressed in the Act and will be governed by the final adjudication of
such issue.
Item 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 Counseland Assistant
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>
<CAPTION>
<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>
<PAGE>
Item 30. Location of Accounts and Records
American Enterprise Life Insurance Company
200 AXP Financial Center
Minneapolis, MN 55474
Item 31. Management Services
Not applicable.
Item 32. Undertakings
(a) Registrant undertakes that it will file a post-effective amendment to
this registration statement as frequently as is necessary to ensure
that the audited financial statements in the registration statement
are never more than 16 months old for so long as payments under the
variable annuity contracts may be accepted.
(b) Registrant undertakes that it will include either (1) as part of any
application to purchase a contract offered by the prospectus, a space
that an applicant can check to request a Statement of Additional
Information, or (2) a post card or similar written communication
affixed to or included in the prospectus that the applicant can remove
to send for a Statement of Additional Information.
(c) Registrant undertakes to deliver any Statement of Additional
Information and any financial statements required to be made available
under this Form promptly upon written or oral request to American
Enterprise Life Contract Owner Service at the address or phone number
listed in the prospectus.
(d) 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 all of the requirements for effectiveness of this
Amendment to its Registration Statement pursuant to Rule 485(b) under the
Securities Act of 1933 and has duly caused this Amendment to its Registration
Statement to be signed on its behalf by the undersigned, thereunto duly
authorized in the City of Minneapolis, and State of Minnesota, on the 27th 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 27th 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* Director and Chairman of the Board
Richard W. Kling
/s/ Paul S. Mannweiler* Director
Paul S. Mannweiler
/s/ Paula R. Meyer* Executive Vice President,
Paula R. Meyer Assured Assets
/s/ William A. Stoltzmann* Director, Vice President, General
William A. Stoltzmann Counsel and Secretary
/s/ Philip C. Wentzel* Vice President and Controller
Philip C. Wentzel
* Signed pursuant to Power of Attorney, dated July 29, 1999, filed
electronically as Exhibit 15.3 to Pre-Effective Amendment No. 1 to
Registration Statement No. 33-74865, filed on or about August 4, 1999,
incorporated herein by reference.
By: /s/ Mary Ellyn Minenko
Mary Ellyn Minenko
<PAGE>
CONTENTS OF POST-EFFECTIVE AMENDMENT NO. 1 TO REGISTRATION STATEMENT
This Post-Effective Amendment is comprised of the following papers and
documents:
The Cover Page.
Part A.
The prospectus.
Part B.
Statement of Additional Information.
Financial Statements
Part C.
Other Information.
The signatures.
Exhibits
EXHIBIT INDEX
9. Opinion of Counsel
10. Consent of Independent Auditors
April 27, 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 No.: 333-82149/811-7195
Ladies and Gentlemen:
I am familiar with the establishment of the American Enterprise Variable Annuity
Account ("Account"), which is a separate account of American Enterprise Life
Insurance Company ("Company") established by the Company's Board of Directors
according to applicable insurance law. I also am familiar with the
above-referenced Registration Statement filed by the Company on behalf of the
Account with the Securities and Exchange Commission.
I have made such examination of law and examined such documents and records as
in my judgment are necessary and appropriate to enable me to give the following
opinion:
1. The Company is duly incorporated, validly existing and in good standing
under applicable state law and is duly licensed or qualified to do business
in each jurisdiction where it transacts business. The Company has all
corporate powers required to carry on its business and to issue the
contracts.
2. The Account is a validly created and existing separate account of the
Company and is duly authorized to issue the securities registered.
3. The contracts issued by the Company, when offered and sold in accordance
with the prospectus contained in the Registration Statement and in
compliance with applicable law, will be legally issued and represent
binding obligations of the Company in accordance with their terms.
I hereby consent to the filing of this opinion as an exhibit to the Registration
Statement.
Sincerely,
/s/ Mary Ellyn Minenko
Mary Ellyn Minenko
Group Counsel
Consent of Independent Auditors
We consent to the reference to our firm under the caption "Independent Auditors"
in the Statement of Additional Information and to the use of our report dated
February 3, 2000 with respect to the financial statements of American Enterprise
Life Insurance Company and to the use of our report dated March 17, 2000 with
respect to the financial statements of American Enterprise Variable Annuity
Account, included in Post-Effective Amendment No. 1 to the Registration
Statement (Form N-4, No. 333-82149) and related Prospectus for the registration
of the Pinnacle Variable Annuity Contracts to be offered by American Enterprise
Life Insurance Company.
/s/ Ernst & Young LLP
Minneapolis, Minnesota
April 24, 2000
