S-1 1 s-1filing.txt AMERICAN ENTERPRISE MVA ACCOUNT SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 FORM S-1 Initial Registration Statement Under The Securities Act of 1933 American Enterprise MVA Account (Exact name of registrant as specified in charter) Indiana ------------------------------------------------------ (State or other jurisdiction of incorporation or organization) 63 ------------------------------------------------------- (Primary Standard Industrial Classification Code Number) 94-2786905 ---------------------------------------------------------- (I.R.S. Employer Identification No.) 829 AXP Financial Center, Minneapolis, MN 55474 (612) 671-3131 ----------------------------------------------------------------- (Address, including zip code, and telephone number, including area code, of registrant's principal executive offices) Mary Ellyn Minenko, Counsel 50607 AXP Financial Center, Minneapolis, Minnesota 55474 (612) 671-3678 -------------------------------------------------------------- (Name, address, including zip code, and telephone number, including area code, of agent for service) It is proposed that this filing become effective on July 23, 2001. If any of the Securities being registered on this Form are to be offered on a delayed or continuous basis pursuant to Rule 415 under the Securities Act of 1933, check the following box. [X] Pursuant to Rule 429 under the Securities Act, the prospectuses contained herein also relate to and constitute a post-effective amendment to Securities Act Registration Statement No. 333-86297.
Calculation of Registration Fee Title of each class of Amount to be Proposed maximum Proposed maximum Amount of securities to be registered offering price per aggregate offering registration fee registered unit price ------------------------- ---------------------- ----------------------- ---------------------- ---------------------- Interests in the $350,000,000* $350,000,000* $87,500* Guarantee Period Accounts of the Wells Fargo Advantage(SM) Variable Annuity, the Wells Fargo Advantage(SM) Builder Variable Annuity, the American Express Signature Variable Annuity(R), the American Express(R) Signature One Variable Annuity and the American Express New Solutions(SM) Variable Annuity Contracts
* The difference between the $60,359,712 of securities registered on Securities Act Registration Statement No. 333-86297, (for which a registration fee of $16,780 and was paid) and the dollar amount of securities sold thereunder is carried forward on this Registration Statement pursuant to Rule 429 of the Securities Act. Registration Statement on Form S-1 Cross-Reference Sheet Pursuant to Regulation S-K, Item 501(b) Form S-1 Item Number and Caption Located in Prospectus 1. Forepart of the Registration Statement and Outside Front Cover Page of Prospectus Outside Front Cover 2. Inside Front and Outside Back Cover Pages of Prospectus Table of Contents 3. Summary Information, Risk Factors and Ratio of Earnings to Fixed Charges Summary or, as to ratio of earnings to fixed charges, Not Applicable 4. Use of Proceeds The variable accounts; The fixed accounts 5. Determination of Offering Price Not Applicable 6. Dilution Not Applicable 7. Selling Security Holders Not Applicable 8. Plan of Distribution Distribution of Contracts 9. Description of Securities to Be Registered The variable accounts; The fixed accounts 10. Interests of Named Experts and Counsel Not Applicable 11. Information with Respect to the Registrant About American Enterprise Life; Additional Information about American Enterprise Life 12. Disclosure of Commission Position on Indemnification for Securities Act Liabilities See Item 14 in Part II PART I. INFORMATION REQUIRED IN PROSPECTUS Attached are the following prospectuses containing information for the American Enterprise MVA Account: American Express New Solutions(SM) Variable Annuity American Express Signature Variable Annuity(R) American Express(R) Signature One Variable Annuity Wells Fargo Advantage(SM) Builder Variable Annuity Wells Fargo Advantage(SM) Variable Annuity American Express New Solutions (SM) Variable Annuity Issued by: American Enterprise Life Insurance Company Prospectus July 23, 2001 FOR CONTRACTS PURCHASED IN PENNSYLVANIA: INDIVIDUAL FLEXIBLE PREMIUM DEFERRED VARIABLE ANNUITY. FOR CONTRACTS PURCHASED IN ALL OTHER STATES: INDIVIDUAL OR GROUP FLEXIBLE PREMIUM DEFERRED COMBINATION FIXED/VARIABLE ANNUITY. American Enterprise Variable Annuity Account Issued by: American Enterprise Life Insurance Company (American Enterprise Life) 829 AXP Financial Center Minneapolis, MN 55474 Telephone: (800) 333-3437 This prospectus contains information that you should know before investing. You also will receive the prospectuses for: o American Express(R) Variable Portfolio Funds o AIM Variable Insurance Funds o Alliance Variable Products Series Fund o Evergreen Variable Annuity Trust o Fidelity Variable Insurance Products - Service Class o Franklin(R)Templeton(R)Variable Insurance Products Trust (FTVIPT) - Class 2 o MFS(R)Variable Insurance TrustSM o Putnam Variable Trust - IB Shares Please read the prospectuses carefully and keep them for future reference. The contract provides for purchase payment credits which we may reverse up to the maximum withdrawal charge under certain circumstances. Expense charges for contracts with purchase payment credits may be higher than expenses for contracts without such credits. The amount of the credit may be more than offset by any additional fees and charges associated with the credit. The Securities and Exchange Commission (SEC) has not approved or disapproved these securities or passed upon the accuracy or adequacy of this prospectus. Any representation to the contrary is a criminal offense. An investment in this contract is not a deposit of a bank or financial institution and is not insured or guaranteed by the Federal Deposit Insurance Corporation or any other government agency. An investment in this contract involves investment risk including the possible loss of principal. A Statement of Additional Information (SAI), dated the same date as this prospectus, is incorporated by reference into this prospectus. It is filed with the SEC and is available without charge by contacting American Enterprise Life at the telephone number and address listed above. The table of contents of the SAI is on the last page of this prospectus. The SEC maintains an Internet site. This prospectus, the SAI and other information about the product are available on the EDGAR Database on the SEC's Internet site at (http://www.sec.gov). Variable annuities are complex investment vehicles. Before you invest, be sure to ask your sales representative about the variable annuity's features, benefits, risks and fees, and whether the variable annuity is appropriate for you, based upon your financial situation and objectives. American Enterprise Life offers several different annuities which your sales representative may be authorized to offer to you. Each annuity has different features and benefits that may be appropriate for you based on your financial situation and needs, your age and how you intend to use the annuity. The different features and benefits may include the investment and fund manager options, variations in interest rate amount and guarantees, credits, withdrawal charge schedules and access to annuity account values. The fees and charges may also be different between each annuity. Table of Contents Key Terms 3 The Contract in Brief 4 Expense Summary 6 Condensed Financial Information (Unaudited) 27 Financial Statements 33 Performance Information 33 The Variable Account and the Funds 34 The Fixed Accounts 39 Buying Your Contract 42 Charges 44 Valuing Your Investment 48 Making the Most of Your Contract 49 Withdrawals 53 Changing Ownership 53 Benefits in Case of Death 54 Optional Benefits 55 The Annuity Payout Period 63 Taxes 65 Voting Rights 66 Substitution of Investments 67 About the Service Providers 67 Additional Information About American Enterprise Life 68 Directors and Executive Officers 72 Experts 73 American Enterprise Life Insurance Company Financial Information 74 Appendix A: Expense Examples for the Performance Credit Rider 91 Appendix B: Performance Credit Rider Adjusted Partial Withdrawal 103 Table of Contents of the Statement of Additional Information 105 -------------------------------------------------------------------------------- 2 AMERICAN EXPRESS NEW SOLUTIONS VARIABLE ANNUITY -- PROSPECTUS 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. Assumed investment rate: The rate of return we assume your investments will earn when we calculate your initial annuity payout amount using the annuity table in your contract. The standard assumed investment rate we use is 5% but you may request we substitute an assumed investment rate of 3.5%. Beneficiary: The person you designate to receive benefits in case of the owner's or annuitant's death while the contract is in force and before annuity payouts begin. Close of business: When the New York Stock Exchange (NYSE) closes, normally 4 p.m. Eastern time. Contract: A deferred annuity contract, or a certificate showing your interest under a group annuity contract, that permits you to accumulate money for retirement by making one or more purchase payments. It provides for lifetime or other forms of payouts beginning at a specified time in the future. Contract value: The total value of your contract before we deduct any applicable charges. Contract year: A period of 12 months, starting on the effective date of your contract and on each anniversary of the effective date. Fixed accounts*: The one-year fixed account is an account to which you may allocate purchase payments. Amounts you allocate to this account earn interest at rates that we declare periodically. Guarantee Period Accounts are fixed accounts to which you may also allocate purchase payments. These accounts have guaranteed interest rates declared for periods ranging from two to ten years. Withdrawals from the Guarantee Period Accounts done more than 30 days before the end of the Guarantee Period will receive a Market Value Adjustment, which may result in a gain or loss of principal. * Not available under contracts purchased in Pennsylvania. The Guarantee Period Accounts are not available under contracts purchased in Maryland. Funds: Investment options under your contract. You may allocate your purchase payments into subaccounts investing in shares of any or all of these funds. Guarantee Period: The number of years that a guaranteed interest rate is credited. Market Value Adjustment (MVA): A positive or negative adjustment assessed if any portion of a Guarantee Period Account is withdrawn or transferred more than 30 days before the end of its Guarantee Period. Owner (you, your): The person who controls the contract (decides on investment allocations, transfers, payout options, etc.). Usually, but not always, the owner is also the annuitant. The owner is responsible for taxes, regardless of whether he or she receives the contract's benefits. Purchase payment credits: An addition we make to your contract value. We base the amount of the credit on total net payments (total payments less total withdrawals). We apply the credit to your contract based on your current payment. Qualified annuity: A contract that you purchase to fund one of the following tax-deferred retirement plans that is subject to applicable federal law and any rules of the plan itself: o Individual Retirement Annuities (IRAs) under Section 408(b) of the Internal Revenue Code of 1986, as amended (the Code) o Roth IRAs under Section 408A of the Code o Simplified Employee Pension (SEP) plans under Section 408(k) of the Code A qualified annuity will not provide any necessary or additional tax deferral if it is used to fund a retirement plan that is already tax deferred. All other contracts are considered nonqualified annuities. Retirement date: The date when annuity payouts are scheduled to begin. Rider effective date: The date you add a rider to the contract. 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. -------------------------------------------------------------------------------- AMERICAN EXPRESS NEW SOLUTIONS VARIABLE ANNUITY -- PROSPECTUS 3 The Contract in Brief Purpose: The purpose of the contract is to allow you to accumulate money for retirement. You do this by making one or more purchase payments. You may allocate your purchase payments to the fixed accounts and/or subaccounts under the contract. These accounts, in turn, may earn returns that increase the value of the contract. Beginning at a specified time in the future called the retirement date, the contract provides lifetime or other forms of payouts of your contract value (less any applicable premium tax). As in the case of other annuities, it may not be advantageous for you to purchase this contract as a replacement for, or in addition to, an existing annuity or life insurance contract. Most annuities have a tax-deferred feature. So do many retirement plans under the Internal Revenue Code. As a result, when you use an annuity to fund a retirement plan that is tax deferred, your annuity will not provide any necessary or additional tax deferral for that retirement plan. But annuities do have features other than tax deferral that may help you reach your retirement goals. You should consult your tax advisor prior to making a purchase for an explanation of the tax implications to you. Free look period: You may return your contract to your sales representative or to our office within the time stated on the first page of your contract and receive a full refund of the contract value, less any purchase payment credits up to the maximum withdrawal charges. (See "Buying Your Contract -- Purchase Payment Credits.") However, you bear the investment risk from the time of purchase until you return the contract; the refund amount may be more or less than the payment you made. (Exception: If the law requires, we will refund all of your purchase payments.) Accounts: Currently, you may allocate your purchase payments among any or all of: o the subaccounts, each of which invests in a fund with a particular investment objective. The value of each subaccount varies with the performance of the particular fund in which it invests. We cannot guarantee that the value at the retirement date will equal or exceed the total purchase payments you allocate to the subaccounts. (p. 34) o the fixed accounts,* which earn interest at rates that we adjust periodically. Some states restrict the amount you can allocate to these accounts. (p. 39) * Not available under contracts issued in Pennsylvania. The Guarantee Period Accounts are not available under contracts issued in Maryland. 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. 42) o Minimum initial purchase payments: If paying by Systematic Investment Plan: $50 initial payment. $50 for additional payments. If paying by any other method: $5,000 initial payment for contracts issued in South Carolina, Texas and Washington. $2,000 initial payment for contracts issued in all other states. $100 for additional payments. o Maximum total purchase payments (without prior approval): $1,000,000 o Purchase payments are limited and you may not make purchase payments after the first contract anniversary for contracts issued in Maryland. Transfers: Subject to certain restrictions, you currently may redistribute your contract value among the accounts without charge at any time until annuity payouts begin, and once per contract year among the subaccounts after annuity payouts begin. Transfers out of the Guarantee Period Accounts done more than 30 days before the end of the Guarantee Period will be subject to a MVA. You may establish automated transfers among the accounts. Fixed account transfers are subject to special restrictions. (p. 51) Withdrawals: You may withdraw all or part of your contract value at any time before the retirement date. You also may establish automated partial withdrawals. Withdrawals may be subject to charges and tax penalties (including a 10% IRS penalty if you make withdrawals prior to your reaching age 591/2) and may have other tax consequences; also, certain restrictions apply. (p. 53) 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. 53) 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. 54) Optional benefits: This contract offers optional features that are available for additional charges if you meet certain criteria. (p. 55) -------------------------------------------------------------------------------- 4 AMERICAN EXPRESS NEW SOLUTIONS VARIABLE ANNUITY -- PROSPECTUS 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 tax-deferred retirement plan. We can make payouts on a fixed or variable basis, or both. Total monthly payouts may include amounts from each subaccount and the one-year fixed account. During the annuity payout period, your choices for subaccounts may be limited. The Guarantee Period Accounts are not available during the payout period. (p. 63) 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. 65) Charges: We assess certain charges in connection with your contract (p. 44): o $40 annual contract administrative charge; o a 0.15% variable account administrative charge (if you allocate money to one or more subaccounts); o a 0.85% mortality and expense risk fee (if you allocate money to one or more subaccounts) for qualified annuities; o a 1.10% mortality and expense risk fee (if you allocate money to one or more subaccounts) for nonqualified annuities; o if you select the Maximum Anniversary Value (MAV) Death Benefit Rider(1), an additional 0.10% mortality and expense risk fee (if you allocate money to one or more subaccounts); o if you select the Guaranteed Minimum Income Benefit Rider(2) (GMIB), an annual fee (currently 0.30%) based on the adjusted contract value; o if you select the Performance Credit Rider(2) (PCR), an annual fee of 0.15% of the contract value; o if you select the Benefit Protector(SM) Death Benefit Rider(3) (Benefit Protector), an annual fee of 0.25% of the contract value; o if you select the Benefit Protector(SM) Plus Death Benefit Rider(3) (Benefit Protector Plus), an annual fee of 0.40% of the contract value; o withdrawal charge; o any premium taxes that may be imposed on us by state or local governments (currently, we deduct any applicable premium tax when you make a total withdrawal or when annuity payouts begin, but we reserve the right to deduct this tax at other times such as when you make purchase payments or when you make a total withdrawal); and o the operating expenses of the funds in which the subaccounts invest. (1) Available if both you and the annuitant are 79 or younger at contract issue. May not be available in all states. (2) You may select either the GMIB or the PCR, but not both. Riders may not be available in all states. The GMIB is available if the annuitant is 75 or younger at contract issue. If you select the GMIB you must select the MAV rider. (3) Available if you and the annuitant are 75 or younger at contract issue. These riders will not be available until Aug. 15, 2001, and they may not be available in all states. -------------------------------------------------------------------------------- AMERICAN EXPRESS NEW SOLUTIONS VARIABLE ANNUITY -- PROSPECTUS 5 Expense Summary The purpose of the following information is to help you understand the various costs and expenses associated with your contract. You pay no sales charge when you purchase your contract. We show all costs that we deduct directly from your contract or indirectly from the subaccounts and funds below. Some expenses may vary as we explain under "Charges." Please see the funds' prospectuses for more information on the operating expenses for each fund. CONTRACT OWNER EXPENSES Withdrawal charge (contingent deferred sales charge as a percentage of purchase payment withdrawn) Years from purchase Withdrawal charge payment receipt percentage 1 8% 2 8 3 7 4 7 5 6 6 5 7 3 Thereafter 0 A withdrawal charge also applies to payouts under certain annuity payout plans (see "Charges -- Withdrawal charge" and "The Annuity Payout Period -- Annuity payout plans"). Annual contract administrative charge: $40* * We will waive this charge when your contract value is $50,000 or more on the current contract anniversary. Guaranteed Minimum Income Benefit Rider (GMIB) fee: 0.30% (As a percentage of the adjusted contract value charged annually at the contract anniversary. This is an optional expense.) Performance Credit Rider (PCR) fee: 0.15% (As a percentage of the contract value charged annually at the contract anniversary. This is an optional expense.) Benefit Protector(SM) Death Benefit Rider (Benefit Protector) fee: 0.25% (As a percentage of the contract value charged annually at the contract anniversary. This is an optional expense.) Benefit Protector(SM) Plus Death Benefit Rider (Benefit Protector Plus) fee: 0.40% (As a percentage of the contract value charged annually at the contract anniversary. This is an optional expense.) ANNUAL VARIABLE ACCOUNT EXPENSES (As a percentage of average subaccount value.) You can choose the death benefit guarantee provided. The combination you choose determines the fees you pay. The table below shows the combinations available to you and their cost.
Qualified Annuities Non-Qualified Annuities Variable account administrative charge: 0.15% 0.15% Mortality and expense risk fee: 0.85 1.10 Maximum Anniversary Value Death Benefit Rider (MAV) fee: 0.10 0.10 ---- ---- (As part of the mortality and expense risk fee. This is an optional expense.) Total annual variable account expenses without the optional MAV fee: 1.00% 1.25% Total annual variable account expense with the optional MAV fee: 1.10% 1.35% -------------------------------------------------------------------------------- 6 AMERICAN EXPRESS NEW SOLUTIONS VARIABLE ANNUITY -- PROSPECTUS
Annual operating expenses of the funds (after fee waivers and/or expense reimbursements, if applicable, as a percentage of average daily net assets)
Management 12b-1 Other fees fees expenses Total AXP(R)Variable Portfolio - Cash Management Fund .51% .13% .04% .68%(1) Federal Income Fund .61 .13 .13 .87(2) Managed Fund .59 .13 .03 .75(1) New Dimensions Fund(R) .60 .13 .05 .78(1) S&P 500 Index Fund .28 .13 .07 .48(2) Small Cap Advantage Fund .75 .13 .31 1.19(2) AIM V.I. Capital Appreciation Fund .61 -- .21 .82(3) Dent Demographic Trends Fund .72 -- .78 1.50(4) Value Fund .61 -- .23 .84(3) Alliance VP Growth & Income Portfolio (Class B) .63 .25 .07 .95(5) Premier Growth Portfolio (Class B) 1.00 .25 .05 1.30(5) Technology Portfolio (Class B) .99 .25 .07 1.31(5) Evergreen VA Global Leaders Fund .87 -- .14 1.01(6) Growth and Income Fund .87 -- .14 1.01(6) Masters Fund .87 -- .14 1.01(6) Omega Fund .52 -- .16 .68(6) Small Cap Value Fund .87 -- .15 1.02(6) Strategic Income Fund .55 -- .29 .84(6) Fidelity VIP III Mid Cap Portfolio (Service Class) .57 .10 .17 .84(7) Contrafund(R)Portfolio (Service Class) .57 .10 .09 .76(7) High Income Portfolio (Service Class) .58 .10 .10 .78(7) Franklin Templeton VIP Trust Franklin Small Cap Fund - Class 2 .49 .25 .28 1.02(8),(9),(10) Mutual Shares Securities Fund - Class 2 .60 .25 .20 1.05(8) Templeton Developing Markets Securities Fund - Class 2 1.25 .25 .31 1.81(8) Templeton International Securities Fund - Class 2 .67 .25 .20 1.12(8) MFS(R) Investors Growth Stock Series - Service Class (previously MFS(R)Growth Series) .75 .20 .16 1.11(11),(12) New Discovery Series - Service Class .90 .20 .16 1.26(11),(12) Total Return Series - Service Class .75 .20 .15 1.10(11) Putnam Variable Trust Putnam VT Growth and Income Fund - Class IB Shares .46 .25 .04 .75(13) Putnam VT International New Opportunities Fund - Class IB Shares 1.00 .25 .21 1.46(13) Putnam VT Vista Fund - Class IB Shares .60 .25 .07 .92(13) (1) The fund's expense figures are based on actual expenses for the fiscal year ended Aug. 31, 2000. (2) The fund's expense figures are based on actual expenses, after fee waivers and expense reimbursements, for the fiscal year ending Aug. 31, 2000. Without fee waivers and expense reimbursements "Other Expenses" and "Total" would be 0.15% and 0.89% for AXP Variable Portfolio - Federal Income Fund, 1.16% and 1.57% for AXP Variable Portfolio - S&P 500 Index Fund and 0.55% and 1.43% for AXP Variable Portfolio - Small Cap Advantage Fund. (3) Figures in "Management Fees," "12b-1 Fees," "Other Expenses" and "Total" are based on actual expenses for the fiscal year ended Dec. 31, 2000. (4) Expenses are after fee waivers and have been restated to reflect current fees. The investment advisor has agreed to waive fees and/or reimburse expenses (excluding interest, taxes, dividend expense on short sales, extraordinary items and increases in expenses due to expense offset arrangements, if any) to limit total annual fund operating expenses to 1.50% of average daily net assets until Dec. 31, 2001. Total annual fund operating expenses before waivers were 1.63%. -------------------------------------------------------------------------------- AMERICAN EXPRESS NEW SOLUTIONS VARIABLE ANNUITY -- PROSPECTUS 7
(5) Figures in "Management Fees," "12b-1 Fees." "Other Expenses" and "Total" are based on actual expenses for the fiscal period ended Dec. 31, 2000. Absent fee waivers and expense reimbursements "Management Fees," "12b-1 Fees," "Other Expenses" and "Total" would be 1.00%, 0.25%, 0.08% and 1.33% for Alliance VP Technology Portfolio (Class B). (6) From time to time, the Fund's investment advisor may, at its discretion, reduce or waive its fees or reimburse the Fund for certain of its expenses in order to reduce expense rations. The Fund's investment advisor may cease these waivers or reimbursement at any time. Without fee waivers and expense reimbursements, "Other Expenses" and "Total" would be 0.29% and 1.16% for Evergreen VA Global Leaders Fund, 0.20% and 1.07% for Evergreen VA Growth and Income Fund, 0.25% and 1.12% for Evergreen VA Masters Fund, and 0.27% and 1.14% for Evergreen Small Cap Value Fund. (7) There were no reimbursement or expense reductions for the period ended Dec. 31, 2000. Actual annual class operating expenses were lower because a portion of the brokerage commissions that the fund paid was used to reduce the fund's expenses, and/or because through arrangements with the fund's custodian, credits realized as a result of uninvested cash balances were used to reduce a portion of the fund's custodian expenses. See the accompanying fund prospectus for details. (8) The Fund's Class 2 distribution plan or "Rule 12b-1 plan" is described in the Fund's prospectus. (9) Total annual Fund operating expenses differ from the ratio of expenses to average net assets shown in the Financial Highlights table included in the Fund's Annual Report to Shareholders for the fiscal year ended Dec. 31, 2000 because they have been restated due to a new management agreement effective May 1, 2000. (10) The manager has agreed in advance to make an estimated reduction of 0.04% in its fee to reflect reduced services resulting from the Fund's investment in a Franklin Templeton money fund. This reduction is required by the Fund's Board of Trustees and an order of the Securities and Exchange Commission. Absent this reduction, "Management Fees" and "Total" would have been 0.53% and 1.06% for Franklin Small Cap Fund - Class 2. (11) Each series has an expense offset arrangement which reduces the series' custodian fee based upon the amount of cash maintained by the series with its custodian and dividend disbursing agent. Each series may enter into other such arrangements and directed brokerage arrangements, which would also have the effect of reducing the series' expenses. "Other Expenses" do not take into account these expense reductions, and are therefore higher than the actual expenses of the series. Had these fee reductions been taken into account, "Net Expenses" would be lower for certain series and would equal: 1.10% for Investors Growth Stock Series, 1.25% for New Discovery Series, and 1.09% for Total Return Series. (12) MFS has contractually agreed, subject to reimbursement, to bear the series' expenses such that "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 fiscal year 0.15% for the Investors Growth Stock Series and the New Discovery Series. Without this agreement, "Other" and "Total Expenses" would be 0.17% and 1.12% for Investors Growth Stock Series and 0.19% and 1.29% for New Discovery Series. These contractual fee arrangements will continue until at least May 1, 2002, unless changed with the consent of the board of trustees which oversees the series. (13) Restated to reflect an increase in 12b-1 fees currently payable to Putnam Investment Management, LLC ("Putnam Management"). The Trustees currently limit payments on Class IB Shares to 0.25% of average net assets. Actual 12b-1 fees during the most recent fiscal year were 0.15% of average net assets. -------------------------------------------------------------------------------- 8 AMERICAN EXPRESS NEW SOLUTIONS VARIABLE ANNUITY -- PROSPECTUS Examples*: In order to provide a more meaningful discussion about the contract and its options, we provide expense examples for each fund showing every available optional contract feature combination. These examples assume that applicable fund fee waivers and/or expense reimbursements will continue for the periods shown. First we show the expenses for a nonqualified annuity assuming selection of the optional Maximum Anniversary Value Death Benefit (MAV) Rider. Under each fund you will find an example showing: 1) the contract with no additional riders, 2) the contract with selection of the optional Benefit ProtectorSM Death Benefit Rider, 3) the contract with selection of the optional Benefit Protector(SM) Plus Death Benefit Rider, 4) the contract with selection of the optional Guaranteed Minimum Income Benefit (GMIB) Rider, 5) the contract with selection of the optional GMIB and Benefit Protector(SM) Death Benefit riders, and 6) the contract with selection of the optional GMIB and Benefit ProtectorSM Plus Death Benefit riders. Next we show expenses for a nonqualifed annuity assuming selection of the Return of Purchase Payment Death Benefit (ROP). Under each fund you will find an example showing: 1) the contract with no additional riders, 2) the contract with selection of the optional Benefit ProtectorSM Death Benefit Rider, and 3) the contract with selection of the optional Benefit Protector(SM) Plus Death Benefit Rider. We follow this information with expenses for a qualified annuity and selection of the MAV Rider and then with expenses for a qualified annuity and selection of the ROP death benefit. For information on expenses associated with selection of the Performance Credit Rider, please see Appendix A. You would pay the following expenses on a $1,000 investment in a nonqualified annuity with selection of the optional Maximum Anniversary Value Death Benefit Rider assuming a 5% annual return and ...
no withdrawal or selection a total withdrawal at the of an annuity payout plan at the end of each time period end of each time period 1 year 3 years 5 years 10 years 1 year 3 years 5 years 10 years AXP(R) Variable Portfolio - Cash Management Fund contract with no additional riders $100.98 $134.79 $171.18 $239.45 $20.98 $64.79 $111.18 $239.45 optional Benefit Protector 103.54 142.52 184.12 265.54 23.54 72.52 124.12 265.54 optional Benefit Protector Plus 105.08 147.14 191.82 280.90 25.08 77.14 131.82 280.90 optional GMIB 104.06 144.06 186.69 270.69 24.06 74.06 126.69 270.69 optional GMIB and Benefit Protector 106.62 151.74 199.47 296.02 26.62 81.74 139.47 296.02 optional GMIB and Benefit Protector Plus 108.16 156.33 207.07 310.92 28.16 86.33 147.07 310.92 AXP(R) Variable Portfolio - Federal Income Fund contract with no additional riders 102.93 140.67 181.02 259.34 22.93 70.67 121.02 259.34 optional Benefit Protector 105.49 148.36 193.86 284.95 25.49 78.36 133.86 284.95 optional Benefit Protector Plus 107.03 152.96 201.50 300.01 27.03 82.96 141.50 300.01 optional GMIB 106.00 149.90 196.41 290.00 26.00 79.90 136.41 290.00 optional GMIB and Benefit Protector 108.57 157.55 209.09 314.86 28.57 87.55 149.09 314.86 optional GMIB and Benefit Protector Plus 110.10 162.12 216.63 329.48 30.10 92.12 156.63 329.48 AXP(R) Variable Portfolio - Managed Fund contract with no additional riders 101.70 136.96 174.81 246.82 21.70 66.96 114.81 246.82 optional Benefit Protector 104.26 144.67 187.72 272.74 24.26 74.67 127.72 272.74 optional Benefit Protector Plus 105.80 149.29 195.39 287.98 25.80 79.29 135.39 287.98 optional GMIB 104.77 146.21 190.28 277.84 24.77 76.21 130.28 277.84 optional GMIB and Benefit Protector 107.34 153.88 203.02 303.00 27.34 83.88 143.02 303.00 optional GMIB and Benefit Protector Plus 108.87 158.47 210.60 317.80 28.87 88.47 150.60 317.80 AXP(R)Variable Portfolio - New Dimensions Fund(R) contract with no additional riders 102.01 137.89 176.37 249.96 22.01 67.89 116.37 249.96 optional Benefit Protector 104.57 145.60 189.26 275.80 24.57 75.60 129.26 275.80 optional Benefit Protector Plus 106.11 150.21 196.92 291.00 26.11 80.21 136.92 291.00 optional GMIB 105.08 147.14 191.82 280.90 25.08 77.14 131.82 280.90 optional GMIB and Benefit Protector 107.64 154.80 204.54 305.98 27.64 84.80 144.54 305.98 optional GMIB and Benefit Protector Plus 109.18 159.38 212.11 320.73 29.18 89.38 152.11 320.73 -------------------------------------------------------------------------------- AMERICAN EXPRESS NEW SOLUTIONS VARIABLE ANNUITY -- PROSPECTUS 9
You would pay the following expenses on a $1,000 investment in a nonqualified annuity with selection of the optional Maximum Anniversary Value Death Benefit Rider assuming a 5% annual return and ... (continued)
no withdrawal or selection a total withdrawal at the of an annuity payout plan at the end of each time period end of each time period 1 year 3 years 5 years 10 years 1 year 3 years 5 years 10 years AXP(R) Variable Portfolio - S&P 500 Index Fund contract with no additional riders $ 98.93 $128.58 $160.73 $218.10 $18.93 $ 58.58 $100.73 $218.10 optional Benefit Protector 101.49 136.34 173.78 244.72 21.49 66.34 113.78 244.72 optional Benefit Protector Plus 103.03 140.98 181.54 260.38 23.03 70.98 121.54 260.38 optional GMIB 102.01 137.89 176.37 249.96 22.01 67.89 116.37 249.96 optional GMIB and Benefit Protector 104.57 145.60 189.26 275.80 24.57 75.60 129.26 275.80 optional GMIB and Benefit Protector Plus 106.11 150.21 196.92 291.00 26.11 80.21 136.92 291.00 AXP(R) Variable Portfolio - Small Cap Advantage Fund contract with no additional riders 106.21 150.51 197.43 292.01 26.21 80.51 137.43 292.01 optional Benefit Protector 108.77 158.16 210.10 316.82 28.77 88.16 150.10 316.82 optional Benefit Protector Plus 110.31 162.73 217.63 331.41 30.31 92.73 157.63 331.41 optional GMIB 109.28 159.69 212.61 321.71 29.28 89.69 152.61 321.71 optional GMIB and Benefit Protector 111.85 167.29 225.12 345.78 31.85 97.29 165.12 345.78 optional GMIB and Benefit Protector Plus 113.38 171.83 232.56 359.94 33.38 101.83 172.56 359.94 AIM V.I. Capital Appreciation Fund contract with no additional riders 102.42 139.12 178.44 254.14 22.42 69.12 118.44 254.14 optional Benefit Protector 104.98 146.83 191.30 279.88 24.98 76.83 131.30 279.88 optional Benefit Protector Plus 106.52 151.43 198.96 295.02 26.52 81.43 138.96 295.02 optional GMIB 105.49 148.36 193.86 284.95 25.49 78.36 133.86 284.95 optional GMIB and Benefit Protector 108.05 156.02 206.56 309.93 28.05 86.02 146.56 309.93 optional GMIB and Benefit Protector Plus 109.59 160.60 214.12 324.63 29.59 90.60 154.12 324.63 AIM V.I. Dent Demographic Trends Fund contract with no additional riders 109.39 159.99 213.12 322.68 29.39 89.99 153.12 322.68 optional Benefit Protector 111.95 167.59 225.62 346.73 31.95 97.59 165.62 346.73 optional Benefit Protector Plus 113.49 172.13 233.06 360.88 33.49 102.13 173.06 360.88 optional GMIB 112.46 169.10 228.10 351.47 32.46 99.10 168.10 351.47 optional GMIB and Benefit Protector 115.02 176.65 240.45 374.81 35.02 106.65 180.45 374.81 optional GMIB and Benefit Protector Plus 116.56 181.17 247.79 388.54 36.56 111.17 187.79 388.54 AIM V.I. Value Fund contract with no additional riders 102.62 139.74 179.47 256.22 22.62 69.74 119.47 256.22 optional Benefit Protector 105.18 147.44 192.33 281.91 25.18 77.44 132.33 281.91 optional Benefit Protector Plus 106.72 152.05 199.98 297.02 26.72 82.05 139.98 297.02 optional GMIB 105.70 148.98 194.88 286.97 25.70 78.98 134.88 286.97 optional GMIB and Benefit Protector 108.26 156.63 207.58 311.90 28.26 86.63 147.58 311.90 optional GMIB and Benefit Protector Plus 109.80 161.21 215.13 326.57 29.80 91.21 155.13 326.57 Alliance VP Growth & Income Portfolio (Class B) contract with no additional riders 103.75 143.13 185.15 267.60 23.75 73.13 125.15 267.60 optional Benefit Protector 106.31 150.82 197.94 293.01 26.31 80.82 137.94 293.01 optional Benefit Protector Plus 107.85 155.41 205.55 307.96 27.85 85.41 145.55 307.96 optional GMIB 106.82 152.35 200.48 298.02 26.82 82.35 140.48 298.02 optional GMIB and Benefit Protector 109.39 159.99 213.12 322.68 29.39 89.99 153.12 322.68 optional GMIB and Benefit Protector Plus 110.92 164.55 220.63 337.18 30.92 94.55 160.63 337.18
-------------------------------------------------------------------------------- 10 AMERICAN EXPRESS NEW SOLUTIONS VARIABLE ANNUITY -- PROSPECTUS You would pay the following expenses on a $1,000 investment in a nonqualified annuity with selection of the optional Maximum Anniversary Value Death Benefit Rider assuming a 5% annual return and ... (continued)
no withdrawal or selection a total withdrawal at the of an annuity payout plan at the end of each time period end of each time period 1 year 3 years 5 years 10 years 1 year 3 years 5 years 10 years Alliance VP Premier Growth Portfolio (Class B) contract with no additional riders $107.34 $153.88 $203.02 $303.00 $27.34 $ 83.88 $143.02 $303.00 optional Benefit Protector 109.90 161.51 215.63 327.54 29.90 91.51 155.63 327.54 optional Benefit Protector Plus 111.44 166.07 223.13 341.97 31.44 96.07 163.13 341.97 optional GMIB 110.41 163.03 218.13 332.37 30.41 93.03 158.13 332.37 optional GMIB and Benefit Protector 112.97 170.62 230.58 356.19 32.97 100.62 170.58 356.19 optional GMIB and Benefit Protector Plus 114.51 175.15 237.99 370.19 34.51 105.15 177.99 370.19 Alliance VP Technology Portfolio (Class B) contract with no additional riders 107.44 154.19 203.53 303.99 27.44 84.19 143.53 303.99 optional Benefit Protector 110.00 161.82 216.13 328.51 30.00 91.82 156.13 328.51 optional Benefit Protector Plus 111.54 166.38 223.63 342.93 31.54 96.38 163.63 342.93 optional GMIB 110.51 163.34 218.63 333.34 30.51 93.34 158.63 333.34 optional GMIB and Benefit Protector 113.08 170.92 231.08 357.13 33.08 100.92 171.08 357.13 optional GMIB and Benefit Protector Plus 114.61 175.45 238.48 371.12 34.61 105.45 178.48 371.12 Evergreen VA Global Leaders Fund contract with no additional riders 104.36 144.98 188.23 273.76 24.36 74.98 128.23 273.76 optional Benefit Protector 106.93 152.66 200.99 299.02 26.93 82.66 140.99 299.02 optional Benefit Protector Plus 108.46 157.24 208.58 313.87 28.46 87.24 148.58 313.87 optional GMIB 107.44 154.19 203.53 303.99 27.44 84.19 143.53 303.99 optional GMIB and Benefit Protector 110.00 161.82 216.13 328.51 30.00 91.82 156.13 328.51 optional GMIB and Benefit Protector Plus 111.54 166.38 223.63 342.93 31.54 96.38 163.63 342.93 Evergreen VA Growth and Income Fund contract with no additional riders 104.36 144.98 188.23 273.76 24.36 74.98 128.23 273.76 optional Benefit Protector 106.93 152.66 200.99 299.02 26.93 82.66 140.99 299.02 optional Benefit Protector Plus 108.46 157.24 208.58 313.87 28.46 87.24 148.58 313.87 optional GMIB 107.44 154.19 203.53 303.99 27.44 84.19 143.53 303.99 optional GMIB and Benefit Protector 110.00 161.82 216.13 328.51 30.00 91.82 156.13 328.51 optional GMIB and Benefit Protector Plus 111.54 166.38 223.63 342.93 31.54 96.38 163.63 342.93 Evergreen VA Masters Fund contract with no additional riders 104.36 144.98 188.23 273.76 24.36 74.98 128.23 273.76 optional Benefit Protector 106.93 152.66 200.99 299.02 26.93 82.66 140.99 299.02 optional Benefit Protector Plus 108.46 157.24 208.58 313.87 28.46 87.24 148.58 313.87 optional GMIB 107.44 154.19 203.53 303.99 27.44 84.19 143.53 303.99 optional GMIB and Benefit Protector 110.00 161.82 216.13 328.51 30.00 91.82 156.13 328.51 optional GMIB and Benefit Protector Plus 111.54 166.38 223.63 342.93 31.54 96.38 163.63 342.93 Evergreen VA Omega Fund contract with no additional riders 100.98 134.79 171.18 239.45 20.98 64.79 111.18 239.45 optional Benefit Protector 103.54 142.52 184.12 265.54 23.54 72.52 124.12 265.54 optional Benefit Protector Plus 105.08 147.14 191.82 280.90 25.08 77.14 131.82 280.90 optional GMIB 104.06 144.06 186.69 270.69 24.06 74.06 126.69 270.69 optional GMIB and Benefit Protector 106.62 151.74 199.47 296.02 26.62 81.74 139.47 296.02 optional GMIB and Benefit Protector Plus 108.16 156.33 207.07 310.92 28.16 86.33 147.07 310.92 -------------------------------------------------------------------------------- AMERICAN EXPRESS NEW SOLUTIONS VARIABLE ANNUITY -- PROSPECTUS 11
You would pay the following expenses on a $1,000 investment in a nonqualified annuity with selection of the optional Maximum Anniversary Value Death Benefit Rider assuming a 5% annual return and ... (continued)
no withdrawal or selection a total withdrawal at the of an annuity payout plan at the end of each time period end of each time period 1 year 3 years 5 years 10 years 1 year 3 years 5 years 10 years Evergreen VA Small Cap Value Fund contract with no additional riders $104.47 $145.29 $188.74 $274.78 $24.47 $75.29 $128.74 $274.78 optional Benefit Protector 107.03 152.96 201.50 300.01 27.03 82.96 141.50 300.01 optional Benefit Protector Plus 108.57 157.55 209.09 314.86 28.57 87.55 149.09 314.86 optional GMIB 107.54 154.49 204.03 304.99 27.54 84.49 144.03 304.99 optional GMIB and Benefit Protector 110.10 162.12 216.63 329.48 30.10 92.12 156.63 329.48 optional GMIB and Benefit Protector Plus 111.64 166.68 224.13 343.88 31.64 96.68 164.13 343.88 Evergreen VA Strategic Income Fund contract with no additional riders 102.62 139.74 179.47 256.22 22.62 69.74 119.47 256.22 optional Benefit Protector 105.18 147.44 192.33 281.91 25.18 77.44 132.33 281.91 optional Benefit Protector Plus 106.72 152.05 199.98 297.02 26.72 82.05 139.98 297.02 optional GMIB 105.70 148.98 194.88 286.97 25.70 78.98 134.88 286.97 optional GMIB and Benefit Protector 108.26 156.63 207.58 311.90 28.26 86.63 147.58 311.90 optional GMIB and Benefit Protector Plus 109.80 161.21 215.13 326.57 29.80 91.21 155.13 326.57 Fidelity VIP III Mid Cap Portfolio (Service Class) contract with no additional riders 102.62 139.74 179.47 256.22 22.62 69.74 119.47 256.22 optional Benefit Protector 105.18 147.44 192.33 281.91 25.18 77.44 132.33 281.91 optional Benefit Protector Plus 106.72 152.05 199.98 297.02 26.72 82.05 139.98 297.02 optional GMIB 105.70 148.98 194.88 286.97 25.70 78.98 134.88 286.97 optional GMIB and Benefit Protector 108.26 156.63 207.58 311.90 28.26 86.63 147.58 311.90 optional GMIB and Benefit Protector Plus 109.80 161.21 215.13 326.57 29.80 91.21 155.13 326.57 Fidelity VIP Contrafund(R)Portfolio (Service Class) contract with no additional riders 101.80 137.27 175.33 247.87 21.80 67.27 115.33 247.87 optional Benefit Protector 104.36 144.98 188.23 273.76 24.36 74.98 128.23 273.76 optional Benefit Protector Plus 105.90 149.59 195.90 288.99 25.90 79.59 135.90 288.99 optional GMIB 104.88 146.52 190.79 278.86 24.88 76.52 130.79 278.86 optional GMIB and Benefit Protector 107.44 154.19 203.53 303.99 27.44 84.19 143.53 303.99 optional GMIB and Benefit Protector Plus 108.98 158.77 211.11 318.78 28.98 88.77 151.11 318.78 Fidelity VIP High Income Portfolio (Service Class) contract with no additional riders 102.01 137.89 176.37 249.96 22.01 67.89 116.37 249.96 optional Benefit Protector 104.57 145.60 189.26 275.80 24.57 75.60 129.26 275.80 optional Benefit Protector Plus 106.11 150.21 196.92 291.00 26.11 80.21 136.92 291.00 optional GMIB 105.08 147.14 191.82 280.90 25.08 77.14 131.82 280.90 optional GMIB and Benefit Protector 107.64 154.80 204.54 305.98 27.64 84.80 144.54 305.98 optional GMIB and Benefit Protector Plus 109.18 159.38 212.11 320.73 29.18 89.38 152.11 320.73 FTVIPT Franklin Small Cap Fund - Class 2 contract with no additional riders 104.47 145.29 188.74 274.78 24.47 75.29 128.74 274.78 optional Benefit Protector 107.03 152.96 201.50 300.01 27.03 82.96 141.50 300.01 optional Benefit Protector Plus 108.57 157.55 209.09 314.86 28.57 87.55 149.09 314.86 optional GMIB 107.54 154.49 204.03 304.99 27.54 84.49 144.03 304.99 optional GMIB and Benefit Protector 110.10 162.12 216.63 329.48 30.10 92.12 156.63 329.48 optional GMIB and Benefit Protector Plus 111.64 166.68 224.13 343.88 31.64 96.68 164.13 343.88 -------------------------------------------------------------------------------- 12 AMERICAN EXPRESS NEW SOLUTIONS VARIABLE ANNUITY -- PROSPECTUS
You would pay the following expenses on a $1,000 investment in a nonqualified annuity with selection of the optional Maximum Anniversary Value Death Benefit Rider assuming a 5% annual return and ... (continued)
no withdrawal or selection a total withdrawal at the of an annuity payout plan at the end of each time period end of each time period 1 year 3 years 5 years 10 years 1 year 3 years 5 years 10 years FTVIPT Mutual Shares Securities Fund - Class 2 contract with no additional riders $104.77 $146.21 $190.28 $277.84 $24.77 $ 76.21 $130.28 $277.84 optional Benefit Protector 107.34 153.88 203.02 303.00 27.34 83.88 143.02 303.00 optional Benefit Protector Plus 108.87 158.47 210.60 317.80 28.87 88.47 150.60 317.80 optional GMIB 107.85 155.41 205.55 307.96 27.85 85.41 145.55 307.96 optional GMIB and Benefit Protector 110.41 163.03 218.13 332.37 30.41 93.03 158.13 332.37 optional GMIB and Benefit Protector Plus 111.95 167.59 225.62 346.72 31.95 97.59 165.62 346.73 FTVIPT Templeton Developing Markets Securities Fund - Class 2 contract with no additional riders 112.56 169.41 228.60 352.42 32.56 99.41 168.60 352.42 optional Benefit Protector 115.13 176.96 240.94 375.73 35.13 106.96 180.94 375.73 optional Benefit Protector Plus 116.66 181.47 248.28 389.45 36.66 111.47 188.28 389.45 optional GMIB 115.64 178.46 243.39 380.33 35.64 108.46 183.39 380.33 optional GMIB and Benefit Protector 118.20 185.96 255.57 402.95 38.20 115.96 195.57 402.95 optional GMIB and Benefit Protector Plus 119.74 190.45 262.82 416.25 39.74 120.45 202.82 416.25 FTVIPT Templeton International Securities Fund - Class 2 contract with no additional riders 105.49 148.36 193.86 284.95 25.49 78.36 133.86 284.95 optional Benefit Protector 108.05 156.02 206.56 309.93 28.05 86.02 146.56 309.93 optional Benefit Protector Plus 109.59 160.60 214.12 324.63 29.59 90.60 154.12 324.63 optional GMIB 108.57 157.55 209.09 314.86 28.57 87.55 149.09 314.86 optional GMIB and Benefit Protector 111.13 165.16 221.63 339.10 31.13 95.16 161.63 339.10 optional GMIB and Benefit Protector Plus 112.67 169.71 229.09 353.36 32.67 99.71 169.09 353.36 MFS(R)Investors Growth Stock Series - Service Class (previously named MFS(R)Growth Series) contract with no additional riders 105.39 148.06 193.35 283.94 25.39 78.06 133.35 283.94 optional Benefit Protector 107.95 155.72 206.06 308.95 27.95 85.72 146.06 308.95 optional Benefit Protector Plus 109.49 160.29 213.62 323.65 29.49 90.29 153.62 323.65 optional GMIB 108.46 157.24 208.58 313.87 28.46 87.24 148.58 313.87 optional GMIB and Benefit Protector 111.03 164.86 221.13 338.14 31.03 94.86 161.13 338.14 optional GMIB and Benefit Protector Plus 112.56 169.41 228.60 352.42 32.56 99.41 168.60 352.42 MFS(R) New Discovery Series - Service Class contract with no additional riders 106.93 152.66 200.99 299.02 26.93 82.66 140.99 299.02 optional Benefit Protector 109.49 160.29 213.62 323.65 29.49 90.29 153.62 323.65 optional Benefit Protector Plus 111.03 164.86 221.13 338.14 31.03 94.86 161.13 338.14 optional GMIB 110.00 161.82 216.13 328.51 30.00 91.82 156.13 328.51 optional GMIB and Benefit Protector 112.56 169.41 228.60 352.42 32.56 99.41 168.60 352.42 optional GMIB and Benefit Protector Plus 114.10 173.94 236.02 366.48 34.10 103.94 176.02 366.48 MFS(R) Total Return Series - Service Class contract with no additional riders 105.29 147.75 192.84 282.92 25.29 77.75 132.84 282.92 optional Benefit Protector 107.85 155.41 205.55 307.96 27.85 85.41 145.55 307.96 optional Benefit Protector Plus 109.39 159.99 213.12 322.68 29.39 89.99 153.12 322.68 optional GMIB 108.36 156.94 208.08 312.89 28.36 86.94 148.08 312.89 optional GMIB and Benefit Protector 110.92 164.55 220.63 337.18 30.92 94.55 160.63 337.18 optional GMIB and Benefit Protector Plus 112.46 169.10 228.10 351.47 32.46 99.10 168.10 351.47 -------------------------------------------------------------------------------- AMERICAN EXPRESS NEW SOLUTIONS VARIABLE ANNUITY -- PROSPECTUS 13
You would pay the following expenses on a $1,000 investment in a nonqualified annuity with selection of the optional Maximum Anniversary Value Death Benefit Rider assuming a 5% annual return and ... (continued)
no withdrawal or selection a total withdrawal at the of an annuity payout plan at the end of each time period end of each time period 1 year 3 years 5 years 10 years 1 year 3 years 5 years 10 years Putnam VT Growth and Income Fund - Class IB Shares contract with no additional riders $101.70 $136.96 $174.81 $246.82 $21.70 $ 66.96 $114.81 $246.82 optional Benefit Protector 104.26 144.67 187.72 272.74 24.26 74.67 127.72 272.74 optional Benefit Protector Plus 105.80 149.29 195.39 287.98 25.80 79.29 135.39 287.98 optional GMIB 104.77 146.21 190.28 277.84 24.77 76.21 130.28 277.84 optional GMIB and Benefit Protector 107.34 153.88 203.02 303.00 27.34 83.88 143.02 303.00 optional GMIB and Benefit Protector Plus 108.87 158.47 210.60 317.80 28.87 88.87 150.60 317.80 Putnam VT International New Opportunities Fund - Class IB Shares contract with no additional riders 108.98 158.77 211.11 318.78 28.98 88.77 151.11 318.78 optional Benefit Protector 111.54 166.38 223.63 342.93 31.54 96.38 163.63 342.93 optional Benefit Protector Plus 113.08 170.92 231.08 357.13 33.08 100.92 171.08 357.13 optional GMIB 112.05 167.89 226.12 347.68 32.05 97.89 166.12 347.68 optional GMIB and Benefit Protector 114.61 175.45 238.48 371.12 34.61 105.45 178.48 371.12 optional GMIB and Benefit Protector Plus 116.15 179.96 245.83 384.90 36.15 109.96 185.83 384.90 Putnam VT Vista Fund - Class IB Shares contract with no additional riders 103.44 142.21 183.60 264.51 23.44 72.21 123.60 264.51 optional Benefit Protector 106.00 149.90 196.41 290.00 26.00 79.90 136.41 290.00 optional Benefit Protector Plus 107.54 154.49 204.03 304.99 27.54 84.49 144.03 304.99 optional GMIB 106.52 151.43 198.96 295.02 26.52 81.43 138.96 295.02 optional GMIB and Benefit Protector 109.08 159.08 211.61 319.75 29.08 89.08 151.61 319.75 optional GMIB and Benefit Protector Plus 110.62 163.64 219.13 334.30 30.62 93.64 159.13 334.30 -------------------------------------------------------------------------------- 14 AMERICAN EXPRESS NEW SOLUTIONS VARIABLE ANNUITY -- PROSPECTUS
You would pay the following expenses on a $1,000 investment in a nonqualified annuity with selection of the Return of Purchase Payment death benefit assuming a 5% annual return and ...
no withdrawal or selection a total withdrawal at the of an annuity payout plan at the end of each time period end of each time period 1 year 3 years 5 years 10 years 1 year 3 years 5 years 10 years AXP(R) Variable Portfolio - Cash Management Fund contract with no additional riders $ 99.96 $131.69 $165.96 $228.83 $19.96 $61.69 $105.96 $228.83 optional Benefit Protector 102.52 139.43 178.96 255.18 22.52 69.43 118.96 255.18 optional Benefit Protector Plus 104.06 144.06 186.69 270.69 24.06 74.06 126.69 270.69 AXP(R) Variable Portfolio - Federal Income Fund contract with no additional riders 101.90 137.58 175.85 248.92 21.90 67.58 115.85 248.92 optional Benefit Protector 104.47 145.29 188.74 274.78 24.47 75.29 128.74 274.78 optional Benefit Protector Plus 106.00 149.90 196.41 290.00 26.00 79.90 136.41 290.00 AXP(R) Variable Portfolio - Managed Fund contract with no additional riders 100.67 133.86 169.61 236.27 20.67 63.86 109.61 236.27 optional Benefit Protector 103.24 141.59 182.57 262.45 23.24 71.59 122.57 262.45 optional Benefit Protector Plus 104.77 146.21 190.28 277.84 24.77 76.21 130.28 277.84 AXP(R)Variable Portfolio - New Dimensions Fund(R) contract with no additional riders 100.98 134.79 171.18 239.45 20.98 64.79 111.18 239.45 optional Benefit Protector 103.54 142.52 184.12 265.54 23.54 72.52 124.12 265.54 optional Benefit Protector Plus 105.08 147.14 191.82 280.90 25.08 77.14 131.82 280.90 AXP(R) Variable Portfolio - S&P 500 Index Fund contract with no additional riders 97.91 125.46 155.47 207.27 17.91 55.46 95.47 207.27 optional Benefit Protector 100.47 133.24 168.57 234.15 20.47 63.24 108.57 234.15 optional Benefit Protector Plus 102.01 137.89 176.37 249.96 22.01 67.89 116.37 249.96 AXP(R) Variable Portfolio - Small Cap Advantage Fund contract with no additional riders 105.18 147.44 192.33 281.91 25.18 77.44 132.33 281.91 optional Benefit Protector 107.75 155.11 205.05 306.97 27.75 85.11 145.05 306.97 optional Benefit Protector Plus 109.28 159.69 212.61 321.71 29.28 89.69 152.61 321.71 AIM V.I. Capital Appreciation Fund contract with no additional riders 101.39 136.03 173.26 243.67 21.39 66.03 113.26 243.67 optional Benefit Protector 103.95 143.75 186.17 269.66 23.95 73.75 126.17 269.66 optional Benefit Protector Plus 105.49 148.36 193.86 284.95 25.49 78.36 133.86 284.95 AIM V.I. Dent Demographic Trends Fund contract with no additional riders 108.36 156.94 208.08 312.89 28.36 86.94 148.08 312.89 optional Benefit Protector 110.92 164.55 220.63 337.18 30.92 94.55 160.63 337.18 optional Benefit Protector Plus 112.46 169.10 228.10 351.47 32.46 99.10 168.10 351.47 AIM V.I. Value Fund contract with no additional riders 101.60 136.65 174.29 245.77 21.60 66.65 114.29 245.77 optional Benefit Protector 104.16 144.37 187.20 271.71 24.16 74.37 127.20 271.71 optional Benefit Protector Plus 105.70 148.98 194.88 286.97 25.70 78.98 134.88 286.97 Alliance VP Growth & Income Portfolio (Class B) contract with no additional riders 102.72 140.05 179.99 257.26 22.72 70.05 119.99 257.26 optional Benefit Protector 105.29 147.75 192.84 282.92 25.29 77.75 132.84 282.92 optional Benefit Protector Plus 106.82 152.35 200.48 298.02 26.82 82.35 140.48 298.02 Alliance VP Premier Growth Portfolio (Class B) contract with no additional riders 106.31 150.82 197.94 293.01 26.31 80.82 137.94 293.01 optional Benefit Protector 108.87 158.47 210.60 317.80 28.87 88.47 150.60 317.80 optional Benefit Protector Plus 110.41 163.03 218.13 332.37 30.41 93.03 158.13 332.37
-------------------------------------------------------------------------------- AMERICAN EXPRESS NEW SOLUTIONS VARIABLE ANNUITY -- PROSPECTUS 15 You would pay the following expenses on a $1,000 investment in a nonqualified annuity with selection of the Return of Purchase Payment death benefit assuming a 5% annual return and ... (continued)
no withdrawal or selection a total withdrawal at the of an annuity payout plan at the end of each time period end of each time period 1 year 3 years 5 years 10 years 1 year 3 years 5 years 10 years Alliance VP Technology Portfolio (Class B) contract with no additional riders $106.41 $151.13 $198.45 $294.02 $26.41 $81.13 $138.45 $294.02 optional Benefit Protector 108.98 158.77 211.11 318.78 28.98 88.77 151.11 318.78 optional Benefit Protector Plus 110.51 163.34 218.63 333.34 30.51 93.34 158.63 333.34 Evergreen VA Global Leaders Fund contract with no additional riders 103.34 141.90 183.09 263.48 23.34 71.90 123.09 263.48 optional Benefit Protector 105.90 149.59 195.90 288.99 25.90 79.59 135.90 288.99 optional Benefit Protector Plus 107.44 154.19 203.53 303.99 27.44 84.19 143.53 303.99 Evergreen VA Growth and Income Fund contract with no additional riders 103.34 141.90 183.09 263.48 23.34 71.90 123.09 263.48 optional Benefit Protector 105.90 149.59 195.90 288.99 25.90 79.59 135.90 288.99 optional Benefit Protector Plus 107.44 154.19 203.53 303.99 27.44 84.19 143.53 303.99 Evergreen VA Masters Fund contract with no additional riders 103.34 141.90 183.09 263.48 23.34 71.90 123.09 263.48 optional Benefit Protector 105.90 149.59 195.90 288.99 25.90 79.59 135.90 288.99 optional Benefit Protector Plus 107.44 154.19 203.53 303.99 27.44 84.19 143.53 303.99 Evergreen VA Omega Fund contract with no additional riders 99.96 131.69 165.96 228.83 19.96 61.69 105.96 228.83 optional Benefit Protector 102.52 139.43 178.96 255.18 22.52 69.43 118.96 255.18 optional Benefit Protector Plus 104.06 144.06 186.69 270.69 24.06 74.06 126.69 270.69 Evergreen VA Small Cap Value Fund contract with no additional riders 103.44 142.21 183.60 264.51 23.44 72.21 123.60 264.51 optional Benefit Protector 106.00 149.90 196.41 290.00 26.00 79.90 136.41 290.00 optional Benefit Protector Plus 107.54 154.49 204.03 304.99 27.54 84.48 144.03 304.99 Evergreen VA Strategic Income Fund contract with no additional riders 101.60 136.65 174.29 245.77 21.60 66.65 114.29 245.77 optional Benefit Protector 104.16 144.37 187.20 271.71 24.16 74.37 127.20 271.71 optional Benefit Protector Plus 105.70 148.98 194.88 286.97 25.70 78.98 134.88 286.97 Fidelity VIP III Mid Cap Portfolio (Service Class) contract with no additional riders 101.60 136.65 174.29 245.77 21.60 66.65 114.29 245.77 optional Benefit Protector 104.16 144.37 187.20 271.71 24.16 74.37 127.20 271.71 optional Benefit Protector Plus 105.70 148.98 194.88 286.97 25.70 78.98 134.88 286.97 Fidelity VIP Contrafund(R)Portfolio (Service Class) contract with no additional riders 100.78 134.17 170.14 237.33 20.78 64.17 110.14 237.33 optional Benefit Protector 103.34 141.90 183.09 263.48 23.34 71.90 123.09 263.48 optional Benefit Protector Plus 104.88 146.52 190.79 278.86 24.88 76.52 130.79 278.86 Fidelity VIP High Income Portfolio (Service Class) contract with no additional riders 100.98 134.79 171.18 239.45 20.98 64.79 111.18 239.45 optional Benefit Protector 103.54 142.52 184.12 265.54 23.54 72.52 124.12 265.54 optional Benefit Protector Plus 105.08 147.14 191.82 280.90 25.08 77.14 131.82 280.90 FTVIPT Franklin Small Cap Fund - Class 2 contract with no additional riders 103.44 142.21 183.60 264.51 23.44 72.21 123.60 264.51 optional Benefit Protector 106.00 149.90 196.41 290.00 26.00 79.90 136.41 290.00 optional Benefit Protector Plus 107.54 154.49 204.03 304.99 27.54 84.49 144.03 304.99
-------------------------------------------------------------------------------- 16 AMERICAN EXPRESS NEW SOLUTIONS VARIABLE ANNUITY -- PROSPECTUS You would pay the following expenses on a $1,000 investment in a nonqualified annuity with selection of the Return of Purchase Payment death benefit assuming a 5% annual return and ... (continued)
no withdrawal or selection a total withdrawal at the of an annuity payout plan at the end of each time period end of each time period 1 year 3 years 5 years 10 years 1 year 3 years 5 years 10 years FTVIPT Mutual Shares Securities Fund - Class 2 contract with no additional riders $103.75 $143.13 $185.15 $267.60 $23.75 $ 73.13 $125.15 $267.60 optional Benefit Protector 106.31 150.82 197.94 293.01 26.31 80.82 137.94 293.01 optional Benefit Protector Plus 107.85 155.41 205.55 307.96 27.85 85.41 145.55 307.96 FTVIPT Templeton Developing Markets Securities Fund - Class 2 contract with no additional riders 111.54 166.38 223.63 342.93 31.54 96.38 163.63 342.93 optional Benefit Protector 114.10 173.94 236.02 366.48 34.10 103.94 176.02 366.48 optional Benefit Protector Plus 115.64 178.46 243.39 380.33 35.64 108.46 183.39 380.33 FTVIPT Templeton International Securities Fund - Class 2 contract with no additional riders 104.47 145.29 188.74 274.78 24.47 75.29 128.74 274.78 optional Benefit Protector 107.03 152.96 201.50 300.01 27.03 82.96 141.50 300.01 optional Benefit Protector Plus 108.57 157.55 209.09 314.86 28.57 87.55 149.09 314.86 MFS(R)Investors Growth Stock Series - Service Class (previously named MFS(R)Growth Series) contract with no additional riders 104.36 144.98 188.23 273.76 24.36 74.98 128.23 273.76 optional Benefit Protector 106.93 152.66 200.99 299.02 26.93 82.66 140.99 299.02 optional Benefit Protector Plus 108.46 157.24 208.58 313.87 28.46 87.24 148.58 313.87 MFS(R) New Discovery Series - Service Class contract with no additional riders 105.90 149.59 195.90 288.99 25.90 79.59 135.90 288.99 optional Benefit Protector 108.46 157.24 208.58 313.87 28.46 87.24 148.58 313.87 optional Benefit Protector Plus 110.00 161.82 216.13 328.51 30.00 91.82 156.13 328.51 MFS(R) Total Return Series - Service Class contract with no additional riders 104.26 144.67 187.72 272.74 24.26 74.67 127.72 272.74 optional Benefit Protector 106.82 152.35 200.48 298.02 26.82 82.35 140.48 298.02 optional Benefit Protector Plus 108.36 156.94 208.08 312.89 28.36 86.94 148.08 312.89 Putnam VT Growth and Income Fund - Class IB Shares contract with no additional riders 100.67 133.86 169.61 236.27 20.67 63.86 109.61 236.27 optional Benefit Protector 103.24 141.59 182.57 262.45 23.24 71.59 122.57 262.45 optional Benefit Protector Plus 104.77 146.21 190.28 277.84 24.77 76.21 130.28 277.84 Putnam VT International New Opportunities Fund - Class IB Shares contract with no additional riders 107.95 155.72 206.06 308.95 27.95 85.72 146.06 308.95 optional Benefit Protector 110.51 163.34 218.63 333.34 30.51 93.34 158.63 333.34 optional Benefit Protector Plus 112.05 167.89 226.12 347.68 32.05 97.89 166.12 347.68 Putnam VT Vista Fund - Class IB Shares contract with no additional riders 102.42 139.12 178.44 254.14 22.42 69.12 118.44 254.14 optional Benefit Protector 104.98 146.83 191.30 279.88 24.98 76.83 131.30 279.88 optional Benefit Protector Plus 106.52 151.43 198.96 295.02 26.52 81.43 138.96 295.02
-------------------------------------------------------------------------------- AMERICAN EXPRESS NEW SOLUTIONS VARIABLE ANNUITY -- PROSPECTUS 17 You would pay the following expenses on a $1,000 investment in a qualified annuity with selection of the optional Maximum Anniversary Value Death Benefit Rider assuming a 5% annual return and ...
no withdrawal or selection a total withdrawal at the of an annuity payout plan at the end of each time period end of each time period 1 year 3 years 5 years 10 years 1 year 3 years 5 years 10 years AXP(R) Variable Portfolio - Cash Management Fund contract with no additional riders $ 98.42 $127.02 $158.10 $212.70 $18.42 $57.02 $ 98.10 $212.70 optional Benefit Protector 100.98 134.79 171.18 239.45 20.98 64.79 111.18 239.45 optional Benefit Protector Plus 102.52 139.43 178.96 255.18 22.52 69.43 118.96 255.18 optional GMIB 101.49 136.34 173.78 244.72 21.49 66.34 113.78 244.72 optional GMIB and Benefit Protector 104.06 144.06 186.69 270.69 24.06 74.06 126.69 270.69 optional GMIB and Benefit Protector Plus 105.59 148.67 194.37 285.96 25.59 78.67 134.37 285.96 AXP(R) Variable Portfolio - Federal Income Fund contract with no additional riders 100.37 132.93 168.02 233.09 20.37 62.93 108.05 233.09 optional Benefit Protector 102.93 140.67 181.02 259.34 22.93 70.67 121.02 259.34 optional Benefit Protector Plus 104.47 145.29 188.74 274.78 24.47 75.29 128.74 274.78 optional GMIB 103.44 142.21 183.60 264.51 23.44 72.21 123.60 264.51 optional GMIB and Benefit Protector 106.00 149.90 196.41 290.00 26.00 79.90 136.41 290.00 optional GMIB and Benefit Protector Plus 107.54 154.49 204.03 304.99 27.54 84.49 144.03 304.99 AXP(R) Variable Portfolio - Managed Fund contract with no additional riders 99.14 129.20 161.78 220.26 19.14 59.20 101.78 220.26 optional Benefit Protector 101.70 136.96 174.81 246.82 21.70 66.96 114.81 246.82 optional Benefit Protector Plus 103.24 141.59 182.57 262.45 23.24 71.59 122.57 262.45 optional GMIB 102.21 138.50 177.40 252.05 22.21 68.50 117.40 252.05 optional GMIB and Benefit Protector 104.77 146.21 190.28 277.84 24.77 76.21 130.28 277.84 optional GMIB and Benefit Protector Plus 106.31 150.82 197.94 293.01 26.31 80.82 137.94 293.01 AXP(R)Variable Portfolio - New Dimensions Fund(R) contract with no additional riders 99.44 130.13 163.35 223.48 19.44 60.13 103.35 223.48 optional Benefit Protector 102.01 137.89 176.37 249.96 22.01 67.89 116.37 249.96 optional Benefit Protector Plus 103.54 142.52 184.12 265.54 23.54 72.52 124.12 265.54 optional GMIB 102.52 139.43 178.96 255.18 22.52 69.43 118.96 255.18 optional GMIB and Benefit Protector 105.08 147.14 191.82 280.90 25.08 77.14 131.82 280.90 optional GMIB and Benefit Protector Plus 106.62 151.74 199.47 296.02 26.62 81.74 139.47 296.02 AXP(R) Variable Portfolio - S&P 500 Index Fund contract with no additional riders 96.37 120.78 147.54 190.82 16.37 50.78 87.54 190.82 optional Benefit Protector 98.93 128.58 160.73 218.10 18.93 58.58 100.73 218.10 optional Benefit Protector Plus 100.47 133.24 168.57 234.15 20.47 63.24 108.57 234.15 optional GMIB 99.44 130.13 163.35 223.48 19.44 60.13 103.35 223.48 optional GMIB and Benefit Protector 102.01 137.89 176.37 249.96 22.01 67.89 116.37 249.96 optional GMIB and Benefit Protector Plus 103.54 142.52 184.12 265.54 23.54 72.52 124.12 265.54 AXP(R) Variable Portfolio - Small Cap Advantage Fund contract with no additional riders 103.65 142.83 184.63 266.57 23.65 72.83 124.63 266.57 optional Benefit Protector 106.21 150.51 197.43 292.01 26.21 80.51 137.43 292.01 optional Benefit Protector Plus 107.75 155.11 205.05 306.97 27.75 85.11 145.05 306.97 optional GMIB 106.72 152.05 199.98 297.02 26.72 82.05 139.98 297.02 optional GMIB and Benefit Protector 109.28 159.69 212.61 321.71 29.28 89.69 152.61 321.71 optional GMIB and Benefit Protector Plus 110.82 164.25 220.13 336.22 30.82 94.25 160.13 336.22
-------------------------------------------------------------------------------- 18 AMERICAN EXPRESS NEW SOLUTIONS VARIABLE ANNUITY -- PROSPECTUS You would pay the following expenses on a $1,000 investment in a qualified annuity with selection of the optional Maximum Anniversary Value Death Benefit Rider assuming a 5% annual return and ... (continued)
no withdrawal or selection a total withdrawal at the of an annuity payout plan at the end of each time period end of each time period 1 year 3 years 5 years 10 years 1 year 3 years 5 years 10 years AIM V.I. Capital Appreciation Fund contract with no additional riders $ 99.85 $131.38 $165.44 $227.76 $19.85 $ 61.38 $105.44 $227.76 optional Benefit Protector 102.42 139.12 178.44 254.14 22.42 69.12 118.44 254.14 optional Benefit Protector Plus 103.95 143.75 186.17 269.66 23.95 73.75 126.17 269.66 optional GMIB 102.93 140.67 181.02 259.34 22.93 70.67 121.02 259.34 optional GMIB and Benefit Protector 105.49 148.36 193.86 284.95 25.49 78.36 133.86 284.95 optional GMIB and Benefit Protector Plus 107.03 152.96 201.50 300.01 27.03 82.96 141.50 300.01 AIM V.I. Dent Demographic Trends Fund contract with no additional riders 106.82 152.35 200.48 298.02 26.82 82.35 140.48 298.02 optional Benefit Protector 109.39 159.99 213.12 322.68 29.39 89.99 153.12 322.68 optional Benefit Protector Plus 110.92 164.55 220.63 337.18 30.92 94.55 160.63 337.18 optional GMIB 109.90 161.51 215.63 327.54 29.90 91.51 155.63 327.54 optional GMIB and Benefit Protector 112.46 169.10 228.10 351.47 32.46 99.10 168.10 351.47 optional GMIB and Benefit Protector Plus 114.00 173.64 235.52 365.55 34.00 103.64 175.52 365.55 AIM V.I. Value Fund contract with no additional riders 100.06 132.00 166.48 229.89 20.06 62.00 106.48 229.89 optional Benefit Protector 102.62 139.74 179.47 256.22 22.62 69.74 119.47 256.22 optional Benefit Protector Plus 104.16 144.37 187.20 271.71 24.16 74.37 127.20 271.71 optional GMIB 103.13 141.28 182.06 261.41 23.13 71.28 122.06 261.41 optional GMIB and Benefit Protector 105.70 148.98 194.88 286.97 25.70 78.98 134.88 286.97 optional GMIB and Benefit Protector Plus 107.23 153.58 202.51 302.01 27.23 83.52 142.51 302.01 Alliance VP Growth & Income Portfolio (Class B) contract with no additional riders 101.19 135.41 172.22 241.56 21.19 65.41 112.22 241.56 optional Benefit Protector 103.75 143.13 185.15 267.60 23.75 73.13 125.15 267.60 optional Benefit Protector Plus 105.29 147.75 192.84 282.92 25.29 77.75 132.84 282.92 optional GMIB 104.26 144.67 187.72 272.74 24.26 74.67 127.72 272.74 optional GMIB and Benefit Protector 106.82 152.35 200.48 298.02 26.82 82.35 140.48 298.02 optional GMIB and Benefit Protector Plus 108.36 156.94 208.08 312.89 28.36 86.94 148.08 312.89 Alliance VP Premier Growth Portfolio (Class B) contract with no additional riders 104.77 146.21 190.28 277.84 24.77 76.21 130.28 277.84 optional Benefit Protector 107.34 153.88 203.02 303.00 27.34 83.88 143.02 303.00 optional Benefit Protector Plus 108.87 158.47 210.60 317.80 28.87 88.47 150.60 317.80 optional GMIB 107.85 155.41 205.55 307.96 27.85 85.41 145.55 307.96 optional GMIB and Benefit Protector 110.41 163.03 218.13 332.37 30.41 93.03 158.13 332.37 optional GMIB and Benefit Protector Plus 111.95 167.59 225.62 346.73 31.95 97.59 165.62 346.73 Alliance VP Technology Portfolio (Class B) contract with no additional riders 104.88 146.52 190.79 278.86 24.88 76.52 130.79 278.86 optional Benefit Protector 107.44 154.19 203.53 303.99 27.44 84.19 143.53 303.99 optional Benefit Protector Plus 108.98 158.77 211.11 318.78 28.98 88.77 151.11 318.78 optional GMIB 107.95 155.72 206.06 308.95 27.95 85.72 146.06 308.95 optional GMIB and Benefit Protector 110.51 163.34 218.63 333.34 30.51 93.34 158.63 333.34 optional GMIB and Benefit Protector Plus 112.05 167.89 226.12 347.68 32.05 97.89 166.12 347.68
-------------------------------------------------------------------------------- AMERICAN EXPRESS NEW SOLUTIONS VARIABLE ANNUITY -- PROSPECTUS 19 You would pay the following expenses on a $1,000 investment in a qualified annuity with selection of the optional Maximum Anniversary Value Death Benefit Rider assuming a 5% annual return and ... (continued)
no withdrawal or selection a total withdrawal at the of an annuity payout plan at the end of each time period end of each time period 1 year 3 years 5 years 10 years 1 year 3 years 5 years 10 years Evergreen VA Global Leaders Fund contract with no additional riders $101.80 $137.27 $175.33 $247.87 $21.80 $67.27 $115.33 $247.87 optional Benefit Protector 104.36 144.98 188.23 273.76 24.36 74.98 128.23 273.76 optional Benefit Protector Plus 105.90 149.59 195.90 288.99 25.90 79.59 135.90 288.99 optional GMIB 104.88 146.52 190.79 278.86 24.88 76.52 130.79 278.86 optional GMIB and Benefit Protector 107.44 154.19 203.53 303.99 27.44 84.19 143.53 303.99 optional GMIB and Benefit Protector Plus 108.98 158.77 211.11 318.78 28.98 88.77 151.11 318.78 Evergreen VA Growth and Income Fund contract with no additional riders 101.80 137.27 175.33 247.87 21.80 67.27 115.33 247.87 optional Benefit Protector 104.36 144.98 188.23 273.76 24.36 74.98 128.23 273.76 optional Benefit Protector Plus 105.90 149.59 195.90 288.99 25.90 79.59 135.90 288.99 optional GMIB 104.88 146.52 190.79 278.86 24.88 76.52 130.79 278.86 optional GMIB and Benefit Protector 107.44 154.19 203.53 303.99 27.44 84.19 143.53 303.99 optional GMIB and Benefit Protector Plus 108.98 158.77 211.11 318.78 28.98 88.77 151.11 318.78 Evergreen VA Masters Fund contract with no additional riders 101.80 137.27 175.33 247.87 21.80 67.27 115.33 247.87 optional Benefit Protector 104.36 144.98 188.23 273.76 24.36 74.98 128.23 273.76 optional Benefit Protector Plus 105.90 149.59 195.90 288.99 25.90 79.59 135.90 288.99 optional GMIB 104.88 146.52 190.79 278.86 24.88 76.52 130.79 278.86 optional GMIB and Benefit Protector 107.44 154.19 203.53 303.99 27.44 84.19 143.53 303.99 optional GMIB and Benefit Protector Plus 108.98 158.77 211.11 318.78 28.98 88.77 151.11 318.78 Evergreen VA Omega Fund contract with no additional riders 98.42 127.02 158.10 212.70 18.42 57.02 98.10 212.70 optional Benefit Protector 100.98 134.79 171.18 239.45 20.98 64.79 111.18 239.45 optional Benefit Protector Plus 102.52 139.43 178.96 255.18 22.52 69.43 118.96 255.18 optional GMIB 101.49 136.34 173.78 244.72 21.49 66.34 113.78 244.72 optional GMIB and Benefit Protector 104.06 144.06 186.69 270.69 24.06 74.06 126.69 270.69 optional GMIB and Benefit Protector Plus 105.59 148.67 194.37 285.96 25.59 78.67 134.37 285.96 Evergreen VA Small Cap Value Fund contract with no additional riders 101.90 137.58 175.85 248.92 21.90 67.58 115.85 248.92 optional Benefit Protector 104.47 145.29 188.74 274.78 24.47 75.29 128.74 274.78 optional Benefit Protector Plus 106.00 149.90 196.41 290.00 26.00 79.90 136.41 290.00 optional GMIB 104.98 146.83 191.30 279.88 24.98 76.83 131.30 279.88 optional GMIB and Benefit Protector 107.54 154.49 204.03 304.99 27.54 84.49 144.03 304.99 optional GMIB and Benefit Protector Plus 109.08 159.08 211.61 319.75 29.08 89.08 151.61 319.75 Evergreen VA Strategic Income Fund contract with no additional riders 100.06 132.00 166.48 229.89 20.06 62.00 106.48 229.89 optional Benefit Protector 102.62 139.74 179.47 256.22 22.62 69.74 119.47 256.22 optional Benefit Protector Plus 104.16 144.37 187.20 271.71 24.16 74.37 127.20 271.71 optional GMIB 103.13 141.28 182.06 261.41 23.13 71.28 122.06 261.41 optional GMIB and Benefit Protector 105.70 148.98 194.88 286.97 25.70 78.98 134.88 286.97 optional GMIB and Benefit Protector Plus 107.23 153.58 202.51 302.01 27.23 83.58 142.51 302.01
-------------------------------------------------------------------------------- 20 AMERICAN EXPRESS NEW SOLUTIONS VARIABLE ANNUITY -- PROSPECTUS You would pay the following expenses on a $1,000 investment in a qualified annuity with selection of the optional Maximum Anniversary Value Death Benefit Rider assuming a 5% annual return and ... (continued)
no withdrawal or selection a total withdrawal at the of an annuity payout plan at the end of each time period end of each time period 1 year 3 years 5 years 10 years 1 year 3 years 5 years 10 years Fidelity VIP III Mid Cap Portfolio (Service Class) contract with no additional riders $100.06 $132.00 $166.48 $229.89 $20.06 $ 62.00 $106.48 $229.89 optional Benefit Protector 102.62 139.74 179.47 256.22 22.62 69.74 119.47 256.22 optional Benefit Protector Plus 104.16 144.37 187.20 271.71 24.16 74.37 127.20 271.71 optional GMIB 103.13 141.28 182.06 261.41 23.13 71.28 122.06 261.41 optional GMIB and Benefit Protector 105.70 148.98 194.88 286.97 25.70 78.98 134.88 286.97 optional GMIB and Benefit Protector Plus 107.23 153.58 202.51 302.01 27.23 83.58 142.51 302.01 Fidelity VIP Contrafund(R)Portfolio (Service Class) contract with no additional riders 99.24 129.51 162.30 221.33 19.24 59.51 102.30 221.33 optional Benefit Protector 101.80 137.27 175.33 247.87 21.80 67.27 115.33 247.87 optional Benefit Protector Plus 103.34 141.90 183.09 263.48 23.34 71.90 123.09 263.48 optional GMIB 102.31 138.81 177.92 253.10 22.31 68.81 117.92 253.10 optional GMIB and Benefit Protector 104.88 146.52 190.79 278.86 24.88 76.52 130.79 278.86 optional GMIB and Benefit Protector Plus 106.41 151.13 198.45 294.02 26.41 81.13 138.45 294.02 Fidelity VIP High Income Portfolio (Service Class) contract with no additional riders 99.44 130.13 163.35 223.48 19.44 60.13 103.35 223.48 optional Benefit Protector 102.01 137.89 176.37 249.96 22.01 67.89 116.37 249.96 optional Benefit Protector Plus 103.54 142.52 184.12 265.54 23.54 72.52 124.12 265.54 optional GMIB 102.52 139.43 178.96 255.18 22.52 69.43 118.96 255.18 optional GMIB and Benefit Protector 105.08 147.14 191.82 280.90 25.08 77.14 131.82 280.90 optional GMIB and Benefit Protector Plus 106.62 151.74 199.47 296.02 26.62 81.74 139.47 296.02 FTVIPT Franklin Small Cap Fund - Class 2 contract with no additional riders 101.90 137.58 175.85 248.92 21.90 67.58 115.85 248.92 optional Benefit Protector 104.47 145.29 188.74 274.78 24.47 75.29 128.74 274.78 optional Benefit Protector Plus 106.00 149.90 196.41 290.00 26.00 79.90 136.41 290.00 optional GMIB 104.98 146.83 191.30 279.88 24.98 76.83 131.30 279.88 optional GMIB and Benefit Protector 107.54 154.49 204.03 304.99 27.54 84.49 144.03 304.99 optional GMIB and Benefit Protector Plus 109.08 159.08 211.61 319.75 29.08 89.08 151.61 319.75 FTVIPT Mutual Shares Securities Fund - Class 2 contract with no additional riders 102.21 138.50 177.40 252.05 22.21 68.50 117.40 252.05 optional Benefit Protector 104.77 146.21 190.28 277.84 24.77 76.21 130.28 277.84 optional Benefit Protector Plus 106.31 150.82 197.94 293.01 26.31 80.82 137.94 293.01 optional GMIB 105.29 147.75 192.84 282.92 25.29 77.75 132.84 282.92 optional GMIB and Benefit Protector 107.85 155.41 205.55 307.96 27.85 85.41 145.55 307.96 optional GMIB and Benefit Protector Plus 109.39 159.99 213.12 322.68 29.39 89.99 153.12 322.68 FTVIPT Templeton Developing Markets Securities Fund - Class 2 contract with no additional riders 110.00 161.82 216.13 328.51 30.00 91.82 156.13 328.51 optional Benefit Protector 112.56 169.41 228.60 352.42 32.56 99.41 168.60 352.42 optional Benefit Protector Plus 114.10 173.94 236.02 366.48 34.10 103.94 176.02 366.48 optional GMIB 113.08 170.92 231.08 357.13 33.08 100.92 171.08 357.13 optional GMIB and Benefit Protector 115.64 178.46 243.39 380.33 35.64 108.46 183.39 380.33 optional GMIB and Benefit Protector Plus 117.18 182.97 250.71 393.97 37.18 112.97 190.71 393.97
-------------------------------------------------------------------------------- AMERICAN EXPRESS NEW SOLUTIONS VARIABLE ANNUITY -- PROSPECTUS 21 You would pay the following expenses on a $1,000 investment in a qualified annuity with selection of the optional Maximum Anniversary Value Death Benefit Rider assuming a 5% annual return and ... (continued)
no withdrawal or selection a total withdrawal at the of an annuity payout plan at the end of each time period end of each time period 1 year 3 years 5 years 10 years 1 year 3 years 5 years 10 years FTVIPT Templeton International Securities Fund - Class 2 contract with no additional riders $102.93 $140.67 $181.02 $259.34 $22.93 $ 70.67 $121.02 $259.34 optional Benefit Protector 105.49 148.36 193.86 284.95 25.49 78.39 133.86 284.95 optional Benefit Protector Plus 107.03 152.96 201.50 300.01 27.03 82.96 141.50 300.01 optional GMIB 106.00 149.90 196.41 290.00 26.00 79.90 136.41 290.00 optional GMIB and Benefit Protector 108.57 157.55 209.09 314.86 28.57 87.55 149.09 314.86 optional GMIB and Benefit Protector Plus 110.10 162.12 216.63 329.48 30.10 92.12 156.63 329.48 MFS(R)Investors Growth Stock Series - Service Class (previously named MFS(R)Growth Series) contract with no additional riders 102.83 140.36 180.51 258.30 22.83 70.36 120.51 258.30 optional Benefit Protector 105.39 148.06 193.35 283.94 25.39 78.06 133.35 283.94 optional Benefit Protector Plus 106.93 152.66 200.99 299.02 26.93 82.66 140.99 299.02 optional GMIB 105.90 149.59 195.90 288.99 25.90 79.59 135.90 288.99 optional GMIB and Benefit Protector 108.46 157.24 208.58 313.87 28.46 87.24 148.58 313.87 optional GMIB and Benefit Protector Plus 110.00 161.82 216.13 328.51 30.00 91.82 156.13 328.51 MFS(R) New Discovery Series - Service Class contract with no additional riders 104.36 144.98 188.23 273.76 24.36 74.98 128.23 273.76 optional Benefit Protector 106.93 152.66 200.99 299.02 26.93 82.66 140.99 299.02 optional Benefit Protector Plus 108.46 157.24 208.58 313.87 28.46 87.24 148.58 313.87 optional GMIB 107.44 154.19 203.53 303.99 27.44 84.19 143.53 303.99 optional GMIB and Benefit Protector 110.00 161.82 216.13 328.51 30.00 91.82 156.13 328.51 optional GMIB and Benefit Protector Plus 111.54 166.38 223.63 342.93 31.54 96.38 163.63 342.93 MFS(R) Total Return Series - Service Class contract with no additional riders 102.72 140.05 179.99 257.26 22.72 70.05 119.99 257.26 optional Benefit Protector 105.29 147.75 192.84 282.92 25.29 77.75 132.84 282.92 optional Benefit Protector Plus 106.82 152.35 200.48 298.02 26.82 82.35 140.48 298.02 optional GMIB 105.80 149.29 195.39 287.98 25.80 79.29 135.39 287.98 optional GMIB and Benefit Protector 108.36 156.94 208.08 312.89 28.36 86.94 148.08 312.89 optional GMIB and Benefit Protector Plus 109.90 161.51 215.63 327.54 29.90 91.51 155.63 327.54 Putnam VT Growth and Income Fund - Class IB Shares contract with no additional riders 99.14 129.20 161.78 220.26 19.14 59.20 101.78 220.26 optional Benefit Protector 101.70 136.96 174.81 246.82 21.70 66.96 114.81 246.82 optional Benefit Protector Plus 103.24 141.59 182.57 262.45 23.24 71.59 122.57 262.45 optional GMIB 102.21 138.50 177.40 252.05 22.21 68.50 117.40 252.05 optional GMIB and Benefit Protector 104.77 146.21 190.28 277.84 24.77 76.21 130.28 277.84 optional GMIB and Benefit Protector Plus 106.31 150.82 197.94 293.01 26.31 80.82 137.94 293.01 Putnam VT International New Opportunities Fund - Class IB Shares contract with no additional riders 106.41 151.13 198.45 294.02 26.41 81.13 138.45 294.02 optional Benefit Protector 108.98 158.77 211.11 318.78 28.98 88.77 151.11 318.78 optional Benefit Protector Plus 110.51 163.34 218.63 333.34 30.51 93.34 158.63 333.34 optional GMIB 109.49 160.29 213.62 323.65 29.49 90.29 153.62 323.65 optional GMIB and Benefit Protector 112.05 167.89 226.12 347.68 32.05 97.89 166.12 347.68 optional GMIB and Benefit Protector Plus 113.59 172.43 233.55 361.81 33.59 102.43 173.55 361.81
-------------------------------------------------------------------------------- 22 AMERICAN EXPRESS NEW SOLUTIONS VARIABLE ANNUITY -- PROSPECTUS You would pay the following expenses on a $1,000 investment in a qualified annuity with selection of the optional Maximum Anniversary Value Death Benefit Rider assuming a 5% annual return and ... (continued)
no withdrawal or selection a total withdrawal at the of an annuity payout plan at the end of each time period end of each time period 1 year 3 years 5 years 10 years 1 year 3 years 5 years 10 years Putnam VT Vista Fund - Class IB Shares contract with no additional riders $100.88 $134.48 $170.66 $238.39 $20.88 $64.48 $110.66 $238.39 optional Benefit Protector 103.44 142.21 183.60 264.51 23.44 72.21 123.60 264.51 optional Benefit Protector Plus 104.98 146.83 191.30 279.88 24.98 76.83 131.30 279.88 optional GMIB 103.95 143.75 186.17 269.66 23.95 73.75 126.17 269.66 optional GMIB and Benefit Protector 106.52 151.43 198.96 295.02 26.52 81.43 138.96 295.02 optional GMIB and Benefit Protector Plus 108.05 156.02 206.56 309.93 28.05 86.02 146.56 309.93
-------------------------------------------------------------------------------- AMERICAN EXPRESS NEW SOLUTIONS VARIABLE ANNUITY -- PROSPECTUS 23 You would pay the following expenses on a $1,000 investment in a qualified annuity with selection of the Return of Purchase Payment death benefit assuming a 5% annual return and ...
no withdrawal or selection a total withdrawal at the of an annuity payout plan at the end of each time period end of each time period 1 year 3 years 5 years 10 years 1 year 3 years 5 years 10 years AXP(R) Variable Portfolio - Cash Management Fund contract with no additional riders $ 97.39 $123.90 $152.83 $201.82 $17.39 $53.90 $ 92.83 $201.82 optional Benefit Protector 99.96 131.69 165.96 228.83 19.96 61.69 105.96 228.83 optional Benefit Protector Plus 101.49 136.34 173.78 244.72 21.49 66.34 113.78 244.72 AXP(R) Variable Portfolio - Federal Income Fund contract with no additional riders 99.34 129.82 162.82 222.40 19.34 59.82 102.82 222.40 optional Benefit Protector 101.90 137.58 175.85 248.92 21.90 67.58 115.85 248.92 optional Benefit Protector Plus 103.44 142.21 183.60 264.51 23.44 72.21 123.60 264.51 AXP(R) Variable Portfolio - Managed Fund contract with no additional riders 98.11 126.09 156.52 209.45 18.11 56.09 96.52 209.45 optional Benefit Protector 100.67 133.86 169.61 236.27 20.67 63.86 109.61 236.27 optional Benefit Protector Plus 102.21 138.50 177.40 252.05 22.21 68.50 117.40 252.05 AXP(R)Variable Portfolio - New Dimensions Fund(R) contract with no additional riders 98.42 127.02 158.10 212.70 18.42 57.02 98.10 212.70 optional Benefit Protector 100.98 134.79 171.18 239.45 20.98 64.79 111.18 239.45 optional Benefit Protector Plus 102.52 139.43 178.96 255.18 22.52 69.43 118.96 255.18 AXP(R) Variable Portfolio - S&P 500 Index Fund contract with no additional riders 95.34 117.65 142.23 179.72 15.34 47.65 82.23 179.72 optional Benefit Protector 97.91 125.46 155.47 207.27 17.91 55.46 95.47 207.27 optional Benefit Protector Plus 99.44 130.13 163.35 223.48 19.44 60.13 103.35 223.48 AXP(R) Variable Portfolio - Small Cap Advantage Fund contract with no additional riders 102.62 139.74 179.47 256.22 22.62 69.74 119.47 256.22 optional Benefit Protector 105.18 147.44 192.33 281.91 25.18 77.44 132.33 281.91 optional Benefit Protector Plus 106.72 152.05 199.98 297.02 26.72 82.05 139.98 297.02 AIM V.I. Capital Appreciation Fund contract with no additional riders 98.83 128.27 160.20 217.20 18.83 58.27 100.20 217.02 optional Benefit Protector 101.39 136.03 173.26 243.67 21.39 66.03 113.26 243.67 optional Benefit Protector Plus 102.93 140.67 181.02 259.34 22.93 70.67 121.02 259.34 AIM V.I. Dent Demographic Trends Fund contract with no additional riders 105.80 149.29 195.39 287.98 25.80 79.29 135.39 287.98 optional Benefit Protector 108.36 156.94 208.08 312.89 28.36 86.94 148.08 312.89 optional Benefit Protector Plus 109.90 161.51 215.63 327.54 29.90 91.51 155.63 327.54 AIM V.I. Value Fund contract with no additional riders 99.03 128.89 161.25 219.18 19.03 58.89 101.25 219.18 optional Benefit Protector 101.60 136.65 174.29 245.77 21.60 66.65 114.29 245.77 optional Benefit Protector Plus 103.13 141.28 182.06 261.41 23.13 71.28 122.06 261.41 Alliance VP Growth & Income Portfolio (Class B) contract with no additional riders 100.16 132.31 167.01 230.96 20.16 62.31 107.01 230.96 optional Benefit Protector 102.72 140.05 179.99 257.26 22.72 70.05 119.99 257.26 optional Benefit Protector Plus 104.26 144.67 187.72 272.74 24.26 74.67 127.72 272.74 Alliance VP Premier Growth Portfolio (Class B) contract with no additional riders 103.75 143.13 185.15 267.60 23.75 73.13 125.15 267.60 optional Benefit Protector 106.31 150.82 197.94 293.01 26.31 80.82 137.94 293.01 optional Benefit Protector Plus 107.85 155.41 205.55 307.96 27.85 85.41 145.55 307.96
-------------------------------------------------------------------------------- 24 AMERICAN EXPRESS NEW SOLUTIONS VARIABLE ANNUITY -- PROSPECTUS You would pay the following expenses on a $1,000 investment in a qualified annuity with selection of the Return of Purchase Payment death benefit assuming a 5% annual return and ... (continued)
no withdrawal or selection a total withdrawal at the of an annuity payout plan at the end of each time period end of each time period 1 year 3 years 5 years 10 years 1 year 3 years 5 years 10 years Alliance VP Technology Portfolio (Class B) contract with no additional riders $103.85 $143.44 $185.66 $268.63 $23.85 $73.44 $125.66 $268.63 optional Benefit Protector 106.41 151.13 198.45 294.02 26.41 81.13 138.45 294.02 optional Benefit Protector Plus 107.95 155.72 206.06 308.95 27.95 85.72 146.06 308.95 Evergreen VA Global Leaders Fund contract with no additional riders 100.78 134.17 170.14 237.33 20.78 64.17 110.14 237.33 optional Benefit Protector 103.34 141.90 183.09 263.48 23.34 71.90 123.09 263.48 optional Benefit Protector Plus 104.88 146.52 190.79 278.86 24.88 76.52 130.79 278.86 Evergreen VA Growth and Income Fund contract with no additional riders 100.78 134.17 170.14 237.33 20.78 64.17 110.14 237.33 optional Benefit Protector 103.34 141.90 183.09 263.48 23.34 71.90 123.09 263.48 optional Benefit Protector Plus 104.88 146.52 190.79 278.86 24.88 76.52 130.79 278.86 Evergreen VA Masters Fund contract with no additional riders 100.78 134.17 170.14 237.33 20.78 64.17 110.14 237.33 optional Benefit Protector 103.34 141.90 183.09 263.48 23.34 71.90 123.09 263.48 optional Benefit Protector Plus 104.88 146.52 190.79 278.86 24.88 76.52 130.79 278.86 Evergreen VA Omega Fund contract with no additional riders 97.39 123.90 152.83 201.82 17.39 53.90 92.83 201.82 optional Benefit Protector 99.96 131.69 165.96 228.83 19.96 61.69 105.96 228.83 optional Benefit Protector Plus 101.49 136.34 173.78 244.72 21.49 66.34 113.78 244.72 Evergreen VA Small Cap Value Fund contract with no additional riders 100.88 134.48 170.66 238.39 20.88 64.48 110.66 238.39 optional Benefit Protector 103.44 142.21 183.60 264.51 23.44 72.21 123.60 264.51 optional Benefit Protector Plus 104.98 146.83 191.30 279.88 24.98 76.83 131.30 279.88 Evergreen VA Strategic Income Fund contract with no additional riders 99.03 128.89 161.25 219.18 19.03 58.89 101.25 219.18 optional Benefit Protector 101.60 136.65 174.29 245.77 21.60 66.65 114.29 245.77 optional Benefit Protector Plus 103.13 141.28 182.06 261.41 23.13 71.28 122.06 261.41 Fidelity VIP III Mid Cap Portfolio (Service Class) contract with no additional riders 99.03 128.89 161.25 219.18 19.03 58.89 101.25 219.18 optional Benefit Protector 101.60 136.65 174.29 245.77 21.60 66.65 114.29 245.77 optional Benefit Protector Plus 103.13 141.28 182.06 261.41 23.13 71.28 122.06 261.41 Fidelity VIP Contrafund(R)Portfolio (Service Class) contract with no additional riders 98.21 126.40 157.05 210.53 18.21 56.40 97.05 210.53 optional Benefit Protector 100.78 134.17 170.14 237.33 20.78 64.17 110.14 237.33 optional Benefit Protector Plus 102.31 138.81 177.92 253.10 22.31 68.81 117.92 253.10 Fidelity VIP High Income Portfolio (Service Class) contract with no additional riders 98.42 127.02 158.10 212.70 18.42 57.02 98.10 212.70 optional Benefit Protector 100.98 134.79 171.18 239.45 20.98 64.79 111.18 239.45 optional Benefit Protector Plus 102.52 139.43 178.96 255.18 22.52 69.43 118.96 255.18 FTVIPT Franklin Small Cap Fund - Class 2 contract with no additional riders 100.88 134.48 170.66 238.39 20.88 64.48 110.66 238.39 optional Benefit Protector 103.44 142.21 183.60 264.51 23.44 72.21 123.60 264.51 optional Benefit Protector Plus 104.98 146.83 191.30 279.88 24.98 76.83 131.30 279.88
-------------------------------------------------------------------------------- AMERICAN EXPRESS NEW SOLUTIONS VARIABLE ANNUITY -- PROSPECTUS 25 You would pay the following expenses on a $1,000 investment in a qualified annuity with selection of the Return of Purchase Payment death benefit assuming a 5% annual return and ... (continued)
no withdrawal or selection a total withdrawal at the of an annuity payout plan at the end of each time period end of each time period 1 year 3 years 5 years 10 years 1 year 3 years 5 years 10 years FTVIPT Mutual Shares Securities Fund - Class 2 contract with no additional riders $101.19 $135.41 $172.22 $241.56 $21.19 $ 65.41 $112.22 $241.56 optional Benefit Protector 103.75 143.13 185.15 267.60 23.75 73.13 125.15 267.60 optional Benefit Protector Plus 105.29 147.75 192.84 282.92 25.29 77.75 132.84 282.92 FTVIPT Templeton Developing Markets Securities Fund - Class 2 contract with no additional riders 108.98 158.77 211.11 318.78 28.98 88.77 151.11 318.78 optional Benefit Protector 111.54 166.38 223.63 342.93 31.54 96.38 163.63 342.93 optional Benefit Protector Plus 113.08 170.92 231.08 357.13 33.08 100.92 171.08 357.13 FTVIPT Templeton International Securities Fund - Class 2 contract with no additional riders 101.90 137.58 175.85 248.92 21.90 67.58 115.85 248.92 optional Benefit Protector 104.47 145.29 188.74 274.78 24.47 75.29 128.74 274.78 optional Benefit Protector Plus 106.00 149.90 196.41 290.00 26.00 79.90 136.41 290.00 MFS(R)Investors Growth Stock Series - Service Class (previously named MFS(R)Growth Series) contract with no additional riders 101.80 137.27 175.33 247.87 21.80 67.27 115.33 247.87 optional Benefit Protector 104.36 144.98 188.23 273.76 24.36 74.98 128.23 273.76 optional Benefit Protector Plus 105.90 149.59 195.90 288.90 25.90 79.59 135.90 288.99 MFS(R) New Discovery Series - Service Class contract with no additional riders 103.34 141.90 183.09 263.48 23.34 71.90 123.09 263.48 optional Benefit Protector 105.90 149.59 195.90 288.99 25.90 79.59 135.90 288.99 optional Benefit Protector Plus 107.44 154.19 203.53 303.99 27.44 84.19 143.53 303.99 MFS(R) Total Return Series - Service Class contract with no additional riders 101.70 136.96 174.81 246.82 21.70 66.96 114.81 246.82 optional Benefit Protector 104.26 144.67 187.72 272.74 24.26 74.67 127.72 272.74 optional Benefit Protector Plus 105.80 149.29 195.39 287.98 25.80 79.29 135.39 287.98 Putnam VT Growth and Income Fund - Class IB Shares contract with no additional riders 98.11 126.09 156.52 209.45 18.11 56.09 96.52 209.45 optional Benefit Protector 100.67 133.86 169.61 236.27 20.67 63.86 109.61 236.27 optional Benefit Protector Plus 102.21 138.50 177.40 252.05 22.21 68.50 117.40 252.05 Putnam VT International New Opportunities Fund - Class IB Shares contract with no additional riders 105.39 148.06 193.35 283.94 25.39 78.06 133.35 283.94 optional Benefit Protector 107.95 155.72 206.06 308.95 27.95 85.72 146.06 308.95 optional Benefit Protector Plus 109.49 160.29 213.62 323.65 29.49 90.29 153.62 323.65 Putnam VT Vista Fund - Class IB Shares contract with no additional riders 99.85 131.38 165.44 227.76 19.85 61.38 105.44 227.76 optional Benefit Protector 102.42 139.12 178.44 254.14 22.42 69.12 118.44 254.14 optional Benefit Protector Plus 103.95 143.75 186.17 269.66 23.95 73.75 126.17 269.66 * In these examples, the $40 contract administrative charge is approximated as a 0.017% charge based on our estimated average contract size. Premium taxes imposed by some state and local governments are not reflected in these tables. 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. -------------------------------------------------------------------------------- 26 AMERICAN EXPRESS NEW SOLUTIONS VARIABLE ANNUITY -- PROSPECTUS Condensed Financial Information (Unaudited) The following tables give per-unit information about the financial history of the subaccounts representing the highest (1.35%) and lowest (1.00%) total annual variable account expense combinations. The SAI contains tables that give per-unit information about the financial history of each subaccount. You may obtain a copy of the SAI without charge by contacting us at the telephone number or address listed on the first page of this prospectus.
Year ended Dec. 31, 2000 1999 Subaccount UCMG1(1) (Investing in shares of AXP(R)Variable Portfolio - Cash Management 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 (000 omitted) 53 -- Ratio of operating expense to average net assets 1.00% -- Simple yield(2) 4.94% -- Compound yield(2) 5.07% -- Subaccount UCMG4(1) (Investing in shares of AXP(R)Variable Portfolio - Cash Management 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 (000 omitted) 618 -- Ratio of operating expense to average net assets 1.35% -- Simple yield(2) 4.58% -- Compound yield(2) 4.69% -- Subaccount UFIF1(1),(3) (Investing in shares of AXP(R)Variable Portfolio - Federal Income Fund) Accumulation unit value at beginning of period $1.00 -- Accumulation unit value at end of period $1.06 -- Number of accumulation units outstanding at end of period (000 omitted) -- -- Ratio of operating expense to average net assets 1.00% -- Subaccount UFIF4(1) (Investing in shares of AXP(R)Variable Portfolio - Federal Income Fund) Accumulation unit value at beginning of period $1.00 -- Accumulation unit value at end of period $1.06 -- Number of accumulation units outstanding at end of period (000 omitted) 34 -- Ratio of operating expense to average net assets 1.35% -- Subaccount UMGD1(1),(3) (Investing in shares of AXP(R)Variable Portfolio - Managed Fund) Accumulation unit value at beginning of period $1.00 -- Accumulation unit value at end of period $0.98 -- Number of accumulation units outstanding at end of period (000 omitted) -- -- Ratio of operating expense to average net assets 1.00% -- Subaccount UMGD4(1) (Investing in shares of AXP(R)Variable Portfolio - Managed Fund) Accumulation unit value at beginning of period $1.00 -- Accumulation unit value at end of period $0.98 -- Number of accumulation units outstanding at end of period (000 omitted) 3 -- Ratio of operating expense to average net assets 1.35% -- Subaccount UNDM1(1),(3) (Investing in shares of AXP(R)Variable Portfolio - New Dimensions Fund(R)) Accumulation unit value at beginning of period $1.00 -- Accumulation unit value at end of period $0.92 -- Number of accumulation units outstanding at end of period (000 omitted) -- -- Ratio of operating expense to average net assets 1.00% -- Subaccount UNDM4(1) (Investing in shares of AXP(R)Variable Portfolio - New Dimensions Fund(R)) Accumulation unit value at beginning of period $1.00 -- Accumulation unit value at end of period $0.92 -- Number of accumulation units outstanding at end of period (000 omitted) 32 -- Ratio of operating expense to average net assets 1.35% -- Subaccount USPF1(1) (Investing in shares of AXP(R) Variable Portfolio - S&P 500 Index Fund) Accumulation unit value at beginning of period $1.00 -- Accumulation unit value at end of period $0.92 -- Number of accumulation units outstanding at end of period (000 omitted) 7 -- Ratio of operating expense to average net assets 1.00% --
-------------------------------------------------------------------------------- AMERICAN EXPRESS NEW SOLUTIONS VARIABLE ANNUITY -- PROSPECTUS 27
Year ended Dec. 31, 2000 1999 Subaccount USPF4(1) (Investing in shares of AXP(R) Variable Portfolio - S&P 500 Index Fund) Accumulation unit value at beginning of period $1.00 -- Accumulation unit value at end of period $0.92 -- Number of accumulation units outstanding at end of period (000 omitted) 110 -- Ratio of operating expense to average net assets 1.35% -- Subaccount USCA1(1) (Investing in shares of AXP(R)Variable Portfolio - Small Cap Advantage Fund) 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 (000 omitted) 2 -- Ratio of operating expense to average net assets 1.00% -- Subaccount USCA4(1) (Investing in shares of AXP(R)Variable Portfolio - Small Cap Advantage Fund) 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 (000 omitted) -- -- Ratio of operating expense to average net assets 1.35% -- Subaccount UCAP1(1) (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 $0.91 -- Number of accumulation units outstanding at end of period (000 omitted) 12 -- Ratio of operating expense to average net assets 1.00% -- Subaccount UCAP4(1) (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 $0.90 -- Number of accumulation units outstanding at end of period (000 omitted) 311 -- Ratio of operating expense to average net assets 1.35% -- Subaccount UDDT1(1) (Investing in shares of AIM V.I. Dent Demographic Trends Fund) Accumulation unit value at beginning of period $1.00 -- Accumulation unit value at end of period $0.87 -- Number of accumulation units outstanding at end of period (000 omitted) 12 -- Ratio of operating expense to average net assets 1.00% -- Subaccount UDDT4(1) (Investing in shares of AIM V.I. Dent Demographic Trends Fund) Accumulation unit value at beginning of period $1.00 -- Accumulation unit value at end of period $0.86 -- Number of accumulation units outstanding at end of period (000 omitted) 145 -- Ratio of operating expense to average net assets 1.35% -- Subaccount UVAL1(1) (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 $0.89 -- Number of accumulation units outstanding at end of period (000 omitted) 56 -- Ratio of operating expense to average net assets 1.00% -- Subaccount UVAL4(1) (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 $0.89 -- Number of accumulation units outstanding at end of period (000 omitted) 623 -- Ratio of operating expense to average net assets 1.35% -- Subaccount UGIP1(1) (Investing in shares of Alliance VP Growth & Income Portfolio (Class B)) Accumulation unit value at beginning of period $1.00 -- Accumulation unit value at end of period $0.97 -- Number of accumulation units outstanding at end of period (000 omitted) 31 -- Ratio of operating expense to average net assets 1.00% -- Subaccount UGIP4(1) (Investing in shares of Alliance VP Growth & Income Portfolio (Class B)) Accumulation unit value at beginning of period $1.00 -- Accumulation unit value at end of period $0.97 -- Number of accumulation units outstanding at end of period (000 omitted) 292 -- Ratio of operating expense to average net assets 1.35% --
-------------------------------------------------------------------------------- 28 AMERICAN EXPRESS NEW SOLUTIONS VARIABLE ANNUITY -- PROSPECTUS
Year ended Dec. 31, 2000 1999 Subaccount UPRG1(1) (Investing in shares of Alliance VP Premier Growth Portfolio (Class B)) Accumulation unit value at beginning of period $1.00 -- Accumulation unit value at end of period $0.80 -- Number of accumulation units outstanding at end of period (000 omitted) 47 -- Ratio of operating expense to average net assets 1.00% -- Subaccount UPRG4(1) (Investing in shares of Alliance VP Premier Growth Portfolio (Class B)) Accumulation unit value at beginning of period $1.00 -- Accumulation unit value at end of period $0.80 -- Number of accumulation units outstanding at end of period (000 omitted) 700 -- Ratio of operating expense to average net assets 1.35% -- Subaccount UTEC1(1) (Investing in shares of Alliance VP Technology Portfolio (Class B)) Accumulation unit value at beginning of period $1.00 -- Accumulation unit value at end of period $0.69 -- Number of accumulation units outstanding at end of period (000 omitted) 44 -- Ratio of operating expense to average net assets 1.00% -- Subaccount UTEC4(1) (Investing in shares of Alliance VP Technology Portfolio (Class B)) Accumulation unit value at beginning of period $1.00 -- Accumulation unit value at end of period $0.69 -- Number of accumulation units outstanding at end of period (000 omitted) 456 -- Ratio of operating expense to average net assets 1.35% -- Subaccount UEGL1(1) (Investing in shares of Evergreen VA Global Leaders Fund) Accumulation unit value at beginning of period $1.00 -- Accumulation unit value at end of period $0.98 -- Number of accumulation units outstanding at end of period (000 omitted) 8 -- Ratio of operating expense to average net assets 1.00% -- Subaccount UEGL4(1) (Investing in shares of Evergreen VA Global Leaders Fund) Accumulation unit value at beginning of period $1.00 -- Accumulation unit value at end of period $0.97 -- Number of accumulation units outstanding at end of period (000 omitted) 4 -- Ratio of operating expense to average net assets 1.35% -- Subaccount UEGI1(1) (Investing in shares of Evergreen VA Growth and Income Fund) 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 (000 omitted) 25 -- Ratio of operating expense to average net assets 1.00% -- Subaccount UEGI4(1) (Investing in shares of Evergreen VA Growth and Income Fund) 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 (000 omitted) 6 -- Ratio of operating expense to average net assets 1.35% -- Subaccount UEMS1(1) (Investing in shares of Evergreen VA Masters Fund) Accumulation unit value at beginning of period $1.00 -- Accumulation unit value at end of period $0.98 -- Number of accumulation units outstanding at end of period (000 omitted) 30 -- Ratio of operating expense to average net assets 1.00% -- Subaccount UEMS4(1) (Investing in shares of Evergreen VA Masters Fund) Accumulation unit value at beginning of period $1.00 -- Accumulation unit value at end of period $0.98 -- Number of accumulation units outstanding at end of period (000 omitted) 61 -- Ratio of operating expense to average net assets 1.35% -- Subaccount UEOM1(1) (Investing in shares of Evergreen VA Omega Fund) Accumulation unit value at beginning of period $1.00 -- Accumulation unit value at end of period $0.82 -- Number of accumulation units outstanding at end of period (000 omitted) 97 -- Ratio of operating expense to average net assets 1.00% --
-------------------------------------------------------------------------------- AMERICAN EXPRESS NEW SOLUTIONS VARIABLE ANNUITY -- PROSPECTUS 29
Year ended Dec. 31, 2000 1999 Subaccount UEOM4(1) (Investing in shares of Evergreen VA Omega Fund) Accumulation unit value at beginning of period $1.00 -- Accumulation unit value at end of period $0.82 -- Number of accumulation units outstanding at end of period (000 omitted) 703 -- Ratio of operating expense to average net assets 1.35% -- Subaccount UESC1(1) (Investing in shares of Evergreen VA Small Cap Value Fund) Accumulation unit value at beginning of period $1.00 -- Accumulation unit value at end of period $1.17 -- Number of accumulation units outstanding at end of period (000 omitted) 10 -- Ratio of operating expense to average net assets 1.00% -- Subaccount UESC4(1) (Investing in shares of Evergreen VA Small Cap Value Fund) Accumulation unit value at beginning of period $1.00 -- Accumulation unit value at end of period $1.17 -- Number of accumulation units outstanding at end of period (000 omitted) 7 -- Ratio of operating expense to average net assets 1.35% -- Subaccount UESI1(1),(3) (Investing in shares of Evergreen VA Strategic Income Fund) 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 (000 omitted) -- -- Ratio of operating expense to average net assets 1.00% -- Subaccount UESI4(1) (Investing in shares of Evergreen VA Strategic Income Fund) 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 (000 omitted) -- -- Ratio of operating expense to average net assets 1.35% -- Subaccount UMDC1(1) (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 $1.21 -- Number of accumulation units outstanding at end of period (000 omitted) 23 -- Ratio of operating expense to average net assets 1.00% -- Subaccount UMDC4(1) (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 $1.21 -- Number of accumulation units outstanding at end of period (000 omitted) 222 -- Ratio of operating expense to average net assets 1.35% -- Subaccount UCOF1(1) (Investing in shares of Fidelity VIP Contrafund(R)Portfolio (Service Class)) Accumulation unit value at beginning of period $1.00 -- Accumulation unit value at end of period $0.97 -- Number of accumulation units outstanding at end of period (000 omitted) 4 -- Ratio of operating expense to average net assets 1.00% -- Subaccount UCOF4(1) (Investing in shares of Fidelity VIP Contrafund(R)Portfolio (Service Class)) Accumulation unit value at beginning of period $1.00 -- Accumulation unit value at end of period $0.97 -- Number of accumulation units outstanding at end of period (000 omitted) 191 -- Ratio of operating expense to average net assets 1.35% -- Subaccount UHIP1(1) (Investing in shares of Fidelity VIP High Income Portfolio (Service Class)) Accumulation unit value at beginning of period $1.00 -- Accumulation unit value at end of period $0.83 -- Number of accumulation units outstanding at end of period (000 omitted) 4 -- Ratio of operating expense to average net assets 1.00% -- Subaccount UHIP4(1) (Investing in shares of Fidelity VIP High Income Portfolio (Service Class)) Accumulation unit value at beginning of period $1.00 -- Accumulation unit value at end of period $0.82 -- Number of accumulation units outstanding at end of period (000 omitted) 50 -- Ratio of operating expense to average net assets 1.35% --
-------------------------------------------------------------------------------- 30 AMERICAN EXPRESS NEW SOLUTIONS VARIABLE ANNUITY -- PROSPECTUS
Year ended Dec. 31, 2000 1999 Subaccount USMC1(1) (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 $0.90 -- Number of accumulation units outstanding at end of period (000 omitted) 52 -- Ratio of operating expense to average net assets 1.00% -- Subaccount USMC4(1) (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 $0.90 -- Number of accumulation units outstanding at end of period (000 omitted) 349 -- Ratio of operating expense to average net assets 1.35% -- Subaccount UMSS1(1) (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 $1.09 -- Number of accumulation units outstanding at end of period (000 omitted) 21 -- Ratio of operating expense to average net assets 1.00% -- Subaccount UMSS4(1) (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 $1.09 -- Number of accumulation units outstanding at end of period (000 omitted) 15 -- Ratio of operating expense to average net assets 1.35% -- Subaccount UDMS1(1),(3) (Investing in shares of FTVIPT Templeton Developing Markets Securities Fund - Class 2) Accumulation unit value at beginning of period $1.00 -- Accumulation unit value at end of period $0.87 -- Number of accumulation units outstanding at end of period (000 omitted) -- -- Ratio of operating expense to average net assets 1.00% -- Subaccount UDMS4(1) (Investing in shares of FTVIPT Templeton Developing Markets Securities Fund - Class 2) Accumulation unit value at beginning of period $1.00 -- Accumulation unit value at end of period $0.87 -- Number of accumulation units outstanding at end of period (000 omitted) 7 -- Ratio of operating expense to average net assets 1.35% -- Subaccount UINT1(1) (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 $1.02 -- Number of accumulation units outstanding at end of period (000 omitted) 22 -- Ratio of operating expense to average net assets 1.00% -- Subaccount UINT4(1) (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 $1.02 -- Number of accumulation units outstanding at end of period (000 omitted) 53 -- Ratio of operating expense to average net assets 1.35% -- Subaccount UGRS1(1) (Investing in shares of MFS(R)Investors Growth Stock Series - Service Class(4)) Accumulation unit value at beginning of period $1.00 -- Accumulation unit value at end of period $0.95 -- Number of accumulation units outstanding at end of period (000 omitted) 3 -- Ratio of operating expense to average net assets 1.00% -- Subaccount UGRS4(1) (Investing in shares of MFS(R)Investors Growth Stock Series - Service Class(4)) Accumulation unit value at beginning of period $1.00 -- Accumulation unit value at end of period $0.95 -- Number of accumulation units outstanding at end of period (000 omitted) 187 -- Ratio of operating expense to average net assets 1.35% -- Subaccount UNDS1(1) (Investing in shares of MFS(R)New Discovery Series - Service Class) Accumulation unit value at beginning of period $1.00 -- Accumulation unit value at end of period $1.01 -- Number of accumulation units outstanding at end of period (000 omitted) 27 -- Ratio of operating expense to average net assets 1.00% --
-------------------------------------------------------------------------------- AMERICAN EXPRESS NEW SOLUTIONS VARIABLE ANNUITY -- PROSPECTUS 31
Year ended Dec. 31, 2000 1999 Subaccount UNDS4(1) (Investing in shares of MFS(R)New Discovery Series - Service Class) Accumulation unit value at beginning of period $1.00 -- Accumulation unit value at end of period $1.01 -- Number of accumulation units outstanding at end of period (000 omitted) 76 -- Ratio of operating expense to average net assets 1.35% -- Subaccount UTRS1(1) (Investing in shares of MFS(R)Total Return Series - Service Class) Accumulation unit value at beginning of period $1.00 -- Accumulation unit value at end of period $1.12 -- Number of accumulation units outstanding at end of period (000 omitted) 45 -- Ratio of operating expense to average net assets 1.00% -- Subaccount UTRS4(1) (Investing in shares of MFS(R)Total Return Series - Service Class) 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 (000 omitted) 141 -- Ratio of operating expense to average net assets 1.35% -- Subaccount UGIN1(1),(3) (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 $1.07 -- Number of accumulation units outstanding at end of period (000 omitted) -- -- Ratio of operating expense to average net assets 1.00% -- Subaccount UGIN4(1) (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 $1.07 -- Number of accumulation units outstanding at end of period (000 omitted) 17 -- Ratio of operating expense to average net assets 1.35% -- Subaccount UINO1(1) (Investing in shares of Putnam VT International New Opportunities Fund - Class IB Shares) Accumulation unit value at beginning of period $1.00 -- Accumulation unit value at end of period $0.76 -- Number of accumulation units outstanding at end of period (000 omitted) 63 -- Ratio of operating expense to average net assets 1.00% -- Subaccount UINO4(1) (Investing in shares of Putnam VT International New Opportunities Fund - Class IB Shares) Accumulation unit value at beginning of period $1.00 -- Accumulation unit value at end of period $0.76 -- Number of accumulation units outstanding at end of period (000 omitted) 155 -- Ratio of operating expense to average net assets 1.35% -- Subaccount UVIS1(1) (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 $0.92 -- Number of accumulation units outstanding at end of period (000 omitted) 35 -- Ratio of operating expense to average net assets 1.00% -- Subaccount UVIS4(1) (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 $0.92 -- Number of accumulation units outstanding at end of period (000 omitted) 487 -- Ratio of operating expense to average net assets 1.35% -- (1) Operations commenced on May 30, 2000. (2) Net of annual contract administrative charge and mortality and expense risk fee. (3) The subaccount had no contract activity as of Dec. 31, 2000. (4) Previously named MFS(R)Growth Series.
-------------------------------------------------------------------------------- 32 AMERICAN EXPRESS NEW SOLUTIONS VARIABLE ANNUITY -- PROSPECTUS Financial Statements You can find the audited financial statements of the subaccounts with financial history in the SAI. You can find our audited financial statements later in this prospectus. Performance Information Performance information for the subaccounts may appear from time to time in advertisements or sales literature. This information reflects the performance of a hypothetical investment in a particular subaccount during a specified time period. We show actual performance from the date the subaccounts began investing in funds. 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 do not reflect any purchase payment credits or performance credits. We may show total return quotations by means of schedules, charts or graphs. Total return figures reflect deduction of the following charges: o contract administrative charge, o variable account administrative charge, o applicable mortality and expense risk fee, o Maximum Anniversary Value Death Benefit Rider fee, o Guaranteed Minimum Income Benefit Rider fee, o Benefit Protector(SM) Plus Death Benefit Rider fee, and o withdrawal charge (assuming a withdrawal at the end of the illustrated period). We may also show optional total return quotations that reflect deduction of the Performance Credit Rider fee and/or the Benefit Protector(SM) Death Benefit Rider fee. We also show optional total return quotations that do not reflect deduction of the withdrawal charge (assuming no withdrawal), or fees for any of the optional features. 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. -------------------------------------------------------------------------------- AMERICAN EXPRESS NEW SOLUTIONS VARIABLE ANNUITY -- PROSPECTUS 33 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:
--------------- ---------------- ---------------------------------------- ---------------------------------- Subaccount Investing In Investment Objectives and Policies Investment Advisor or Manager --------------- ---------------- ---------------------------------------- ---------------------------------- --------------- ---------------- ---------------------------------------- ---------------------------------- UCMG1 UCMG2 AXP(R)Variable Objective: maximum current income IDS Life Insurance Company (IDS UCMG4 PCMG1 Portfolio - consistent with liquidity and Life), investment manager; Cash stability of principal. Invests in American Express Financial Management Fund money market securities. Corporation (AEFC), investment advisor. --------------- ---------------- ---------------------------------------- ---------------------------------- --------------- ---------------- ---------------------------------------- ---------------------------------- UFIF1 UFIF2 AXP(R)Variable Objective: a high level of current IDS Life, investment manager; UFIF3 UFIF4 Portfolio - income and safety of principal AEFC, investment advisor. Federal Income consistent with an investment in U.S. Fund government and government agency securities. Invests primarily in debt obligations issued or guaranteed as to principal and interest by the U.S. government, its agencies or instrumentalities. --------------- ---------------- ---------------------------------------- ---------------------------------- --------------- ---------------- ---------------------------------------- ---------------------------------- UMGD1 UMGD2 AXP(R)Variable Objective: maximum total investment IDS Life, investment manager; UMGD4 PMGD1 Portfolio - return through a combination of AEFC, investment advisor. Managed Fund capital growth and current income. Invests primarily in a combination of common and preferred stocks, convertible securities, bonds and other debt securities. --------------- ---------------- ---------------------------------------- ---------------------------------- --------------- ---------------- ---------------------------------------- ---------------------------------- UNDM1 UNDM2 AXP(R)Variable Objective: long-term growth of IDS Life, investment manager; UNDM4 PNDM1 Portfolio - capital. Invests primarily in common AEFC, investment advisor. New Dimensions stocks of U.S. and foreign companies Fund(R) showing potential for significant growth. --------------- ---------------- ---------------------------------------- ---------------------------------- --------------- ---------------- ---------------------------------------- ---------------------------------- USPF1 USPF2 AXP(R)Variable Objective: long-term capital IDS Life, investment manager; USPF3 USPF4 Portfolio - appreciation. Invests primarily in AEFC, investment advisor. S&P 500 Index securities that are expected to Fund provide investment results that correspond to the performance of the S&P 500 Index. --------------- ---------------- ---------------------------------------- ---------------------------------- --------------- ---------------- ---------------------------------------- ---------------------------------- USCA1 USCA2 AXP(R)Variable Objective: long-term capital growth. IDS Life, investment manager; USCA4 PSCA1 Portfolio - Invests primarily in equity securities AEFC, investment advisor; Small Cap of small companies that are often Kenwood Capital Management LLC, Advantage Fund included in the S&P SmallCap 600 sub-investment advisor. Index or the Russell 2000 Index. --------------- ---------------- ---------------------------------------- ---------------------------------- --------------- ---------------- ---------------------------------------- ---------------------------------- UCAP1 UCAP2 AIM V.I. Objective: growth of capital. Invests A I M Advisors, Inc. UCAP4 PCAP1 Capital mainly in common stocks of companies Appreciation likely to benefit from new or Fund innovative products, services or processes as well as those with above-average growth and excellent prospects for future growth. --------------- ---------------- ---------------------------------------- ---------------------------------- --------------- ---------------- ---------------------------------------- ---------------------------------- UDDT1 UDDT2 AIM V.I. Dent Objective: long term growth of A I M Advisors, Inc. UDDT3 UDDT4 Demographic capital. Seeks to meet its objective Trends Fund by investing in securities of companies that are likely to benefit from changing demographic, economic, and lifestyle trends. --------------- ---------------- ---------------------------------------- ----------------------------------
-------------------------------------------------------------------------------- 34 AMERICAN EXPRESS NEW SOLUTIONS VARIABLE ANNUITY -- PROSPECTUS
--------------- ---------------- ---------------------------------------- ---------------------------------- Subaccount Investing In Investment Objectives and Policies Investment Advisor or Manager --------------- ---------------- ---------------------------------------- ---------------------------------- --------------- ---------------- ---------------------------------------- ---------------------------------- UVAL1 UVAL2 AIM V.I. Value Objective: long-term growth of capital A I M Advisors, Inc. UVAL4 PVAL1 Fund with income as a secondary objective. Invests primarily in equity securities judged to be undervalued relative to the investment advisor's appraisal of the current or projected earnings of the companies issuing the securities, or relative to current market values of assets owned by the companies issuing the securities, or relative to the equity market generally. --------------- ---------------- ---------------------------------------- ---------------------------------- --------------- ---------------- ---------------------------------------- ---------------------------------- UGIP1 UGIP2 Alliance VP Objective: reasonable current income Alliance Capital Management, L.P. UGIP3 UGIP4 Growth & and reasonable appreciation. Invests Income primarily in dividend-paying common Portfolio stocks of good quality. (Class B) --------------- ---------------- ---------------------------------------- ---------------------------------- --------------- ---------------- ---------------------------------------- ---------------------------------- UPRG1 UPRG2 Alliance VP Objective: long-term growth of capital Alliance Capital Management, L.P. UPRG3 UPRG4 Premier Growth by pursuing aggressive investment Portfolio policies. Invests primarily in equity (Class B) securities of a limited number of large, carefully selected, high-quality U.S. companies that are judged likely to achieve superior earnings growth. --------------- ---------------- ---------------------------------------- ---------------------------------- --------------- ---------------- ---------------------------------------- ---------------------------------- UTEC1 UTEC2 Alliance VP Objective: growth of capital. Current Alliance Capital Management, L.P. UTEC3 UTEC4 Technology income is only an incidental Portfolio consideration. Invests primarily in (Class B) securities of companies expected to benefit from technological advances and improvements. --------------- ---------------- ---------------------------------------- ---------------------------------- --------------- ---------------- ---------------------------------------- ---------------------------------- UEGL1 UEGL2 Evergreen VA Objective: long-term capital growth. Evergreen Investment Management UEGL3 UEGL4 Global Leaders Invests primarily in a diversified Company, LLC Fund portfolio of equity securities of companies located in the world's major industrialized countries. The Fund will make investments in no less than three countries, which may include the U.S., but may invest more than 25% of its total assets in one country. --------------- ---------------- ---------------------------------------- ---------------------------------- --------------- ---------------- ---------------------------------------- ---------------------------------- UEGI1 UEGI2 Evergreen VA Objective: capital growth in the value Evergreen Investment Management UEGI3 UEGI4 Growth and of its shares and current income. Company, LLC Income Fund Invests in primarily common stocks of mid-sized U.S. companies. The Fund's stock selection is based on a diversified style of equity management that allows it to invest in both value and growth oriented equity securities. --------------- ---------------- ---------------------------------------- ----------------------------------
-------------------------------------------------------------------------------- AMERICAN EXPRESS NEW SOLUTIONS VARIABLE ANNUITY -- PROSPECTUS 35
--------------- ---------------- ---------------------------------------- ---------------------------------- Subaccount Investing In Investment Objectives and Policies Investment Advisor or Manager --------------- ---------------- ---------------------------------------- ---------------------------------- --------------- ---------------- ---------------------------------------- ---------------------------------- UEMS1 UEMS2 Evergreen VA Objective: long-term capital growth. Evergreen Investment Management, UEMS3 UEMS4 Masters Fund The portfolio's assets are invested on investment advisor; Evergreen an approximately equal basis among the Investment Management Company, following four styles, each LLC, MFS Institutional Advisors implemented by a different Inc., OppenheimerFunds, Inc. and sub-investment advisor: 1) equity Putnam Investment Management, securities of U.S. and foreign Inc. sub-investment advisors. companies that are temporarily undervalued; 2) equity securities expected to show growth above that of the overall economy and inflation; 3) blended growth and value-oriented strategy focusing on foreign and domestic large-cap equity securities; and 4) growth oriented strategy focusing on large-cap equity securities of U.S. and foreign issuers. --------------- ---------------- ---------------------------------------- ---------------------------------- --------------- ---------------- ---------------------------------------- ---------------------------------- UEOM1 UEOM2 Evergreen VA Objective: long-term capital growth. Evergreen Investment Management UEOM3 UEOM4 Omega Fund Invests primarily in common stocks of Company, LLC U.S. companies across all market capitalizations. --------------- ---------------- ---------------------------------------- ---------------------------------- --------------- ---------------- ---------------------------------------- ---------------------------------- UESC1 UESC2 Evergreen VA Objective: current income and capital Evergreen Investment Management UESC3 UESC4 Small Cap growth. Invests primarily in equity Company, LLC Value Fund securities of small U.S. companies (less than $1.5 billion in market capitalization). The Fund's equity securities will include common stocks and securities convertible into common stock. --------------- ---------------- ---------------------------------------- ---------------------------------- --------------- ---------------- ---------------------------------------- ---------------------------------- UESI1 UESI2 Evergreen VA Objective: high current income from Evergreen Investment Management UESI3 UESI4 Strategic interest on debt securities with a Company, LLC Income Fund secondary objective of potential for growth of capital. Invests primarily in domestic high-yield, high-risk bonds and debt securities of foreign governments and corporations. --------------- ---------------- ---------------------------------------- ---------------------------------- --------------- ---------------- ---------------------------------------- ---------------------------------- UMDC1 UMDC2 Fidelity VIP Objective: long-term growth of FMR investment manager; FMR U.K. UMDC4 PMDC1 III Mid Cap capital. Invests primarily in medium and FMR Far East, sub-investment Portfolio market capitalization common stocks. advisors. (Service Class) --------------- ---------------- ---------------------------------------- ---------------------------------- --------------- ---------------- ---------------------------------------- ---------------------------------- UCOF1 UCOF2 Fidelity VIP Objective: long-term capital FMR Investment manager; FMR U.K. UCOF3 UCOF4 Contrafund(R) appreciation. Invests primarily in and FMR Far East, sub-investment Portfolio common stocks of foreign and domestic advisors. (Service Class) companies whose value is not fully recognized by the public. --------------- ---------------- ---------------------------------------- ---------------------------------- --------------- ---------------- ---------------------------------------- ---------------------------------- UHIP1 UHIP2 Fidelity VIP Objective: high level of current FMR Investment manager; FMR U.K. UHIP3 UHIP4 High Income income while also considering growth and FMR Far East, sub-investment Portfolio of capital. Invests primarily in advisors. (Service Class) foreign and domestic issued income-producing debt securities, preferred stocks and convertible securities, with an emphasis on lower-quality debt securities. Invests in companies in troubled or uncertain financial condition. --------------- ---------------- ---------------------------------------- ----------------------------------
-------------------------------------------------------------------------------- 36 AMERICAN EXPRESS NEW SOLUTIONS VARIABLE ANNUITY -- PROSPECTUS
--------------- ---------------- ---------------------------------------- ---------------------------------- Subaccount Investing In Investment Objectives and Policies Investment Advisor or Manager --------------- ---------------- ---------------------------------------- ---------------------------------- --------------- ---------------- ---------------------------------------- ---------------------------------- USMC1 USMC2 FTVIPT Objective: long-term capital growth. Franklin Advisers, Inc. USMC4 PSMC1 Franklin Small Invests primarily in equity securities Cap Fund - of U.S. small capitalization (small Class 2 cap) companies with market cap values not exceeding (i) $1.5 billion, or (ii) the highest market cap value in the Russell 2000(R) Index, whichever is greater, at the time of purchase. --------------- ---------------- ---------------------------------------- ---------------------------------- --------------- ---------------- ---------------------------------------- ---------------------------------- UMSS1 UMSS2 FTVIPT Mutual Objective: capital appreciation, with Franklin Mutual Advisers, LLC UMSS4 PMSS1 Shares income as a secondary goal. Invests Securities primarily in equity securities of Fund - Class 2 companies that the manager believes are available at market prices less than their value based on certain recognized or objective criteria (intrinsic value). --------------- ---------------- ---------------------------------------- ---------------------------------- --------------- ---------------- ---------------------------------------- ---------------------------------- UDMS1 UDMS2 FTVIPT Objective: long-term capital Templeton Asset Management Ltd. UDMS3 UDMS4 Templeton appreciation. Invests primarily in Developing emerging markets equity securities. Markets Securities Fund - Class 2 --------------- ---------------- ---------------------------------------- ---------------------------------- --------------- ---------------- ---------------------------------------- ---------------------------------- UINT1 UINT2 FTVIPT Objective: long-term capital growth. Templeton Investment Counsel, LLC UINT3 UINT4 Templeton Invests primarily in equity securities International of companies located outside the U.S., Securities including those in emerging markets. Fund - Class 2 --------------- ---------------- ---------------------------------------- ---------------------------------- --------------- ---------------- ---------------------------------------- ---------------------------------- UGRS1 UGRS2 MFS(R)Investors Objective: long-term growth of capital MFS Investment Management(R) UGRS3 UGRS4 Growth Stock and future income. Invests at least Series - 80% of its total assets in common Service Class stocks and related securities of (previously companies which MFS believes offer MFS(R) Growth better than average prospects for Series) long-term growth. --------------- ---------------- ---------------------------------------- ---------------------------------- --------------- ---------------- ---------------------------------------- ---------------------------------- UNDS1 UNDS2 MFS(R)New Objective: capital appreciation. MFS Investment Management(R) UNDS4 PSND1 Discovery Invests primarily in equity securities Series - of emerging growth companies. Service Class --------------- ---------------- ---------------------------------------- ---------------------------------- --------------- ---------------- ---------------------------------------- ---------------------------------- UTRS1 UTRS2 MFS(R)Total Objective: above-average income MFS Investment Management(R) UTRS4 PSTR1 Return Series consistent with the prudent employment - Service Class of capital, with growth of capital and income as a secondary objective. Invests primarily in a combination of equity and fixed income securities. --------------- ---------------- ---------------------------------------- ---------------------------------- --------------- ---------------- ---------------------------------------- ---------------------------------- UGIN1 UGIN2 Putnam VT Objective: capital growth and current Putnam Investment Management, LLC UGIN4 PGIN1 Growth and income. Invests mainly in common Income Fund - stocks of U.S. companies with a focus Class IB Shares on value stocks that offer the potential for capital growth, current income, or both. --------------- ---------------- ---------------------------------------- ---------------------------------- --------------- ---------------- ---------------------------------------- ---------------------------------- UINO1 UINO2 Putnam VT Objective: long-term capital Putnam Investment Management, LLC UINO3 UINO4 International appreciation by investing in common New stocks of companies outside the U.S. Opportunities that Putnam Investment Management, LLC Fund - Class (Putnam Management) believes are IB Shares fast-growing and whose earnings are likely to increase over time. --------------- ---------------- ---------------------------------------- ----------------------------------
-------------------------------------------------------------------------------- AMERICAN EXPRESS NEW SOLUTIONS VARIABLE ANNUITY -- PROSPECTUS 37
--------------- ---------------- ---------------------------------------- ---------------------------------- Subaccount Investing In Investment Objectives and Policies Investment Advisor or Manager --------------- ---------------- ---------------------------------------- ---------------------------------- --------------- ---------------- ---------------------------------------- ---------------------------------- UVIS1 UVIS2 Putnam VT Objective: capital appreciation. Putnam Investment Management, LLC UVIS3 UVIS4 Vista Fund - Invests mainly in common stocks of Class IB Shares mid-sized U.S. companies with a focus on growth stocks. --------------- ---------------- ---------------------------------------- ----------------------------------
A fund underlying your contract in which a subaccount invests may have a name, portfolio manager, objectives, strategies and characteristics that are the same or substantially similar to those of a publicly-traded retail mutual fund. Despite these similarities, an underlying fund is not the same as any publicly-traded retail mutual fund. Each underlying fund will have its own unique portfolio holdings, fees, operating expenses and operating results. The results of each underlying fund may differ significantly from any publicly-traded retail mutual fund. The investment managers and advisors cannot guarantee that the funds will meet their investment objectives. Please read the funds' prospectuses for facts you should know before investing. These prospectuses are also available by contacting us at the address or telephone number on the first page of this prospectus. All funds are available to serve as the underlying investments for variable annuities. Some funds also are available to serve as investment options for variable life insurance policies and tax-deferred retirement plans. It is possible that in the future, it may be disadvantageous for variable annuity accounts and variable life insurance accounts and/or tax-deferred retirement plans to invest in the available funds simultaneously. Although the insurance company and the funds do not currently foresee any such disadvantages, the boards of directors or trustees of the appropriate funds will monitor events in order to identify any material conflicts between annuity owners, policy owners and tax-deferred retirement plans and to determine what action, if any, should be taken in response to a conflict. If a board were to conclude that it should establish separate funds for the variable annuity, variable life insurance and tax-deferred retirement plan accounts, you would not bear any expenses associated with establishing separate funds. Please refer to the funds' prospectuses for risk disclosure regarding simultaneous investments by variable annuity, variable life insurance and tax-deferred retirement plan accounts. The Internal Revenue Service (IRS) issued final regulations relating to the diversification requirements under Section 817(h) of the Code. Each fund intends to comply with these requirements. The variable account was established under Indiana law on July 15, 1987, and the subaccounts are registered together as a single unit investment trust under the Investment Company Act of 1940 (the 1940 Act). This registration does not involve any supervision of our management or investment practices and policies by the SEC. All obligations arising under the contracts are general obligations of American Enterprise Life. The variable account meets the definition of a separate account under federal securities laws. We credit or charge income, capital gains and capital losses of each subaccount only to that subaccount. State insurance law prohibits us from charging a subaccount with liabilities of any other subaccount or of our general business. The variable account includes other subaccounts that are available under contracts that are not described in this prospectus. The U.S. Treasury and the IRS indicated that they may provide additional guidance on investment control. This concerns how many variable subaccounts an insurance company may offer and how many exchanges among subaccounts it may allow before the contract owner would be currently taxed on income earned within subaccount assets. At this time, we do not know what the additional guidance will be or when action will be taken. We reserve the right to modify the contract, as necessary, so that the owner will not be subject to current taxation as the owner of the subaccount assets. We intend to comply with all federal tax laws so that the contract continues to qualify as an annuity for federal income tax purposes. We reserve the right to modify the contract as necessary to comply with any new tax laws. -------------------------------------------------------------------------------- 38 AMERICAN EXPRESS NEW SOLUTIONS VARIABLE ANNUITY -- PROSPECTUS The Fixed Accounts The fixed accounts are not available for contracts issued in Pennsylvania. GUARANTEE PERIOD ACCOUNTS (GPAS) The GPAs are not available for contracts issued in Maryland. Any reference in this prospectus to the GPAs, and any contract features or benefits associated with the GPAs are deleted for contracts issued in Maryland. You may allocate purchase payments to one or more of the GPAs with Guarantee Periods ranging from two to ten years. These accounts are not available in all states and are not offered after annuity payouts begin. Some states also restrict the amount you can allocate to these accounts. Each GPA pays an interest rate that is declared when you allocate money to that account. That interest rate is then fixed for the Guarantee Period that you chose. We will periodically change the declared interest rate for any future allocations to these accounts, but we will not change the rate paid on money currently in a GPA. The minimum guaranteed interest rate on the GPAs is 3%. The interest rates that we will declare as guaranteed rates in the future are determined by us at our discretion. We will determine these rates based on various factors including, but not limited to, the interest rate environment, returns earned on investments backing these annuities, the rates currently in effect for new and existing American Enterprise Life annuities, product design, competition and American Enterprise Life's revenues and other expenses. We cannot predict nor can we guarantee future guaranteed interest rates above the 3% rate. You may transfer or withdraw contract value out of the GPAs within 30 days before the end of the Guarantee Period without receiving a MVA (see "Market Value Adjustment (MVA)" below.) At that time you may choose to start a new Guarantee Period of the same length, transfer the contract value to another GPA, transfer the contract value to any of the subaccounts, or withdraw the contract value from the contract (subject to applicable withdrawal provisions). If we do not receive any instructions at the end of your Guarantee Period, we will automatically transfer the contract value into the one-year fixed account. We hold amounts you allocate to the GPAs in a "nonunitized" separate account we have established under the Indiana Insurance Code. This separate account provides an additional measure of assurance that we will make full payment of amounts due under the GPAs. State insurance law prohibits us from charging this separate account with liabilities of any other separate account or of our general business. We own the assets of this separate account as well as any favorable investment performance of those assets. You do not participate in the performance of the assets held in this separate account. We guarantee all benefits relating to your value in the GPAs. This guarantee is based on the continued claims-paying ability of the company. We intend to construct and manage the investment portfolio relating to the separate account using a strategy known as "immunization." Immunization seeks to lock in a defined return on the pool of assets versus the pool of liabilities over a specified time horizon. Since the return on the assets versus the liabilities is locked in, it is "immune" to any potential fluctuations in interest rates during the given time. We achieve immunization by constructing a portfolio of assets with a price sensitivity to interest rate changes (i.e., price duration) that is essentially equal to the price duration of the corresponding portfolio of liabilities. Portfolio immunization provides us with flexibility and efficiency in creating and managing the asset portfolio, while still assuring safety and soundness for funding liability obligations. We must invest this portfolio of assets in accordance with requirements established by applicable state laws regarding the nature and quality of investments that life insurance companies may make and the percentage of their assets that they may commit to any particular type of investment. Our investment strategy will incorporate the use of a variety of debt instruments having price durations tending to match the applicable Guarantee Periods. These instruments include, but are not necessarily limited to, the following: o Securities issued by the U.S. government or its agencies or instrumentalities, which issues may or may not be guaranteed by the U.S. government; o Debt securities that have an investment grade, at the time of purchase, within the four highest grades assigned by any of three nationally recognized rating agencies -- Standard & Poor's, Moody's Investors Service or Fitch (formerly Duff & Phelps) -- or are rated in the two highest grades by the National Association of Insurance Commissioners; o Other debt instruments which are unrated or rated below investment grade, limited to 10% of assets at the time of purchase; and o Real estate mortgages, limited to 45% of portfolio assets at the time of acquisition. In addition, options and futures contracts on fixed income securities will be used from time to time to achieve and maintain appropriate investment and liquidity characteristics on the overall asset portfolio. While this information generally describes our investment strategy, we are not obligated to follow any particular strategy except as may be required by federal law and Indiana and other state insurance laws. -------------------------------------------------------------------------------- AMERICAN EXPRESS NEW SOLUTIONS VARIABLE ANNUITY -- PROSPECTUS 39 MARKET VALUE ADJUSTMENT (MVA) We guarantee the contract value allocated to your GPA, including the interest credited, if you do not make any transfers or withdrawals from that GPA prior to 30 days before the end of the Guarantee Period. However, we will apply an MVA if a transfer or withdrawal occurs prior to this time. The MVA also affects amounts withdrawn from a GPA prior to 30 days before the end of the Guarantee Period that are used to purchase payouts under an annuity payout plan. We will refer to all of these transactions as "early withdrawals" in the discussion below. When you request an early withdrawal, we adjust the early withdrawal amount by an MVA formula. The early withdrawal amount reflects the relationship between the guaranteed interest rate you are earning in your current GPA and the interest rate we are crediting on new GPAs that end at the same time as your current GPA. The MVA is sensitive to changes in current interest rates. The magnitude of any applicable MVA will depend on our current schedule of guaranteed interest rates at the time of the withdrawal, the time remaining in your Guarantee Period and your guaranteed interest rate. The MVA is negative, zero or positive depending on how the guaranteed interest rate on your GPA compares to the interest rate of a new GPA for the same number of years as the Guarantee Period remaining on your GPA. Before we look at the MVA formula, it may help to look in a general way at how comparing your GPA's guaranteed rate and the rate for a new GPA affects the MVA. Relationship between your GPA's guaranteed rate and the new GPA for the same time as the Guarantee Period remaining on your GPA: If your GPA rate is: The MVA is: Less than the new GPA rate + 0.10% Negative Equal to the new GPA rate + 0.10% Zero Greater than the new GPA rate + 0.10% Positive General Examples Assume: o You purchase a contract and allocate part of your purchase payment to the ten-year GPA. o We guarantee an interest rate of 4.5% annually for your ten-year Guarantee Period. o After three years, you decide to make a withdrawal from your GPA. In other words, there are seven years left in your Guarantee Period. Remember that the MVA depends partly on the interest rate of a new GPA for the same number of years as the Guarantee Period remaining on your GPA. In this case, that is seven years. Example 1: Remember that your GPA is earning 4.5%. Assume at the time of your withdrawal new GPAs that we offer with a seven-year Guarantee Period are earning 5.0%. We add 0.10% to the 5.0% rate to get 5.10%. Your GPA's 4.5% rate is less than the 5.10% rate and, as reflected in the table above, the MVA will be negative. Example 2: Remember again that your GPA is earning 4.5%, and assume that new GPAs that we offer with a seven-year Guarantee Period are earning 4.0%. We add 0.10% to the 4.0% rate to get 4.10%. In this example, since your GPA's 4.5% rate is greater than the 4.10% rate, the MVA will be positive. To determine that adjustment precisely, you will have to use the formula described below. Sample MVA Calculations: The precise MVA formula we apply is as follows: 1 + i to the power of n/12 EARLY WITHDRAWAL AMOUNT x [( ------------ )- 1] = MVA 1 + j + .001 Where i = rate earned in the GPA from which amounts are being transferred or withdrawn. j = current rate for a new Guaranteed Period equal to the remaining term in the current Guarantee Period. n = number of months remaining in the current Guarantee Period (rounded up). -------------------------------------------------------------------------------- 40 AMERICAN EXPRESS NEW SOLUTIONS VARIABLE ANNUITY -- PROSPECTUS Examples Using assumptions similar to those we used in the examples above: o You purchase a contract and allocate part of your purchase payment to the ten-year GPA. o We guarantee an interest rate of 4.5% annually for your ten-year Guarantee Period. o After three years, you decide to make a $1,000 withdrawal from your GPA. In other words, there are seven years left in your Guarantee Period. Example 1: You request an early withdrawal of $1,000 from your ten-year GPA earning a guaranteed interest rate of 4.5%. Assume at the time of your withdrawal new GPAs that we offer with a seven-year Guarantee Period are earning 5.0%. Using the formula above, we determine the MVA as follows: 1.045 to the power of 84/12 $1,000 x [( -------------- )- 1] = -$39.28 1 + .05 + .001 In this example, the MVA is a negative $39.28. Example 2: You request an early withdrawal of $1,000 from your ten-year GPA earning a guaranteed interest rate of 4.5%. Assume at the time of your withdrawal new GPAs that we offer with a seven-year Guarantee Period are earning 4.0%. Using the formula above, we determine the MVA as follows: 1.045 to the power of 84/12 $1,000 x [( -------------- )- 1] = $27.21 1 + .04 + .001 In this example, the MVA is a positive $27.21. Please note that when you allocate your purchase payment to the ten-year GPA and you have begun your fourth contract year at the beginning of the Guarantee Period, your withdrawal charge percentage is 7%. (See "Charges -- Withdrawal Charge.") We do not apply MVAs to the amounts we deduct for withdrawal charges, so we would deduct the withdrawal charge from your early withdrawal after we applied the MVA. Also note that when you request an early withdrawal, we withdraw an amount from your GPA that will give you the net amount you requested after we apply the MVA and any applicable withdrawal charge, unless you request otherwise. The current interest rate we offer on the GPA will change periodically at our discretion. It is the rate we are then paying on purchase payments, renewals and transfers paid under this class of contracts for Guarantee Period durations equaling the remaining Guarantee Period of the GPA to which the formula is being applied. We will not apply MVAs to amounts withdrawn for the annual contract administrative charge, to amounts we pay as death claims or to automatic transfers from the two-year Guarantee Period Account. In some states, the MVA is limited. THE ONE-YEAR FIXED ACCOUNT You may also allocate purchase payments or transfer accumulated value to the one-year fixed account. Some states may restrict the amount you can allocate to this account. We back the principal and interest guarantees relating to the one-year fixed account. These guarantees are based on the continued claims-paying ability of the company. The value of the one-year fixed account increases as we credit interest to the account. Purchase payments and transfers to the one-year fixed account become part of our general account. We credit and compound interest daily to produce the annual effective rate which we declare. The interest rate we apply to each purchase payment or transfer to the one-year fixed account is guaranteed for one year. Thereafter we will change the 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 American Enterprise Life annuities, product design, competition, and American Enterprise Life's revenues and expenses. We will credit an interest rate bonus of 1% over our current interest crediting rate on each new purchase payment you make to the one-year fixed account. This 1% interest rate bonus will apply for a one-year period that begins on the date you make that purchase payment. At the end of the one-year period, we will change the interest rate that applies to that purchase payment as described above and we will no longer credit the 1% interest rate bonus. The 1% interest rate bonus may be more than offset by higher fees and charges (especially the withdrawal charge) associated with the bonus or by the withdrawal charges of another annuity contract you are replacing. Transfers or other allocations into the one-year fixed account are not eligible for the interest rate bonus. Interest in the one-year fixed account is not required to be registered with the SEC. However, the Market Value Adjustment interests under the contracts are registered with the SEC. The SEC staff does not review the disclosures in this prospectus on the one-year fixed account (but the SEC does review the disclosures in this prospectus on the Market Value Adjustment interests). Disclosures regarding the one-year fixed account, however, may be subject to certain generally applicable provisions of the federal securities laws relating to the accuracy and completeness of statements made in prospectuses. (See "Making the Most of Your Contract -- Transfer policies" for restrictions on transfers involving the one-year fixed account.) -------------------------------------------------------------------------------- AMERICAN EXPRESS NEW SOLUTIONS VARIABLE ANNUITY -- PROSPECTUS 41 Buying Your Contract Your sales representative will help you complete and submit an application and send it along with your initial purchase payment to our office. As the owner, you have all rights and may receive all benefits under the contract. You can own a nonqualified annuity in joint tenancy with rights of survivorship only in spousal situations. You cannot own a qualified annuity in joint tenancy. You can buy a contract or become an annuitant if you are 85 or younger. (The age limit may be younger for qualified annuities in some states.) When you apply, you may select (if available in your state): o the one-year fixed account, Guarantee Period Accounts and/or subaccounts in which you want to invest(1); o how you want to make purchase payments; o the optional Maximum Anniversary Value Death Benefit Rider(2); o an optional Guaranteed Minimum Income Benefit Rider(3); o the optional Performance Credit Rider(3); o the optional Benefit Protector(SM) Death Benefit Rider(4); o the optional Benefit Protector(SM) Plus Death Benefit Rider(4); and o a beneficiary. (1) Fixed accounts are not available under contracts issued in Pennsylvania. Guarantee Period Accounts are not available under contracts issued in Maryland. (2) Available if both you and the annuitant are 79 or younger at contract issue. May not be available in all states. (3) You may select either the GMIB or the PCR, but not both. Riders may not be available in all states. The GMIB is available if the annuitant is 75 or younger at contact issue. If you select the GMIB you must select the MAV rider. (4) Available if you and the annuitant are 75 or younger at contract issue. These riders will be available until Aug. 15, 2001 and they may not be available in all states. The contract provides for allocation of purchase payments to the subaccounts of the variable account and/or to the fixed accounts in even 1% increments. If your application is complete, we will process it and apply your purchase payment to the fixed accounts and subaccounts you selected within two business days after we receive it at our office. If we accept your application, we will send you a contract. If we cannot accept your application within five business days, we will decline it and return your payment. We will credit additional purchase payments you make to your accounts on the valuation date we receive them. We will value the additional payments at the next accumulation unit value calculated after we receive your payments at our office. You may make monthly payments to your contract under a Systematic Investment Plan (SIP). To begin the SIP, you will complete and send a form and your first SIP payment along with your application. There is no charge for SIP. You can stop your SIP payments at any time. In most states, you may make additional purchase payments to nonqualified and qualified annuities until the retirement date. THE RETIREMENT DATE Annuity payouts are scheduled to begin on the retirement date. When we process your application, we will establish the retirement date to the maximum age or date described below. You can also select a date within the maximum limits. You can align this date with your actual retirement from a job, or it can be a different future date, depending on your needs and goals and on certain restrictions. You also can change the date, provided you send us written instructions at least 30 days before annuity payouts begin. For nonqualified annuities and Roth IRAs, the retirement date must be: o no earlier than the 30th day after the contract's effective date; and o no later than the annuitant's 85th birthday or the tenth contract anniversary, if purchased after age 75. For qualified annuities (except Roth IRAs), to avoid IRS penalty taxes, the retirement date generally must be: o on or after the date the annuitant reaches age 591/2; and o for IRAs and SEPs, by April 1 of the year following the calendar year when the annuitant reaches age 701/2. If you take the minimum IRA distribution as required by the Code from another tax-qualified investment, or in the form of partial withdrawals from this contract, annuity payouts can start as late as the annuitant's 85th birthday or the tenth contract anniversary, if later. BENEFICIARY We will pay your named beneficiary the death benefit if it becomes payable before the retirement date (while the contract is in force and before annuity payouts begin). If there is no named beneficiary, then you or your estate will be the beneficiary. (See "Benefits in Case of Death" for more about beneficiaries.) -------------------------------------------------------------------------------- 42 AMERICAN EXPRESS NEW SOLUTIONS VARIABLE ANNUITY -- PROSPECTUS PURCHASE PAYMENTS For contracts issued in Maryland, purchase payments are limited and may not be made after the first contract anniversary. Minimum purchase payments: If paying by SIP(1): $50 initial payment. $50 for additional payments. If paying by any other method: $5,000 initial payment for contracts issued in South Carolina, Texas and Washington. $2,000 initial payment for contracts issued in all other states. $100 for additional payments. (1) Payments made using SIP must total $2,000 before you can make partial withdrawals. Maximum total allowable purchase payments(2) (without prior approval): $1,000,000 (2) This limit applies in total to all American Enterprise Life annuities you own. We reserve the right to increase the maximum limit. For qualified annuities, the tax-deferred retirement plan's or the Code's limits on annual contributions also apply. HOW TO MAKE PURCHASE PAYMENTS 1 By letter: Send your check along with your name and contract number to: American Enterprise Life Insurance Company 829 AXP Financial Center Minneapolis, MN 55474 2 By SIP: Contact your sales representative to complete the necessary SIP paperwork. PURCHASE PAYMENT CREDITS You will generally receive a purchase payment credit with any payment you make to your contract that brings your total net payment (total payments less total withdrawals) to $100,000 or more. We apply a credit to your contract of 1% of your current payment. If you make any additional payments that cause the contract to be eligible for the credit, we will add credits to your prior purchase payments (less total withdrawals). We apply this credit immediately. We allocate the credit to the fixed accounts and subaccounts in the same proportions as your purchase payment. We fund the credit from our general account. We do not consider credits to be "investments" for income tax purposes. (See "Taxes.") We will reverse credits from the contract value for any purchase payment that is not honored (if, for example, your purchase payment check is returned for insufficient funds). To the extent a death benefit or withdrawal payment includes purchase payment credits applied within twelve months preceding: (1) the date of death that results in a lump sum death benefit under this contract; or (2) a request for withdrawal charge waiver due to "Contingent events" (see "Charges -- Contingent events"), we will assess a charge, similar to a withdrawal charge, equal to the amount of the purchase payment credits. The amount we pay to you under these circumstances will always equal or exceed your withdrawal value. The amount returned to you under the free look provision also will not include any credits applied to your contract. Because of higher charges, there may be circumstances where you may be worse off for having received the credit than in other contracts. All things being equal (such as guarantee availability or fund performance and availability), this may occur if you hold your contract for 15 years or more. This also may occur if you make a full withdrawal in the first seven years. You should consider these higher charges and other relevant factors before you buy this contract or before you exchange a contract you currently own for this contract. This credit is made available because of lower distribution and other expenses associated with larger sized contracts and through revenue from higher withdrawal charges and contract administrative charges than would otherwise be charged. In general, we do not profit from the higher charges assessed to cover the cost of the purchase payment credit. We use all the revenue from these higher charges to pay for the cost of the credits. However, we could profit from the higher charges if market appreciation is higher than expected or if contract owners hold their contracts for longer than expected. -------------------------------------------------------------------------------- AMERICAN EXPRESS NEW SOLUTIONS VARIABLE ANNUITY -- PROSPECTUS 43 Charges CONTRACT ADMINISTRATIVE CHARGE We charge this fee for establishing and maintaining your records. We deduct $40 from the contract value on your contract anniversary at the end of each contract year. We prorate this charge among the subaccounts and the fixed accounts in the same proportion your interest in each account bears to your total contract value. We will waive this charge when your contract value is $50,000 or more on the current contract anniversary. If you take a full withdrawal from your contract, we will deduct the charge at the time of withdrawal regardless of the contract value. We cannot increase the annual contract administrative charge and it does not apply after annuity payouts begin or when we pay death benefits. VARIABLE ACCOUNT ADMINISTRATIVE CHARGE We apply this charge daily to the subaccounts. It is reflected in the unit values of your subaccounts and it totals 0.15% of their average daily net assets on an annual basis. It covers certain administrative and operating expenses of the subaccounts such as accounting, legal and data processing fees and expenses involved in the preparation and distribution of reports and prospectuses. We cannot increase the variable account administrative charge. MORTALITY AND EXPENSE RISK FEE We charge this fee daily to the subaccounts. The unit values of your subaccounts reflect this fee. For qualified contracts, this fee totals 0.85% of their average daily net assets on an annual basis. For non-qualified contracts, this fee totals 1.10% of their average daily net assets on an annual basis. This fee covers the mortality and expense risk that we assume. Approximately two-thirds of this amount is for our assumption of mortality risk, and one-third is for our assumption of expense risk. If you choose the optional Maximum Anniversary Value Death Benefit Rider, we will charge an additional fee (see "Maximum Anniversary Value Death Benefit Rider Fee" below). These fees do not apply to the fixed accounts. We cannot increase these fees. Mortality risk arises because of our guarantee to pay a death benefit and our guarantee to make annuity payouts according to the terms of the contract, no matter how long a specific annuitant lives and no matter how long our entire group of annuitants live. If, as a group, annuitants outlive the life expectancy we assumed in our actuarial tables, then we must take money from our general assets to meet our obligations. If, as a group, annuitants do not live as long as expected, we could profit from the mortality risk fee. Expense risk arises because we cannot increase the contract administrative charge or the variable account administrative charge and these charges may not cover our expenses. We would have to make up any deficit from our general assets. We could profit from the expense risk fee if future expenses are less than expected. The subaccounts pay us the mortality and expense risk fee they accrued as follows: o first, to the extent possible, the subaccounts pay this fee from any dividends distributed from the funds in which they invest; o then, if necessary, the funds redeem shares to cover any remaining fees payable. We may use any profits we realize from the subaccounts' payment to us of the mortality and expense risk fee for any proper corporate purpose, including, among others, payment of distribution (selling) expenses. We do not expect that the withdrawal charge, discussed in the following paragraphs, will cover sales and distribution expenses. MAXIMUM ANNIVERSARY VALUE DEATH BENEFIT RIDER FEE We charge a fee for this optional feature only if you select it(1). If selected, we apply this fee daily to the subaccounts as part of the mortality and expense risk fee. It is reflected in the unit values of the subaccounts, and it totals 0.10% of their average daily net assets on an annual basis. We cannot increase this fee. (1) Available if both you and the annuitant are 79 or younger at contract issue. May not be available in all states. -------------------------------------------------------------------------------- 44 AMERICAN EXPRESS NEW SOLUTIONS VARIABLE ANNUITY -- PROSPECTUS GUARANTEED MINIMUM INCOME BENEFIT RIDER (GMIB) FEE We charge a fee (currently 0.30%) based on the adjusted contract value for this optional feature only if you select it(2). If selected, we deduct the fee from the contract value on your contract anniversary at the end of each contract year. We prorate this fee among the subaccounts and fixed accounts in the same proportion your interest in each account bears to your total contract value. If the contract is terminated for any reason or when annuity payouts begin, we will deduct the GMIB fee, adjusted for the number of calendar days coverage was in place. We cannot increase the GMIB fee after the rider effective date and it does not apply after annuity payouts begin. We can increase the GMIB fee on new contracts up to a maximum of 0.75%. We calculate the fee as follows: 0.30% x (CV + ST - FAV) CV = contract value on the contract anniversary ST = transfers from the subaccounts to the fixed accounts made six months before the contract anniversary. FAV = the value of your fixed accounts on the contract anniversary. The result of ST - FAV will never be greater than zero. This allows us to base the GMIB fee largely on the subaccounts and not on the fixed accounts. Example: o You purchase the contract with a payment of $50,000 on Jan. 1, 2001 and allocate all of your payment to the subaccounts. o On Sept. 1, 2001 your contract value is $75,000. You transfer $15,000 from the subaccounts to the one-year fixed account. o On Jan. 1, 2002 (the first contract anniversary) the one-year fixed account value is $15,250 and the subaccount value is $58,000. Your total contract value is $73,250. o The GMIB fee percentage is 0.30%. We calculate the charge for the GMIB as follows: Contract value on the contract anniversary: $73,250 plus transfers from the subaccounts to the fixed accounts in the six months before the contract anniversary: +15,000 minus the value of the fixed accounts on the contract anniversary: -15,250 ------- $73,000 The GMIB fee charged to you: 0.30% x $73,000 = $ 219 PERFORMANCE CREDIT RIDER (PCR) FEE We charge a fee of 0.15% of your contract value for this optional feature if you select it(2). If selected, we deduct the fee from your contract value on your contract anniversary at the end of each contract year. We prorate this fee among the subaccounts and fixed accounts in the same proportion as your interest bears to your total contract value. If the contract is terminated for any reason or when annuity payouts begin, we will deduct the PCR fee, adjusted for the number of calendar days coverage was in place. We cannot increase the PCR fee. (2) You may select either the GMIB or the PCR, but not both. Riders may not be available in all states. The GMIB is available if the annuitant is 75 or younger at contract issue. If you select the GMIB you must select the MAV rider. Benefit Protector(SM) DEATH BENEFIT RIDER FEE We charge a fee for the optional feature only if you select it(3). If selected, we deduct 0.25% of your contract value on your contract anniversary at the end of each contract year. We prorate this fee among the subaccounts and fixed accounts in the same proportion your interest in each account bears to your total contract value. When annuity payouts begin, or if you terminate the contract for any reason other than death, we will deduct this fee, adjusted for the number of calendar days coverage was in place. We cannot increase this annual fee after the rider effective date and it does not apply after annuity payouts begin or when we pay death benefits. We can increase this fee on new contracts up to a maximum of 0.75%. Benefit Protector(SM) PLUS DEATH BENEFIT RIDER FEE We charge a fee for the optional feature only if you select it(3). If selected, we deduct 0.40% of your contract value on your contract anniversary at the end of each contract year. We prorate this fee among the subaccounts and fixed accounts in the same proportion your interest in each account bears to your total contract value. When annuity payouts begin, or if you terminate the contract for any reason other than death, we will deduct this fee, adjusted for the number of calendar days coverage was in place. We cannot increase this annual fee after the rider effective date and it does not apply after annuity payouts begin or when we pay death benefits. We can increase this fee on new contracts up to a maximum of 1.25%. (3) Available if you and the annuitant are 75 or younger at contract issue. These riders will not be available until Aug. 15, 2001 and they may not be available in all states. -------------------------------------------------------------------------------- AMERICAN EXPRESS NEW SOLUTIONS VARIABLE ANNUITY -- PROSPECTUS 45 WITHDRAWAL CHARGE If you withdraw all or part of your contract, you may be subject to a withdrawal charge. A withdrawal charge applies if all or part of the withdrawal amount is from purchase payments we received within seven years before withdrawal. The withdrawal charge percentages that apply to you are shown in your contract. In addition, amounts withdrawn from a Guarantee Period Account more than 30 days before the end of the applicable Guarantee Period will be subject to a MVA. (See "The Fixed Accounts -- Market Value Adjustments (MVA).") For purposes of calculating any withdrawal charge, we treat amounts withdrawn from your contract value in the following order: 1. First, in each contract year, we withdraw amounts totaling up to 10% of your prior anniversary's contract value. (We consider your initial purchase payment to be the prior anniversary's contract value during the first contract year.) We do not assess a withdrawal charge on this amount. 2. Next, we withdraw contract earnings, if any, that are greater than the annual 10% free withdrawal amount described in number one above. Contract earnings equal contract value less purchase payments received and not previously withdrawn. We do not assess a withdrawal charge on contract earnings. NOTE: We determine contract earnings by looking at the entire contract value, not the earnings of any particular subaccount or the fixed accounts. 3. Next we withdraw purchase payments received prior to the withdrawal charge period shown in your contract. We do not assess a withdrawal charge on these purchase payments. 4. Finally, if necessary, we withdraw purchase payments received that are still within the withdrawal charge period shown in your contract. We withdraw these payments on a first-in, first-out (FIFO) basis. We do assess a withdrawal charge on these payments. We determine your withdrawal charge by multiplying each of your payments withdrawn by the applicable withdrawal charge percentage, and then adding the total withdrawal charges. The withdrawal charge percentage depends on the number of years since you made the payments that are withdrawn: Years from purchase Withdrawal charge payment receipt payment receipt 1 8% 2 8 3 7 4 7 5 6 6 5 7 3 Thereafter 0 For a partial withdrawal that is subject to a withdrawal charge, the amount we actually deduct from your contract value will be the amount you request plus any applicable withdrawal charge. The withdrawal charge percentage is applied to this total amount. We pay you the amount you requested. Example: Assume you requested a withdrawal of $1,000 and there is a withdrawal charge of 7%. The total amount we actually deduct from your contract is $1,075.26. We determine this amount as follows: Amount requested $1,000 ------------------------ or ------ = $1,075.26 1.00 - withdrawal charge .93 By applying the 7% withdrawal charge to $1,075.26, the withdrawal charge is $75.26. We pay you the $1,000 you requested. If you make a full withdrawal of your contract, we also will deduct the applicable contract administrative charge. Withdrawal charge under Annuity Payout Plan E -- Payouts for a specified period: Under this payout plan, you can choose to take a withdrawal. The amount that you can withdraw is the present value of any remaining variable payouts. With a qualified annuity, the discount rate we use in the calculation will be 4.86% if the assumed investment rate is 3.5% and 6.36% if the assumed investment rate is 5%. With a nonqualified annuity, the discounted rate we use in the calculation will be 5.11% if the assumed investment rate is 3.5% and 6.61% if the assumed investment rate is 5%. The withdrawal charge equals the present value of the remaining payouts using the assumed investment rate minus the present value of the remaining payouts using the discount rate. The withdrawal charge will not be greater than 9% of the amount available for payouts under the plan. -------------------------------------------------------------------------------- 46 AMERICAN EXPRESS NEW SOLUTIONS VARIABLE ANNUITY -- PROSPECTUS Withdrawal charge calculation example: The following is an example of the calculation we would make to determine the withdrawal charge on a contract with this history: o The contract date is Jan. 1, 2001 with a contract year of Jan. 1 through Dec. 31 and with an anniversary date of Jan. 1 each year; and o We received these payments -- $10,000 Jan. 1, 2001; -- $8,000 Feb. 28, 2008; -- $6,000 Feb. 20, 2009; and o You withdraw the contract for its total withdrawal value of $38,101 on Aug. 5, 2011 and made no other withdrawals during that contract year; and o The prior anniversary Jan. 1, 2010 contract value was $38,488. Withdrawal Charge Explanation $ 0 $3,848.80 is 10% of the prior anniversary's contract value withdrawn without withdrawal charge; and 0 $10,252.20 is contract earnings in excess of the 10% free withdrawal amount withdrawn without withdrawal charge; and 0 $10,000 Jan. 1, 2001 payment was received seven or more years before withdrawal and is withdrawn without withdrawal charge; and 560 $8,000 Feb. 28, 2008 payment is in its fourth year from receipt, withdrawn with a 7% withdrawal charge; and 420 $6,000 Feb. 20, 2009 payment is in its third year from --- receipt withdrawn with a 7% withdrawal charge. $980 Waiver of withdrawal charges We do not assess withdrawal charges for: o withdrawals of any contract earnings; o withdrawals of amounts totaling up to 10% of your prior contract anniversary's contract value to the extent it exceeds contract earnings; o required minimum distributions from a qualified annuity (for those amounts required to be distributed from the contract described in this prospectus); o contracts settled using an annuity payout plan; o withdrawals made as a result of one of the "Contingent events"* described below to the extent permitted by state law (see your contract for additional conditions and restrictions); o amounts we refund to you during the free look period;* and o death benefits.* * However, we will reverse certain purchase payment credits up to the maximum withdrawal charge. (See "Buying Your Contract -- Purchase Payment Credits.") Contingent events o Withdrawals you make if you or the annuitant are confined to a hospital or nursing home and have been for the prior 60 days. Your contract will include this provision when you and the annuitant are under age 76 at contract issue. You must provide proof satisfactory to us of the confinement as of the date you request the withdrawal. o To the extent permitted by state law, withdrawals you make if you or the annuitant are diagnosed in the second or later contract years as disabled with a medical condition that with reasonable medical certainty will result in death within 12 months or less from the date of the licensed physician's statement. You must provide us with a licensed physician's statement containing the terminal illness diagnosis and the date the terminal illness was initially diagnosed. 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 issued. 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. -------------------------------------------------------------------------------- AMERICAN EXPRESS NEW SOLUTIONS VARIABLE ANNUITY -- PROSPECTUS 47 Valuing Your Investment We value your accounts as follows: FIXED ACCOUNTS(1) We value the amounts you allocated to the fixed accounts directly in dollars. The value of a fixed account equals: o the sum of your purchase payments and transfer amounts allocated to the one-year fixed account and the Guarantee Period Accounts(2); o plus any purchase payment credits allocated to the fixed accounts; o plus interest credited; o minus the sum of amounts withdrawn after the MVA (including any applicable withdrawal charges) and amounts transferred out; o minus any prorated contract administrative charge; o minus any prorated portion of the Guaranteed Minimum Income Benefit Rider fee (if applicable); o minus any prorated portion of the Performance Credit Rider (if applicable); o minus any prorated portion of the Benefit Protector(SM) Death Benefit Rider fee (if applicable); and o minus any prorated portion of the Benefit Protector(SM) Plus Death Benefit Rider fee (if applicable). (1) Fixed accounts are not available under contracts issued in Pennsylvania. (2) Guarantee Period Accounts are not available under contracts issued in Maryland. SUBACCOUNTS We convert amounts you allocated to the subaccounts into accumulation units. Each time you make a purchase payment or transfer amounts into one of the subaccounts or we apply any purchase payment credits, we credit a certain number of accumulation units to your contract for that subaccount. Conversely, each time you take a partial withdrawal, transfer amounts out of a subaccount, or we assess a contract administrative charge, or the Guaranteed Minimum Income Benefit Rider fee, or the Performance Credit Rider fee, we subtract a certain number of accumulation units from your contract. The accumulation units are the true measure of investment value in each subaccount during the accumulation period. They are related to, but not the same as, the net asset value of the fund in which the subaccount invests. The dollar value of each accumulation unit can rise or fall daily depending on the variable account expenses, performance of the fund and on certain fund expenses. Here is how we calculate accumulation unit values: Number of units: to calculate the number of accumulation units for a particular subaccount, we divide your investment by the current accumulation unit value. Accumulation unit value: the current accumulation unit value for each subaccount equals the last value times the subaccount's current net investment factor. We determine the net investment factor by: o adding the fund's current net asset value per share, plus the per share amount of any accrued income or capital gain dividends to obtain a current adjusted net asset value per share; then o dividing that sum by the previous adjusted net asset value per share; and o subtracting the percentage factor representing the mortality and expense risk fee, the variable account administrative charge, and the Maximum Anniversary Value Death Benefit Rider fee (if applicable) 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. -------------------------------------------------------------------------------- 48 AMERICAN EXPRESS NEW SOLUTIONS VARIABLE ANNUITY -- PROSPECTUS Factors that affect subaccount accumulation units: accumulation units may change in two ways-- in number and in value. The number of accumulation units you own may fluctuate due to: o additional purchase payments you allocate to the subaccounts; o any purchase payment credits allocated to the subaccounts; o transfers into or out of the subaccounts; o partial withdrawals; o withdrawal charges; o prorated portions of the contract administrative charge; o prorated portions of the Guaranteed Minimum Income Benefit Rider fee (if applicable); o prorated portions of the Performance Credit Rider fee (if applicable); o prorated portions of the Benefit Protector(SM) Death Benefit Rider fee (if applicable); and/or o prorated portions of the Benefit Protector(SM) Plus Death Benefit Rider fee (if applicable). Accumulation unit values will fluctuate due to: o changes in funds' net asset value; o dividends distributed to the subaccounts; o capital gains or losses of funds; o fund operating expenses; and/or o mortality and expense risk fee, the variable account administrative charge, the Maximum Anniversary Value Death Benefit Rider fee (if applicable). Making the Most of Your Contract AUTOMATED DOLLAR-COST AVERAGING Currently, you can use automated transfers to take advantage of dollar-cost averaging (investing a fixed amount at regular intervals). For example, you might transfer a set amount monthly from a relatively conservative subaccount to a more aggressive one, or to several others, or from the one-year fixed account or the two-year Guarantee Period Account (without a MVA) to one or more subaccounts. The three to ten year Guarantee Period Accounts are not available for automated transfers. You can also obtain the benefits of dollar-cost averaging by setting up regular automatic SIP payments. There is no charge for dollar-cost averaging. This systematic approach can help you benefit from fluctuations in accumulation unit values caused by fluctuations in the market values of the funds. Since you invest the same amount each period, you automatically acquire more units when the market value falls and fewer units when it rises. The potential effect is to lower your average cost per unit.
How dollar-cost averaging works By investing an equal number Number of dollars each ... Amount Accumulation of units Month invested unit value purchased Jan $100 $20 5.00 you automatically buy Feb 100 18 5.56 more units when the Mar 100 17 5.88 per unit market price is low ... Apr 100 15 6.67 May 100 16 6.25 Jun 100 18 5.56 and fewer units Jul 100 17 5.88 when the per unit Aug 100 19 5.26 market price is high Sept 100 21 4.76 Oct 100 20 5.00
You paid an average price of only $17.91 per unit over the 10 months, while the average market price actually was $18.10. Dollar-cost averaging does not guarantee that any subaccount will gain in value nor will it protect against a decline in value if market prices fall. Because dollar-cost averaging involves continuous investing, your success will depend upon your willingness to continue to invest regularly through periods of low price levels. Dollar-cost averaging can be an effective way to help meet your long-term goals. For specific features contact your sales representative. -------------------------------------------------------------------------------- AMERICAN EXPRESS NEW SOLUTIONS VARIABLE ANNUITY -- PROSPECTUS 49 SPECIAL DOLLAR-COST AVERAGING (SPECIAL DCA) PROGRAM If your net contract value(1) is at least $10,000, you can choose to participate in the Special DCA program. There is no charge for the Special DCA program. Under the Special DCA program, you can allocate a new purchase payment and any applicable purchase payment credit to a six-month or twelve-month Special DCA account. (1) "Net contract value" equals your current contract value plus any new purchase payment and purchase payment credit. If this is a new contract funded by purchase payments from multiple sources, we determine your net contract value based on the purchase payments, purchase payment credits, withdrawal requests and exchange requests submitted with your application. You may only allocate a new purchase payment of at least $10,000 to a Special DCA account. You cannot transfer existing contract values into a Special DCA account. Each Special DCA account lasts for either six or twelve months (depending on the time period you select) from the time we receive your first purchase payment. We make monthly transfers of your total Special DCA account value into the other accounts you selected over the time period you selected (either six or twelve months). We credit interest to each Special DCA account at rates that generally are higher than those we credit to the one-year fixed account and the two-year Guarantee Period Account. We will change the interest rate on each Special DCA account from time to time at our discretion. We base these rates on competition and on the interest rate we are crediting to the one-year fixed account at the time of the change. Once we credit interest to a particular purchase payment and purchase payment credit, that rate does not change even if we change the rate we credit on new purchase payments or if your net contract value changes. We credit each Special DCA account with current guaranteed annual rate that is in effect on the date we receive your purchase payment. However, we credit this annual rate over the six or twelve-month period on the balance remaining in your Special DCA account. Therefore, the net effective interest rate you receive is less than the stated annual rate. We do not credit this interest after we transfer the value out of the Special DCA account into the accounts you selected. Once you establish a Special DCA account, you cannot allocate additional purchase payments to it. However, you may establish another new Special DCA account and allocate new purchase payments to it when we change the interest rates we offer on these accounts. If you are funding a Special DCA account come from multiple sources, we apply each purchase payment and purchase payment credit to the account and credit interest on that purchase payment and purchase payment credit on the date we receive it. This means that all purchase payments and purchase payment credits may not be in the Special DCA account at the beginning of the six or twelve-month period. Therefore, you may receive less total interest than you would have if all your purchase payments and purchase payment credits were in the Special DCA account from the beginning. If we receive any of your multiple payments after the six or twelve-month period ends, you can either allocate those payments to a new Special DCA account (if available) or to any other accounts available under your contract. You cannot participate in the Special DCA program if you are making payments under a Systematic Investment Plan. You may simultaneously participate in the Special DCA program and the asset-rebalancing program as long as your subaccount allocation is the same under both programs. If you elect to change your subaccount allocation under one program, we automatically will change it under the other program so they match. If you participate in more than one Special DCA account, the asset allocation for each account may be different as long as you are not also participating in the asset-rebalancing program. You may terminate your participation in the Special DCA program at any time. If you do, we will not credit the current guaranteed annual interest rate on any remaining Special DCA account balance. We will transfer the remaining balance from your Special DCA account to the other accounts you selected for your DCA transfers or we will allocate it in any manner you specify. Similarly, if we cannot accept any additional purchase payments into the Special DCA program, we will allocate the purchase payments to the other accounts you selected for your DCA transfers or in any other manner you specify. We can modify the terms or discontinue the Special DCA program at any time. Any modifications will not affect any purchase payments that are already in a Special DCA account. For more information on the Special DCA program, contact your sales representative. ASSET REBALANCING You can ask us in writing to automatically rebalance the subaccount portion of your contract value either quarterly, semi-annually, or annually. The period you select will start to run on the date we record your request. On the first valuation date of each of these periods, we automatically will rebalance your contract value so that the value in each subaccount matches your current subaccount percentage allocations. These percentage allocations must be in whole numbers. Asset rebalancing does not apply to the fixed accounts. There is no charge for asset rebalancing. The contract value must be at least $2,000. You can change your percentage allocations or your rebalancing period at any time by contacting us in writing. If you are also participating in the Special DCA program and you change your subaccount asset allocation for the asset-rebalancing program, we will change your subaccount asset allocation under the Special DCA program to match. 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. -------------------------------------------------------------------------------- 50 AMERICAN EXPRESS NEW SOLUTIONS VARIABLE ANNUITY -- PROSPECTUS TRANSFERRING BETWEEN ACCOUNTS You may transfer contract value from any one subaccount, or the fixed accounts, to another subaccount before annuity payouts begin. (Certain restrictions apply to transfers involving the fixed accounts.) We will process your transfer on the valuation date we receive your request. We will value your transfer at the next accumulation unit value calculated after we receive your request. There is no charge for transfers. Before making a transfer, you should consider the risks involved in changing investments. Transfers out of the Guarantee Period Accounts will be subject to a MVA if done more than 30 days before the end of the Guarantee Period. We may suspend or modify transfer privileges at any time. Excessive trading activity can disrupt fund management strategy and increase expenses, which are borne by all contract owners who allocated purchase payments to the fund regardless of their transfer activity. We may apply modifications or restrictions in any reasonable manner to prevent transfers we believe will disadvantage other contract owners. These modifications could include, but not be limited to: o requiring a minimum time period between each transfer; o not accepting transfer requests of an agent acting under power of attorney on behalf of more than one contract owner; or o limiting the dollar amount that a contract owner may transfer at any one time. For information on transfers after annuity payouts begin, see "Transfer policies" below. Transfer policies o Before annuity payouts begin, you may transfer contract values between the subaccounts, or from the subaccounts to the fixed accounts at any time. However, if you made a transfer from the one-year fixed account to the subaccounts, you may not make a transfer from any subaccount back to the one-year fixed account for six months following that transfer. o You may transfer contract values from the one-year fixed account to the subaccounts or the Guarantee Period Accounts once a year on or within 30 days before or after the contract anniversary (except for automated transfers, which can be set up at any time for certain transfer periods subject to certain minimums). Transfers from the one-year fixed account are not subject to a MVA. o You may transfer contract values from a Guarantee Period Account any time after 60 days of transfer or payment allocation to the account. Transfers made more than 30 days before the end of the Guarantee Period will receive a MVA, which may result in a gain or loss of contract value. o If we receive your request on or within 30 days before or after the contract anniversary date, the transfer from the one-year fixed account to the subaccounts or the Guarantee Period Accounts will be effective on the valuation date we receive it. o We will not accept requests for transfers from the one-year fixed account at any other time. o Once annuity payouts begin, you may not make transfers to or from the one-year fixed account, but you may make transfers once per contract year among the subaccounts. During the annuity payout period, we reserve the right to limit the number of subaccounts in which you may invest. o Once annuity payouts begin, you may not make any transfers to the Guarantee Period Accounts. -------------------------------------------------------------------------------- AMERICAN EXPRESS NEW SOLUTIONS VARIABLE ANNUITY -- PROSPECTUS 51 HOW TO REQUEST A TRANSFER OR WITHDRAWAL 1 By letter: Send your name, contract number, Social Security Number or Taxpayer Identification Number and signed request for a transfer or withdrawal to: American Enterprise Life Insurance Company 829 AXP Financial Center Minneapolis, MN 55474 Minimum amount Transfers or withdrawals: $500 or entire account balance Maximum amount Transfers or withdrawals: Contract value or entire account balance 2 By automated transfers and automated partial withdrawals: Your sales representative can help you set up automated transfers or partial withdrawals among your subaccounts or fixed accounts. You can start or stop this service by written request or other method acceptable to us. You must allow 30 days for us to change any instructions that are currently in place. o Automated transfers from the one-year fixed account to any one of the subaccounts may not exceed an amount that, if continued, would deplete the one-year fixed account within 12 months. o Automated withdrawals may be restricted by applicable law under some contracts. o You may not make additional purchase payments if automated partial withdrawals are in effect. o Automated partial withdrawals may result in IRS taxes and penalties on all or part of the amount withdrawn. Minimum amount Transfers or withdrawals: $100 monthly $250 quarterly, semiannually or annually 3 By phone: Call between 8 a.m. and 7 p.m. Central time: (800) 333-3437 Minimum amount Transfers or withdrawals: $500 or entire account balance Maximum amount Transfers: Contract value or entire account balance Withdrawals: $25,000 We answer telephone requests promptly, but you may experience delays when the call volume is unusually high. If you are unable to get through, use the mail procedure as an alternative. We will honor any telephone transfer or withdrawal requests that we believe are authentic and we will use reasonable procedures to confirm that they are. This includes asking identifying questions and tape recording calls. We will not allow a telephone withdrawal within 30 days of a phoned-in address change. As long as we follow the procedures, we (and our affiliates) will not be liable for any loss resulting from fraudulent requests. Telephone transfers and withdrawals are automatically available. You may request that telephone transfers and withdrawals not be authorized from your account by writing to us. -------------------------------------------------------------------------------- 52 AMERICAN EXPRESS NEW SOLUTIONS VARIABLE ANNUITY -- PROSPECTUS 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 full withdrawals, we will compute the value of your contract at the next accumulation unit value calculated after we receive your request. We may ask you to return the contract. You may have to pay charges (see "Charges -- Withdrawal Charge") and IRS taxes and penalties (see "Taxes"). You cannot make withdrawals after annuity payouts begin except under Plan E (see "The Annuity Payout Period -- Annuity Payout Plans"). WITHDRAWAL POLICIES If you have a balance in more than one account and you request a partial withdrawal, we will withdraw money from all your subaccounts and/or the fixed accounts in the same proportion as your value in each account correlates to your total contract value, unless you request otherwise. RECEIVING PAYMENT By regular or express mail: o payable to owner; o mailed to address of record. NOTE: We will charge you a fee if you request express mail delivery. Normally, we will send the payment within seven days after receiving your request. However, we may postpone the payment if: -- the withdrawal amount includes a purchase payment check that has not cleared; -- the NYSE is closed, except for normal holiday and weekend closings; -- trading on the NYSE is restricted, according to SEC rules; -- an emergency, as defined by SEC rules, makes it impractical to sell securities or value the net assets of the accounts; or -- the SEC permits us to delay payment for the protection of security holders. Changing Ownership You may change ownership of your nonqualified annuity at any time by completing a change of ownership form we approve and sending it to our office. The change will become binding upon us when we receive and record it. We will honor any change of ownership request that we believe is authentic and we will use reasonable procedures to confirm authenticity. If we follow these procedures, we will not take any responsibility for the validity of the change. If you have a nonqualified annuity, you may incur income tax liability by transferring, assigning or pledging any part of it. (See "Taxes.") If you have a qualified annuity, you may not sell, assign, transfer, discount or pledge your contract as collateral for a loan, or as security for the performance of an obligation or for any other purpose except as required or permitted by the Code. However, if the owner is a trust or custodian, or an employer acting in a similar capacity, ownership of the contract may be transferred to the annuitant. -------------------------------------------------------------------------------- AMERICAN EXPRESS NEW SOLUTIONS VARIABLE ANNUITY -- PROSPECTUS 53 Benefits in Case of Death We will pay the death benefit to your beneficiary upon the earlier of your death or the annuitant's death. We will base the benefit paid on the death benefit coverage you selected when you purchased the contract. If a contract has more than one person as the owner, we will pay benefits upon the first to die of any owner or the annuitant. RETURN OF PURCHASE PAYMENT DEATH BENEFIT (ROP) We require this option if either you or the annuitant are 80 or older. If you or the annuitant die before annuity payouts begin while this contract is in force, we will pay the beneficiary the greater of the following less any purchase payment credits added to the contract in the last 12 months: 1. contract value; or 2. total purchase payments plus purchase payments credits minus adjusted partial withdrawals. PW x DB Death benefit adjusted partial withdrawals = ------- CV PW = the partial withdrawal including any applicable withdrawal charge or MVA. DB = the death benefit on the date of (but prior to) the partial withdrawal. CV = contract value on the date of (but prior to) the partial withdrawal. Example: o You purchase the contract with a payment of $25,000 on Jan. 1, 2001. o On Jan. 1, 2002 you make an additional purchase payment of $5,000. o On March 1, 2002 the contract value falls to $28,000. You take a $1,500 partial withdrawal leaving a contract value of $26,500. o On March 1, 2003 the contract value falls to $25,000. We calculate the ROP death benefit on March 1, 2003 as follows: Contract value at death: $25,000.00 ========== Purchase payments and purchase payment credits minus adjusted partial withdrawals: Total purchase payments and purchase payment credits: $30,000.00 minus ROP adjusted partial withdrawals calculated as: 1,500 x 30,000 -------------- = -1,607.14 28,000 for a death benefit of: $28,392.86 ========== The ROP death benefit calculated as the greatest of these two values: $28,392.86 If you die before your retirement date: 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, 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. Nonqualified annuities: If your spouse is sole beneficiary and you die before the retirement date, your spouse may keep the contract as owner with the contract value equal to the death benefit that would otherwise have been paid. To do this your spouse must, within 60 days after we receive proof of death, give us written instructions to keep the contract in force. There will be no withdrawal charges on the contract from that point forward unless additional purchase payments are made. The Guaranteed Minimum Income Benefit Rider (see "Optional Benefits"), if selected, will terminate. If your beneficiary is not your spouse, we will pay the beneficiary in a single sum unless you give us other written instructions. We must fully distribute the death benefit within five years of your death. However, the beneficiary may receive payouts under any annuity payout plan available under this contract if: o the beneficiary asks us in writing within 60 days after we receive proof of death; and o payouts begin no later than one year after your death, or other date as permitted by the Code; and o the payout period does not extend beyond the beneficiary's life or life expectancy. -------------------------------------------------------------------------------- 54 AMERICAN EXPRESS NEW SOLUTIONS VARIABLE ANNUITY -- PROSPECTUS Qualified annuities: The IRS has issued proposed regulations which will affect distributions from your qualified annuity. These are proposed regulations that may take effect Jan. 1, 2002. The information below is an explanation based on existing law. Contact your tax advisor if you have any questions as to the impact of the new proposed rules on your situation. If your spouse is the sole beneficiary, your spouse may keep the contract as owner until the date on which the annuitant would have reached age 70 1/2, or any other date permitted by the Code. The contract value will be equal to the death benefit that would otherwise have been paid. There will be no withdrawal charges on the contract from that point forward unless additional purchase payments are made. The Guaranteed Minimum Income Benefit Rider (see "Optional Benefits"), if selected, will terminate. If your beneficiary is not your spouse, we will pay the beneficiary in a single sum unless you give us other written instructions. We must fully distribute the death benefit within five years of your death. However, the beneficiary may receive payouts under any annuity payout plan available under this contract if: o the beneficiary asks us in writing within 60 days after we receive proof of death; and o payouts begin no later than one year following the year of your death; and o the payout period does not extend beyond the beneficiary's life or life expectancy. Optional Benefits MAXIMUM ANNIVERSARY VALUE (MAV) DEATH BENEFIT RIDER The MAV rider is intended to help protect your beneficiaries financially while your investments have the opportunity to grow. This is an optional benefit that you may select for an additional charge (see "Charges"). The MAV rider does not provide any additional benefit before the first contract anniversary and it may not be appropriate for issue ages 75 to 79 because the benefit values may be limited after age 81. Be sure to discuss with your sales representative whether or not the MAV rider is appropriate for your situation. If the MAV rider is available in your state and both you and the annuitant are age 79 or younger at contract issue, you may choose to add the MAV rider to your contract at the time of purchase. Once you select the MAV rider you may not cancel it. You must select the MAV rider if you choose to add the Guaranteed Minimum Income Benefit Rider to your contract. The MAV rider provides that if you or the annuitant die before annuity payouts begin while this contract is in force, we will pay the beneficiary the greatest of the following amounts less any purchase payment credits added in the last 12 months: 1. contract value; 2. total purchase payments plus purchase payment credits minus adjusted partial withdrawals; or 3. the maximum anniversary value immediately preceding the date of death plus any payments and purchase payment credits since that anniversary minus adjusted partial withdrawals since that anniversary. Maximum anniversary value (MAV): This is the greatest of your contract values on any contract anniversary plus subsequent purchase payments and purchase payment credits minus adjusted partial withdrawals. We calculate the MAV on each contract anniversary through age 80. There is no MAV prior to the first contract anniversary. On the first contract anniversary we set the MAV equal to the highest of: (a) your current contract value, or (b) total purchase payments and purchase payment credits minus adjusted partial withdrawals. Every contract anniversary after that, through age 80, we compare the previous anniversary's MAV to the current contract value and we reset the MAV if the current contract value is higher. We stop resetting the MAV after you or the annuitant reach age 81. However, we continue to add subsequent purchase payments and purchase payment credits and subtract adjusted partial withdrawals from the MAV. -------------------------------------------------------------------------------- AMERICAN EXPRESS NEW SOLUTIONS VARIABLE ANNUITY -- PROSPECTUS 55 Example: o You purchase the contract with a payment of $20,000 on Jan. 1, 2001. o On Jan. 1, 2002 (the first contract anniversary) the contract value grows to $24,000. o On March 1, 2002 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 MAV death benefit on March 1, 2002 as follows: Contract value at death: $20,500.00 ========== Purchase payments minus adjusted partial withdrawals: Total purchase payments: $20,000.00 minus the death benefit adjusted partial withdrawals, $1,500 x $20,000 -1,363.64 calculated as: ---------------- = --------- $22,000 for a death benefit of: $18,636.36 ========== The MAV immediately preceding the date of death plus any payments made since that anniversary minus adjusted partial withdrawals: Greatest of your contract anniversary contract values: $24,000.00 plus purchase payments made since that anniversary: +0.00 minus the death benefit adjusted partial withdrawals, $1,500 x $24,000 -1,636.36 calculated as: ---------------- = --------- $22,000 for a death benefit of: $22,363.64 ========== The MAV death benefit, calculated as the greatest of these three values, which is the MAV: $22,363.64 BENEFIT PROTECTOR(SM) DEATH BENEFIT RIDER (BENEFIT PROTECTOR) This rider will not be available until Aug. 15, 2001. The Benefit Protector is intended to provide an additional benefit to your beneficiary to help offset expenses after your death such as funeral expenses or federal and state taxes. This is an optional benefit that you may select for an additional annual charge (see "Charges"). The Benefit Protector provides reduced benefits if you or the annuitant are 70 or older at the rider effective date and it does not provide any additional benefit before the first rider anniversary. Be sure to discuss with your sales representative whether or not the Benefit Protector is appropriate for your situation. If this rider is available in your state and both you and the annuitant are 75 or younger at contract issue, you may choose to add the Benefit Protector to your contract. Generally, you must elect the Benefit Protector at the time you purchase your contract and your rider effective date will be the contract issue date. This rider is only available under a nonqualified annuity contract. You may not select this rider if you select the Benefit Protector Plus Rider. We reserve the right to discontinue offering the Benefit Protector for new contracts. In some instances the rider effective date for the Benefit Protector may be after we issue the contract according to terms determined by us and at our sole discretion. The Benefit Protector provides that if you or the annuitant die after the first contract anniversary, but before annuity payouts begin, and while this contract is in force, we will pay the beneficiary: o the applicable death benefit, PLUS o 40% of your earnings at death if you and the annuitant were under age 70 on the rider effective date, up to a maximum of 100% of purchase payments not previously withdrawn that are one or more years old; or o 15% of your earnings at death if you or the annuitant were 70 or older on the rider effective date, up to a maximum of 37.5% of purchase payments not previously withdrawn that are one or more years old. Earnings at death: for purposes of the Benefit Protector and Benefit Protector Plus riders, this is an amount equal to the applicable death benefit minus purchase payments not previously withdrawn. The earnings at death may not be less than zero and may not be more than 250% of the purchase payments not previously withdrawn that are one or more years old. -------------------------------------------------------------------------------- 56 AMERICAN EXPRESS NEW SOLUTIONS VARIABLE ANNUITY -- PROSPECTUS Terminating the Benefit Protector: o You may terminate the rider within 30 days of the first rider anniversary. o You may terminate the rider within 30 days of any rider anniversary beginning with the seventh rider anniversary. o The rider will terminate when you make a full withdrawal from the contract or when annuity payouts begin. If your spouse is sole beneficiary and you die before the retirement date, your spouse may keep the contract as owner with the contract value equal to the death benefit that would otherwise have been paid. We will substitute this new contract value on the date of death for "purchase payments not previously withdrawn" used in calculating earnings at death. Your spouse has the option of discontinuing the Benefit Protector within 30 days of the date of death. For an example of how we calculate the death benefit under the Benefit Protector, please see the example in the Benefit Protector(SM) Plus Death Benefit Rider below. NOTE: For special tax considerations associated with the Benefit Protector, see "Taxes." BENEFIT PROTECTOR(SM) PLUS DEATH BENEFIT RIDER (BENEFIT PROTECTOR PLUS) This rider will not be available until Aug. 15, 2001. The Benefit Protector Plus is intended to provide an additional benefit to your beneficiary to help offset expenses after your death such as funeral expenses or federal and state taxes. This is an optional benefit that you may select for an additional annual charge (see "Charges"). The Benefit Protector Plus provides reduced benefits if you or the annuitant are 70 or older at the rider effective date and it does not provide any additional benefit before the first rider anniversary and it does not provide any benefit beyond what is offered under the Benefit Protector rider during the second rider year. Be sure to discuss with your sales representative whether or not the Benefit Protector Plus is appropriate for your situation. If this rider is available in your state and both you and the annuitant are 75 or younger at contract issue, you may choose to add the Benefit Protector Plus to your contract. You must elect the Benefit Protector Plus at the time you purchase your contract and your rider effective date will be the contract issue date. This rider is only available under nonqualified annuities purchased through a transfer or exchange. You may not select this rider if you select the Benefit Protector Rider. We reserve the right to discontinue offering the Benefit Protector Plus for new contracts. The Benefit Protector Plus provides that if you or the annuitant die after the first contract anniversary, but before annuity payouts begin, and while this contract is in force, we will pay the beneficiary: o the benefits payable under the Benefit Protector described above, PLUS o a percentage of purchase payments made within 60 days of contract issue not previously withdrawn as follows:
Percentage if you and the annuitant are Percentage if you or the annuitant are Contract year under age 70 on the rider effective date 70 or older on the rider effective date One and Two 0% 0% Three and Four 10% 3.75% Five or more 20% 7.5% Terminating the Benefit Protector Plus: o You may terminate the rider within 30 days of the first rider anniversary. o You may terminate the rider within 30 days of any rider anniversary beginning with the seventh rider anniversary. o The rider will terminate when you make a full withdrawal from the contract or when annuity payouts begin. Another way to describe the benefits payable under the Benefit Protector Plus rider is as follows: o the applicable death benefit PLUS If you and the annuitant are under If you or the annuitant are age 70 Contract year age 70 on the rider effective date, add... or older on the rider effective date, add... 1 Zero Zero 2 40% x earnings at death (see above) 15% x earnings at death 3 & 4 40% x (earnings at death + 25% of initial 15% x (earnings at death + 25% of initial purchase payment*) purchase payment*) 5+ 40% x (earnings at death + 50% of initial 15% x (earnings at death + 50% of initial purchase payment*) purchase payment*) * Initial purchase payments are payments made within 60 days of contract issue not previously withdrawn.
-------------------------------------------------------------------------------- AMERICAN EXPRESS NEW SOLUTIONS VARIABLE ANNUITY -- PROSPECTUS 57 Example of the Benefit Protector and Benefit Protector Plus: o You purchase the contract with a payment of $100,000 on Jan. 1, 2001 and you and the annuitant are under age 70. We add a $1,000 credit to your contract. You select the MAV rider. o On July 1, 2001 the contract value grows to $105,000. The death benefit on July 1, 2001 equals MAV rider, which is the contract value, less any purchase payment credits added to the contract in the last 12 months, or $104,000. You have not reached the first contract anniversary so neither the Benefit Protector nor the Benefit Protector Plus provides any additional benefit at this time. o On Jan. 1, 2002 the contract value grows to $110,000. You have not reached the second contract anniversary so the Benefit Protector Plus does not provide any additional benefit at this time. The death benefit on Jan. 1, 2002 equals: MAV rider (contract value): $110,000 plus the Benefit Protector benefit which equals 40% of earnings at death (MAV rider minus payments not previously withdrawn): 0.40 x ($110,000 - $100,000) = +4,000 ----- Total death benefit of: $114,000 o On Jan. 1, 2003 the contract value falls to $105,000. The death benefit on Jan. 1, 2003 equals: MAV rider (MAV): $110,000 plus the Benefit Protector benefit (40% of earnings at death): 0.40 x ($110,000 - $100,000) = +4,000 plus the Benefit Protector Plus which in the third contract year equals 10% of purchase payments made within 60 days of contract issue and not previously withdrawn: 0.10 x $100,000 = +10,000 ------ Total death benefit of: $124,000 o On Feb. 1, 2003 the contract value remains at $105, 000 and you request a partial withdrawal, including the applicable 7% withdrawal charge, of $50,000. We will withdraw $10,500 from your contract value free of charge (10% of your prior anniversary's contract value). The remainder of the withdrawal is subject to an 7% withdrawal charge because your payment is two years old, so we will withdraw $39,500 ($36,735 + $2,765 in withdrawal charges) from your contract value. Altogether, we will withdraw $50,000 and pay you $47,235. We calculate purchase payments not previously withdrawn as $100,000 - $45,000 = $55,000 (remember that $5,000 of the partial withdrawal is contract earnings). The death benefit on Feb. 1, 2003 equals: MAV rider (MAV adjusted for partial withdrawals): $57,619 plus the Benefit Protector benefit (40% of earnings at death): 0.40 x ($57,619 - $55,000) = +1,048 plus the Benefit Protector Plus which in the third contract year equals 10% of purchase payments made within 60 days of contract issue and not previously withdrawn: 0.10 x $55,000 = +5,500 ----- Total death benefit of: $64,167 o On Jan. 1, 2004 the contract value falls $40,000. The death benefit on Jan. 1, 2004 equals the death benefit paid on Feb. 1, 2003. The reduction in contract value has no effect. o On Jan. 1, 2010 the contract value grows to a new high of $200,000. Earnings at death reaches its maximum of 250% of purchase payments not previously withdrawn that are one or more years old. Because we are beyond the fourth contract anniversary the Benefit Protector Plus also reaches its maximum of 20%. The death benefit on Jan. 1, 2010 equals: MAV rider (contract value): $200,000 plus the Benefit Protector (40% of earnings at death, up to a maximum of 100% of purchase payments not previously withdrawn that are one or more years old) +55,000 plus the Benefit Protector Plus which after the fourth contract year equals 20% of purchase payments made within 60 days of contract issue and not previously withdrawn: 0.20 x $55,000 = +11,000 ------ Total death benefit of: $266,000 -------------------------------------------------------------------------------- 58 AMERICAN EXPRESS NEW SOLUTIONS VARIABLE ANNUITY -- PROSPECTUS o On July 1, 2010 you make an additional purchase payment of $50,000 and we add a purchase payment credit of $500. Your new contract value is now $250,000. The new purchase payment is less than one year old and so it has no effect on either the Benefit Protector or Benefit Protector Plus values. The death benefit on July 1, 2010 equals: MAV rider (contract value less any purchase payment credits added in the last 12 months): $249,500 plus the Benefit Protector (40% of earnings at death, up to a maximum of 100% of purchase payments not previously withdrawn that are one or more years old) +55,000 plus the Benefit Protector Plus which after the fourth contract year equals 20% of purchase payments made within 60 days of contract issue and not previously withdrawn: 0.20 x $55,000 = +11,000 ------ Total death benefit of: $315,500 o On July 1, 2011 the contract value remains $250,000 and the "new" purchase payment is one year old. The value of the Benefit Protector changes but value of the Benefit Protector Plus remains constant. The death benefit on July 1, 2011 equals: MAV rider (contract value): $250,000 plus the Benefit Protector benefit which equals 40% of earnings at death (MAV rider minus payments not previously withdrawn): 0.40 x ($250,000 - $105,000) = +58,000 plus the Benefit Protector Plus which after the fourth contract year equals 20% of purchase payments made within 60 days of contract issue and not previously withdrawn: 0.20 x $55,000 = +11,000 ------ Total death benefit of: $319,000 If your spouse is sole beneficiary and you die before the retirement date, your spouse may keep the contract as owner with the contract value equal to the death benefit that would otherwise have been paid. We will then terminate the Benefit Protector Plus and substitute the applicable death benefit (see "Benefits in Case of Death"). NOTE: For special tax considerations associated with the Benefit Protector Plus, see "Taxes." GUARANTEED MINIMUM INCOME BENEFIT RIDER (GMIB) The GMIB is intended to provide you with a guaranteed minimum lifetime income regardless of the volatility inherent in the investments in the subaccounts. If the annuitant is between age 73 and age 75 at contract issue, you should consider whether the GMIB is appropriate for your situation because: o you must hold the GMIB for 7 years, o the GMIB terminates after the annuitant's 86th birthday, o you can only exercise the GMIB within 30 days after a contract anniversary, o the MAV we use in the GMIB benefit base to calculate annuity payouts under the GMIB is limited after age 81, and o the additional costs associated with the rider. Be sure to discuss whether or not the GMIB is appropriate for your situation with your sales representative. If this rider is available in your state and the annuitant is 75 or younger at contract issue, you may choose to add this benefit to your contract for an additional annual charge (see "Charges"). You cannot select the GMIB if you add the Performance Credit Rider to your contract. You must elect the GMIB along with the MAV rider at the time you purchase your contract and your rider effective date will be the contract issue date. In some instances we may allow you to add the GMIB to your contract at a later date if it was not available when you initially purchased your contract. In these instances, we would add the GMIB at the next contract anniversary and this would become the rider effective date. For purposes of calculating the GMIB benefit base under these circumstances, we consider the contract value on the rider effective date to be the initial purchase payment; we disregard all previous purchase payments, purchase payment credits, transfers and withdrawals in the GMIB calculations. Investment selection under the GMIB: You may allocate your purchase payments and purchase payment credits or transfers to any of the subaccounts or the fixed accounts. However, we reserve the right to limit the amount you allocate to subaccounts investing in the AXP(R) Variable Portfolio - Cash Management Fund to 10% of the total amount in the subaccounts. If we are required to activate this restriction, and you have more than 10% of your subaccount value in this fund, we will send you a notice and ask that you reallocate your contract value so that the 10% limitation is satisfied within 60 days. We will terminate the GMIB if you have not satisfied the limitation after 60 days. -------------------------------------------------------------------------------- AMERICAN EXPRESS NEW SOLUTIONS VARIABLE ANNUITY -- PROSPECTUS 59 Exercising the GMIB: o you may only exercise the GMIB within 30 days after any contract anniversary following the expiration of a seven-year waiting period from the rider effective date. o the annuitant on the retirement date must be between 50 and 86 years old. o you can only take an annuity payout under one of the following annuity payout plans: -- Plan A - Life Annuity -- no refund -- Plan B - Life Annuity with ten years certain -- Plan D - Joint and last survivor life annuity -- no refund o you may change the annuitant for the payouts. The GMIB guarantees a minimum amount of fixed annuity lifetime income or a minimum first year variable annuity payout. We calculate fixed annuity payouts and first year variable annuity payouts using the guaranteed annuity purchase rates stated in Table B of the contract. After the first year, lifetime income variable annuity payouts will depend on the investment performance of the subaccounts you select. The payouts will be higher if your investment performance is greater than a 5% annual return and lower if investment performance is less than a 5% annual return. The GMIB benchmarks the contract growth at each anniversary against several comparison values and sets the GMIB benefit base (described below) equal to the largest value. The GMIB benefit base, less any applicable premium tax, is the value we apply to the guaranteed annuity purchase rates stated in Table B of the contract to calculate the minimum annuity payouts you will receive if you exercise the GMIB. If the GMIB benefit base is greater than the contract value, the GMIB may provide a higher annuity payout level than is otherwise available. However, the GMIB uses guaranteed annuity purchase rates that are more conservative than the annuity purchase rates that we will apply at annuitization under the standard contract provisions. Therefore, the level of income provided by the GMIB may be less than the income the contract otherwise provides. If the annuity payouts through the standard contract provisions are more favorable than the payouts available through the GMIB, you may elect the higher standard payout option. The GMIB does not create contract value or guarantee the performance of any investment option. GMIB benefit base: If the GMIB is effective at contract issue, the GMIB benefit base is the greatest of: 1. contract value; 2. total purchase payments and purchase payment credits minus adjusted partial withdrawals; or 3. the MAV at the last contract anniversary plus any payments and purchase payment credits since that anniversary minus adjusted partial withdrawals since that anniversary. Keep in mind that the MAV is limited after age 81. We reserve the right to exclude from the GMIB benefit base any purchase payments and purchase payment credits you make in the five years before you exercise the GMIB. We would do so only if such payments and credits total $50,000 or more or if they are 25% or more of total contract payments and credits. If we exercise this right, we subtract each payment and purchase payment credit adjusted for market value from the contract value and the MAV. For each payment and purchase payment credit, we calculate the market value adjustment to the contract value and the MAV as: PMT x CVG --------- ECV PMT = each purchase payment and purchase payment credit made in the five years before you exercise the GMIB. CVG = current contract value at the time you exercise the GMIB. ECV = the estimated contract value on the anniversary prior to the payment in question. We assume that all payments, purchase payment credits and partial withdrawals occur at the beginning of a contract year. Terminating the GMIB: o You may terminate the rider within 30 days after the first rider anniversary. o You may terminate the rider any time after the seventh rider anniversary. o The rider will terminate on the date: -- you make a full withdrawal from the contract; -- a death benefit is payable; or -- you choose to begin taking annuity payouts under the regular contract provisions. o The rider will terminate on the contract anniversary after the annuitant's 86th birthday. -------------------------------------------------------------------------------- 60 AMERICAN EXPRESS NEW SOLUTIONS VARIABLE ANNUITY -- PROSPECTUS Example: o You purchase the contract with a payment of $100,000 on Jan. 1, 2001 and we add a $1,000 purchase payment credit to your contract. You allocate all your purchase payments and purchase payment credits to the subaccounts. o There are no additional purchase payments and no partial withdrawals. o Assume the annuitant is male and age 55 at contract issue. For the joint and last survivor option (annuity payout Plan D), the joint annuitant is female and age 55 at contract issue. Taking into account fluctuations in contract value due to market conditions, we calculate the GMIB benefit base as: Contract GMIB anniversary Contract value Purchase payments MAV benefit base 1 $107,000 $101,000 $107,000 2 125,000 101,000 125,000 3 132,000 101,000 132,000 4 150,000 101,000 150,000 5 85,000 101,000 150,000 6 120,000 101,000 150,000 7 138,000 101,000 150,000 $150,000 8 152,000 101,000 152,000 152,000 9 139,000 101,000 152,000 152,000 10 126,000 101,000 152,000 152,000 11 138,000 101,000 152,000 152,000 12 147,000 101,000 152,000 152,000 13 163,000 101,000 163,000 163,000 14 159,000 101,000 163,000 163,000 15 215,000 101,000 215,000 215,000 NOTE: The MAV is limited after age 81, but, the GMIB benefit base may increase if the contract value increases. However, you should keep in mind that you are always entitled to annuitize using the contract value without exercising the GMIB. If you annuitize the contract within 30 days after a contract anniversary, the payout under a fixed annuity option (which is the same as the minimum payout for the first year under a variable annuity options) would be:
Minimum Guaranteed Monthly Income Contract Plan A - Plan B - Plan D - joint and anniversary GMIB life annuity-- life annuity with last survivor life at exercise benefit base no refund ten years certain annuity-- no refund 10 $152,000 (MAV) $ 791.92 $ 770.64 $630.80 15 215,000 (Contract Value = MAV) 1,281.40 1,221.20 991.15 The payouts above are shown at guaranteed annuity rates stated in Table B of the contract. Payouts under the standard provisions of this contract will be based on our annuity rates in effect at annuitization and are guaranteed to be greater than or equal to the guaranteed annuity rates stated in Table B of the contract. The fixed annuity payout available under the standard provisions of this contract would be at least as great as shown below: Contract Plan A - Plan B - Plan D - joint and anniversary life annuity-- life annuity with last survivor life at exercise Contract value no refund ten years certain annuity-- no refund 10 $126,000 $ 656.46 $ 638.82 $522.90 15 215,000 1,281.40 1,221.20 991.15 At the 15th contract anniversary you would not experience a benefit from the GMIB as the payout available to you is equal to or less than the payout available under the standard provisions of the contract. Remember that after the first year, lifetime income payouts under a variable annuity payout option will depend on the investment performance of the subaccounts you select. The payouts will be higher if investment performance is greater than a 5% annual return and lower if investment performance is less than a 5% annual return.
-------------------------------------------------------------------------------- AMERICAN EXPRESS NEW SOLUTIONS VARIABLE ANNUITY -- PROSPECTUS 61 PERFORMANCE CREDIT RIDER (PCR) The PCR is intended to provide you with an additional benefit if your earnings are less than the target value on the tenth rider anniversary (see below). This is an optional benefit you may select for an additional charge (see "Charges"). The PCR does not provide any additional benefit before the tenth rider anniversary and it may not be appropriate for issue ages 75 or older due to this required holding period. Be sure to discuss with your sales representative whether or not the PCR is appropriate for your situation. If the PCR is available in your state, you may choose to add this benefit to your contract at issue. You cannot select the PCR if you select the GMIB. In some instances we may allow you to add the PCR to your contract at a later date if it was not available when you initially purchased your contract. In these instances, we would add the PCR at the next contract anniversary and this would become the rider effective date. For purposes of calculating the target value under these circumstances, we consider the contract value on the rider effective date to be the first contract year's purchase payments and purchase payment credits. Investment selection under the PCR: You may allocate your purchase payments and purchase payment credits or transfers to any of the subaccounts or the fixed accounts. However, we reserve the right to limit the aggregate amount in your fixed accounts and amounts you allocate to subaccounts investing in the AXP(R) Variable Portfolio - Cash Management Fund to 10% of your total contract value. If we are required to activate this restriction, and you have more than 10% of your contract value in these accounts, we will send you a notice and ask that you reallocate your contract value so that the 10% limitation is satisfied within 60 days. We will terminate the PCR if you have not satisfied the limitation after 60 days. Target value: We calculate the target value on each rider anniversary. There is no target value prior to the first rider anniversary. On the first rider anniversary we set the target value equal to your first year's purchase payments and purchase payment credits minus the target value adjusted partial withdrawals accumulated at an annual effective rate of 7.2%. Every rider anniversary after that, we recalculate the target value by accumulating the prior anniversary's target value and any additional purchase payments and purchase payment credits minus the target value adjusted partial withdrawals at an annual effective rate of 7.2%. PW x TV Target value adjusted partial withdrawals = ------- CV PW = the partial withdrawal including any applicable withdrawal charge or MVA. TV = the target value on the date of (but prior to) the partial withdrawal. CV = contract value on the date of (but prior to) the partial withdrawal. Exercising the PCR: We will inform you if your contract value did not meet or exceed the target value after your tenth rider anniversary. If your contract value is less than the target value on the tenth rider anniversary you can choose either of the following benefits: Option A) You may choose to accept a PCR credit to your contract equal to: 5% x (PP - PCRPW - PP5) PP = total purchase payments and purchase payment credits. PCRPW = PCR adjusted partial withdrawals. The PCR adjusted partial withdrawal amount is an adjustment we make to determine the proportionate amount of any partial withdrawal attributable to purchase payments received five or more years before the target value is calculated (on the tenth year rider anniversary). PP5 = purchase payments and purchase payment credits made in the prior five years. We apply the PCR credit to your contract on the tenth rider anniversary and allocate it among the fixed accounts and subaccounts according to your current asset allocation. Option B) You may choose to begin receiving annuity payouts (only with lifetime income plans; you may not choose Annuity Payout Plan E) within 60 days of the tenth rider anniversary and receive an additional 5% PCR credit (for a total PCR credit of 10%) as calculated in (a). We will assume that you have elected Option A unless we receive your request to begin a lifetime annuity payout plan within 60 days after the tenth rider anniversary. If you select Option A, we will restart the ten-year calculation period for the PCR on the tenth rider anniversary and every ten years after that while you own the contract. We use the contract value (including any credits) on that anniversary as your first contract year's payments for calculating the target value and any applicable PCR credit. We may then apply additional PCR credits to your contract at the end of each ten-year period as described above. -------------------------------------------------------------------------------- 62 AMERICAN EXPRESS NEW SOLUTIONS VARIABLE ANNUITY -- PROSPECTUS PCR reset: You can elect to lock in your contract growth by restarting the ten-year PCR calculation period on any contract anniversary. If you elect to restart the calculation period, the contract value on the restart date is used as the first year's payments and credits for the calculating the target value and any applicable PCR credit. If you select Option A, the next ten-year calculation period for the PCR will restart at the end of this new ten-year period. We must receive your request to restart the PCR calculation period within 30 days after a contract anniversary. Terminating the PCR: o You may terminate the PCR within 30 days following the first rider anniversary. o You may terminate the PCR within 30 days following the later of the tenth rider anniversary or the last rider reset date. o The PCR will terminate on the date: -- you make a full withdrawal from the contract, -- that a death benefit is payable, or -- you choose to begin taking annuity payouts. Example: o You purchase the contract with a payment of $100,000 on Jan. 1, 2001 and we add a $1,000 purchase payment credit to the contract o There are no additional purchase payments and no partial withdrawals o On Jan. 1, 2011, the contract value is $200,000 o We determine the target value on Jan. 1, 2011 as our purchase payments and credits accumulated at an annual effective rate of 7.2% = $101,000 x (1.072) to power of 10 = $101,000 x 2.00423 = $202,427. Your contract value ($200,000) is less than the target value ($202,427). Assuming you select Option A, we add a PCR credit to your contract calculated as follows: 5% x (PP - TVPW - PP5) = 1.05 x ($101,000 - 0 - 0) = $5,050. After application of the PCR credit, your total contract value on Jan. 1, 2011 would be $205,050. o On Feb. 1, 2011, the contract value grows to $210,000 and you choose to begin receiving annuity payouts under a lifetime income plan. We would now add another PCR credit to your contract. Because you have not made any additional purchase payments or partial withdrawals the amount of this new credit is the same as the PCR credit we added to your contract on Jan. 1, 2011 ($5,050). After adding this new PCR credit to your contract, your total contract value would be $215,050 and we would use this amount to your monthly annuity payout amount. o If on Feb. 1, 2011, you had elected not to receive annuity payouts, the PCR ten-year calculation period would restart on Jan. 1, 2011 with the target values first year's payments equal to $205,050. We would make the next PCR credit determination on Jan. 1, 2021. The Annuity Payout Period As owner of the contract, you have the right to decide how and to whom annuity payouts will be made starting at the retirement date. You may select one of the annuity payout plans outlined below, or we may mutually agree on other payout arrangements. We do not deduct any withdrawal charges under the payout plans listed below. You also decide whether we will make annuity payouts on a fixed or variable basis, or a combination of fixed and variable. The 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 one-year fixed account to provide fixed dollar payouts and/or among the subaccounts to provide variable annuity payouts. During the annuity payout period, we reserve the right to limit the number of subaccounts in which you may invest. The Guarantee Period Accounts are not available during this payout period. Amounts of fixed and variable payouts depend on: o the annuity payout plan you select; o the annuitant's age and, in most cases, sex; o the annuity table in the contract; and o the amounts you allocated to the accounts at settlement. In addition, for variable payouts only, amounts depend on the investment performance of the subaccounts you select. These payouts will vary from month to month because the performance of the funds will fluctuate. (In the case of fixed annuities, payouts remain the same from month to month.) For information with respect to transfers between accounts after annuity payouts begin, see "Making the Most of Your Contract -- Transfer policies." -------------------------------------------------------------------------------- AMERICAN EXPRESS NEW SOLUTIONS VARIABLE ANNUITY -- PROSPECTUS 63 ANNUITY TABLES The annuity tables in your contract show the amount of the monthly payouts 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.) Table B shows the minimum amount of each fixed payout. Amounts in Table B are based on the guaranteed annual effective interest rate shown in your contract. We declare current payout rates that we use in determining the actual amount of your fixed payout. The current payout rates will equal or exceed the guaranteed payout rates shown in Table B. We will furnish these rates to you upon request. Table A shows the amount of the first monthly variable payout assuming 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. 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 A 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 Table A results in a higher initial payment, but later payouts will increase more slowly when annuity unit values rise and decrease more rapidly when they decline. ANNUITY PAYOUT PLANS You may choose any one of these annuity payout plans by giving us written instructions at least 30 days before contract values are used to purchase the payout plan: o Plan A - Life annuity -- no refund: We make monthly payouts until the annuitant's death. Payouts end with the last payout before the annuitant's death. We will not make any further payouts. This means that if the annuitant dies after we made only one monthly payout, we will not make any more payouts. o Plan B - Life annuity with five, ten or 15 years certain: We make monthly payouts for a guaranteed payout period of five, ten or 15 years that you elect. This election will determine the length of the payout period to the beneficiary if the annuitant should die before the elected period expires. We calculate the guaranteed payout period from the retirement date. If the annuitant outlives the elected guaranteed payout period, we will continue to make payouts until the annuitant's death. o Plan C - Life annuity -- installment refund: We make monthly payouts until the annuitant's death, with our guarantee that payouts will continue for some period of time. We will make payouts for at least the number of months determined by dividing the amount applied under this option by the first monthly payout, whether or not the annuitant is living. o Plan D - Joint and last survivor life annuity -- no refund: We make monthly payouts while both the annuitant and a joint annuitant are living. If either annuitant dies, we will continue to make monthly payouts at the full amount until the death of the surviving annuitant. Payouts end with the death of the second annuitant. o Plan E - Payouts for a specified period: We make monthly payouts for a specific payout period of ten to 30 years that you elect. We will make payouts only for the number of years specified whether the annuitant is living or not. Depending on the selected time period, it is foreseeable that an annuitant can outlive the payout period selected. During the payout period, you can elect to have us determine the present value of any remaining variable payouts and pay it to you in a lump sum. We determine the present value of the remaining annuity payouts which are assumed to remain level at the initial payout. The discount rate we use in the calculation will vary between 4.86% and 6.61% depending on the mortality and expense risk charge and the applicable assumed investment rate. (See "Charges -- Withdrawal charge under Annuity Payout Plan E.") You can also take a portion of the discounted value once a year. If you do so, your monthly payouts will be reduced by the proportion of your withdrawal to the full discounted value. A 10% IRS penalty tax could apply if you take a withdrawal. (See "Taxes.") Annuity payout plan requirements for qualified annuities: If you purchased a qualified annuity, you must select a payout plan as of the retirement date set forth in your contract. You have the responsibility for electing a payout plan that complies with your contract and with applicable law. Your contract describes your payout plan options. The options will meet certain IRS regulations governing required minimum distributions if the payout plan meets the incidental distribution benefit requirements, if any, and the payouts are made: o in equal or substantially equal payments over a period not longer than the life of the annuitant or over the life of the annuitant and designated beneficiary; or o in equal or substantially equal payments over a period not longer than the life expectancy of the annuitant or over the life expectancy of the annuitant and designated beneficiary; or o over a period certain not longer than the life expectancy of the annuitant or over the life expectancy of the annuitant and designated beneficiary. If we do not receive instructions: You must give us written instructions for the annuity payouts at least 30 days before the annuitant's retirement date. If you do not, we will make payouts under Plan B, with 120 monthly payouts guaranteed. Contract values that you allocated to the one-year fixed account will provide fixed dollar payouts and contract values that you allocated among the subaccounts will provide variable annuity payouts. -------------------------------------------------------------------------------- 64 AMERICAN EXPRESS NEW SOLUTIONS VARIABLE ANNUITY -- PROSPECTUS If monthly payouts would be less than $20: We will calculate the amount of monthly payouts at the time the contract value is used to purchase a payout plan. If the calculations show that monthly payouts would be less than $20, we have the right to pay the contract value to the owner in a lump sum or to change the frequency of the payouts. Death after annuity payouts begin: If you or the annuitant die after annuity payouts begin, we will pay any amount payable to the beneficiary as provided in the annuity payout plan in effect. Taxes Generally, under current law, your contract has a tax-deferral feature. This means any increase in the value of the fixed accounts and/or subaccounts in which you invest is taxable to you only when you receive a payout or withdrawal (see detailed discussion below). Any portion of the annuity payouts and any withdrawals you request that represent ordinary income normally are taxable. We will send you a tax information reporting form for any year in which we made a taxable distribution according to our records. Roth IRAs may grow and be distributed tax free if you meet certain distribution requirements. Annuity payouts under nonqualified annuities: A portion of each payout will be ordinary income and subject to tax, and a portion of each payout will be considered a return of part of your investment and will not be taxed. All amounts you receive after your investment in the contract is fully recovered will be subject to tax. Tax law requires that all nonqualified deferred annuity contracts issued by the same company (and possibly its affiliates) to the same owner during a calendar year be taxed as a single, unified contract when you take distributions from any one of those contracts. Qualified annuities: When you use your contract to fund a retirement plan that is already tax deferred under the Code, the contract will not provide any necessary or additional tax deferral for the retirement plan. Adverse tax consequences may result if you do not ensure that contributions, distributions and other transactions under the contract comply with the law. Qualified annuities have minimum distribution rules that govern the timing and amount of distributions during your life (except for Roth IRAs) and after your death. You should refer to your retirement plan or adoption agreement or consult a tax advisor for more information about your distribution rules. Annuity payouts under qualified annuities (except Roth IRAs): Under a qualified annuity, the entire payout generally is includable as ordinary income and is subject to tax except to the extent that contributions were made with after-tax dollars. If you or your employer invested in your contract with deductible or pre-tax dollars as part of a tax-deferred retirement plan, such amounts are not considered to be part of your investment in the contract and will be taxed when paid to you. Purchase payment credits and PCR credits: These are considered earnings and are taxed accordingly. Withdrawals: If you withdraw part or all of your contract before your annuity payouts begin, your withdrawal payment will be taxed to the extent that the value of your contract immediately before the withdrawal exceeds your investment. You also may have to pay a 10% IRS penalty for withdrawals you make before reaching age 591/2 unless certain exceptions apply. For qualified annuities, other penalties may apply if you withdraw your contract before your plan specifies that you can receive payouts. Death benefits to beneficiaries under nonqualified annuities: The death benefit under a contract 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 year he or she receives the payments. Death benefits to beneficiaries under qualified annuities: The entire death benefit generally is taxable as ordinary income to the beneficiary in the year he or she receives the payments. Death benefits under a Roth IRA generally are not taxable as ordinary income to the beneficiary if certain distribution requirements are met. Special considerations if you select either the Benefit Protector(SM) or the Benefit Protector(SM) Plus Death Benefit Riders: As of the date of this prospectus, we believe that charges related to these riders are not subject to current taxation. Therefore, we will not report these charges as partial withdrawals from your contract. However, the IRS may determine that these charges should be treated as partial withdrawals subject to taxation to the extent of any gain as well as the 10% tax penalty for withdrawals before the age of 59 1/2, if applicable. We reserve the right to report charges for these riders as partial withdrawals if we, as a withholding and reporting agent, believe that we are required to report them. In addition, we will report the benefits attributable to these riders on the death of you or the annuitant as an annuity death benefit distribution, not as proceeds from life insurance. 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. -------------------------------------------------------------------------------- AMERICAN EXPRESS NEW SOLUTIONS VARIABLE ANNUITY -- PROSPECTUS 65 Penalties: If you receive amounts from your contract before reaching age 591/2, you may have to pay a 10% IRS penalty on the amount includable in your ordinary income. However, this penalty will not apply to any amount received: o because of your death; o because you become disabled (as defined in the Code); o if the distribution is part of a series of substantially equal periodic payments, made at least annually, over your life or life expectancy (or joint lives or life expectancies of you and your beneficiary); or o if it is allocable to an investment before Aug. 14, 1982 (except for qualified annuities). For IRAs, other exceptions may apply if you make withdrawals from your contract before age 59 1/2. Withholding, generally: If you receive all or part of the contract value, we may deduct withholding against the taxable income portion of the payment. Any withholding represents a prepayment of your tax due for the year. You take credit for these amounts on your annual tax return. If the payment is part of an annuity payout plan, we generally compute the amount of withholding using payroll tables. You may provide us with a statement of how many exemptions to use in calculating the withholding. As long as you've provided us with a valid Social Security Number or Taxpayer Identification Number, you can elect not to have any withholding occur. If the distribution is any other type of payment (such as a partial or full withdrawal), we compute withholding using 10% of the taxable portion. Similar to above, as long as you have provided us with a valid Social Security Number or Taxpayer Identification Number, you can elect not to have this withholding occur. Some states also impose withholding requirements similar to the federal withholding described above. If this should be the case, we may deduct state withholding from any payment from which we deduct federal withholding. The withholding requirements may differ if we are making payment to a non-U.S. citizen or if we deliver the payment outside the United States. Transfer of ownership of a nonqualified annuity: If you transfer a nonqualified annuity without receiving adequate consideration, the transfer is a gift and also may be a withdrawal for federal income tax purposes. If the gift is a currently taxable event for income tax purposes, the original owner will be taxed on the amount of deferred earnings at the time of the transfer and also may be subject to the 10% IRS penalty discussed earlier. In this case, the new owner's investment in the contract will be the value of the contract at the time of the transfer. Collateral assignment of a nonqualified annuity: If you collaterally assign or pledge your contract, earnings on purchase payments you made after Aug. 13, 1982 will be taxed to you like a withdrawal. Important: Our discussion of federal tax laws is based upon our understanding of current interpretations of these laws. Federal tax laws or current interpretations of them may change. For this reason and because tax consequences are complex and highly individual and cannot always be anticipated, you should consult a tax advisor if you have any questions about taxation of your contract. Tax qualification: We intend that the contract qualify as an annuity for federal income tax purposes. To that end, the provisions of the contract are to be interpreted to ensure or maintain such tax qualification, in spite of any other provisions of the contract. We reserve the right to amend the contract to reflect any clarifications that may be needed or are appropriate to maintain such qualification or to conform the contract to any applicable changes in the tax qualification requirements. We will send you a copy of any amendments. Voting Rights As a contract owner with investments in the subaccounts, you may vote on important fund policies until annuity payouts begin. Once they begin, the person receiving them has voting rights. We will vote fund shares according to the instructions of the person with voting rights. Before annuity payouts begin, the number of votes you have is determined by applying your percentage interest in each subaccount to the total number of votes allowed to the subaccount. After annuity payouts begin, the number of votes you have is equal to: o the reserve held in each subaccount for your contract; divided by o the net asset value of one share of the applicable fund. As we make annuity payouts, the reserve for the contract decreases; therefore, the number of votes also will decrease. We calculate votes separately for each subaccount. We will send notice of 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. -------------------------------------------------------------------------------- 66 AMERICAN EXPRESS NEW SOLUTIONS VARIABLE ANNUITY -- PROSPECTUS Substitution of Investments We may substitute the funds in which the subaccounts invest if: o laws or regulations change; o the existing funds become unavailable; or o in our judgment, the funds no longer are suitable for the subaccounts. If any of these situations occur, and if we believe it is in the best interest of persons having voting rights under the contract, we have the right to substitute the funds currently listed in this prospectus for other funds. We may also: o add new subaccounts; o combine any two or more subaccounts; o make additional subaccounts investing in additional funds; o transfer assets to and from the subaccounts or the variable account; and o eliminate or close any subaccounts. In the event of substitution or any of these changes, we may amend the contract and take whatever action is necessary and appropriate without your consent or approval. However, we will not make any substitution or change without the necessary approval of the SEC and state insurance departments. We will notify you of any substitution or change. 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 70100 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, a financial services company headquartered in New York City. The contracts will be distributed by broker-dealers which have entered into distribution agreements with AEFA and American Enterprise Life. 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. American Enterprise Life is a stock life insurance company organized in 1981 under the laws of the state of Indiana. Its administrative offices are located at 829 AXP Financial Center, Minneapolis, MN 55474. Its statutory address is 100 Capitol Center South, 201 North Illinois Street, Indianapolis, IN 46204. American Enterprise Life conducts a conventional life insurance business. American Enterprise Life pays cash compensation to the broker-dealers and insurance agencies who have entered into distribution agreements with American Enterprise Life and AEFA for the sale of contracts. This compensation will not result in any charge to contract owners or to the variable account in addition to the charges described in this prospectus. This cash compensation will not be more than 9.0% of the purchase payments it receives on the contracts. From time to time and in accordance with applicable laws and regulations we will pay or permit other promotional incentives, in cash or credit or other compensation. 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 the suits, Richard W. and Elizabeth J. Thoresen v. 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 on Oct. 13, 1998. The action was brought by individuals who purchased an annuity in a qualified plan. They allege that the sale of annuities in tax-deferred contributory retirement investment plans (e.g., IRAs) is never appropriate. The plaintiffs purport to represent a class consisting of all persons who made similar purchases. The plaintiffs seek damages in an unspecified amount, including restitution of allegedly lost investment earnings and restoration of contract values. In January 2000, AEFC reached an agreement in principle to settle the three class-action lawsuits described above. It is expected the settlement will provide $215 million of benefits to more than two million participants and for release by class members of all insurance and annuity market conduct claims dating back to 1985. -------------------------------------------------------------------------------- AMERICAN EXPRESS NEW SOLUTIONS VARIABLE ANNUITY -- PROSPECTUS 67 In August, 2000 an action entitled Lesa Benacquisto, Daniel Benacquisto, Richard Thoresen, Elizabeth Thoresen, Arnold Mork, Isabella Mork, Ronald Melchert and Susan Melchert v. American Express Financial Corporation, American Express Financial Advisors, American Centurion Life Assurance Company, American Enterprise Life Insurance Company, American Partners Life Insurance Company, IDS Life Insurance Company and IDS Life Insurance Company of New York was commenced in the United States District Court for the District of Minnesota. The complaint put at issue various alleged sales practices and misrepresentations and allegations of violations of federal laws. In September, 2000 the plaintiffs filed a consolidated complaint in State Court alleging the same claims as the previous actions. On Oct. 2, 2000 the District Court, Fourth Judicial District for the State of Minnesota, County of Hennepin and the United States District Court for the District of Minnesota entered an order conditionally certifying a class for settlement purposes, preliminarily approving the class settlement, directing the issuance of a class notice to the class and scheduling a hearing to determine the fairness of settlement for March, 2001. On March 6, 2001 the District Court, Fourth Judicial District for the State of Minnesota, County of Hennepin and the United States District Court for the District of Minnesota heard oral arguments on plaintiffs' motions for final approval of the class action settlement. Six motions to intervene were filed together with objections to the proposed settlement. We are awaiting a final order from the court. Additional Information About American Enterprise Life SELECTED FINANCIAL DATA The following selected financial data for American Enterprise Life should be read in conjunction with the financial statements and notes.
Three months ended Years ended Dec. 31 (thousands) March 31, 2001 March 31, 2000 2000 1999 1998 1997 1996 Net investment income $ 69,460 $ 77,586 $ 299,759 $ 322,746 $ 340,219 $ 332,268 $ 271,719 Net loss on investments (18,542) (2,425) 469 6,565 (4,788) (509) (5,258) Other 3,765 2,289 12,248 8,338 7,662 6,329 5,753 Total revenues $ 54,863 $ 77,450 $ 312,476 $ 337,649 $ 343,093 $ 338,088 $ 272,214 Income before income taxes $ (11,624) $ 9,978 $ 38,452 $ 50,662 $ 36,421 $ 44,958 $ 35,735 Net income $ (7,637) $ 6,332 $ 24,365 $ 33,987 $ 22,026 $ 28,313 $ 22,823 Total assets $4,617,668 $4,532,394 $4,652,221 $4,603,343 $4,885,621 $4,973,413 $4,425,837 MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS Three Months Ended March 31, 2001 Compared to Three Months Ended March 31, 2000: Net loss was $7.6 million in the first quarter of 2001, compared to net income of $6.3 million in the first quarter of 2000. Loss before income taxes totaled $11.6 million in the first quarter 2001, compared with income of $10.0 million in the first quarter of 2000. This decline primarily reflects a net pre-tax loss of $18.5 from the write-down and sale of certain high-yield securities. Total investment contract deposits received increased to $202 million in the first quarter of 2001, compared with $67 million in the first quarter of 2000. This increase is primarily due to an increase in variable annuity deposits received from sales. Total revenues decreased to $54.9 million in the first quarter of 2001, compared with $77.5 million in the first quarter of 2000. The decrease is primarily due to net realized losses on investments and decreases in net investment income. Net investment income, the largest component of revenues, decreased 10% from the same period of the prior year, reflecting a decrease in investments owned and lower investment yields. Policyholder and contractholder charges increased 13% to $1.7 million in the first quarter of 2001, compared with $1.5 million in the first quarter of 2000, reflecting an increase in annuity surrender charges. American Enterprise Life receives mortality and expense risk fees from the separate accounts. Mortality and expense risk fees increased 175% to $2.2 million in the first quarter of 2001, compared with $.8 million in the first quarter of 2000, reflecting an increase in separate account assets. Net realized loss on investments was $18.5 million in the first quarter of 2001, compared with a net loss of $2.4 million in the first quarter of 2000. The increase in net realized losses was primarily due to the loss on sale and writedowns of fixed maturity investments. Total benefits and expenses decreased 1% to $66.5 million in the first quarter of 2001, compared with $67.5 million in 2000. The largest component of expenses, interest credited on investment contracts, decreased $6.6 million to $42.5 million in the first quarter of 2001, compared to $49.1 in the first quarter of 2000, reflecting a decrease in fixed annuities in force and lower crediting rates. Amortization of deferred policy acquisition costs increased to $12.2 million, compared to $10.7 million in the first quarter of 2000. This increase was due primarily to increased aggregate amounts in force. Other operating expenses increased 55% to $11.9 million in the first quarter of 2001, compared to $7.7 million in the first quarter of 2000. This increase is mainly due to higher technology costs related to growth initiatives.
-------------------------------------------------------------------------------- 68 AMERICAN EXPRESS NEW SOLUTIONS VARIABLE ANNUITY -- PROSPECTUS Three Months Ended March 31, 2000 Compared to Three Months Ended March 31, 1999: Net income decreased 2% to $6.3 million in the first quarter of 2000, compared to $6.5 million in the first quarter of 1999. Earnings decline resulted primarily from weak equity markets and narrower spreads on the investment portfolio. Total investment contract deposits received decreased to $67 million in the first quarter of 2000, compared with $71 million in the first quarter of 1999. This decrease is primarily due to a decrease in variable annuity deposits in 2000. Total revenues decreased to $77.5 million in the first quarter of 2000, compared with $78.3 million in the first quarter of 1999. The decrease is primarily due to a decrease in net investment income. Net investment income, the largest component of revenues, decreased 4% from the same period of the prior year, reflecting a decrease in investments owned and lower investment yields. Policyholder and contractholder charges increased 25% to $1.5 million in the first quarter of 2000, compared with $1.2 million in the first quarter of 1999, reflecting an increase in annuity surrender charges. American Enterprise Life receives mortality and expense risk fees from the separate accounts. Mortality and expense risk fees increased 60% to $.8 million in the first quarter of 2000, compared with $.5 million in the first quarter of 1999, this reflects the increase in separate account assets. Net realized loss on investments was $2.4 million in the first quarter of 2000, compared with a net loss of $3.8 million in 1999. The net realized loss was primarily due to losses on the sale and writedown of fixed maturity investments. Total benefits and expenses decreased 1% to $67.5 million in the first quarter of 2000, compared with $68.3 million in 1999. The largest component of expenses, interest credited on investment contracts, decreased $3.2 million to $49.1 million for the first quarter of 2000, compared to $52.3 million in the first quarter of 1999. This reflects a decrease in fixed annuities in force and lower crediting rates. Amortization of deferred policy acquisition costs increased to $10.7 million, compared to $9.2 million in the first quarter of 1999. This increase was due primarily to increased aggregate amounts in force. Other operating expenses increased 15% to $7.7 million in the first quarter of 2000, compared to $6.7 million in the first quarter of 1999. This increase is mainly due to higher technology costs related to growth initiatives. Dec. 31, 2000 Compared to Dec. 31, 1999: Net income decreased 29% to $24 million in 2000, compared to $34 million in 1999. Income before income taxes totaled $38 million in 2000, compared with $51 million in 1999. The decrease was primarily the result of lower net investment income of $300 million in 2000, compared with $323 million in 1999. Total investment contract deposits received increased to $721 million in 2000, compared with $336 million in 1999. This increase is primarily due to an increase in variable annuity deposits in 2000. Total revenues decreased to $312 million in 2000, compared with $338 million in 1999. The decrease is primarily due to decreases in net investment income and net realized gains on investments. Net investment income, the largest component of revenues, decreased 7% from the prior year, reflecting a decrease in investments owned and lower investment yields. Policyholder and contractholder charges increased 13% to $6.9 million in 2000, compared with $6.1 million in 1999, reflecting an increase in annuity withdrawal charges. American Enterprise Life receives mortality and expense risk fees from the separate accounts. Mortality and expense risk fees increased 135% to $5.4 million in 2000, compared with $2.3 million in 1999, this reflects the increase in separate account assets. Net realized gain on investments was $0.5 million in 2000, compared with $6.6 million in 1999. The decrease in net realized gains was primarily due to the loss on sale and writedowns of fixed maturity investments. Total benefits and expenses decreased 5% to $274 million in 2000, compared with $287 million in 1999. The largest component of expenses, interest credited on investment contracts, decreased to $191 million, reflecting a decrease in fixed annuities in force and lower crediting rates. Amortization of deferred policy acquisition costs increased to $48 million, compared to $43 million in 1999. This increase was due primarily to increased aggregate amounts in force. Other operating expenses remained steady at $35 million in 2000. Dec. 31, 1999 Compared to Dec. 31, 1998: Net income increased 54% to $34 million in 1999, compared to $22 million in 1998. Earnings growth resulted primarily net realized gains of $6.6 million in 1999, compared to net realized losses of $4.8 in 1998. Income before income taxes totaled $51 million in 1999, compared with $36 million in 1998. Total investment contract deposits received decreased to $336 million in 1999, compared with $348 million in 1998. This decrease is primarily due to a decrease in sales of variable annuities in 1999. Total revenues decreased to $338 million in 1999, compared with $343 million in 1998. The decrease is primarily due to decreased net investment income which was partially offset by an increase in realized gain on investments. Net investment income, the largest component of revenues, decreased 5% from the prior year, reflecting decreases in investments owned and investment yields. -------------------------------------------------------------------------------- AMERICAN EXPRESS NEW SOLUTIONS VARIABLE ANNUITY -- PROSPECTUS 69 Contractholder charges decreased 5% to $6.1 million in 1999, compared with $6.4 million in 1998, reflecting a decrease in fixed annuities inforce. American Enterprise Life receives mortality and expense risk fees from the separate accounts. Mortality and expense risk fees increased 77% to $2.3 million in 1999, compared with $1.3 million in 1998, this reflects the increase in separate account assets. Net realized gain on investments was $6.6 million in 1999, compared to a net realized loss on investments of $4.8 million in 1998. The net realized gains were primarily due to the sale of available for sale fixed maturity investments at a gain as well as a decrease in the allowance for mortgage loan losses based on management's regular evaluation of allowance adequacy. Total benefits and expenses decreased slightly to $287 million in 1999. The largest component of expenses, interest credited on investment contracts, decreased to $209 million, reflecting a decrease in fixed annuities in force and lower interest rates. Amortization of deferred policy acquisition costs decreased to $43 million, compared to $54 million in 1998. This decrease was due primarily to decreased aggregate amounts in force, as well as the impact of changing prospective assumptions in 1998 based on actual lapse experience on certain fixed annuities. Other operating expenses increased 46% to $35 million in 1999, compared to $24 million in 1998. This increase primarily reflects technology costs related to growth initiatives. Risk Management The sensitivity analysis of the test of market risk discussed below estimates the effects of hypothetical sudden and sustained changes in the applicable market conditions on the ensuing year's earnings based on year-end positions. The market changes, assumed to occur as of year-end, is a 100 basis point increase in market interest rates. Computations of the prospective effects of hypothetical interest rate change based on numerous assumptions, including relative levels of market interest rates as well as the levels of assets and liabilities. The hypothetical changes and assumptions will be different from what actually occurs in the future. Furthermore, the computations do not anticipate actions that may be taken by management if the hypothetical market changes actually occurred over time. As a result, actual earnings effects in the future will differ from those quantified below. American Enterprise Life primarily invests in fixed income securities over a broad range of maturities for the purpose of providing fixed annuity clients with a competitive rate of return on their investments while minimizing risk, and to provide a dependable and targeted spread between the interest rate earned on investments and the interest rate credited to contractholders' accounts. American Enterprise Life does not invest in securities to generate trading profits. American Enterprise Life has an investment committee that holds regularly scheduled meetings and, when necessary, special meetings. At these meetings, the committee reviews models projecting different interest rate scenarios and their impact on profitability. The objective of the committee is to structure the investment security portfolio based upon the type and behavior of products in the liability portfolio so as to achieve targeted levels of profitability. Rates credited to contractholders' accounts are generally reset at shorter intervals than the maturity of underlying investments. Therefore, margins may be negatively impacted by increases in the general level of interest rates. Part of the committee's strategy includes the purchase of some types of derivatives, such as interest rate caps, swaps and floors, for hedging purposes. These derivatives protect margins by increasing investment returns if there is a sudden and severe rise in interest rates, thereby mitigating the impact of an increase in rates credited to contractholders' accounts. The negative effect on American Enterprise Life's pretax earnings of a 100 basis point increase in interest rates, which assumes repricings and customer behavior based on the application of proprietary models to the book of business at Dec. 31, 2000, would be approximately $4.6 million. Liquidity and Capital Resources The liquidity requirements of American Enterprise Life are met by funds provided by annuity considerations, investment income, proceeds from sales of investments as well as maturities and periodic repayments of investment principal. The primary uses of funds are policy benefits, commissions and operating expenses, policy loans, and investment purchases. American Enterprise Life has an available line of credit with AEFC aggregating $50 million. The line of credit is used strictly as a short-term source of funds. No borrowings were outstanding under the agreement at Dec. 31, 2000. At Dec. 31, 2000, outstanding reverse repurchase agreements totaled $25 million. At Dec. 31, 2000, investments in fixed maturities comprised 80% of American Enterprise Life's total invested assets. Of the fixed maturity portfolio, approximately 30% is invested in GNMA, FNMA and FHLMC mortgage-backed securities which are considered AAA/Aaa quality. At Dec. 31, 2000, approximately 15% of American Enterprise Life's investments in fixed maturities were below investment grade bonds. These investments may be subject to a higher degree of risk than the investment grade issues because of the borrower's generally greater sensitivity to adverse economic conditions, such as recession or increasing interest rates, and in certain instances, the lack of an active secondary market. Expected returns on below investment grade bonds reflect consideration of such factors. American Enterprise Life has identified those fixed maturities for which a decline in fair value is determined to be other than temporary, and has written them down to fair value with a charge to earnings. -------------------------------------------------------------------------------- 70 AMERICAN EXPRESS NEW SOLUTIONS VARIABLE ANNUITY -- PROSPECTUS At Dec. 31, 2000, net unrealized depreciation on fixed maturities held to maturity included $10.7 million of gross unrealized appreciation and $17.8 million of gross unrealized depreciation. Net unrealized depreciation on fixed maturities available for sale included $30.2 million of gross unrealized appreciation and $125.6 million of gross unrealized depreciation. At Dec. 31, 2000, American Enterprise Life had an allowance for losses for mortgage loans totaling $3.3 million. The economy and other factors have caused a number of insurance companies to go under regulatory supervision. This circumstance has resulted in assessments by state guaranty associations to cover losses to policyholders of insolvent or rehabilitated companies. Some assessments can be partially recovered through a reduction in future premium taxes in certain states. American Enterprise Life established an asset for guaranty association assessments paid to those states allowing a reduction in future premium taxes over a reasonable period of time. The asset is being amortized as premium taxes are reduced. American Enterprise Life has also estimated the potential effect of future assessments on American Enterprise Life's financial position and results of operations and has established a reserve for such potential assessments. The National Association of Insurance Commissioners has established risk-based capital standards to determine the capital requirements of a life insurance company based upon the risks inherent in its operations. These standards require the computation of a risk-based capital amount which is then compared to a company's actual total adjusted capital. The computation involves applying factors to various statutory financial data to address four primary risks: asset default, adverse insurance experience, interest rate risk and external events. These standards provide for regulatory attention when the percentage of total adjusted capital to authorized control level risk-based capital is below certain levels. As of Dec. 31, 2000, American Enterprise Life's total adjusted capital was well in excess of the levels requiring regulatory attention. RESERVES In accordance with the insurance laws and regulations under which we operate, we are obligated to carry on our books, as liabilities, actuarially determined reserves to meet our obligations on our outstanding annuity contracts. We base our reserves for deferred annuity contracts on accumulation value and for fixed annuity contracts in a benefit status on established industry mortality tables. These reserves are computed amounts that will be sufficient to meet our policy obligations at their maturities. INVESTMENTS Of our total investments of $3,735,994 at Dec. 31, 2000, 27% was invested in mortgage-backed securities, 54% in corporate and other bonds, 19% in primary mortgage loans on real estate and less than 1% in other investments. COMPETITION We are engaged in a business that is highly competitive due to the large number of stock and mutual life insurance companies and other entities marketing insurance products. There are over 1,600 stock, mutual and other types of insurers in the life insurance business. Best's Insurance Reports, Life-Health edition 2000, assigned us one of its highest classifications, A+ (Superior). EMPLOYEES As of Dec. 31, 2000, we had no employees. PROPERTIES We occupy office space in Minneapolis, MN, which is leased by AEFC. We reimburse AEFC for rent based on direct and indirect allocation methods. Facilities occupied by us are believed to be adequate for the purposes for which they are used and well maintained. STATE REGULATION American Enterprise Life is subject to the laws of the State of Indiana governing insurance companies and to the regulations of the Indiana Department of Insurance. An annual statement in the prescribed form is filed with the Indiana Department of Insurance each year covering our operation for the preceding year and its financial condition at the end of such year. Regulation by the Indiana Department of Insurance includes periodic examination to determine American Enterprise's contract liabilities and reserves so that the Indiana Department of Insurance may certify that these items are correct. The Company's books and accounts are subject to review by the Indiana Department of Insurance at all times. Such regulation does not, however, involve any supervision of the account's management or the company's investment practices or policies. In addition, American Enterprise Life is subject to regulation under the insurance laws of other jurisdictions in which it operates. A full examination of American Enterprise Life's operations is conducted periodically by the National Association of Insurance Commissioners. Under insurance guaranty fund laws, in most states, insurers doing business therein can be assessed up to prescribed limits for policyholder losses incurred by insolvent companies. Most of these laws do provide however, that an assessment may be excused or deferred if it would threaten an insurer's own financial strength. -------------------------------------------------------------------------------- AMERICAN EXPRESS NEW SOLUTIONS VARIABLE ANNUITY -- PROSPECTUS 71 Directors and Executive Officers* The directors and principal executive officers of American Enterprise Life and the principal occupation of each during the last five years is as follows: DIRECTORS Gumer C. Alvero Born in 1967 Director, chairman of the board and executive vice president - Annuities since January 2001; vice president - Variable Annuities, AEFC, since April 1998; executive assistant to president/CEO, AEFC, from April 1996 to April 1998. Carol A. Holton Born in 1952 Director, president and chief executive officer since January 2001; vice president - Third Party Distribution, AEFC, since April 1998; director - Distributor Services, AEFC, from September 1997 to April 1998; director - Business Systems and Operations, F&G Life, from July 1996 to August 1997. Paul S. Mannweiler** Born in 1949 Director since 1986; Partner at Locke Reynolds Boyd & Weisell since 1980. Teresa J. Rasmussen Born in 1956 Director, vice president, general counsel and secretary since December 2000; vice president and assistant general counsel, AEFC, since August 2000; assistant vice president, AEFC, from October 1995 to August 2000. OFFICERS OTHER THAN DIRECTORS Lorraine R. Hart Born in 1951 Vice president - Investments since 1992; vice president - Insurance Investments, AEFC since 1998; and vice president - Investments, American Express Certificate Company since 1994. Stuart A. Sedlacek Born in 1957 Executive vice president since 1998; executive vice president - Assured Assets, 1994 to 1998; senior vice president and chief financial officer, AEFC, since 1998; vice president, AEFC, from September 1988 to 1998. Philip C. Wentzel Born in 1961 Vice president and controller since 1998; director of financial reporting and analyses, AEFC, from 1992 to 1997. David L. Yowan Born in 1957 Vice president and treasurer since March 2001; senior vice president and assistant treasurer of American Express Company since January 1999; vice president and corporate treasurer, AEFC, since April 2001; senior portfolio and risk management officer for the North American Consumer Bank of Citigroup from August 1987 to January 1999. * The address for all of the directors and principal officers is: 200 AXP Financial Center, Minneapolis, MN 55474 except for Mr. Mannweiler who is an independent director. ** Mr. Mannweiler's address is: 201 No. Illinois Street, Indianapolis, IN 46204 -------------------------------------------------------------------------------- 72 AMERICAN EXPRESS NEW SOLUTIONS VARIABLE ANNUITY -- PROSPECTUS EXECUTIVE COMPENSATION Our executive officers also may serve one or more affiliated companies. The following table reflects cash compensation paid to the five most highly compensated executive officers as a group for services rendered in the most recent year to us and our affiliates. The table also shows the total cash compensation paid to all our executive officers, as a group, who were executive officers at any time during the most recent year.
Name of individual or number in group Position held Cash compensation Five most highly compensated executive officers as a group: $ 8,138,209 Stephen W. Roszell President and Chief Executive Officer Richard W. Kling Chairman of the Board Lorraine R. Hart Vice President - Investments David M. Kuplic Assistant Vice President - Investments Stuart A. Sedlacek Executive Vice President All executive officers as a group (11) $11,289,475
SECURITY OWNERSHIP OF MANAGEMENT Our directors and officers do not beneficially own any outstanding shares of stock of the company. All of our outstanding shares of stock are beneficially owned by IDS Life. The percentage of shares of IDS Life owned by any director, and by all our directors and officers as a group, does not exceed 1% of the class outstanding. Experts Ernst & Young LLP, independent auditors, have audited the financial statements of American Enterprise Life Insurance Company at Dec. 31, 2000 and 1999, and for each of the three years in the period ended Dec. 31, 2000, and the individual and combined statements of the segregated asset subaccounts of American Enterprise Variable Annuity Account as of Dec. 31, 2000 and for the periods indicated therein, as set forth in their reports. We've included our financial statements in the prospectus and elsewhere in the registration statement in reliance on Ernst & Young LLP's reports, given on their authority as experts in accounting and auditing. -------------------------------------------------------------------------------- AMERICAN EXPRESS NEW SOLUTIONS VARIABLE ANNUITY -- PROSPECTUS 73 American Enterprise Life Insurance Company Balance sheet March 31, 2001 (unaudited) ($ thousands, except share amounts) Assets Investments: Fixed maturities: Available for sale, at fair value (amortized cost: $2,938,428) $2,983,792 Mortgage loans on real estate 715,916 Other investments 918 ------------------------------------------------------------------------------- Total investments 3,700,626 Cash and cash equivalents 78,310 Amounts due from brokers 2,244 Accounts receivable 893 Accrued investment income 48,281 Deferred policy acquisition costs 200,740 Deferred income taxes 17,815 Other assets 8,560 Separate account assets 560,199 ------------------------------------------------------------------------------- Total assets $4,617,668 =============================================================================== Liabilities and Stockholder's Equity Liabilities: Future policy benefits: Fixed annuities $3,536,944 Universal life-type insurance 8 Policy claims and other policyholders' funds 5,291 Amounts due to brokers 2,077 Other liabilities 56,813 Separate account liabilities 560,199 ------------------------------------------------------------------------------- Total liabilities 4,161,332 Stockholder's equity: Capital stock, $150 par value per share; 100,000 shares authorized, 20,000 shares issued and outstanding 3,000 Additional paid-in capital 281,872 Accumulated other comprehensive loss: Net unrealized securities losses (8,450) Net unrealized derivative losses (27,987) Retained earnings 207,901 ------------------------------------------------------------------------------- Total stockholder's equity 456,336 ------------------------------------------------------------------------------- Total liabilities and stockholder's equity $4,617,668 =============================================================================== See accompanying notes. -------------------------------------------------------------------------------- 74 AMERICAN EXPRESS NEW SOLUTIONS VARIABLE ANNUITY -- PROSPECTUS American Enterprise Life Insurance Company Statements of income Three months ended March 31, (unaudited) ($ thousands) 2001 2000 Revenues: Policyholder and contractholder charges $ 1,746 $ 1,476 Mortality and expense risk fees 2,199 813 Net investment income 69,460 77,586 Net realized loss on investments (18,542) (2,425) -------------------------------------------------------------------------------- Total revenues 54,863 77,450 ------------------------------------------------------------------------------- Benefits and expenses: Interest credited on investment contracts 42,473 49,052 Amortization of deferred policy acquisition costs 12,155 10,745 Other operating expenses 11,859 7,675 ------------------------------------------------------------------------------- Total benefits and expenses 66,487 67,472 ------------------------------------------------------------------------------- (Loss) income before income taxes (11,624) 9,978 Income taxes (3,987) 3,646 ------------------------------------------------------------------------------- Net (loss) income $ (7,637) $ 6,332 =============================================================================== See accompanying notes. -------------------------------------------------------------------------------- AMERICAN EXPRESS NEW SOLUTIONS VARIABLE ANNUITY -- PROSPECTUS 75 American Enterprise Life Insurance Company Statements of cash flows Three months ended March 31, (unaudited) ($ thousands) 2001 2000 Cash flows from operating activities: Net (loss) income $ (7,637) $ 6,332 Adjustments to reconcile net (loss) income to net cash provided by operating activities: Change in accrued investment income 6,660 2,481 Change in accounts receivable (26) (2) Change in other assets 2,791 (11) Change in deferred policy acquisition costs, net (2,118) 4,306 Change in policy claims and other policyholders' funds (4,004) (4,317) Deferred income tax provision (5,077) (1,883) Change in other liabilities 5,225 12,723 (Accretion of discount) amortization of premium, net (58) 641 Net realized loss on investments 18,542 2,425 Other, net 4,514 (131) ------------------------------------------------------------------------------- Net cash provided by operating activities 18,812 22,564 Cash flows from investing activities: Fixed maturities held to maturity: Maturities, sinking fund payments and calls -- 10,022 Fixed maturities available for sale: Purchases (39,196) (1,496) Maturities, sinking fund payments and calls 49,904 58,318 Sales 76,926 5,495 Other investments, excluding policy loans: Purchases (1,696) (1,388) Sales 9,789 12,779 Change in amounts due from brokers (928) -- Change in amounts due to brokers (22,310) 275 -------------------------------------------------------------------------------- Net cash provided by investing activities 72,489 84,005 Cash flows from financing activities: Activity related to universal life-type insurance and investment contracts: Considerations received 159,985 52,023 Surrenders and death benefits (250,299) (207,644) Interest credited to account balances 42,471 49,052 ------------------------------------------------------------------------------- Net cash used in financing activities (47,843) (106,569) -------------------------------------------------------------------------------- Net increase in cash and cash equivalents 43,458 -- Cash and cash equivalents at beginning of period 34,852 -- ------------------------------------------------------------------------------- Cash and cash equivalents at end of period $ 78,310 $ -- =============================================================================== See accompanying notes. -------------------------------------------------------------------------------- 76 AMERICAN EXPRESS NEW SOLUTIONS VARIABLE ANNUITY -- PROSPECTUS American Enterprise Life Insurance Company Notes to Financial Statements (unaudited) ($ thousands) 1. GENERAL In the opinion of the management of American Enterprise Life Insurance Company (the Company), the accompanying unaudited financial statements contain all adjustments (consisting of normal recurring adjustments) necessary to present fairly its balance sheet as of March 31, 2001 and the related statements of income and cash flows for the three month periods ended March 31, 2001 and 2000. 2. NEW ACCOUNTING PRONOUNCEMENT In June 1998, the Financial Accounting Standards Board (FASB) issued, and subsequently amended, Statement of Financial Accounting Standards (SFAS) No. 133, "Accounting for Derivative Instruments and Hedging Activities," which the Company adopted on January 1, 2001. This Statement establishes accounting and reporting standards for derivative instruments, including some embedded in other contracts, and hedging activities. It requires that an entity recognize all derivatives as either assets or liabilities on the balance sheet and measure those instruments at fair value. Derivatives that are not hedges must be adjusted to fair value through income. Changes in the fair value of a derivative are recorded in income or directly to equity, depending on the instrument's designated use. For those derivative instruments that are designated and qualify as hedging instruments under SFAS 133, a company must designate the hedging instrument, based upon the exposure being hedged, as either a fair value hedge, cash flow hedge or a hedge of a net investment in a foreign operation. For derivative instruments not designated as hedging instruments per SFAS 133, changes in fair value are adjusted immediately through earnings. Currently, the Company does not carry derivatives that are designated or qualify as hedging instruments under SFAS No. 133. Because of changes to the rules for hedging investments, the transition provisions of SFAS 133, as amended, permitted held-to-maturity securities under SFAS No. 115, "Accounting for Certain Investments in Debt and Equity Securities," to be reclassified at the date of adoption to available-for-sale or trading. The Company reclassified all held-to-maturity securities to available-for-sale upon adoption. Prior to adopting SFAS No. 133, the Company's interest rate caps, floors and swaps qualified as cash flow hedges. The derivatives do not qualify for hedge accounting per SFAS No. 133. For "pre-existing" cash flow-type hedges, the transition adjustment upon adoption of SFAS No. 133 was reported in accumulated other comprehensive income (OCI) as a cumulative effect of an accounting change. This resulted in a decrease of $34,727 to other comprehensive income (OCI), net of tax. The Company estimates $7,500 of net derivative losses included in OCI will be reclassified into earnings within the next twelve months. The adoption of SFAS No. 133 did not have a significant impact on the Company's results of operations. 3. COMPREHENSIVE INCOME Total comprehensive income (loss) was $18,022 and ($4,551) for the three months ended March 31, 2001 and 2000, respectively. March 31, 2001 March 31, 2000 Net (Loss) Income $ (7,637) $ 6,332 Other comprehensive loss Unrealized gains on available-for-sale securities, net of tax 53,646 (10,883) Net unrealized loss on derivative instruments, net of tax (27,987) -- -------------------------------------------------------------------------------- Total comprehensive income $ 18,022 $ (4,551) -------------------------------------------------------------------------------- 4. INCOME TAXES The Company's effective income tax rate was 34.3% for the three months ended March 31, 2001 compared to 36.5% for the three months ended March 31, 2000. The net impact of changes in state tax rules for certain states had a favorable impact on the effective tax rate for the Company. -------------------------------------------------------------------------------- AMERICAN EXPRESS NEW SOLUTIONS VARIABLE ANNUITY -- PROSPECTUS 77 American Enterprise Life Insurance Company ------------------------------------------------------------------------------- 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, 2000 and 1999, and the related statements of income, stockholder's equity and cash flows for each of the three years in the period ended December 31, 2000. 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, 2000 and 1999, and the results of its operations and its cash flows for each of the three years in the period ended December 31, 2000, in conformity with accounting principles generally accepted in the United States. /S/ Ernst & Young LLP Ernst & Young LLP February 8, 2001 Minneapolis, Minnesota 78 AMERICAN EXPRESS NEW SOLUTIONS VARIABLE ANNUITY -- PROSPECTUS American Enterprise Life Insurance Company ------------------------------------------------------------------------------- Balance sheets December 31, ($ thousands, except share amounts) 2000 1999 Assets Investments: Fixed maturities: Held to maturity, at amortized cost (fair value: 2000, $927,031; 1999, $984,103) $ 934,091 $1,006,349 Available for sale, at fair value (amortized cost: 2000, $2,163,906; 1999, $2,411,799) 2,068,487 2,304,487 --------- --------- 3,002,578 3,310,836 Mortgage loans on real estate 724,009 785,253 Other investments 9,407 11,470 ----- ------ Total investments 3,735,994 4,107,559 Cash and cash equivalents 34,852 -- Amounts due from brokers 1,316 -- Accounts receivable 867 316 Accrued investment income 54,941 56,676 Deferred policy acquisition costs 198,622 180,288 Deferred income taxes 26,350 37,501 Other assets 9,969 9 Separate account assets 589,310 220,994 ------- ------- Total assets $4,652,221 $4,603,343 ========== ========== Liabilities and stockholder's equi1ty Liabilities: Future policy benefits for: Fixed annuities $3,584,784 $3,921,513 Universal life-type insurance 10 -- Policy claims and other policyholders' funds 9,295 12,097 Amounts due to brokers 24,387 25,215 Other liabilities 6,326 17,436 Separate account liabilities 589,310 220,994 ------- ------- Total liabilities 4,214,112 4,197,255 Commitments and contingencies 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: Net unrealized securities losses (62,097) (69,753) Retained earnings 215,334 190,969 ------- ------- Total stockholder's equity 438,109 406,088 ------- ------- Total liabilities and stockholder's equity $4,652,221 $4,603,343 ========== ========== See accompanying notes. AMERICAN EXPRESS NEW SOLUTIONS VARIABLE ANNUITY -- PROSPECTUS 79 American Enterprise Life Insurance Company ------------------------------------------------------------------------------- Statements of income Years ended December 31, ($ thousands) 2000 1999 1998 Revenues: Net investment income $299,759 $322,746 $340,219 Policyholder and contractholder charges 6,865 6,069 6,387 Mortality and expense risk fees 5,383 2,269 1,275 Net realized gain (loss) on investments 469 6,565 (4,788) --- ----- ------ Total revenues 312,476 337,649 343,093 ------- ------- ------- Benefits and expenses: Interest credited on investment contracts 191,040 208,583 228,533 Amortization of deferred policy acquisition costs 47,676 43,257 53,663 Other operating expenses 35,308 35,147 24,476 ------ ------ ------ Total benefits and expenses 274,024 286,987 306,672 ------- ------- ------- Income before income taxes 38,452 50,662 36,421 Income taxes 14,087 16,675 14,395 ------ ------ ------ Net income $ 24,365 $ 33,987 $ 22,026 ======== ======== ======== See accompanying notes. 80 AMERICAN EXPRESS NEW SOLUTIONS VARIABLE ANNUITY -- PROSPECTUS American Enterprise Life Insurance Company -------------------------------------------------------------------------------
Statements of stockholder's equity Accumulated Other Total Additional Comprehensive Stockholder's Capital Paid-In (Loss) Income, Retained Three years ended December 31, ($ thousands) Equity Stock Capital Net of Tax Earnings Balance, January 1, 1998 $ 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 of $2,179 (4,047) -- -- (4,047) -- ------ ----- ----- ------ ----- 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 Comprehensive income: Net income 24,365 -- -- -- 24,365 Unrealized holding gains arising during the year, net of taxes of $(4,812) 8,937 -- -- 8,937 -- Reclassification adjustment for gains included in net income, net of tax of $690 (1,281) -- -- (1,281) -- ------ ----- ----- ------ ----- Other comprehensive income 7,656 -- -- 7,656 -- ----- ----- ----- ----- ----- Comprehensive income 32,021 ------ Balance, December 31, 2000 $ 438,109 $2,000 $282,872 $ (62,097) $215,334 ========= ====== ======== =========== ======== See accompanying notes.
AMERICAN EXPRESS NEW SOLUTIONS VARIABLE ANNUITY -- PROSPECTUS 81 American Enterprise Life Insurance Company -------------------------------------------------------------------------------
Statements of cash flows Years ended December 31, ($ thousands) 2000 1999 1998 Cash flows from operating activities: Net income $ 24,365 $ 33,987 $ 22,026 Adjustments to reconcile net income to net cash (used in) provided by operating activities: Change in accrued investment income 1,735 5,064 (2,152) Change in accounts receivable (551) (102) 349 Change in deferred policy acquisition costs, net (18,334) 16,191 28,022 Change in other assets (9,960) 34 74 Change in policy claims and other policyholders' funds (2,802) 4,708 (3,939) Deferred income tax provision (benefit) 7,029 711 (9,591) Change in other liabilities (11,110) (7,064) 7,595 Amortization of premium, net 2,682 2,315 122 Net realized (gain) loss on investments (469) (6,565) 4,788 Other, net (233) (1,562) 2,544 ---- ------ ----- Net cash (used in) provided by operating activities (7,648) 47,717 49,838 Cash flows from investing activities: Fixed maturities held to maturity: Maturities 65,716 65,705 73,601 Sales 5,128 8,466 31,117 Fixed maturities available for sale: Purchases (101,665) (593,888) (298,885) Maturities 171,297 248,317 335,357 Sales 176,296 469,126 48,492 Other investments: Purchases (1,388) (28,520) (161,252) Sales 65,978 57,548 78,681 Change in amounts due from brokers (1,316) -- -- Change in amounts due to brokers (828) (29,132) 19,412 ---- ------- ------ Net cash provided by investing activities 379,218 197,622 126,523 Cash flows from financing activities: Activity related to universal life type insurance and investment contracts: Considerations received 398,462 299,899 302,158 Surrenders and other benefits (926,220) (753,821) (707,052) Interest credited to account balances 191,040 208,583 228,533 ------- ------- ------- Net cash used in financing activities (336,718) (245,339) (176,361) -------- -------- -------- Net increase in cash and cash equivalents 34,852 -- -- Cash and cash equivalents at beginning of year -- -- -- ---- ---- ---- Cash and cash equivalents at end of year $ 34,852 $ -- $ -- ========= ========= ========= See accompanying notes.
82 AMERICAN EXPRESS NEW SOLUTIONS VARIABLE ANNUITY -- PROSPECTUS American Enterprise Life Insurance Company ------------------------------------------------------------------------------- Notes to Financial Statements 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 and variable universal life are offered as well. The Company distributes its products through financial institutions and unbranded independent financial advisors. 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 and marketable equity securities 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. 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. Mortgage loans on real estate are carried at amortized cost less a reserve 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. 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 a reserve for mortgage loan losses. The reserve 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 reserve 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 reserve 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. Amounts paid or received under interest rate swap agreements are recognized as an adjustment to investment income. AMERICAN EXPRESS NEW SOLUTIONS VARIABLE ANNUITY -- PROSPECTUS 83 American Enterprise Life Insurance Company ------------------------------------------------------------------------------- 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: 2000 1999 1998 Cash paid during the year for: Income taxes $14,861 $22,007 $19,035 Interest on borrowings 1,073 2,187 5,437 Recognition of profits on annuity contracts Profits on fixed and variable deferred annuities are recognized by the Company over the lives of the contracts, using primarily the interest method. Profits on fixed annuities represent the excess of investment income earned from investment of contract considerations over interest credited to contract owners and other expenses. Profits on variable annuities represent the excess of contractholder charges over the costs of benefits provided and other expenses. The retrospective deposit method is used in accounting for fixed and variable universal life-type insurance. Under this method, profits are recognized over the lives of the policies in proportion to the estimated gross profits expected to be realized. Policyholder and contractholder charges include surrender charges and fees collected regarding the issue and administration of annuity contracts. 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 variable 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 2000, unlocking adjustments resulted in a net increase in amortization of $1.5 million. Net unlocking adjustments in 1999 were not significant. During 1998, unlocking adjustments resulted in a net increase in amortization of $11 million. Liabilities for future policy benefits Liabilities for universal-life type insurance and fixed and variable deferred annuities are accumulation values. Liabilities for fixed annuities in a benefit status are based on established industry mortality tables and interest rates ranging from 5% to 9.5%, depending on year of issue. Federal income taxes The Company's taxable income is included in the consolidated federal income tax return of American Express Company. The Company provides for income taxes on a separate return basis, except that, under an agreement between AEFC and American Express Company, tax benefit is recognized for losses to the extent they can be used on the consolidated tax return. It is the policy of AEFC and its subsidiaries that AEFC will reimburse subsidiaries for all tax benefits. Included in other liabilities at December 31, 2000 and 1999 are $9,944 and $2,147, receivable from and payable to, respectively, IDS Life for federal income taxes. Separate account business The separate account assets and liabilities represent funds held for the exclusive benefit of the variable annuity contract owners. The Company receives mortality and expense risk fees from the variable annuity separate accounts. The Company makes contractual mortality assurances to the variable annuity contract owners that the net assets of the separate accounts will not be affected by future variations in the actual life expectancy experience of the annuitants and beneficiaries from the mortality assumptions implicit in the annuity contracts. The Company makes periodic fund transfers to, or withdrawals from, the separate account assets for such actuarial adjustments for variable annuities that are in the benefit payment period. The Company also guarantees that the rates at which administrative fees are deducted from contract funds will not exceed contractual maximums. 84 AMERICAN EXPRESS NEW SOLUTIONS VARIABLE ANNUITY -- PROSPECTUS American Enterprise Life Insurance Company ------------------------------------------------------------------------------- Accounting changes In June 1998, the Financial Accounting Standards Board (FASB) issued, and subsequently amended, Statement of Financial Accounting Standards (SFAS) No. 133, "Accounting for Derivative Instruments and Hedging Activities," which the company adopted on January 1, 2001. This Statement establishes accounting and reporting standards for derivative instruments, including some embedded in other contracts, and hedging activities. It requires that an entity recognize all derivatives as either assets or liabilities on the balance sheet and measure those instruments at fair value. Changes in the fair value of a derivative will be recorded in income or directly to equity, depending on the instrument's designated use. A one-time opportunity to reclassify held-to-maturity investments to available-for-sale is allowed without tainting the remaining securities in the held-to-maturity portfolio. The Company has elected to take this opportunity to reclass its held-to-maturity investments to available-for-sale. As of January 1, 2001, the cumulative impact of applying the Statement's accounting requirements will not have a significant impact on the Company's financial position or results of operations. In September 2000, the FASB issued SFAS No. 140, "Accounting for Transfers and Servicing of Financial Assets and Extinguishments of Liabilities," superceding SFAS No. 125. The Statement is effective for transfers and servicing of financial assets and extinguishments of liabilities occurring after March 31, 2001. The Statement is effective for recognition and reclassification of collateral and for disclosures relating to securitization transactions and collateral for fiscal years ending after December 15, 2000. The company does not expect SFAS No. 140 to have a material impact on the company's financial position or results of operations. In July 2000, the FASB's Emerging Issues Task Force (EITF) issued a consensus on Issue 99-20, "Recognition of Interest Income and Impairment on Purchased Beneficial Interests in Securitized Financial Assets." The consensus must be adopted for fiscal quarters beginning after March 15, 2001, with earlier adoption permitted. Issue 99-20 prescribes new procedures for recording interest income and measuring impairment on retained and purchased beneficial interests. Application of the provisions of the consensus will not have a material impact on the Company's financial position or results of operations. Reclassifications Certain 1999 and 1998 amounts have been reclassified to conform to the 2000 presentation. 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, 2000 are as follows: Gross Gross Amortized unrealized unrealized Fair Held to maturity cost gains losses value U.S. Government agency obligations $ 6,949 $ 26 $ 55 $ 6,920 State and municipal obligations 2,101 1 -- 2,102 Corporate bonds and obligations 773,630 9,876 17,470 766,036 Mortgage-backed securities 151,411 801 239 151,973 ------- --- --- ------- $934,091 $10,704 $ 17,764 $ 927,031 ======== ======= ======== ========== Available for sale U.S. Government agency obligations $ 5,154 $ 284 $ -- $ 5,438 State and municipal obligations 2,250 5 -- 2,255 Corporate bonds and obligations 1,319,781 19,103 123,865 1,215,019 Mortgage-backed securities 836,721 10,780 1,726 845,775 ------- ------ ----- ------- $2,163,906 $30,172 $125,591 $2,068,487 ========== ======= ======== ========== AMERICAN EXPRESS NEW SOLUTIONS VARIABLE ANNUITY -- PROSPECTUS 85 American Enterprise Life Insurance Company ------------------------------------------------------------------------------- The amortized cost, gross unrealized gains and losses and fair value of investments in fixed maturities at December 31, 1999 are as follows: 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 and fair value of investments in fixed maturities at December 31, 2000 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 from one to five years $405,375 $402,691 Due from five to ten years 321,802 317,320 Due in more than ten years 55,503 55,047 Mortgage-backed securities 151,411 151,973 ------- ------- $934,091 $927,031 ======== ======== Amortized Fair Available for sale cost value Due from one to five years $ 61,851 $ 67,514 Due from five to ten years 965,579 878,853 Due in more than ten years 299,755 276,345 Mortgage-backed securities 836,721 845,775 ------- ------- $2,163,906 $2,068,487 ========== ========== During the years ended December 31, 2000, 1999 and 1998, fixed maturities classified as held to maturity were sold with amortized cost of $5,128, $8,466 and $31,117, 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 2000 with proceeds of $176,296 and gross realized gains and losses of $3,488 and $1,516 respectively. 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. At December 31, 2000, bonds carried at $3,259 were on deposit with various states as required by law. At December 31, 2000, investments in fixed maturities comprised 80 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 $463 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 2000 1999 Aaa/AAA $ 998,333 $1,168,144 Aaa/AA 1,000 -- Aa/AA 34,535 42,859 Aa/A 59,569 52,416 A/A 367,643 422,668 A/BBB 121,028 189,072 Baa/BBB 989,301 995,152 Baa/BB 67,156 64,137 Below investment grade 459,432 483,700 ------- ------- $3,097,997 $3,418,148 ========== ========== 86 AMERICAN EXPRESS NEW SOLUTIONS VARIABLE ANNUITY -- PROSPECTUS American Enterprise Life Insurance Company ------------------------------------------------------------------------------- At December 31, 2000, approximately 92 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, 2000, 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: December 31, 2000 December 31, 1999 On balance Commitments On balance Commitments Region sheet to purchase sheet to purchase South Atlantic $172,349 $-- $194,325 $ -- Middle Atlantic 106,376 -- 118,699 -- East North Central 122,354 -- 126,243 -- Mountain 100,208 -- 103,751 -- West North Central 110,669 -- 125,891 513 New England 39,877 -- 43,345 802 Pacific 38,559 -- 41,396 -- West South Central 30,172 -- 31,153 -- East South Central 6,749 -- 7,100 -- ----- ----- ----- ----- 727,313 -- 791,903 1,315 Less allowance for losses 3,304 -- 6,650 -- ----- ----- ----- ----- $724,009 $-- $785,253 $1,315 ======== === ======== ====== December 31, 2000 December 31, 1999 On balance Commitments On balance Commitments Property type sheet to purchase sheet to purchase Department/retail stores $214,927 $-- $232,449 $1,315 Apartments 152,906 -- 181,346 -- Office buildings 191,767 -- 202,132 -- Industrial buildings 80,330 -- 83,186 -- Hotels/Motels 41,977 -- 43,839 -- Medical buildings 29,173 -- 32,284 -- Nursing/retirement homes 6,471 -- 6,608 -- Mixed Use 9,762 -- 10,059 -- ----- ----- ------ ----- 727,313 -- 791,903 1,315 Less allowance for losses 3,304 -- 6,650 -- ----- ----- ----- ----- $724,009 $-- $785,253 $1,315 ======== === ======== ====== 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, 2000 and 1999, the Company's recorded investment in impaired loans was $9,014 and $5,200, respectively, with allowances of $500 and $1,250, respectively. During 2000 and 1999, the average recorded investment in impaired loans was $4,684 and $5,399, respectively. The Company recognized $221, $136 and $251 of interest income related to impaired loans for the years ended December 31, 2000, 1999 and 1998, respectively. AMERICAN EXPRESS NEW SOLUTIONS VARIABLE ANNUITY -- PROSPECTUS 87 American Enterprise Life Insurance Company ------------------------------------------------------------------------------- The following table presents changes in the allowance for investment losses related to all loans: 2000 1999 1998 Balance, January 1 $6,650 $8,500 $3,718 (Reduction) provision for investment losses (3,346) (1,850) 4,782 ------ ------ ----- Balance, December 31 $3,304 $6,650 $8,500 ====== ====== ====== At December 31, 2000 the Company had no commitments to purchase investments. Net investment income for the years ended December 31 is summarized as follows: 2000 1999 1998 Interest on fixed maturities $237,201 $265,199 $285,260 Interest on mortgage loans 59,686 63,721 65,351 Interest on cash equivalents 1,136 534 137 Other 5,693 (1,755) (2,493) ----- ------ ------ 303,716 327,699 348,255 Less investment expenses 3,957 4,953 8,036 ----- ----- ----- $299,759 $322,746 $340,219 ======== ======== ======== Net realized gain (loss) on investments for the years ended December 31 is summarized as follows: 2000 1999 1998 Fixed maturities $ (2,877) $ 4,715 $ 28 Mortgage loans 3,346 (1,650) (4,816) ----- ------ ------ $ 469 $ 3,065 $(4,788) ======== ======= ======= Changes in net unrealized appreciation (depreciation) of investments for the years ended December 31 are summarized as follows: 2000 1999 1998 Fixed maturities available for sale $11,894 $(175,458) $(8,032) 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 for the years ended December 31, consists of the following: 2000 1999 1998 Federal income taxes: Current $ 6,170 $15,531 $23,227 Deferred 7,029 711 (9,591) ----- --- ------ 13,199 16,242 13,636 State income taxes-- current 888 433 759 --- --- --- Income tax expense $14,087 $16,675 $14,395 ======= ======= =======
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: 2000 1999 1998 Provision Rate Provision Rate Provision Rate Federal income taxes based on the statutory rate $13,458 35.0% $17,731 35.0% $13,972 35.0% Increases (decreases) are attributable to : Tax-excluded interest (4) -- (14) -- (35) (0.1) State tax, net of federal benefit 578 1.5 281 0.5 493 1.2 Other, net 55 0.1 (1,323) (2.6) (35) -- -- --- ------ ---- --- --- Total income taxes $14,087 36.6% $16,675 32.9% $14,395 36.1% ======= ==== ======= ==== ======= ====
Significant components of the Company's deferred income tax assets and liabilities as of December 31 are as follows: Deferred income tax assets: 2000 1999 Policy reserves $40,242 $46,243 Unrealized losses on investments 31,441 39,678 Other 6,208 1,070 ----- ----- Total deferred income tax assets 77,891 86,991 ------ ------ Deferred income tax liabilities: Deferred policy acquisition costs 51,541 49,490 ------ ------ Total deferred income tax liabilities 51,541 49,490 ------ ------ Net deferred income tax assets $26,350 $37,501 ======= ======= 88 AMERICAN EXPRESS NEW SOLUTIONS VARIABLE ANNUITY -- PROSPECTUS American Enterprise Life Insurance Company ------------------------------------------------------------------------------- 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 $31,152 and $58,223 as of December 31, 2000 and 1999, respectively. In addition, dividends in excess of $nil would require approval by the Insurance Department of the state of Indiana. Statutory net (loss) income for the years ended December 31 and statutory capital and surplus as of December 31, are summarized as follows: 2000 1999 1998 Statutory net (loss) income $(11,928) $ 15,241 $ 37,902 Statutory capital and surplus 315,930 343,094 330,588 The National Association of Insurance Commissioners (NAIC) revised the Accounting Practices and Procedures Manual in a process referred to as Codification. The revised manual will be effective January 1, 2001. The state of Indiana has adopted the provisions of the revised manual. The revised manual has changed, to some extent, prescribed statutory accounting practices and will result in changes to the accounting practices that the Company uses to prepare their statutory-basis financial statements. Management believes these changes will not adversely impact the Company's statutory-basis capital and surplus as of January 1, 2001. 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 $6,489 and $8,258 at December 31, 2000 and 1999, 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 $45,191, $38,931 and $28,482 for the years ended December 31, 2000, 1999 and 1998, respectively. Certain of these costs are included in deferred policy acquisition costs. 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, 2000 or 1999. 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. AMERICAN EXPRESS NEW SOLUTIONS VARIABLE ANNUITY -- PROSPECTUS 89 American Enterprise Life Insurance Company ------------------------------------------------------------------------------- The Company's holdings of derivative financial instruments are as follows: Notional Carrying Fair Total credit December 31, 2000 amount amount value exposure Assets: Interest rate caps $ 500,000 $2,037 $ 414 $ 414 Interest rate floors 2,000,000 6,489 13,185 13,185 Off balance sheet: Interest rate swaps 2,000,000 -- (51,369) (51,369) --------- ------ ------- ------- $8,526 $(37,770) $(37,770) ====== ======== ======== Notional Carrying Fair Total credit December 31, 1999 amount amount value exposure 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: Interest rate swaps 2,000,000 -- 18,274 18,274 --------- ----- ------ ------ $11,470 $24,962 $24,962 ======= ======= ======= 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 2001 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.
December 31, 2000 December 31, 1999 Carrying Fair Carrying Fair Financial Assets amount value amount value Investments: Fixed maturities (Note 2): Held to maturity $ 934,091 $ 927,031 $1,006,349 $ 984,103 Available for sale 2,068,487 2,068,487 2,304,487 2,304,487 Mortgage loans on real estate (Note 2) 724,009 740,992 785,253 770,095 Derivative financial instruments (Note 7) 8,526 (37,770) 11,470 24,962 Separate account assets (Note 1) 589,310 589,310 220,994 220,994 Cash and cash equivalents 34,852 34,852 -- -- Financial Liabilities Future policy benefits for fixed annuities $3,567,085 $3,480,270 $3,905,849 $3,778,945 Separate account liabilities 589,310 567,989 220,994 209,942 ------- ------- ------- -------
At December 31, 2000 and 1999, the carrying amount and fair value of future policy benefits for fixed annuities exclude life insurance-related contracts carried at $17,699 and $15,633, respectively. The fair value of these benefits is based on the status of the annuities at December 31, 2000 and 1999. 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 2000 and 1999. 9. COMMITMENTS AND CONTINGENCIES In January 2000, AEFC reached an agreement in principle to settle three class-action lawsuits related to the sales of insurance and annuity products, anticipated to provide for approximately $215 million of benefits. The Company had been named as a co-defendant in one of these lawsuits. In September 2000, the court gave preliminary approval to the proposed settlement and AEFC has mailed notices to all of the over two million class members. A fairness hearing is scheduled for March 2001, with final approval anticipated in the second quarter, pending any legal appeals. The anticipated costs of settlement remain unchanged from 1999. The portion of the settlement allocated to the Company did not have a material impact on the Company's financial position or results of operations. The agreement 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 final court approval. 90 AMERICAN EXPRESS NEW SOLUTIONS VARIABLE ANNUITY -- PROSPECTUS Appendix A: Expense Examples for the Performance Credit Rider Examples*: These examples assume that applicable fund fee waivers and/or expense reimbursements will continue for the periods shown. First we show the expenses for a nonqualified annuity assuming selection of the optional Performance Credit Rider (PCR) followed by expenses for a qualified annuity assuming selection of the optional PCR. Under each fund you will find an example showing: 1) the contract with selection of the Return of Purchase Payment Death Benefit (ROP) and no additional riders, 2) the contract with selection of the ROP and the optional Benefit Protector(SM) Death Benefit Rider, 3) the contract with selection of the ROP and the optional Benefit Protector(SM) Plus Death Benefit Rider, 4) the contract with selection of the Maximum Anniversary Value Death Benefit (MAV) Rider and no additional riders, 5) the contract with selection of the Maximum Anniversary Value Death Benefit (MAV) Rider and the optional Benefit Protector(SM) Death Benefit Rider, and 6) the contract with selection of the MAV Rider and the optional Benefit Protector(SM) Plus Death Benefit Rider. You would pay the following expenses on a $1,000 investment in a nonqualified annuity with selection of the optional Performance Credit Rider assuming a 5% annual return and ...
no withdrawal or selection a total withdrawal at the of an annuity payout plan at the end of each time period end of each time period 1 year 3 years 5 years 10 years 1 year 3 years 5 years 10 years AXP(R) Variable Portfolio - Cash Management Fund ROP with no additional riders $101.49 $136.34 $173.78 $244.72 $21.49 $66.34 $113.78 $244.72 ROP with optional Benefit Protector 104.06 144.06 186.69 270.69 24.06 74.06 126.69 270.69 ROP with optional Benefit Protector Plus 105.59 148.67 194.37 285.96 25.59 78.67 134.37 285.96 MAV with no additional riders 102.52 139.43 178.96 255.18 22.52 69.43 118.96 255.18 MAV with optional Benefit Protector 105.08 147.14 191.82 280.90 25.08 77.14 131.82 280.90 MAV with optional Benefit Protector Plus 106.62 151.74 199.47 296.02 26.62 81.74 139.47 296.02 AXP(R) Variable Portfolio - Federal Income Fund ROP with no additional riders 103.44 142.21 183.60 264.51 23.44 72.21 123.60 264.51 ROP with optional Benefit Protector 106.00 149.90 196.41 290.00 26.00 79.90 136.41 290.00 ROP with optional Benefit Protector Plus 107.54 154.49 204.03 304.99 27.54 84.49 144.03 304.99 MAV with no additional riders 104.47 145.29 188.74 274.78 24.47 75.29 128.74 274.78 MAV with optional Benefit Protector 107.03 152.96 201.50 300.01 27.03 82.96 141.50 300.01 MAV with optional Benefit Protector Plus 108.57 157.55 209.09 314.86 28.57 87.55 149.09 314.86 AXP(R) Variable Portfolio - Managed Fund ROP with no additional riders 102.21 138.50 177.40 252.05 22.21 68.50 117.40 252.05 ROP with optional Benefit Protector 104.77 146.21 190.28 277.84 24.77 76.21 130.28 277.84 ROP with optional Benefit Protector Plus 106.31 150.82 197.94 293.01 26.31 80.82 137.94 293.01 MAV with no additional riders 103.24 141.59 182.57 262.45 23.24 71.59 122.57 262.45 MAV with optional Benefit Protector 105.80 149.29 195.39 287.98 25.80 79.29 135.39 287.98 MAV with optional Benefit Protector Plus 107.34 153.88 203.02 303.00 27.34 83.88 143.02 303.00 AXP(R)Variable Portfolio - New Dimensions Fund(R) ROP with no additional riders 102.52 139.43 178.96 255.18 22.52 69.43 118.96 255.18 ROP with optional Benefit Protector 105.08 147.14 191.82 280.90 25.08 77.14 131.82 280.90 ROP with optional Benefit Protector Plus 106.62 151.74 199.47 296.02 26.62 81.74 139.47 296.02 MAV with no additional riders 103.54 142.52 184.12 265.54 23.54 72.52 124.12 265.54 MAV with optional Benefit Protector 106.11 150.21 196.92 291.00 26.11 80.21 136.92 291.00 MAV with optional Benefit Protector Plus 107.64 154.80 204.54 305.98 27.64 84.80 144.54 305.98 -------------------------------------------------------------------------------- AMERICAN EXPRESS NEW SOLUTIONS VARIABLE ANNUITY -- PROSPECTUS 91
You would pay the following expenses on a $1,000 investment in a nonqualified annuity with selection of the optional Performance Credit Rider assuming a 5% annual return and ... (continued)
no withdrawal or selection a total withdrawal at the of an annuity payout plan at the end of each time period end of each time period 1 year 3 years 5 years 10 years 1 year 3 years 5 years 10 years AXP(R) Variable Portfolio - S&P 500 Index Fund ROP with no additional riders $ 99.44 $130.13 $163.35 $223.48 $19.44 $ 60.13 $103.35 $223.48 ROP with optional Benefit Protector 102.01 137.89 176.37 249.96 22.01 67.89 116.37 249.96 ROP with optional Benefit Protector Plus 103.54 142.52 184.12 265.54 23.54 72.52 124.12 265.54 MAV with no additional riders 100.47 133.24 168.57 234.15 20.47 63.24 108.57 234.15 MAV with optional Benefit Protector 103.03 140.98 181.54 260.38 23.03 70.98 121.54 260.38 MAV with optional Benefit Protector Plus 104.57 145.60 189.26 275.80 24.57 75.60 129.26 275.80 AXP(R) Variable Portfolio - Small Cap Advantage Fund ROP with no additional riders 106.72 152.05 199.98 297.02 26.72 82.05 139.98 297.02 ROP with optional Benefit Protector 109.28 159.69 212.61 321.71 29.28 89.69 152.61 321.74 ROP with optional Benefit Protector Plus 110.82 164.25 220.13 336.22 30.82 94.25 160.13 336.22 MAV with no additional riders 107.75 155.11 205.05 306.97 27.75 85.11 145.05 306.97 MAV with optional Benefit Protector 110.31 162.73 217.63 331.41 30.31 92.73 157.63 331.41 MAV with optional Benefit Protector Plus 111.85 167.29 225.12 345.78 31.85 97.29 165.12 345.78 AIM V.I. Capital Appreciation Fund ROP with no additional riders 102.93 140.67 181.02 259.34 22.93 70.67 121.02 259.34 ROP with optional Benefit Protector 105.49 148.36 193.86 284.95 25.49 78.36 133.86 284.95 ROP with optional Benefit Protector Plus 107.03 152.96 201.50 300.01 27.03 82.96 141.50 300.01 MAV with no additional riders 103.95 143.75 186.17 269.66 23.95 73.75 126.17 269.66 MAV with optional Benefit Protector 106.52 151.43 198.96 295.02 26.52 81.43 138.96 295.02 MAV with optional Benefit Protector Plus 108.05 156.02 206.56 309.93 28.05 86.02 146.56 309.93 AIM V.I. Dent Demographic Trends Fund ROP with no additional riders 109.90 161.51 215.63 327.54 29.90 91.51 155.63 327.54 ROP with optional Benefit Protector 112.46 169.10 228.10 351.47 32.46 99.10 168.10 351.47 ROP with optional Benefit Protector Plus 114.00 173.64 235.52 365.55 34.00 103.64 175.52 365.55 MAV with no additional riders 110.92 164.55 220.63 337.18 30.92 94.55 160.63 337.18 MAV with optional Benefit Protector 113.49 172.13 233.06 360.88 33.49 102.13 173.06 360.88 MAV with optional Benefit Protector Plus 115.02 176.65 240.45 374.81 35.02 106.65 180.45 374.81 AIM V.I. Value Fund ROP with no additional riders 103.13 141.28 182.06 261.41 23.13 71.28 122.06 261.41 ROP with optional Benefit Protector 105.70 148.98 194.88 286.97 25.70 78.98 134.88 286.97 ROP with optional Benefit Protector Plus 107.23 153.58 202.51 302.01 27.23 83.58 142.51 302.01 MAV with no additional riders 104.16 144.37 187.20 271.71 24.16 74.37 127.20 271.71 MAV with optional Benefit Protector 106.72 152.05 199.98 297.02 26.72 82.05 139.98 297.02 MAV with optional Benefit Protector Plus 108.26 156.63 207.58 311.90 28.26 86.63 147.58 311.90 Alliance VP Growth & Income Portfolio (Class B) ROP with no additional riders 104.26 144.67 187.72 272.74 24.26 74.67 127.72 272.74 ROP with optional Benefit Protector 106.82 152.35 200.48 298.02 26.82 82.35 140.48 298.02 ROP with optional Benefit Protector Plus 108.36 156.94 208.08 312.89 28.36 86.94 148.08 312.89 MAV with no additional riders 105.29 147.75 192.84 282.92 25.29 77.75 132.84 282.92 MAV with optional Benefit Protector 107.85 155.41 205.55 307.96 27.85 85.41 145.55 307.96 MAV with optional Benefit Protector Plus 109.39 159.99 213.12 322.68 29.39 89.99 153.12 322.68 -------------------------------------------------------------------------------- 92 AMERICAN EXPRESS NEW SOLUTIONS VARIABLE ANNUITY -- PROSPECTUS
You would pay the following expenses on a $1,000 investment in a nonqualified annuity with selection of the optional Performance Credit Rider assuming a 5% annual return and ... (continued)
no withdrawal or selection a total withdrawal at the of an annuity payout plan at the end of each time period end of each time period 1 year 3 years 5 years 10 years 1 year 3 years 5 years 10 years Alliance VP Premier Growth Portfolio (Class B) ROP with no additional riders $107.85 $155.41 $205.55 $307.96 $27.85 $85.41 $145.55 $307.96 ROP with optional Benefit Protector 110.41 163.03 218.13 332.37 30.41 93.03 158.13 332.37 ROP with optional Benefit Protector Plus 111.95 167.59 225.62 346.73 31.95 97.59 165.62 346.73 MAV with no additional riders 108.87 158.47 210.60 317.80 28.87 88.47 150.60 317.80 MAV with optional Benefit Protector 111.44 166.07 223.13 341.97 31.44 96.07 163.13 341.97 MAV with optional Benefit Protector Plus 112.97 170.62 230.58 356.19 32.97 100.62 170.58 356.19 Alliance VP Technology Portfolio (Class B) ROP with no additional riders 107.95 155.72 206.06 308.95 27.95 85.72 146.06 308.95 ROP with optional Benefit Protector 110.51 163.34 218.63 333.34 30.51 93.34 158.63 333.34 ROP with optional Benefit Protector Plus 112.05 167.89 226.12 347.68 32.05 97.89 166.12 347.68 MAV with no additional riders 108.98 158.77 211.11 318.78 28.98 88.77 151.11 318.78 MAV with optional Benefit Protector 111.54 166.38 223.63 342.93 31.54 96.38 163.63 342.93 MAV with optional Benefit Protector Plus 113.08 170.92 231.08 357.13 33.08 100.92 171.08 357.13 Evergreen VA Global Leaders Fund ROP with no additional riders 104.88 146.52 190.79 278.86 24.88 76.52 130.79 278.86 ROP with optional Benefit Protector 107.44 154.19 203.53 303.99 27.44 84.19 143.53 303.99 ROP with optional Benefit Protector Plus 108.98 158.77 211.11 318.78 28.98 88.77 151.11 318.78 MAV with no additional riders 105.90 149.59 195.90 288.99 25.90 79.59 135.90 288.99 MAV with optional Benefit Protector 108.46 157.24 208.58 313.87 28.46 87.24 148.58 313.87 MAV with optional Benefit Protector Plus 110.00 161.82 216.13 328.51 30.00 91.82 156.13 328.51 Evergreen VA Growth and Income Fund ROP with no additional riders 104.88 146.52 190.79 278.86 24.88 76.52 130.79 278.86 ROP with optional Benefit Protector 107.44 154.19 203.53 303.99 27.44 84.19 143.53 303.99 ROP with optional Benefit Protector Plus 108.98 158.77 211.11 318.78 28.98 88.77 151.11 318.78 MAV with no additional riders 105.90 149.59 195.90 288.99 25.90 79.59 135.90 288.99 MAV with optional Benefit Protector 108.46 157.24 208.58 313.87 28.46 87.24 148.58 313.87 MAV with optional Benefit Protector Plus 110.00 161.82 216.13 328.51 30.00 91.82 156.13 328.51 Evergreen VA Masters Fund ROP with no additional riders 104.88 146.52 190.79 278.86 24.88 76.52 130.79 278.86 ROP with optional Benefit Protector 107.44 154.19 203.53 303.99 27.44 84.19 143.53 303.99 ROP with optional Benefit Protector Plus 108.98 158.77 211.11 318.78 28.98 88.77 151.11 318.78 MAV with no additional riders 105.90 149.59 195.90 288.99 25.90 79.59 135.90 288.99 MAV with optional Benefit Protector 108.46 157.24 208.58 313.87 28.46 87.24 148.58 313.87 MAV with optional Benefit Protector Plus 110.00 161.82 216.13 328.51 30.00 91.82 156.13 328.51 Evergreen VA Omega Fund ROP with no additional riders 101.49 136.34 173.78 244.72 21.49 66.34 113.78 244.72 ROP with optional Benefit Protector 104.06 144.06 186.69 270.69 24.06 74.06 126.69 270.69 ROP with optional Benefit Protector Plus 105.59 148.67 194.37 285.96 25.59 78.67 134.37 285.96 MAV with no additional riders 102.52 139.43 178.96 255.18 22.52 69.43 118.96 255.18 MAV with optional Benefit Protector 105.08 147.14 191.82 280.90 25.08 77.14 131.82 280.90 MAV with optional Benefit Protector Plus 106.62 151.74 199.47 296.02 26.62 81.74 139.47 296.02 -------------------------------------------------------------------------------- AMERICAN EXPRESS NEW SOLUTIONS VARIABLE ANNUITY -- PROSPECTUS 93
You would pay the following expenses on a $1,000 investment in a nonqualified annuity with selection of the optional Performance Credit Rider assuming a 5% annual return and ... (continued)
no withdrawal or selection a total withdrawal at the of an annuity payout plan at the end of each time period end of each time period 1 year 3 years 5 years 10 years 1 year 3 years 5 years 10 years Evergreen VA Small Cap Value Fund ROP with no additional riders $104.98 $146.83 $191.30 $279.88 $24.98 $76.83 $131.30 $279.88 ROP with optional Benefit Protector 107.54 154.49 204.03 304.99 27.54 84.49 144.03 304.99 ROP with optional Benefit Protector Plus 109.08 159.08 211.61 319.75 29.08 89.08 151.61 319.75 MAV with no additional riders 106.00 149.90 196.41 290.00 26.00 79.90 136.41 290.00 MAV with optional Benefit Protector 108.57 157.55 209.09 314.86 28.57 87.55 149.09 314.86 MAV with optional Benefit Protector Plus 110.10 162.12 216.63 329.48 30.10 92.12 156.63 329.48 Evergreen VA Strategic Income Fund ROP with no additional riders 103.13 141.28 182.06 261.41 23.13 71.28 122.06 261.41 ROP with optional Benefit Protector 105.70 148.98 194.88 286.97 25.70 78.98 134.88 286.97 ROP with optional Benefit Protector Plus 107.23 153.58 202.51 302.01 27.23 83.58 142.51 302.01 MAV with no additional riders 104.16 144.37 187.20 271.71 24.16 74.37 127.20 271.71 MAV with optional Benefit Protector 106.72 152.05 199.98 297.02 26.72 82.05 139.98 297.02 MAV with optional Benefit Protector Plus 108.26 156.63 207.58 311.90 28.26 86.63 147.58 311.90 Fidelity VIP III Mid Cap Portfolio (Service Class) ROP with no additional riders 103.13 141.28 182.06 261.41 23.13 71.28 122.06 261.41 ROP with optional Benefit Protector 105.70 148.98 194.88 286.97 25.70 78.98 134.88 286.97 ROP with optional Benefit Protector Plus 107.23 153.58 202.51 302.01 27.23 83.58 142.51 302.01 MAV with no additional riders 104.16 144.37 187.20 271.71 24.16 74.37 127.20 271.71 MAV with optional Benefit Protector 106.72 152.05 199.98 297.02 26.72 82.05 139.98 297.02 MAV with optional Benefit Protector Plus 108.26 156.63 207.58 311.90 28.26 86.63 147.58 311.90 Fidelity VIP Contrafund(R)Portfolio (Service Class) ROP with no additional riders 102.31 138.81 177.92 253.10 22.31 68.81 117.92 253.10 ROP with optional Benefit Protector 104.88 146.52 190.79 278.86 24.88 76.52 130.79 278.86 ROP with optional Benefit Protector Plus 106.41 151.13 198.45 294.02 26.41 81.13 138.45 294.02 MAV with no additional riders 103.34 141.90 183.09 263.48 23.34 71.90 123.09 263.48 MAV with optional Benefit Protector 105.90 149.59 195.90 288.99 25.90 79.59 135.90 288.99 MAV with optional Benefit Protector Plus 107.44 154.19 203.53 303.99 27.44 84.19 143.53 303.99 Fidelity VIP High Income Portfolio (Service Class) ROP with no additional riders 102.52 139.43 178.96 255.18 22.52 69.43 118.96 255.18 ROP with optional Benefit Protector 105.08 147.14 191.82 280.90 25.08 77.14 131.82 280.90 ROP with optional Benefit Protector Plus 106.62 151.74 199.47 296.02 26.62 81.74 139.47 296.02 MAV with no additional riders 103.54 142.52 184.12 265.54 23.54 72.52 124.12 265.54 MAV with optional Benefit Protector 106.11 150.21 196.92 291.00 26.11 80.21 136.92 291.00 MAV with optional Benefit Protector Plus 107.64 154.80 204.54 305.98 27.64 84.80 144.54 305.98 FTVIPT Franklin Small Cap Fund - Class 2 ROP with no additional riders 104.98 146.83 191.30 279.88 24.98 76.83 131.30 279.88 ROP with optional Benefit Protector 107.54 154.49 204.03 304.99 27.54 84.49 144.03 304.99 ROP with optional Benefit Protector Plus 109.08 159.08 211.61 319.75 29.08 89.08 151.61 319.75 MAV with no additional riders 106.00 149.90 196.41 290.00 26.00 79.90 136.41 290.00 MAV with optional Benefit Protector 108.57 157.55 209.09 314.86 28.57 87.55 149.09 314.86 MAV with optional Benefit Protector Plus 110.10 162.12 216.63 329.48 30.10 92.12 156.63 329.48 -------------------------------------------------------------------------------- 94 AMERICAN EXPRESS NEW SOLUTIONS VARIABLE ANNUITY -- PROSPECTUS
You would pay the following expenses on a $1,000 investment in a nonqualified annuity with selection of the optional Performance Credit Rider assuming a 5% annual return and ... (continued)
no withdrawal or selection a total withdrawal at the of an annuity payout plan at the end of each time period end of each time period 1 year 3 years 5 years 10 years 1 year 3 years 5 years 10 years FTVIPT Mutual Shares Securities Fund - Class 2 ROP with no additional riders $105.29 $147.75 $192.84 $282.92 $25.29 $ 77.75 $132.84 $282.92 ROP with optional Benefit Protector 107.85 155.41 205.55 307.96 27.85 85.41 145.55 307.96 ROP with optional Benefit Protector Plus 109.39 159.99 213.12 322.68 29.39 89.99 153.12 322.68 MAV with no additional riders 106.31 150.82 197.94 293.01 26.31 80.82 137.94 293.01 MAV with optional Benefit Protector 108.87 158.47 210.60 317.80 28.87 88.47 150.60 317.80 MAV with optional Benefit Protector Plus 110.41 163.03 218.13 332.37 30.41 93.03 158.13 332.37 FTVIPT Templeton Developing Markets Securities Fund - Class 2 ROP with no additional riders 113.08 170.92 231.08 357.13 33.08 100.92 171.08 357.13 ROP with optional Benefit Protector 115.64 178.46 243.39 380.33 35.64 108.46 183.39 380.33 ROP with optional Benefit Protector Plus 117.18 182.97 250.71 393.97 37.18 112.97 190.71 393.97 MAV with no additional riders 114.10 173.94 236.02 366.48 34.10 103.94 176.02 366.48 MAV with optional Benefit Protector 116.66 181.47 248.28 389.45 36.66 111.47 188.28 389.45 MAV with optional Benefit Protector Plus 118.20 185.96 255.57 402.95 38.20 115.96 195.57 402.95 FTVIPT Templeton International Securities Fund - Class 2 ROP with no additional riders 106.00 149.90 196.41 290.00 26.00 79.90 136.41 290.00 ROP with optional Benefit Protector 108.57 157.55 209.09 314.86 28.57 87.55 149.09 314.86 ROP with optional Benefit Protector Plus 110.10 162.12 216.63 329.48 30.10 92.12 156.63 329.48 MAV with no additional riders 107.03 152.96 201.50 300.01 27.03 82.96 141.50 300.01 MAV with optional Benefit Protector 109.59 160.60 214.12 324.63 29.59 90.60 154.12 324.63 MAV with optional Benefit Protector Plus 111.13 165.16 221.63 339.10 31.13 95.16 161.63 339.10 MFS(R)Investors Growth Stock Series - Service Class (previously named MFS(R)Growth Series) ROP with no additional riders 105.90 149.59 195.90 288.99 25.90 79.59 135.90 288.99 ROP with optional Benefit Protector 108.46 157.24 208.58 313.87 28.46 87.24 148.58 313.87 ROP with optional Benefit Protector Plus 110.00 161.82 216.13 328.51 30.00 91.82 156.13 328.51 MAV with no additional riders 106.93 152.66 200.99 299.02 26.93 82.66 140.99 299.02 MAV with optional Benefit Protector 109.49 160.29 213.62 323.65 29.49 90.29 153.62 323.65 MAV with optional Benefit Protector Plus 111.03 164.86 221.13 338.14 31.03 94.86 161.13 338.14 MFS(R) New Discovery Series - Service Class ROP with no additional riders 107.44 154.19 203.53 303.99 27.44 84.19 143.53 303.99 ROP with optional Benefit Protector 110.00 161.82 216.13 328.51 30.00 91.82 156.13 328.51 ROP with optional Benefit Protector Plus 111.54 166.38 223.63 342.93 31.54 96.38 163.63 342.93 MAV with no additional riders 108.46 157.24 208.58 313.87 28.46 87.24 148.58 313.87 MAV with optional Benefit Protector 111.03 164.86 221.13 338.14 31.03 94.86 161.13 338.14 MAV with optional Benefit Protector Plus 112.56 169.41 228.60 352.42 32.56 99.41 168.60 352.42 MFS(R) Total Return Series - Service Class ROP with no additional riders 105.80 149.29 195.39 287.98 25.80 79.29 135.39 287.98 ROP with optional Benefit Protector 108.36 156.94 208.08 312.89 28.36 86.94 148.08 312.89 ROP with optional Benefit Protector Plus 109.90 161.51 215.63 327.54 29.90 91.51 155.63 327.54 MAV with no additional riders 106.82 152.35 200.48 298.02 26.82 82.35 140.48 298.02 MAV with optional Benefit Protector 109.39 159.99 213.12 322.68 29.39 89.99 153.12 322.68 MAV with optional Benefit Protector Plus 110.92 164.55 220.63 337.18 30.92 94.55 160.63 337.18 -------------------------------------------------------------------------------- AMERICAN EXPRESS NEW SOLUTIONS VARIABLE ANNUITY -- PROSPECTUS 95
You would pay the following expenses on a $1,000 investment in a nonqualified annuity with selection of the optional Performance Credit Rider assuming a 5% annual return and ... (continued)
no withdrawal or selection a total withdrawal at the of an annuity payout plan at the end of each time period end of each time period 1 year 3 years 5 years 10 years 1 year 3 years 5 years 10 years Putnam VT Growth and Income Fund - Class IB Shares ROP with no additional riders $102.21 $138.50 $177.40 $252.05 $22.21 $ 68.50 $117.40 $252.05 ROP with optional Benefit Protector 104.77 146.21 190.28 277.84 24.77 76.21 130.28 277.84 ROP with optional Benefit Protector Plus 106.31 150.82 197.94 293.01 26.31 80.82 137.94 293.01 MAV with no additional riders 103.24 141.59 182.57 262.45 23.24 71.59 122.57 262.45 MAV with optional Benefit Protector 105.80 149.29 195.39 287.98 25.80 79.29 135.39 287.98 MAV with optional Benefit Protector Plus 107.34 153.88 203.02 303.00 27.34 83.88 143.02 303.00 Putnam VT International New Opportunities Fund - Class IB Shares ROP with no additional riders 109.49 160.29 213.62 323.65 29.49 90.29 153.62 323.65 ROP with optional Benefit Protector 112.05 167.89 226.12 347.68 32.05 97.89 166.12 347.68 ROP with optional Benefit Protector Plus 113.59 172.43 233.55 361.81 33.59 102.43 173.55 361.81 MAV with no additional riders 110.51 163.34 218.63 333.34 30.51 93.34 158.63 333.34 MAV with optional Benefit Protector 113.08 170.92 231.08 357.13 33.08 100.92 171.08 357.13 MAV with optional Benefit Protector Plus 114.61 175.45 238.48 371.12 34.61 105.45 178.48 371.12 Putnam VT Vista Fund - Class IB Shares ROP with no additional riders 103.95 143.75 186.17 269.66 23.95 73.75 126.17 269.66 ROP with optional Benefit Protector 106.52 151.43 198.96 295.02 26.52 81.43 138.96 295.02 ROP with optional Benefit Protector Plus 108.05 156.02 206.56 309.93 28.05 86.02 146.56 309.93 MAV with no additional riders 104.98 146.83 191.30 279.88 24.98 76.83 131.30 279.88 MAV with optional Benefit Protector 107.54 154.49 204.03 304.99 27.54 84.49 144.03 304.99 MAV with optional Benefit Protector Plus 109.08 159.08 211.61 319.75 29.08 89.08 151.61 319.75 -------------------------------------------------------------------------------- 96 AMERICAN EXPRESS NEW SOLUTIONS VARIABLE ANNUITY -- PROSPECTUS
You would pay the following expenses on a $1,000 investment in a qualified annuity with selection of the optional Performance Credit Rider assuming a 5% annual return and ...
no withdrawal or selection a total withdrawal at the of an annuity payout plan at the end of each time period end of each time period 1 year 3 years 5 years 10 years 1 year 3 years 5 years 10 years AXP(R) Variable Portfolio - Cash Management Fund ROP with no additional riders $ 98.93 $128.58 $160.73 $218.10 $18.93 $58.58 $100.73 $218.10 ROP with optional Benefit Protector 101.49 136.34 173.78 244.72 21.49 66.34 113.78 244.72 ROP with optional Benefit Protector Plus 103.03 140.98 181.54 260.38 23.03 70.98 121.54 260.38 MAV with no additional riders 99.96 131.69 165.96 228.83 19.96 61.69 105.96 228.83 MAV with optional Benefit Protector 102.52 139.43 178.96 255.18 22.52 69.43 118.96 255.18 MAV with optional Benefit Protector Plus 104.06 144.06 186.69 270.69 24.06 74.06 126.69 270.69 AXP(R) Variable Portfolio - Federal Income Fund ROP with no additional riders 100.88 134.48 170.66 238.39 20.88 64.48 110.66 238.39 ROP with optional Benefit Protector 103.44 142.21 183.60 264.51 23.44 72.21 123.60 264.51 ROP with optional Benefit Protector Plus 104.98 146.83 191.30 279.88 24.98 76.83 131.30 279.88 MAV with no additional riders 101.90 137.58 175.85 248.92 21.90 67.58 115.85 248.92 MAV with optional Benefit Protector 104.47 145.29 188.74 274.78 24.47 75.29 128.74 274.78 MAV with optional Benefit Protector Plus 106.00 149.90 196.41 290.00 26.00 79.90 136.41 290.00 AXP(R) Variable Portfolio - Managed Fund ROP with no additional riders 99.65 130.75 164.39 225.62 19.65 60.75 104.39 225.62 ROP with optional Benefit Protector 102.21 138.50 177.40 252.05 22.21 68.50 117.40 252.05 ROP with optional Benefit Protector Plus 103.75 143.13 185.15 267.60 23.75 73.13 125.15 267.60 MAV with no additional riders 100.67 133.86 169.61 236.27 20.67 63.86 109.61 236.27 MAV with optional Benefit Protector 103.24 141.59 182.57 262.45 23.24 71.59 122.57 262.45 MAV with optional Benefit Protector Plus 104.77 146.21 190.28 277.84 24.77 76.21 130.28 277.84 AXP(R)Variable Portfolio - New Dimensions Fund(R) ROP with no additional riders 99.96 131.69 165.96 228.83 19.96 61.69 105.96 228.83 ROP with optional Benefit Protector 102.52 139.43 178.96 225.18 22.52 69.43 118.96 255.18 ROP with optional Benefit Protector Plus 104.06 144.06 186.69 270.69 24.06 74.06 126.69 270.69 MAV with no additional riders 100.98 134.79 171.18 239.45 20.98 64.79 111.18 239.45 MAV with optional Benefit Protector 103.54 142.52 184.12 265.54 23.54 72.52 124.12 265.54 MAV with optional Benefit Protector Plus 105.08 147.14 191.82 280.90 25.08 77.14 131.82 280.90 AXP(R) Variable Portfolio - S&P 500 Index Fund ROP with no additional riders 96.88 122.34 150.19 196.33 16.88 52.34 90.19 196.33 ROP with optional Benefit Protector 99.44 130.13 163.35 223.48 19.44 60.13 103.35 223.48 ROP with optional Benefit Protector Plus 100.98 134.79 171.18 239.45 20.98 64.79 111.18 239.45 MAV with no additional riders 97.91 125.46 155.47 207.27 17.91 55.46 95.47 207.27 MAV with optional Benefit Protector 100.47 133.24 168.57 234.15 20.47 63.24 108.57 234.15 MAV with optional Benefit Protector Plus 102.01 137.89 176.37 249.96 22.01 67.89 116.37 249.96 AXP(R) Variable Portfolio - Small Cap Advantage Fund ROP with no additional riders 104.16 144.37 187.20 271.71 24.16 74.37 127.20 271.71 ROP with optional Benefit Protector 106.72 152.05 199.98 297.02 26.72 82.05 139.98 297.02 ROP with optional Benefit Protector Plus 108.26 156.63 207.58 311.90 28.26 86.63 147.58 311.90 MAV with no additional riders 105.18 147.44 192.33 281.91 25.18 77.44 132.33 281.91 MAV with optional Benefit Protector 107.75 155.11 205.05 306.97 27.75 85.11 145.05 306.97 MAV with optional Benefit Protector Plus 109.28 159.69 212.61 321.71 29.28 89.69 152.61 321.71 -------------------------------------------------------------------------------- AMERICAN EXPRESS NEW SOLUTIONS VARIABLE ANNUITY -- PROSPECTUS 97
You would pay the following expenses on a $1,000 investment in a qualified annuity with selection of the optional Performance Credit Rider assuming a 5% annual return and ... (continued)
no withdrawal or selection a total withdrawal at the of an annuity payout plan at the end of each time period end of each time period 1 year 3 years 5 years 10 years 1 year 3 years 5 years 10 years AIM V.I. Capital Appreciation Fund ROP with no additional riders $100.37 $132.93 $168.05 $233.09 $20.37 $62.93 $108.05 $233.09 ROP with optional Benefit Protector 102.93 140.67 181.02 259.34 22.93 70.67 121.02 259.34 ROP with optional Benefit Protector Plus 104.47 145.29 188.74 274.78 24.47 75.29 128.74 274.78 MAV with no additional riders 101.39 136.03 173.26 243.67 21.39 66.03 113.26 243.67 MAV with optional Benefit Protector 103.95 143.75 186.17 269.66 23.95 73.75 126.17 269.66 MAV with optional Benefit Protector Plus 105.49 148.36 193.86 284.95 25.49 78.36 133.86 284.95 AIM V.I. Dent Demographic Trends Fund ROP with no additional riders 107.34 153.88 203.02 303.00 27.34 83.88 143.02 303.00 ROP with optional Benefit Protector 109.90 161.51 215.63 327.54 29.90 91.51 155.63 327.54 ROP with optional Benefit Protector Plus 111.44 166.07 223.13 341.97 31.44 96.07 163.13 341.97 MAV with no additional riders 108.36 156.94 208.08 312.89 28.36 86.94 148.08 312.89 MAV with optional Benefit Protector 110.92 164.55 220.63 337.18 30.92 94.55 160.63 337.18 MAV with optional Benefit Protector Plus 112.46 169.10 228.10 351.47 32.46 99.10 168.10 351.47 AIM V.I. Value Fund ROP with no additional riders 100.57 133.55 169.09 235.21 20.57 63.55 109.09 235.21 ROP with optional Benefit Protector 103.13 141.28 182.06 261.41 23.13 71.28 122.06 261.41 ROP with optional Benefit Protector Plus 104.67 145.91 189.77 276.82 24.67 75.91 129.77 276.82 MAV with no additional riders 101.60 136.65 174.29 245.77 21.60 66.65 114.29 245.77 MAV with optional Benefit Protector 104.16 144.37 187.20 271.71 24.16 74.37 127.20 271.71 MAV with optional Benefit Protector Plus 105.70 148.98 194.88 286.97 25.70 78.98 134.88 286.97 Alliance VP Growth & Income Portfolio (Class B) ROP with no additional riders 101.70 136.96 174.81 246.82 21.70 66.96 114.81 246.82 ROP with optional Benefit Protector 104.26 144.67 187.72 272.74 24.26 74.67 127.72 272.74 ROP with optional Benefit Protector Plus 105.80 149.29 195.39 287.98 25.80 79.29 135.39 287.98 MAV with no additional riders 102.72 140.05 179.99 257.26 22.72 70.05 119.99 257.26 MAV with optional Benefit Protector 105.29 147.75 192.84 282.92 25.29 77.75 132.84 282.92 MAV with optional Benefit Protector Plus 106.82 152.35 200.48 298.02 26.82 82.35 140.48 298.02 Alliance VP Premier Growth Portfolio (Class B) ROP with no additional riders 105.29 147.75 192.84 282.92 25.29 77.75 132.84 282.92 ROP with optional Benefit Protector 107.85 155.41 205.55 307.96 27.85 85.41 145.55 307.96 ROP with optional Benefit Protector Plus 109.39 159.99 213.12 322.68 29.39 89.99 153.12 322.68 MAV with no additional riders 106.31 150.82 197.94 293.01 26.31 80.82 137.94 293.01 MAV with optional Benefit Protector 108.87 158.47 210.60 317.80 28.87 88.47 150.60 317.80 MAV with optional Benefit Protector Plus 110.41 163.03 218.13 332.37 30.41 93.03 158.13 332.37 Alliance VP Technology Portfolio (Class B) ROP with no additional riders 105.39 148.06 193.35 283.94 25.39 78.06 133.35 283.94 ROP with optional Benefit Protector 107.95 155.72 206.06 308.95 27.95 85.72 146.06 308.95 ROP with optional Benefit Protector Plus 109.49 160.29 213.62 323.65 29.49 90.29 153.62 323.65 MAV with no additional riders 106.41 151.13 198.45 294.02 26.41 81.13 138.45 294.02 MAV with optional Benefit Protector 108.98 158.77 211.11 318.78 28.98 88.77 151.11 318.78 MAV with optional Benefit Protector Plus 110.51 163.34 218.63 333.34 30.51 93.34 158.63 333.34 -------------------------------------------------------------------------------- 98 AMERICAN EXPRESS NEW SOLUTIONS VARIABLE ANNUITY -- PROSPECTUS
You would pay the following expenses on a $1,000 investment in a qualified annuity with selection of the optional Performance Credit Rider assuming a 5% annual return and ... (continued)
no withdrawal or selection a total withdrawal at the of an annuity payout plan at the end of each time period end of each time period 1 year 3 years 5 years 10 years 1 year 3 years 5 years 10 years Evergreen VA Global Leaders Fund ROP with no additional riders $102.31 $138.81 $177.92 $253.10 $22.31 $68.81 $117.92 $253.10 ROP with optional Benefit Protector 104.88 146.52 190.79 278.86 24.88 76.52 130.79 278.86 ROP with optional Benefit Protector Plus 106.41 151.13 198.45 294.02 26.41 81.13 138.45 294.02 MAV with no additional riders 103.34 141.90 183.09 263.48 23.34 71.90 123.09 263.48 MAV with optional Benefit Protector 105.90 149.59 195.90 288.99 25.90 79.59 135.90 288.99 MAV with optional Benefit Protector Plus 107.44 154.19 203.53 303.99 27.44 84.19 143.53 303.99 Evergreen VA Growth and Income Fund ROP with no additional riders 102.31 138.81 177.92 253.10 22.31 68.81 117.92 253.10 ROP with optional Benefit Protector 104.88 146.52 190.79 278.86 24.88 76.52 130.79 278.86 ROP with optional Benefit Protector Plus 106.41 151.13 198.45 294.02 26.41 81.13 138.45 294.02 MAV with no additional riders 103.34 141.90 183.09 263.48 23.34 71.90 123.09 263.48 MAV with optional Benefit Protector 105.90 149.59 195.90 288.99 25.90 79.59 135.90 288.99 MAV with optional Benefit Protector Plus 107.44 154.19 203.53 303.99 27.44 84.19 143.53 303.99 Evergreen VA Masters Fund ROP with no additional riders 102.31 138.81 177.92 253.10 22.31 68.81 117.92 253.10 ROP with optional Benefit Protector 104.88 146.52 190.79 278.86 24.88 76.52 130.79 278.86 ROP with optional Benefit Protector Plus 106.41 151.13 198.45 294.02 26.41 81.13 138.45 294.02 MAV with no additional riders 103.34 141.90 183.09 263.48 23.34 71.90 123.09 263.48 MAV with optional Benefit Protector 105.90 149.59 195.90 288.99 25.90 79.59 135.90 288.99 MAV with optional Benefit Protector Plus 107.44 154.19 203.53 303.99 27.44 84.19 143.53 303.99 Evergreen VA Omega Fund ROP with no additional riders 98.93 128.58 160.73 218.10 18.93 58.58 100.73 218.10 ROP with optional Benefit Protector 101.49 136.34 173.78 244.72 21.49 66.34 113.78 244.72 ROP with optional Benefit Protector Plus 103.03 140.98 181.54 260.38 23.03 70.98 121.54 260.38 MAV with no additional riders 99.96 131.69 165.96 228.83 19.96 61.69 105.96 228.83 MAV with optional Benefit Protector 102.52 139.43 178.96 255.18 22.52 69.43 118.96 255.18 MAV with optional Benefit Protector Plus 104.06 144.06 186.69 270.69 24.06 74.06 126.69 270.69 Evergreen VA Small Cap Value Fund ROP with no additional riders 102.42 139.12 178.44 254.14 22.42 69.12 118.44 254.14 ROP with optional Benefit Protector 104.98 146.83 191.30 279.88 24.98 76.83 131.30 279.88 ROP with optional Benefit Protector Plus 106.52 151.43 198.96 295.02 26.52 81.43 138.96 295.02 MAV with no additional riders 103.44 142.21 183.60 264.51 23.44 72.21 123.60 264.51 MAV with optional Benefit Protector 106.00 149.90 196.41 290.00 26.00 79.90 136.41 290.00 MAV with optional Benefit Protector Plus 107.54 154.49 204.03 304.99 27.54 84.49 144.03 304.99 Evergreen VA Strategic Income Fund ROP with no additional riders 100.57 133.55 169.09 235.21 20.57 63.55 109.09 235.21 ROP with optional Benefit Protector 103.13 141.28 182.06 261.41 23.13 71.28 122.06 261.41 ROP with optional Benefit Protector Plus 104.67 145.91 189.77 276.82 24.67 75.91 129.77 276.82 MAV with no additional riders 101.60 136.65 174.29 245.77 21.60 66.65 114.29 245.77 MAV with optional Benefit Protector 104.16 144.37 187.20 271.71 24.16 74.37 127.20 271.71 MAV with optional Benefit Protector Plus 105.70 148.98 194.88 286.97 25.70 78.98 134.88 286.97 -------------------------------------------------------------------------------- AMERICAN EXPRESS NEW SOLUTIONS VARIABLE ANNUITY -- PROSPECTUS 99
You would pay the following expenses on a $1,000 investment in a qualified annuity with selection of the optional Performance Credit Rider assuming a 5% annual return and ... (continued)
no withdrawal or selection a total withdrawal at the of an annuity payout plan at the end of each time period end of each time period 1 year 3 years 5 years 10 years 1 year 3 years 5 years 10 years Fidelity VIP III Mid Cap Portfolio (Service Class) ROP with no additional riders $100.57 $133.55 $169.09 $235.21 $20.57 $ 63.55 $109.09 $235.21 ROP with optional Benefit Protector 103.13 141.28 182.06 261.41 23.13 71.28 122.06 261.41 ROP with optional Benefit Protector Plus 104.67 145.91 189.77 276.82 24.67 75.91 129.77 276.82 MAV with no additional riders 101.60 136.65 174.29 245.77 21.60 66.65 114.29 245.77 MAV with optional Benefit Protector 104.16 144.37 187.20 271.71 24.16 74.37 127.20 271.71 MAV with optional Benefit Protector Plus 105.70 148.98 194.88 286.97 25.70 78.98 134.88 286.97 Fidelity VIP Contrafund(R)Portfolio (Service Class) ROP with no additional riders 99.75 131.07 164.92 226.69 19.75 61.07 104.92 226.69 ROP with optional Benefit Protector 102.31 138.81 177.92 253.10 22.31 68.81 117.92 253.10 ROP with optional Benefit Protector Plus 103.85 143.44 185.66 268.63 23.85 73.44 125.66 268.63 MAV with no additional riders 100.78 134.17 170.14 237.33 20.78 64.17 110.14 237.33 MAV with optional Benefit Protector 103.34 141.90 183.09 263.48 23.34 71.90 123.09 263.48 MAV with optional Benefit Protector Plus 104.88 146.52 190.79 278.86 24.88 76.52 130.79 278.86 Fidelity VIP High Income Portfolio (Service Class) ROP with no additional riders 99.96 131.69 165.96 228.83 19.96 61.69 105.96 228.83 ROP with optional Benefit Protector 102.52 139.43 178.96 255.18 22.52 69.43 118.96 255.18 ROP with optional Benefit Protector Plus 104.06 144.06 186.69 270.69 24.06 74.06 126.69 270.69 MAV with no additional riders 100.98 134.79 171.18 239.45 20.98 64.79 111.18 239.45 MAV with optional Benefit Protector 103.54 142.52 184.12 265.54 23.54 72.52 124.12 265.54 MAV with optional Benefit Protector Plus 105.08 147.14 191.82 280.90 25.08 77.14 131.82 280.90 FTVIPT Franklin Small Cap Fund - Class 2 ROP with no additional riders 102.42 139.12 178.44 254.14 22.42 69.12 118.44 254.14 ROP with optional Benefit Protector 104.98 146.83 191.30 279.88 24.98 76.83 131.30 279.88 ROP with optional Benefit Protector Plus 106.52 151.43 198.96 295.02 26.52 81.43 138.96 295.02 MAV with no additional riders 103.44 142.21 183.60 264.51 23.44 72.21 123.60 264.51 MAV with optional Benefit Protector 106.00 149.90 196.41 290.00 26.00 79.90 136.41 290.00 MAV with optional Benefit Protector Plus 107.54 154.49 204.03 304.99 27.54 84.49 144.03 304.99 FTVIPT Mutual Shares Securities Fund - Class 2 ROP with no additional riders 102.72 140.05 179.99 257.26 22.72 70.05 119.99 257.26 ROP with optional Benefit Protector 105.29 147.75 192.84 282.92 25.29 77.75 132.84 282.92 ROP with optional Benefit Protector Plus 106.82 152.35 200.48 298.02 26.82 82.35 140.48 298.02 MAV with no additional riders 103.75 143.13 185.15 267.60 23.75 73.13 125.15 267.60 MAV with optional Benefit Protector 106.31 150.82 197.94 293.01 26.31 80.82 137.94 293.01 MAV with optional Benefit Protector Plus 107.85 155.41 205.55 307.96 27.85 85.41 145.55 307.96 FTVIPT Templeton Developing Markets Securities Fund - Class 2 ROP with no additional riders 110.51 163.34 218.63 333.34 30.51 93.34 158.63 333.34 ROP with optional Benefit Protector 113.08 170.92 231.08 357.13 33.08 100.92 171.08 357.13 ROP with optional Benefit Protector Plus 114.61 175.45 238.48 371.12 34.61 105.45 178.48 371.12 MAV with no additional riders 111.54 166.38 223.63 342.93 31.54 96.38 163.63 342.93 MAV with optional Benefit Protector 114.10 179.94 236.02 366.48 34.10 103.94 176.02 366.48 MAV with optional Benefit Protector Plus 115.64 178.46 243.39 380.33 35.64 108.46 183.39 380.33 -------------------------------------------------------------------------------- 100 AMERICAN EXPRESS NEW SOLUTIONS VARIABLE ANNUITY -- PROSPECTUS
You would pay the following expenses on a $1,000 investment in a qualified annuity with selection of the optional Performance Credit Rider assuming a 5% annual return and ... (continued)
no withdrawal or selection a total withdrawal at the of an annuity payout plan at the end of each time period end of each time period 1 year 3 years 5 years 10 years 1 year 3 years 5 years 10 years FTVIPT Templeton International Securities Fund - Class 2 ROP with no additional riders $103.44 $142.21 $183.60 $264.51 $23.44 $72.21 $123.60 $264.51 ROP with optional Benefit Protector 106.90 149.90 196.41 290.00 26.00 79.90 136.41 290.00 ROP with optional Benefit Protector Plus 107.54 154.49 204.03 304.99 27.54 84.49 144.03 304.99 MAV with no additional riders 104.47 145.29 188.74 274.78 24.47 75.29 128.74 274.78 MAV with optional Benefit Protector 107.03 152.96 201.50 300.01 27.03 82.96 141.50 300.01 MAV with optional Benefit Protector Plus 108.57 157.55 209.09 314.86 28.57 87.55 149.09 314.86 MFS(R)Investors Growth Stock Series - Service Class (previously named MFS(R)Growth Series) ROP with no additional riders 103.34 141.90 183.09 263.48 23.34 71.90 123.09 263.48 ROP with optional Benefit Protector 105.90 149.59 195.90 288.99 25.90 79.59 135.90 288.99 ROP with optional Benefit Protector Plus 107.44 154.19 203.53 303.99 27.44 84.19 143.53 303.99 MAV with no additional riders 104.36 144.98 188.23 273.76 24.36 74.98 128.23 273.76 MAV with optional Benefit Protector 106.93 152.66 200.99 299.02 26.93 82.66 140.99 299.02 MAV with optional Benefit Protector Plus 108.46 157.24 208.58 313.87 28.46 87.24 148.58 313.87 MFS(R) New Discovery Series - Service Class ROP with no additional riders 104.88 146.52 190.79 278.86 24.88 76.52 130.79 278.86 ROP with optional Benefit Protector 107.44 154.19 203.53 303.99 27.44 84.19 143.53 303.99 ROP with optional Benefit Protector Plus 108.98 158.77 211.11 318.78 28.98 88.77 151.11 318.78 MAV with no additional riders 105.90 149.59 195.90 288.99 25.90 79.59 135.90 288.99 MAV with optional Benefit Protector 108.46 157.24 208.58 313.87 28.46 87.24 148.58 313.87 MAV with optional Benefit Protector Plus 110.00 161.82 216.13 328.51 30.00 91.82 156.13 328.51 MFS(R) Total Return Series - Service Class ROP with no additional riders 103.24 141.59 182.57 262.45 23.24 71.59 122.57 262.45 ROP with optional Benefit Protector 105.80 149.29 195.39 287.98 25.80 79.29 135.39 287.98 ROP with optional Benefit Protector Plus 107.34 153.88 203.02 303.00 27.34 83.88 143.02 303.00 MAV with no additional riders 104.26 144.67 187.72 272.74 24.26 74.67 127.72 272.74 MAV with optional Benefit Protector 106.82 152.35 200.48 298.02 26.82 82.35 140.48 298.02 MAV with optional Benefit Protector Plus 108.36 156.94 208.08 312.89 28.36 86.94 148.08 312.89 Putnam VT Growth and Income Fund - Class IB Shares ROP with no additional riders 99.65 130.75 164.39 225.62 19.65 60.75 104.39 225.62 ROP with optional Benefit Protector 102.21 138.50 177.40 252.05 22.21 68.50 117.40 252.05 ROP with optional Benefit Protector Plus 103.75 143.13 185.15 267.60 23.75 73.13 125.15 267.60 MAV with no additional riders 100.67 133.86 169.61 236.27 20.67 63.86 109.61 236.27 MAV with optional Benefit Protector 103.24 141.59 182.57 262.45 23.24 71.59 122.57 262.45 MAV with optional Benefit Protector Plus 104.77 146.21 190.28 277.84 24.77 76.21 130.28 277.84 Putnam VT International New Opportunities Fund - Class IB Shares ROP with no additional riders 106.93 152.66 200.99 299.02 26.93 82.66 140.99 299.02 ROP with optional Benefit Protector 109.49 160.29 213.62 323.65 29.49 90.29 153.62 323.65 ROP with optional Benefit Protector Plus 111.03 164.86 221.13 338.14 31.03 94.86 161.13 338.14 MAV with no additional riders 107.95 155.72 206.06 308.95 27.95 85.72 146.06 308.95 MAV with optional Benefit Protector 110.51 163.34 218.63 333.34 30.51 93.34 158.63 333.34 MAV with optional Benefit Protector Plus 112.05 167.89 226.12 347.68 32.05 97.89 166.12 347.68 -------------------------------------------------------------------------------- AMERICAN EXPRESS NEW SOLUTIONS VARIABLE ANNUITY -- PROSPECTUS 101
You would pay the following expenses on a $1,000 investment in a qualified annuity with selection of the optional Performance Credit Rider assuming a 5% annual return and ... (continued)
no withdrawal or selection a total withdrawal at the of an annuity payout plan at the end of each time period end of each time period 1 year 3 years 5 years 10 years 1 year 3 years 5 years 10 years Putnam VT Vista Fund - Class IB Shares ROP with no additional riders $101.39 $136.03 $173.26 $243.67 $21.39 $66.03 $113.26 $243.67 ROP with optional Benefit Protector 103.95 143.75 186.17 269.66 23.95 73.75 126.17 269.66 ROP with optional Benefit Protector Plus 105.49 148.36 193.86 284.95 25.49 78.36 133.86 284.95 MAV with no additional riders 102.42 139.12 178.44 254.14 22.42 69.12 118.44 254.14 MAV with optional Benefit Protector 104.98 146.83 191.30 279.88 24.98 76.83 131.30 279.88 MAV with optional Benefit Protector Plus 106.52 151.43 198.96 295.02 26.52 81.43 138.96 295.02 * In these examples, the $40 contract administrative charge is approximated as a 0.017% charge based on our estimated average contract size. Premium taxes imposed by some state and local governments are not reflected in these tables. 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. -------------------------------------------------------------------------------- 102 AMERICAN EXPRESS NEW SOLUTIONS VARIABLE ANNUITY -- PROSPECTUS
Appendix B: Performance Credit Rider Adjusted Partial Withdrawal STEP ONE: For each withdrawal made within the current calculation period we calculate the remaining purchase payment amount (RPA): RPA = Total purchase payments and purchase payment credits made prior to the partial withdrawal in question minus the RPA adjusted partial withdrawals for all previous partial withdrawals. NOTE: In our calculations for the first partial withdrawal, the RPA will simply be the total purchase payments and purchase payment credits as there are no previous withdrawals to subtract. PW x RP RPA adjusted partial withdrawals = ------- CV PW = the partial withdrawal including any applicable withdrawal charge or MVA. CV = the contract value on the date of (but prior to) the partial withdrawal. RPA = the remaining premium amount on the date of (but prior to) the partial withdrawal. STEP TWO For each withdrawal made within the current calculation period we calculate the eligible purchase payment amount (EPA): EPA = Total purchase payments and purchase payment credits made prior to the partial withdrawal in question AND prior to the five year exclusion period minus EPA adjusted partial withdrawals for all previous partial withdrawals. NOTE: In our calculations for the first partial withdrawal, the EPA will simply be the total purchase payments and purchase payment credits made before the five year exclusion period as there are no previous withdrawals to subtract. Also note that EPA/RPA will always be less than or equal to one. PW x EPA EPA EPA adjusted partial withdrawals = -------- x --- CV RPA PW = the partial withdrawal including any applicable withdrawal charge or MVA. CV = the contract value on the date of (but prior to) the partial withdrawal. EPA = the eligible premium amount on the date of (but prior to) the partial withdrawal. RPA = the remaining premium amount on the date of (but prior to) the partial withdrawal. STEP THREE The total PCRPW (Performance Credit Rider adjusted partial withdrawal) amount is the sum of each EPA adjusted partial withdrawal. Example: Calculation at the end of the ten-year period assuming the contract is eligible for the PCR credit (i.e. your contract value is less than target value). This example does not include purchase payment credits. o On Jan. 1,2001 you purchase the contract with a purchase payment of $100,000. o On Jan. 1, 2007 you make an additional purchase payment in the amount of $100,000. o Contract values before any partial withdrawals are shown below. o On Jan. 1, 2004 you make a partial withdrawal in the amount of $10,000. o On Jan. 1, 2009 you make another partial withdrawal in the amount of $10,000. NOTE: The shaded portion of the table indicates the five year exclusion period. Date Total Purchase Payments Contract Value Jan. 1, 2001 100,000 100,000 Jan. 1, 2002 100,000 110,000 Jan. 1, 2003 100,000 115,000 Jan. 1, 2004 100,000 120,000 Jan. 1, 2005 100,000 115,000 Jan. 1, 2006 100,000 120,000 Jan. 1, 2007 200,000 225,000 Jan. 1, 2008 200,000 230,000 Jan. 1, 2009 200,000 235,000 Jan. 1, 2010 200,000 230,000 Jan. 1, 2011 200,000 235,000 -------------------------------------------------------------------------------- AMERICAN EXPRESS NEW SOLUTIONS VARIABLE ANNUITY -- PROSPECTUS 103 Step one: For each withdrawal made within the current calculation period we calculate the RPA:
For the first partial withdrawal on Jan. 1, 2004: -------------------------------------------------- ----------------------------------------- RPA before the partial withdrawal = total RPA adjusted partial withdrawal = purchase payments made prior to the partial withdrawal minus the RPA adjusted partial $10,000 x $100,000 withdrawals for all previous partial ------------------ = $8,333 withdrawals = $100,000 - 0 = $100,000 $120,000 -------------------------------------------------- ----------------------------------------- For the second partial withdrawal on Jan. 1, 2009: -------------------------------------------------- ----------------------------------------- RPA before the partial withdrawal = total RPA adjusted partial withdrawal = purchase payments made prior to the partial withdrawal minus the RPA adjusted partial $10,000 x $191,667 withdrawals for all previous partial ------------------ = $8,156 withdrawals = $200,000 - $8,333 = $191,667 $235,000 -------------------------------------------------- ----------------------------------------- Step two: For each withdrawal made within the current calculation period) we calculate the EPA: For the first partial withdrawal on Jan. 1, 2004: ------------------------------------------------- ------------------------------------------ EPA before the partial withdrawal = EPA adjusted partial withdrawal = total purchase payments made prior to the partial withdrawal AND the five-year $10,000 x $100,000 $100,000 exclusion period minus the EPA adjusted ------------------ = -------- = $8,156 partial withdrawals for all previous partial $120,000 $100,000 withdrawals = $100,000 - 0 = $100,000 ------------------------------------------------- ------------------------------------------ For the second partial withdrawal on Jan. 1, 2009: ------------------------------------------------- ------------------------------------------ EPA before the partial withdrawal = EPA adjusted partial withdrawal = total purchase payments made prior to the partial withdrawal AND the five-year $10,000 x $91,667 $91,667 exclusion period minus the EPA adjusted ----------------- = -------- = $1,866 partial withdrawals for all previous partial $235,000 $191,667 withdrawals = $100,000 - $8,333 = $91,667 ------------------------------------------------- ------------------------------------------ Step three: The total PCRPW amount is the sum of each EPA adjusted partial withdrawal. PCRPW amount = $8,333 + $1,866 = $10,199 -------------------------------------------------------------------------------- 104 AMERICAN EXPRESS NEW SOLUTIONS VARIABLE ANNUITY -- PROSPECTUS
Table of Contents of the Statement of Additional Information Performance Information p. 3 Calculating Annuity Payouts p. 21 Rating Agencies p. 22 Principal Underwriter p. 22 Independent Auditors p. 22 Condensed Financial Information (Unaudited) p. 23 Financial Statements -------------------------------------------------------------------------------- AMERICAN EXPRESS NEW SOLUTIONS VARIABLE ANNUITY -- PROSPECTUS 105 American Enterprise Life Insurance Company 829 AXP Financial Center Minneapolis, MN 55474 (800) 333-3437 240355 D (7/01) [AMERICAN EXPRESS LOGO-Registered Trademark-] AMERICAN EXPRESS SIGNATURE VARIABLE ANNUITY-R- ISSUED BY: AMERICAN ENTERPRISE LIFE INSURANCE COMPANY PROSPECTUS JULY 23, 2001 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 - J. P. Morgan Series Trust II - AIM Variable Insurance Funds - Lazard Retirement Series, Inc. - Alliance Variable Products Series Fund - MFS-Registered Trademark- Variable Insurance Trust-SM- - Baron Capital Funds Trust - Putnam Variable Trust - IB Shares - Credit Suisse Warburg Pincus Trust - Royce Capital Fund - Fidelity Variable Insurance Products - Service Class - Third Avenue Variable Series Trust - Franklin-Registered Trademark- Templeton-Registered Trademark- - Wanger Advisors Trust Variable Insurance Products Trust (FTVIPT) - Class 2 - Goldman Sachs Variable Insurance Trust (VIT) - Janus Aspen Series: Service Shares
Please read the prospectuses carefully and keep them for future reference. This contract provides for contract value credits. The death benefits for contracts with such credits may be lower than for contracts without such credits. The amount of the credit may be more than offset by the reduction in the death benefits provided. THE SECURITIES AND EXCHANGE COMMISSION (SEC) HAS NOT APPROVED OR DISAPPROVED THESE SECURITIES OR PASSED UPON THE ACCURACY OR 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 and address listed above. The table of contents of the SAI is on the last page of this prospectus. The SEC maintains an Internet site. This prospectus, the SAI and other information about the product are available on the EDGAR Database on the SEC's Internet site at (http://www.sec.gov). Variable annuities are complex investment vehicles. Before you invest, be sure to ask your sales representative about the variable annuity's features, benefits, risks and fees, and whether the variable annuity is appropriate for you, based upon your financial situation and objectives. American Enterprise Life offers several different annuities which your sales representative may be authorized to offer to you. Each annuity has different features and benefits that may be appropriate for you based on your financial situation and needs, your age and how you intend to use the annuity. The different features and benefits may include the investment and fund manager options, variations in interest rate amount and guarantees, credits, withdrawal charge schedules and access to annuity account values. The fees and charges may also be different between each annuity. TABLE OF CONTENTS KEY TERMS .............................................................3 THE CONTRACT IN BRIEF .................................................4 EXPENSE SUMMARY .......................................................5 CONDENSED FINANCIAL INFORMATION (UNAUDITED) ..........................13 FINANCIAL STATEMENTS .................................................17 PERFORMANCE INFORMATION ..............................................18 THE VARIABLE ACCOUNT AND THE FUNDS ...................................19 THE FIXED ACCOUNTS ...................................................25 BUYING YOUR CONTRACT .................................................28 CHARGES ..............................................................29 VALUING YOUR INVESTMENT ..............................................33 MAKING THE MOST OF YOUR CONTRACT .....................................35 WITHDRAWALS ..........................................................38 TSA -- SPECIAL WITHDRAWAL PROVISIONS .................................39 CHANGING OWNERSHIP ...................................................39 BENEFITS IN CASE OF DEATH ............................................39 OPTIONAL BENEFITS ....................................................43 THE ANNUITY PAYOUT PERIOD ............................................48 TAXES ................................................................50 VOTING RIGHTS ........................................................51 SUBSTITUTION OF INVESTMENTS ..........................................52 ABOUT THE SERVICE PROVIDERS ..........................................52 ADDITIONAL INFORMATION ABOUT AMERICAN ENTERPRISE LIFE ................53 DIRECTORS AND EXECUTIVE OFFICERS .....................................57 EXPERTS ..............................................................58 AMERICAN ENTERPRISE LIFE INSURANCE COMPANY FINANCIAL INFORMATION ....59 TABLE OF CONTENTS OF THE STATEMENT OF ADDITIONAL INFORMATION ........76 -------------------------------------------------------------------------------- 2 AMERICAN EXPRESS SIGNATURE VARIABLE ANNUITY -- PROSPECTUS 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. ASSUMED INVESTMENT RATE: The rate of return we assume your investments will earn when we calculate your initial annuity payout amount using the annuity table in your contract. The standard assumed investment rate we use is 5% but you may request we substitute an assumed investment rate of 3.5%. BENEFICIARY: The person you designate to receive benefits in case of the owner's or annuitant's death while the contract is in force and before annuity payouts begin. CLOSE OF BUSINESS: When the New York Stock Exchange (NYSE) closes, normally 4 p.m. Eastern time. CONTRACT: A deferred annuity contract, or a certificate showing your interest under a group annuity contract, that permits you to accumulate money for retirement by making one or more purchase payments. It provides for lifetime or other forms of payouts beginning at a specified time in the future. CONTRACT VALUE: The total value of your contract before we deduct any applicable charges. CONTRACT YEAR: A period of 12 months, starting on the effective date of your contract and on each anniversary of the effective date. FIXED ACCOUNTS: The one-year fixed account is an account to which you may allocate purchase payments. Amounts you allocate to this account earn interest at rates that we declare periodically. Guarantee Period Accounts are fixed accounts to which you may also allocate purchase payments. These accounts have guaranteed interest rates declared for periods ranging from two to ten years. Withdrawals from the Guarantee Period Accounts done more than 30 days before the end of the Guarantee Period will receive a Market Value Adjustment, which may result in a gain or loss of principal. FUNDS: Investment options under your contract. You may allocate your purchase payments into subaccounts investing in shares of any or all of these funds. GUARANTEE PERIOD: The number of years that a guaranteed interest rate is credited. MARKET VALUE ADJUSTMENT (MVA): A positive or negative adjustment assessed if any portion of a Guarantee Period Account is withdrawn or transferred more than 30 days before the end of its Guarantee Period. OWNER (YOU, YOUR): The person who controls the contract (decides on investment allocations, transfers, payout options, etc.). Usually, but not always, the owner is also the annuitant. The owner is responsible for taxes, regardless of whether he or she receives the contract's benefits. QUALIFIED ANNUITY: A contract that you purchase to fund one of the following tax-deferred retirement plans that is subject to applicable federal law and any rules of the plan itself: - Individual Retirement Annuities (IRAs) under Section 408(b) of the Internal Revenue Code of 1986, as amended (the Code) - Roth IRAs under Section 408A of the Code - Simplified Employee Pension (SEP) plans under Section 408(k) of the Code - Tax-Sheltered Annuity (TSA) rollovers under Section 403(b) of the Code A qualified annuity will not provide any necessary or additional tax deferral if it is used to fund a retirement plan that is already tax deferred. All other contracts are considered NONQUALIFIED ANNUITIES. RETIREMENT DATE: The date when annuity payouts are scheduled to begin. RIDER EFFECTIVE DATE: The date you add a rider to the contract. 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. -------------------------------------------------------------------------------- AMERICAN EXPRESS SIGNATURE VARIABLE ANNUITY -- PROSPECTUS 3 THE CONTRACT IN BRIEF PURPOSE: The purpose of the contract is to allow you to accumulate money for retirement. You do this by making one or more purchase payments. You may allocate your purchase payments to the fixed accounts and/or subaccounts under the contract. These accounts, in turn, may earn returns that increase the value of the contract. Beginning at a specified time in the future called the retirement date, the contract provides lifetime or other forms of payouts of your contract value (less any applicable premium tax). As in the case of other annuities, it may not be advantageous for you to purchase this contract as a replacement for, or in addition to, an existing annuity or life insurance contract. Most annuities have a tax-deferred feature. So do many retirement plans under the Internal Revenue Code. As a result, when you use an annuity to fund a retirement plan that is tax deferred, your annuity will not provide any necessary or additional tax deferral for that retirement plan. But annuities do have features other than tax deferral that may help you reach your retirement goals. You should consult your tax advisor prior to making a purchase for an explanation of the tax implications to you. 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. 19) - the fixed accounts, which earn interest at rates that we adjust periodically. Some states restrict the amount you can allocate to these accounts. (p. 25) BUYING YOUR CONTRACT: Your sales representative will help you complete and submit an application. Applications are subject to acceptance at our office. You may buy 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. 28) - Minimum initial purchase payment: $5,000 for contracts issued in South Carolina, Texas, and Washington. $2,000 for contracts issued in all other states. - Minimum additional purchase payment: $50 for Systematic Investment Plans. $100 for any other type of payment. - 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 contract value among the accounts without charge at any time until annuity payouts begin, and once per contract year among the subaccounts after annuity payouts begin. Transfers out of the Guarantee Period Accounts done more than 30 days before the end of the Guarantee Period will be subject to a MVA. You may establish automated transfers among the accounts. Fixed account transfers are subject to special restrictions. (p. 36) WITHDRAWALS: You may withdraw all or part of your contract value at any time before the retirement date. You also may establish automated partial withdrawals. Withdrawals may be subject to charges and tax penalties (including a 10% IRS penalty if you make withdrawals prior to your reaching age 59 1/2) and may have other tax consequences; also, certain restrictions apply. (p. 38) 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. 39) 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. 39) OPTIONAL BENEFITS: This contract offers optional features that are available for additional charges if you meet certain criteria. (p. 43) 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 tax-deferred retirement plan. We can make payouts on a fixed or variable basis, or both. Total monthly payouts may include amounts from each subaccount and the one-year fixed account. During the annuity payout period, your choices for subaccounts may be limited. The Guarantee Period Accounts are not available during the payout period. (p. 48) -------------------------------------------------------------------------------- 4 AMERICAN EXPRESS SIGNATURE VARIABLE ANNUITY -- PROSPECTUS 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 (p. 29): - $30 annual contract administrative charge; - 0.15% variable account administrative charge (if you allocate money to one or more subaccounts); - 1.25% mortality and expense risk fee (if you allocate money to one or more subaccounts); - if you select the Guaranteed Minimum Income Benefit Rider* (GMIB), an annual fee (currently 0.35%) based on the adjusted contract value; - if you select the 8% Performance Credit Rider* (PCR), an annual fee of 0.25% of the contract value; - withdrawal charge; - any premium taxes that may be imposed on us by state or local governments (currently, we deduct any applicable premium tax when annuity payouts begin, but we reserve the right to deduct this tax at other times such as when you make purchase payments or when you make a total withdrawal); and - the operating expenses of the funds in which the subaccounts invest. * You may select either the GMIB or the PCR, but not both. Riders may not be available in all states. The GMIB is only available if the annuitant is 75 or younger at contract issue. If you select the GMIB you must select either death benefit Option B or Option C. EXPENSE SUMMARY The purpose of the following information is to help you understand the various costs and expenses associated with your contract. You pay no sales charge when you purchase your contract. We show all costs that we deduct directly from your contract or indirectly from the subaccounts and funds below. Some expenses may vary as we explain under "Charges." Please see the funds' prospectuses for more information on the operating expenses for each fund. CONTRACT OWNER EXPENSES WITHDRAWAL CHARGE (contingent deferred sales charge as a percentage of purchase payment withdrawn)
YEARS FROM PURCHASE WITHDRAWAL CHARGE PAYMENT RECEIPT PERCENTAGE 1 7% 2 7 3 6 4 6 5 5 6 4 7 2 Thereafter 0
A withdrawal charge also applies to payouts under certain annuity payout plans (see "Charges -- Withdrawal charge" and "The Annuity Payout Period -- Annuity payout plans"). ANNUAL CONTRACT ADMINISTRATIVE CHARGE: $30* * We will waive this charge when your contract value is $50,000 or more on the current contract anniversary. GUARANTEED MINIMUM INCOME BENEFIT RIDER (GMIB) FEE: 0.35% (As a percentage of the adjusted contract value charged annually at the contract anniversary. This is an optional expense.) 8% PERFORMANCE CREDIT RIDER (PCR) FEE: 0.25% (As a percentage of the contract value charged annually at the contract anniversary. This is an optional expense.) ANNUAL VARIABLE ACCOUNT EXPENSES (As a percentage of average subaccount value) VARIABLE ACCOUNT ADMINISTRATIVE CHARGE: 0.15% MORTALITY AND EXPENSE RISK FEE: 1.25 ---- TOTAL ANNUAL VARIABLE ACCOUNT EXPENSES: 1.40%
-------------------------------------------------------------------------------- AMERICAN EXPRESS SIGNATURE VARIABLE ANNUITY -- PROSPECTUS 5 ANNUAL OPERATING EXPENSES OF THE FUNDS (AFTER FEE WAIVERS AND/OR EXPENSE REIMBURSEMENTS, IF APPLICABLE, AS A PERCENTAGE OF AVERAGE DAILY NET ASSETS)
MANAGEMENT 12b-1 OTHER FEES FEES EXPENSES TOTAL AXP-Registered Trademark- Variable Portfolio - Blue Chip Advantage Fund .56% .13% .26% .95%(1) Bond Fund .60 .13 .06 .79(2) Capital Resource Fund .60 .13 .04 .77(2) Cash Management Fund .51 .13 .04 .68(2) Diversified Equity Income Fund .56 .13 .26 .95(1) Extra Income Fund .62 .13 .07 .82(2) Federal Income Fund .61 .13 .13 .87(1) Growth Fund .64 .13 .18 .95(1) Managed Fund .59 .13 .03 .75(2) New Dimensions Fund-Registered Trademark- .60 .13 .05 .78(2) Small Cap Advantage Fund .75 .13 .31 1.19(1) AIM V.I. Capital Appreciation Fund .61 -- .21 .82(3) Capital Development Fund .75 -- .63 1.38(3),(4) Value Fund .61 -- .23 .84(3) Alliance VP Premier Growth Portfolio (Class B) 1.00 .25 .05 1.30(5) Technology Portfolio (Class B) .99 .25 .07 1.31(5) U.S. Government/High Grade Securities Portfolio (Class B) .60 .25 .35 1.20(5) Baron Capital Funds Trust Capital Asset Fund - Insurance Shares 1.00 .25 .25 1.50(6) Credit Suisse Warburg Pincus Trust - Emerging Growth Portfolio (previously Warburg Pincus Trust - Emerging Growth Portfolio) .90 -- .35 1.25(7) Fidelity VIP III Growth & Income Portfolio (Service Class) .48 .10 .11 .69(8) III Mid Cap Portfolio (Service Class) .57 .10 .17 .84(8) Overseas Portfolio (Service Class) .72 .10 .17 .99(8) Franklin Templeton VIP Trust Franklin Real Estate Fund - Class 2 .58 .25 .02 .85(9),(10) Mutual Shares Securities Fund - Class 2 .60 .25 .20 1.05(10) Templeton International Smaller Companies Fund - Class 2 .85 .25 .26 1.36(10) Goldman Sachs VIT Capital Growth Fund .75 -- .25 1.00(11) CORE-SM- U.S. Equity Fund .70 -- .20 .90(11) Global Income Fund .90 -- .25 1.15(11) International Equity Fund 1.00 -- .35 1.35(11) Internet Tollkeeper Fund-SM- 1.00 -- .25 1.25(11) Janus Aspen Series Aggressive Growth Portfolio: Service Shares .65 .25 .02 .92(12) Global Technology Portfolio: Service Shares .65 .25 .04 .94(12) Growth Portfolio: Service Shares .65 .25 .02 .92(12) International Growth Portfolio: Service Shares .65 .25 .06 .96(12) J.P. Morgan U.S. Disciplined Equity Portfolio .35 -- .50 .85(3)
-------------------------------------------------------------------------------- 6 AMERICAN EXPRESS SIGNATURE VARIABLE ANNUITY -- PROSPECTUS ANNUAL OPERATING EXPENSES OF THE FUNDS (AFTER FEE WAIVERS AND/OR EXPENSE REIMBURSEMENTS, IF APPLICABLE, AS A PERCENTAGE OF AVERAGE DAILY NET ASSETS) (CONTINUED)
MANAGEMENT 12b-1 OTHER FEES FEES EXPENSES TOTAL Lazard Retirement Series Equity Portfolio .75% .25% .25% 1.25%(13) International Equity Portfolio .75 .25 .25 1.25(13) MFS-Registered Trademark- New Discovery Series - Initial Class .90 -- .16 1.06(14),(15) Research Series - Initial Class .75 -- .10 .85(14) Utilities Series - Initial Class .75 -- .16 .91(14) Putnam Variable Trust Putnam VT Growth and Income Fund - Class IB Shares .46 .25 .04 .75(16) Putnam VT International Growth Fund - Class IB Shares .76 .25 .18 1.19(16) Putnam VT International New Opportunities Fund - Class IB Shares 1.00 .25 .21 1.46(16) Royce Capital Fund Micro-Cap Portfolio 1.25 -- .10 1.35(17) Small-Cap Portfolio (previously Royce Premier Portfolio) 1.00 -- .35 1.35(17) Third Avenue Value Portfolio .90 -- .40 1.30(18) Wanger International Small Cap 1.20 -- .21 1.41(3),(19) U.S. Small Cap .95 -- .05 1.00(3),(19)
(1) The fund's expense figures are based on actual expenses, after fee waivers and expense reimbursements, for the fiscal year ending Aug. 31, 2000. Without fee waivers and expense reimbursements "Other Expenses" and "Total" would be 0.27% and 0.96% for AXP Variable Portfolio - Blue Chip Advantage Fund, 0.80% and 1.49% for AXP Variable Portfolio - Diversified Equity Income Fund, 0.15% and 0.89% for AXP Variable Portfolio - Federal Income Fund, 0.20% and 0.97% for AXP Variable Portfolio - Growth Fund, and 0.55% and 1.43% for AXP Variable Portfolio - Small Cap Advantage Fund. (2) The fund's expense figures are based on actual expenses for the fiscal year ended Aug. 31, 2000. (3) Figures in "Management Fees," "12b-1 Fees," "Other Expenses" and "Total" are based on actual expenses for the fiscal year ended Dec. 31, 2000. (4) Expenses have been restated to reflect current fees. (5) Figures in "Management Fees," "12b-1 Fees," "Other Expenses" and "Total" are based on actual expenses for the fiscal period ended Dec. 31, 2000. Absent fee waivers and expense reimbursements "Management Fees," "12b-1 Fees," "Other Expenses" and "Total" would be 1.00%, 0.25%, 0.08% and 1.33% for Alliance VP Technology Portfolio. (6) The Advisor is contractually obligated to reduce its fee to the extent required to limit Baron Capital Asset Fund's total operating expenses to 1.50% for the first $250 million of assets in the Fund, 1.35% for Fund assets over $250 million and 1.25% for Fund assets over $500 million. Without the expense limitations, total operating expenses for the Fund for the period Dec. 31, 2000 would have been 1.66%. (7) Expense ratios are shown after fee waivers and expenses reimbursements by the investment adviser. The total expense ratios before the waivers and reimbursements would have been: Credit Suisse Warburg Pincus Trust Emerging Growth Portfolio (0.90%, 0%, 0.40% and 1.30%). (8) There were no reimbursement or expense reductions for the period ended Dec. 31, 2000. Actual annual class operating expenses were lower because a portion of the brokerage commissions that the fund paid was used to reduce the fund's expenses, and/or because through arrangements with the fund's custodian, credits realized as a result of uninvested cash balances were used to reduce a portion of the fund's custodian expenses. See the accompanying fund prospectus for details. (9) The Fund administration fee is paid indirectly through the management fee. (10) The Fund's Class 2 distribution plan or "Rule 12b-1 plan" is described in the Fund's prospectus. (11) Expense ratios are shown after fee waivers and expense reimbursements by the investment adviser. The expense ratios before the waivers and reimbursements would have been: 0.75%, 1.09% and 1.84% for Capital Growth Fund, 0.70%, 0.17%, and 0.87% for CORE-SM- U.S. Equity Fund, 0.90%, 2.05% and 2.95% for Global Income Fund, 1.00%, 0.99% and 1.99% for International Equity Fund and 1.00%, 4.62% and 5.62% for Internet Tollkeeper Fund-SM-. CORE-SM- and Internet Tollkeeper Fund-SM- are service marks of Goldman, Sachs & Co. (12) Expenses are based upon expenses for the fiscal year ended Dec. 31, 2000, restated to reflect a reduction in the management fee for Aggressive Growth Portfolio, Growth Portfolio and International Growth Portfolio. Expenses are stated both with and without contractual waivers by Janus Capital. Waivers, if applicable, are first applied against the management fee and then against other expenses, and will continue until at least the next annual renewal of the advisory agreement. All expenses are shown without the effect of expense offset arrangements. (13) Absent fee waivers and/or reimbursements, "Other Expenses" and "Total" expenses for the year ended Dec. 31, 2000 would have been 4.07% and 5.07% for Equity Portfolio and 1.32% and 2.32% for International Equity Portfolio. (14) Each series has an expense offset arrangement which reduces the series' custodian fee based upon the amount of cash maintained by the series with its custodian and dividend disbursing agent. Each series may enter into other such arrangements and directed brokerage arrangements, which would also have the effect of reducing the series' expenses. "Other Expenses" do not take into account these expense reductions, and are therefore higher than the actual expenses of the series. Had these fee reductions been taken into account, "Net Expenses" would be lower for certain series and would equal: 1.05% for New Discovery Series, 0.84% for Research Series, and 0.90% for Utilities Series. (15) 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 Expenses" and "Total" would have been 0.19% and 1.09%. These contractual fee arrangements will continue until at least May 1, 2002, unless changed with the consent of the board of trustees which oversees the series. -------------------------------------------------------------------------------- AMERICAN EXPRESS SIGNATURE VARIABLE ANNUITY -- PROSPECTUS 7 (16) Restated to reflect an increase in 12b-1 fees currently payable to Putnam Investment Management, LLC ("Putnam Management"). The Trustees currently limit payments on class IB shares to 0.25% of average net assets. Actual 12b-1 fees during the most recent fiscal year were 0.15% of average net assets. (17) Royce has contractually agreed to waive its fees and reimburse expenses to the extent necessary to maintain the Funds Net Annual Operating Expense ratio at or below 1.35% through Dec. 31, 2001 and 1.99% through Dec. 31, 2010. Absent fee waivers "Other Expenses" and "Total" would be 0.33% and 1.58% for Royce Micro-Cap Portfolio and 2.89% and 3.89% for Royce Small-Cap Portfolio. (18) The fund's expense figures are based on actual expenses, after fee waivers and expense reimbursements, for the fiscal year ending Dec. 31, 2000. Without fee waivers and expense reimbursements "Other Expenses" and "Total" would be 1.62% and 2.52% for Third Avenue Value Portfolio. (19) Liberty Wanger Asset Management, L.P. will reimburse the Fund if its annual ordinary operating expenses exceed 2.00% of average daily net assets. This commitment expires on Sept. 30, 2002. -------------------------------------------------------------------------------- 8 AMERICAN EXPRESS SIGNATURE VARIABLE ANNUITY -- PROSPECTUS EXAMPLES*: These examples assume that applicable fund fee waivers and/or expense reimbursements will continue for the periods shown. You would pay the following expenses on a $1,000 investment if you selected the Guaranteed Minimum Income Benefit Rider and assuming a 5% annual return and ...
FULL WITHDRAWAL AT THE END OF EACH TIME PERIOD 1 YEAR 3 YEARS 5 YEARS 10 YEARS AXP-Registered Trademark- Variable Portfolio - Blue Chip Advantage Fund $ 97.99 $145.84 $196.26 $309.34 Bond Fund 96.35 140.94 188.14 293.41 Capital Resource Fund 96.15 140.33 187.13 291.41 Cash Management Fund 95.23 137.57 182.53 282.32 Diversified Equity Income Fund 97.99 145.84 196.26 309.34 Extra Income Fund 96.66 141.86 189.67 296.42 Federal Income Fund 97.17 143.39 192.21 301.41 Growth Fund 97.99 145.84 196.26 309.34 Managed Fund 95.94 139.72 186.11 289.39 New Dimensions Fund-Registered Trademark- 96.25 140.64 187.64 292.41 Small Cap Advantage Fund 100.45 153.16 208.33 332.76 AIM V.I. Capital Appreciation Fund 96.66 141.86 189.67 296.42 Capital Development Fund 102.40 158.92 217.80 350.91 Value Fund 96.87 142.47 190.69 298.42 Alliance VP Premier Growth Portfolio (Class B) 101.58 156.50 213.83 343.31 Technology Portfolio (Class B) 101.68 156.80 214.32 344.26 U.S. Government/High Grade Securities Portfolio (Class B) 100.56 153.46 208.83 333.72 Baron Capital Funds Trust Capital Asset Fund - Insurance Shares 103.63 162.55 223.75 362.19 Credit Suisse Warburg Pincus Trust - Emerging Growth Portfolio (previously Warburg Pincus Trust - Emerging Growth Portfolio) 101.07 154.98 211.33 338.53 Fidelity VIP III Growth & Income Portfolio (Service Class) 95.33 137.87 183.04 283.33 III Mid Cap Portfolio (Service Class) 96.87 142.47 190.69 298.42 Overseas Portfolio (Service Class) 98.40 147.06 198.28 313.28 Franklin Templeton VIP Trust Franklin Real Estate Fund - Class 2 96.97 142.78 191.19 299.42 Mutual Shares Securities Fund - Class 2 99.02 148.89 201.31 319.17 Templeton International Smaller Companies Fund - Class 2 102.20 158.32 216.81 349.01 Goldman Sachs VIT Capital Growth Fund 98.51 147.37 198.79 314.27 CORE-SM- U.S. Equity Fund 97.48 144.31 193.73 304.39 Global Income Fund 100.04 151.94 206.33 328.90 International Equity Fund 102.09 158.01 216.31 348.06 Internet Tollkeeper Fund-SM- 101.07 154.98 211.33 338.53 NO WITHDRAWAL OR SELECTION OF AN ANNUITY PAYOUT PLAN AT THE END OF EACH TIME PERIOD 1 YEAR 3 YEARS 5 YEARS 10 YEARS AXP-Registered Trademark- Variable Portfolio - Blue Chip Advantage Fund $27.99 $ 85.84 $146.26 $309.34 Bond Fund 26.35 80.94 138.14 293.41 Capital Resource Fund 26.15 80.33 137.13 291.41 Cash Management Fund 25.23 77.57 132.53 282.32 Diversified Equity Income Fund 27.99 85.84 146.26 309.34 Extra Income Fund 26.66 81.86 139.67 296.42 Federal Income Fund 27.17 83.39 142.21 301.41 Growth Fund 27.99 85.84 146.26 309.34 Managed Fund 25.94 79.72 136.11 289.39 New Dimensions Fund-Registered Trademark- 26.25 80.64 137.64 292.41 Small Cap Advantage Fund 30.45 93.16 158.33 332.76 AIM V.I. Capital Appreciation Fund 26.66 81.86 139.67 296.42 Capital Development Fund 32.40 98.82 167.80 350.91 Value Fund 26.87 82.47 140.69 298.42 Alliance VP Premier Growth Portfolio (Class B) 31.58 96.50 163.83 343.31 Technology Portfolio (Class B) 31.68 96.80 164.32 344.26 U.S. Government/High Grade Securities Portfolio (Class B) 30.56 93.46 158.83 333.72 Baron Capital Funds Trust Capital Asset Fund - Insurance Shares 33.63 102.55 173.75 362.19 Credit Suisse Warburg Pincus Trust - Emerging Growth Portfolio (previously Warburg Pincus Trust - Emerging Growth Portfolio) 31.07 94.98 161.33 338.53 Fidelity VIP III Growth & Income Portfolio (Service Class) 25.33 77.87 133.04 283.33 III Mid Cap Portfolio (Service Class) 26.87 82.47 140.69 298.42 Overseas Portfolio (Service Class) 28.40 87.06 148.28 313.28 Franklin Templeton VIP Trust Franklin Real Estate Fund - Class 2 26.97 82.78 141.19 299.42 Mutual Shares Securities Fund - Class 2 29.02 88.89 151.31 319.17 Templeton International Smaller Companies Fund - Class 2 32.20 98.32 166.81 349.01 Goldman Sachs VIT Capital Growth Fund 28.51 87.37 148.79 314.27 CORE-SM- U.S. Equity Fund 27.48 84.31 143.73 304.39 Global Income Fund 30.04 91.94 156.33 328.90 International Equity Fund 32.09 98.01 166.31 348.06 Internet Tollkeeper Fund-SM- 31.07 94.98 161.33 338.53
-------------------------------------------------------------------------------- AMERICAN EXPRESS SIGNATURE VARIABLE ANNUITY -- PROSPECTUS 9 You would pay the following expenses on a $1,000 investment if you selected the Guaranteed Minimum Income Benefit Rider and assuming a 5% annual return and ...
FULL WITHDRAWAL AT THE END OF EACH TIME PERIOD 1 YEAR 3 YEARS 5 YEARS 10 YEARS Janus Aspen Series Aggressive Growth Portfolio: Service Shares $ 97.69 $144.92 $194.74 $306.37 Global Technology Portfolio: Service Shares 97.89 145.53 195.76 308.35 Growth Portfolio: Service Shares 97.69 144.92 194.74 306.37 International Growth Portfolio: Service Shares 98.10 146.15 196.77 310.33 J.P. Morgan U.S. Disciplined Equity Portfolio 96.97 142.78 191.19 299.42 Lazard Retirement Series Equity Portfolio 101.07 154.98 211.33 338.53 International Equity Portfolio 101.07 154.98 211.33 338.53 MFS-Registered Trademark- New Discovery Series - Initial Class 99.12 149.20 201.81 320.14 Research Series - Initial Class 96.97 142.78 191.19 299.42 Utilities Series - Initial Class 97.58 144.62 194.24 305.38 Putnam Variable Trust Putnam VT Growth and Income Fund - Class IB Shares 95.94 139.72 186.11 289.39 Putnam VT International Growth Fund - Class IB Shares 100.45 153.16 208.33 332.76 Putnam VT International New Opportunities Fund - Class IB Shares 103.22 161.34 221.77 358.44 Royce Capital Fund Micro-Cap Portfolio 102.09 158.01 216.31 348.06 Small-Cap Portfolio (previously Royce Premier Portfolio) 102.09 158.01 216.31 348.06 Third Avenue Value Portfolio 101.58 156.50 213.83 343.31 Wanger International Small Cap 102.71 159.83 219.29 353.74 U.S. Small Cap 98.51 147.37 198.79 314.27 NO WITHDRAWAL OR SELECTION OF AN ANNUITY PAYOUT PLAN AT THE END OF EACH TIME PERIOD 1 YEAR 3 YEARS 5 YEARS 10 YEARS Janus Aspen Series Aggressive Growth Portfolio: Service Shares $ 27.69 $ 84.92 $144.74 $306.37 Global Technology Portfolio: Service Shares 27.89 85.53 145.76 308.35 Growth Portfolio: Service Shares 27.69 84.92 144.74 306.37 International Growth Portfolio: Service Shares 28.10 86.15 146.77 310.33 J.P. Morgan U.S. Disciplined Equity Portfolio 26.97 82.78 141.19 299.42 Lazard Retirement Series Equity Portfolio 31.07 94.98 161.33 338.53 International Equity Portfolio 31.07 94.98 161.33 338.53 MFS-Registered Trademark- New Discovery Series - Initial Class 29.12 89.20 151.81 320.14 Research Series - Initial Class 26.97 82.78 141.19 299.42 Utilities Series - Initial Class 27.58 84.62 144.24 305.38 Putnam Variable Trust Putnam VT Growth and Income Fund - Class IB Shares 25.94 79.72 136.11 289.39 Putnam VT International Growth Fund - Class IB Shares 30.45 93.16 158.33 332.76 Putnam VT International New Opportunities Fund - Class IB Shares 33.22 101.34 171.77 358.44 Royce Capital Fund Micro-Cap Portfolio 32.09 98.01 166.31 348.06 Small-Cap Portfolio (previously Royce Premier Portfolio) 32.09 98.01 166.31 348.06 Third Avenue Value Portfolio 31.58 96.50 163.83 343.31 Wanger International Small Cap 32.71 99.83 169.29 353.74 U.S. Small Cap 28.51 87.37 148.79 314.27
-------------------------------------------------------------------------------- 10 AMERICAN EXPRESS SIGNATURE VARIABLE ANNUITY -- PROSPECTUS You would pay the following expenses on a $1,000 investment without any optional riders and assuming a 5% annual return and ...
FULL WITHDRAWAL AT THE END OF EACH TIME PERIOD 1 YEAR 3 YEARS 5 YEARS 10 YEARS AXP-Registered Trademark- Variable Portfolio - Blue Chip Advantage Fund $ 94.41 $135.11 $178.43 $274.17 Bond Fund 92.77 130.17 170.20 257.68 Capital Resource Fund 92.56 129.55 169.16 255.60 Cash Management Fund 91.64 126.77 164.50 246.19 Diversified Equity Income Fund 94.41 135.11 178.43 274.17 Extra Income Fund 93.07 131.10 171.75 260.79 Federal Income Fund 93.59 132.64 174.32 265.96 Growth Fund 94.41 135.11 178.43 274.17 Managed Fund 92.36 128.94 168.13 253.52 New Dimensions Fund-Registered Trademark- 92.66 129.86 169.68 256.64 Small Cap Advantage Fund 96.87 142.47 190.69 298.42 AIM V.I. Capital Appreciation Fund 93.07 131.10 171.75 260.79 Capital Development Fund 98.81 148.28 200.30 317.21 Value Fund 93.28 131.72 172.78 262.86 Alliance VP Premier Growth Portfolio (Class B) 97.99 145.84 196.26 309.34 Technology Portfolio (Class B) 98.10 146.15 196.77 310.33 U.S. Government/High Grade Securities Portfolio (Class B) 96.97 142.78 191.19 299.42 Baron Capital Funds Trust Capital Asset Fund - Insurance Shares 100.04 151.94 206.33 328.90 Credit Suisse Warburg Pincus Trust - Emerging Growth Portfolio (previously Warburg Pincus Trust - Emerging Growth Portfolio) 97.48 144.31 193.73 304.39 Fidelity VIP III Growth & Income Portfolio (Service Class) 91.74 127.08 165.02 247.24 III Mid Cap Portfolio (Service Class) 93.28 131.72 172.78 262.86 Overseas Portfolio (Service Class) 94.82 136.34 180.49 278.25 Franklin Templeton VIP Trust Franklin Real Estate Fund - Class 2 93.38 132.02 173.29 263.89 Mutual Shares Securities Fund - Class 2 95.43 138.18 183.55 284.34 Templeton International Smaller Companies Fund - Class 2 98.61 147.67 199.29 315.25 Goldman Sachs VIT Capital Growth Fund 94.92 136.64 181.00 279.27 CORE-SM- U.S. Equity Fund 93.89 133.57 175.87 269.04 Global Income Fund 96.46 141.25 188.65 294.42 International Equity Fund 98.51 147.37 198.79 314.27 Internet Tollkeeper Fund-SM- 97.48 144.31 193.73 304.39 Janus Aspen Series Aggressive Growth Portfolio: Service Shares 94.10 134.18 176.89 271.10 Global Technology Portfolio: Service Shares 94.30 134.80 177.92 273.15 Growth Portfolio: Service Shares 94.10 134.18 176.89 271.10 International Growth Portfolio: Service Shares 94.51 135.41 178.95 275.19 NO WITHDRAWAL OR SELECTION OF AN ANNUITY PAYOUT PLAN AT THE END OF EACH TIME PERIOD 1 YEAR 3 YEARS 5 YEARS 10 YEARS AXP-Registered Trademark- Variable Portfolio - Blue Chip Advantage Fund $ 24.41 $75.11 $128.43 $274.17 Bond Fund 22.77 70.17 120.20 257.68 Capital Resource Fund 22.56 69.55 119.16 255.60 Cash Management Fund 21.64 66.77 114.50 246.19 Diversified Equity Income Fund 24.41 75.11 128.43 274.17 Extra Income Fund 23.07 71.10 121.75 260.79 Federal Income Fund 23.59 72.64 124.32 265.96 Growth Fund 24.41 75.11 128.43 274.17 Managed Fund 22.36 68.94 118.13 253.52 New Dimensions Fund-Registered Trademark- 22.66 69.86 119.68 256.64 Small Cap Advantage Fund 26.87 82.47 140.69 298.42 AIM V.I. Capital Appreciation Fund 23.07 71.10 121.75 260.79 Capital Development Fund 28.81 88.28 150.30 317.21 Value Fund 23.28 71.72 122.78 262.86 Alliance VP Premier Growth Portfolio (Class B) 27.99 85.84 146.26 309.34 Technology Portfolio (Class B) 28.10 86.15 146.77 310.33 U.S. Government/High Grade Securities Portfolio (Class B) 26.97 82.78 141.19 299.42 Baron Capital Funds Trust Capital Asset Fund - Insurance Shares 30.04 91.94 156.33 328.90 Credit Suisse Warburg Pincus Trust - Emerging Growth Portfolio (previously Warburg Pincus Trust - Emerging Growth Portfolio) 27.48 84.31 143.73 304.39 Fidelity VIP III Growth & Income Portfolio (Service Class) 21.74 67.08 115.02 247.24 III Mid Cap Portfolio (Service Class) 23.28 71.72 122.78 262.86 Overseas Portfolio (Service Class) 24.82 76.34 130.49 278.25 Franklin Templeton VIP Trust Franklin Real Estate Fund - Class 2 23.38 72.02 123.29 263.89 Mutual Shares Securities Fund - Class 2 25.43 78.18 133.55 284.34 Templeton International Smaller Companies Fund - Class 2 28.61 87.67 149.29 315.25 Goldman Sachs VIT Capital Growth Fund 24.92 76.64 131.00 279.27 CORE-SM- U.S. Equity Fund 23.89 73.57 125.87 269.04 Global Income Fund 26.46 81.25 138.65 294.42 International Equity Fund 28.51 87.37 148.79 314.27 Internet Tollkeeper Fund-SM- 27.48 84.31 143.73 304.39 Janus Aspen Series Aggressive Growth Portfolio: Service Shares 24.10 74.18 126.89 271.10 Global Technology Portfolio: Service Shares 24.30 74.80 127.92 273.15 Growth Portfolio: Service Shares 24.10 74.18 126.89 271.10 International Growth Portfolio: Service Shares 24.51 75.41 128.95 275.19
-------------------------------------------------------------------------------- AMERICAN EXPRESS SIGNATURE VARIABLE ANNUITY -- PROSPECTUS 11 You would pay the following expenses on a $1,000 investment without any optional riders and assuming a 5% annual return and ...
FULL WITHDRAWAL AT THE END OF EACH TIME PERIOD 1 YEAR 3 YEARS 5 YEARS 10 YEARS J.P. Morgan U.S. Disciplined Equity Portfolio $93.38 $132.02 $173.29 $263.89 Lazard Retirement Series Equity Portfolio 97.48 144.31 193.73 304.39 International Equity Portfolio 97.48 144.31 193.73 304.39 MFS-Registered Trademark- New Discovery Series - Initial Class 95.53 138.49 184.07 285.35 Research Series - Initial Class 93.38 132.02 173.29 263.89 Utilities Series - Initial Class 94.00 133.87 176.38 270.07 Putnam Variable Trust Putnam VT Growth and Income Fund - Class IB Shares 92.36 128.94 168.13 253.52 Putnam VT International Growth Fund - Class IB Shares 96.87 142.47 190.69 298.42 Putnam VT International New Opportunities Fund - Class IB Shares 99.63 150.72 204.32 325.02 Royce Capital Fund Micro-Cap Portfolio 98.51 147.37 198.79 314.27 Small-Cap Portfolio (previously Royce Premier Portfolio) 98.51 147.37 198.79 314.27 Third Avenue Value Portfolio 97.99 145.84 196.26 309.34 Wanger International Small Cap 99.12 149.20 201.81 320.14 U.S. Small Cap 94.92 136.64 181.00 279.27 NO WITHDRAWAL OR SELECTION OF AN ANNUITY PAYOUT PLAN AT THE END OF EACH TIME PERIOD 1 YEAR 3 YEARS 5 YEARS 10 YEARS J.P. Morgan U.S. Disciplined Equity Portfolio $ 23.38 $72.02 $123.29 $263.89 Lazard Retirement Series Equity Portfolio 27.48 84.31 143.73 304.39 International Equity Portfolio 27.48 84.31 143.73 304.39 MFS-Registered Trademark- New Discovery Series - Initial Class 25.53 78.49 134.07 285.35 Research Series - Initial Class 23.38 72.02 123.29 263.89 Utilities Series - Initial Class 24.00 73.87 126.38 270.07 Putnam Variable Trust Putnam VT Growth and Income Fund - Class IB Shares 22.36 68.94 118.13 253.52 Putnam VT International Growth Fund - Class IB Shares 26.87 82.47 140.69 298.42 Putnam VT International New Opportunities Fund - Class IB Shares 29.63 90.72 154.32 325.02 Royce Capital Fund Micro-Cap Portfolio 28.51 87.37 148.79 314.27 Small-Cap Portfolio (previously Royce Premier Portfolio) 28.51 87.37 148.79 314.27 Third Avenue Value Portfolio 27.99 85.84 146.26 309.34 Wanger International Small Cap 29.12 89.20 151.81 320.14 U.S. Small Cap 24.92 76.64 131.00 279.27
* In these examples, the $30 contract administrative charge is approximated as a 0.031% charge based on our average contract size. Premium taxes imposed by some state and local governments are not reflected in these tables. We entered into certain arrangements under which we are compensated by the funds' advisers 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. -------------------------------------------------------------------------------- 12 AMERICAN EXPRESS SIGNATURE VARIABLE ANNUITY -- PROSPECTUS CONDENSED FINANCIAL INFORMATION (UNAUDITED) The following tables give per-unit information about the financial history of each subaccount.
YEAR ENDED DEC. 31, 2000 1999 1998 1997 1996 1995 ------------------------------------------------------------------------------------------------------------------------------------ SUBACCOUNT EVB(1) (INVESTING IN SHARES OF AXP-REGISTERED TRADEMARK- VARIABLE PORTFOLIO - BLUE CHIP ADVANTAGE FUND) Accumulation unit value at beginning of period $1.00 -- -- -- -- -- Accumulation unit value at end of period $0.89 -- -- -- -- -- Number of accumulation units outstanding at end of period (000 omitted) 286 -- -- -- -- -- Ratio of operating expense to average net assets 1.40% -- -- -- -- -- ------------------------------------------------------------------------------------------------------------------------------------ SUBACCOUNT ESI(2) (INVESTING IN SHARES OF AXP-REGISTERED TRADEMARK- VARIABLE PORTFOLIO - BOND FUND) Accumulation unit value at beginning of period $1.33 $1.33 $1.33 $1.24 $1.17 $1.00 Accumulation unit value at end of period $1.38 $1.33 $1.33 $1.33 $1.24 $1.17 Number of accumulation units outstanding at end of period (000 omitted) 9,498 8,127 5,689 2,544 1,377 414 Ratio of operating expense to average net assets 1.40% 1.40% 1.40% 1.40% 1.50% 1.50% ------------------------------------------------------------------------------------------------------------------------------------ SUBACCOUNT ECR(2) (INVESTING IN SHARES OF AXP-REGISTERED TRADEMARK- VARIABLE PORTFOLIO - CAPITAL RESOURCE FUND) Accumulation unit value at beginning of period $2.33 $1.91 $1.56 $1.27 $1.20 $1.00 Accumulation unit value at end of period $1.89 $2.33 $1.91 $1.56 $1.27 $1.20 Number of accumulation units outstanding at end of period (000 omitted) 6,358 5,864 5,163 3,813 2,350 818 Ratio of operating expense to average net assets 1.40% 1.40% 1.40% 1.40% 1.50% 1.50% ------------------------------------------------------------------------------------------------------------------------------------ SUBACCOUNT EMS(2) (INVESTING IN SHARES OF AXP-REGISTERED TRADEMARK- VARIABLE PORTFOLIO - CASH MANAGEMENT FUND) Accumulation unit value at beginning of period $1.18 $1.15 $1.11 $1.07 $1.03 $1.00 Accumulation unit value at end of period $1.24 $1.18 $1.15 $1.11 $1.07 $1.03 Number of accumulation units outstanding at end of period (000 omitted) 4,421 941 749 231 241 132 Ratio of operating expense to average net assets 1.40% 1.40% 1.40% 1.40% 1.50% 1.50% Simple yield(3) 4.54% 4.52% 3.24% 3.71% 3.26% 3.53% Compound yield(3) 4.64% 4.62% 3.29% 3.78% 3.32% 3.59% ------------------------------------------------------------------------------------------------------------------------------------ SUBACCOUNT EVD(1) (INVESTING IN SHARES OF AXP-REGISTERED TRADEMARK- VARIABLE PORTFOLIO - DIVERSIFIED EQUITY INCOME FUND) Accumulation unit value at beginning of period $1.00 -- -- -- -- -- Accumulation unit value at end of period $1.00 -- -- -- -- -- Number of accumulation units outstanding at end of period (000 omitted) 16 -- -- -- -- -- Ratio of operating expense to average net assets 1.40% -- -- -- -- -- ------------------------------------------------------------------------------------------------------------------------------------ SUBACCOUNT EIA(4) (INVESTING IN SHARES OF AXP-REGISTERED TRADEMARK- VARIABLE PORTFOLIO - EXTRA INCOME FUND) Accumulation unit value at beginning of period $1.00 $1.00 -- -- -- -- Accumulation unit value at end of period $0.90 $1.00 -- -- -- -- Number of accumulation units outstanding at end of period (000 omitted) 556 8 -- -- -- -- Ratio of operating expense to average net assets 1.40% 1.40% -- -- -- -- ------------------------------------------------------------------------------------------------------------------------------------ SUBACCOUNT EVF(1) (INVESTING IN SHARES OF AXP-REGISTERED TRADEMARK- VARIABLE PORTFOLIO - FEDERAL INCOME FUND) Accumulation unit value at beginning of period $1.00 -- -- -- -- -- Accumulation unit value at end of period $1.06 -- -- -- -- -- Number of accumulation units outstanding at end of period (000 omitted) 76 -- -- -- -- -- Ratio of operating expense to average net assets 1.40% -- -- -- -- -- ------------------------------------------------------------------------------------------------------------------------------------ SUBACCOUNT EVG(1) (INVESTING IN SHARES OF AXP-REGISTERED TRADEMARK- VARIABLE PORTFOLIO - GROWTH FUND) Accumulation unit value at beginning of period $1.00 -- -- -- -- -- Accumulation unit value at end of period $0.74 -- -- -- -- -- Number of accumulation units outstanding at end of period (000 omitted) 200 -- -- -- -- -- Ratio of operating expense to average net assets 1.40% -- -- -- -- -- ------------------------------------------------------------------------------------------------------------------------------------ SUBACCOUNT EMG(2) (INVESTING IN SHARES OF AXP-REGISTERED TRADEMARK- VARIABLE PORTFOLIO - MANAGED FUND) Accumulation unit value at beginning of period $2.07 $1.83 $1.60 $1.36 $1.18 $1.00 Accumulation unit value at end of period $1.99 $2.07 $1.83 $1.60 $1.36 $1.18 Number of accumulation units outstanding at end of period (000 omitted) 6,779 5,985 4,684 2,944 1,546 589 Ratio of operating expense to average net assets 1.40% 1.40% 1.40% 1.40% 1.50% 1.50% ------------------------------------------------------------------------------------------------------------------------------------ SUBACCOUNT EGD(5) (INVESTING IN SHARES OF AXP-REGISTERED TRADEMARK- VARIABLE PORTFOLIO - NEW DIMENSIONS FUND-REGISTERED TRADEMARK-) Accumulation unit value at beginning of period $1.72 $1.32 $1.05 $1.00 -- -- Accumulation unit value at end of period $1.54 $1.72 $1.32 $1.05 -- -- Number of accumulation units outstanding at end of period (000 omitted) 3,717 2,141 1,108 69 -- -- Ratio of operating expense to average net assets 1.40% 1.40% 1.40% 1.40% -- -- ------------------------------------------------------------------------------------------------------------------------------------
-------------------------------------------------------------------------------- AMERICAN EXPRESS SIGNATURE VARIABLE ANNUITY -- PROSPECTUS 13
YEAR ENDED DEC. 31, 2000 1999 1998 1997 1996 1995 ------------------------------------------------------------------------------------------------------------------------------------ SUBACCOUNT EVS(1) (INVESTING IN SHARES OF AXP-REGISTERED TRADEMARK- VARIABLE PORTFOLIO - SMALL CAP ADVANTAGE FUND) 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 (000 omitted) 20 -- -- -- -- -- Ratio of operating expense to average net assets 1.40% -- -- -- -- -- ------------------------------------------------------------------------------------------------------------------------------------ SUBACCOUNT ECA(4) (INVESTING IN SHARES OF AIM V.I. CAPITAL APPRECIATION FUND) Accumulation unit value at beginning of period $1.43 $1.00 -- -- -- -- Accumulation unit value at end of period $1.26 $1.43 -- -- -- -- Number of accumulation units outstanding at end of period (000 omitted) 3,037 57 -- -- -- -- Ratio of operating expense to average net assets 1.40% 1.40% -- -- -- -- ------------------------------------------------------------------------------------------------------------------------------------ SUBACCOUNT ECD(6) (INVESTING IN SHARES OF AIM V.I. CAPITAL DEVELOPMENT FUND) Accumulation unit value at beginning of period $1.26 $1.00 -- -- -- -- Accumulation unit value at end of period $1.36 $1.26 -- -- -- -- Number of accumulation units outstanding at end of period (000 omitted) 480 1 -- -- -- -- Ratio of operating expense to average net assets 1.40% 1.40% -- -- -- -- ------------------------------------------------------------------------------------------------------------------------------------ SUBACCOUNT EVA(7) (INVESTING IN SHARES OF AIM V.I. VALUE FUND) Accumulation unit value at beginning of period $1.72 $1.34 $1.03 $1.00 -- -- Accumulation unit value at end of period $1.45 $1.72 $1.34 $1.03 -- -- Number of accumulation units outstanding at end of period (000 omitted) 11,388 5,638 1,779 66 -- -- Ratio of operating expense to average net assets 1.40% 1.40% 1.40% 1.40% -- -- ------------------------------------------------------------------------------------------------------------------------------------ SUBACCOUNT EPP(6) (INVESTING IN SHARES OF ALLIANCE VP PREMIER GROWTH PORTFOLIO (CLASS B)) Accumulation unit value at beginning of period $1.17 $1.00 -- -- -- -- Accumulation unit value at end of period $0.96 $1.17 -- -- -- -- Number of accumulation units outstanding at end of period (000 omitted) 3,368 56 -- -- -- -- Ratio of operating expense to average net assets 1.40% 1.40% -- -- -- -- ------------------------------------------------------------------------------------------------------------------------------------ SUBACCOUNT ETC(6) (INVESTING IN SHARES OF ALLIANCE VP TECHNOLOGY PORTFOLIO (CLASS B)) Accumulation unit value at beginning of period $1.40 $1.00 -- -- -- -- Accumulation unit value at end of period $1.08 $1.40 -- -- -- -- Number of accumulation units outstanding at end of period (000 omitted) 2,278 105 -- -- -- -- Ratio of operating expense to average net assets 1.40% 1.40% -- -- -- -- ------------------------------------------------------------------------------------------------------------------------------------ SUBACCOUNT EHG(6) (INVESTING IN SHARES OF ALLIANCE VP U.S. GOVERNMENT/HIGH GRADE SECURITIES PORTFOLIO (CLASS B)) Accumulation unit value at beginning of period $1.00 $1.00 -- -- -- -- Accumulation unit value at end of period $1.09 $1.00 -- -- -- -- Number of accumulation units outstanding at end of period (000 omitted) 743 7 -- -- -- -- Ratio of operating expense to average net assets 1.40% 1.40% -- -- -- -- ------------------------------------------------------------------------------------------------------------------------------------ SUBACCOUNT EAS(6) (INVESTING IN SHARES OF BARON CAPITAL ASSET FUND - INSURANCE SHARES) Accumulation unit value at beginning of period $1.19 $1.00 -- -- -- -- Accumulation unit value at end of period $1.14 $1.19 -- -- -- -- Number of accumulation units outstanding at end of period (000 omitted) 1,639 31 -- -- -- -- Ratio of operating expense to average net assets 1.40% 1.40% -- -- -- -- ------------------------------------------------------------------------------------------------------------------------------------ SUBACCOUNT EEG(6) (INVESTING IN SHARES OF CREDIT SUISSE WARBURG PINCUS TRUST - EMERGING GROWTH PORTFOLIO(8)) Accumulation unit value at beginning of period $1.31 $1.00 -- -- -- -- Accumulation unit value at end of period $1.28 $1.31 -- -- -- -- Number of accumulation units outstanding at end of period (000 omitted) 795 6 -- -- -- -- Ratio of operating expense to average net assets 1.40% 1.40% -- -- -- -- ------------------------------------------------------------------------------------------------------------------------------------ SUBACCOUNT EFG(6) (INVESTING IN SHARES OF FIDELITY VIP III GROWTH & INCOME PORTFOLIO (SERVICE CLASS)) Accumulation unit value at beginning of period $1.05 $1.00 -- -- -- -- Accumulation unit value at end of period $1.00 $1.05 -- -- -- -- Number of accumulation units outstanding at end of period (000 omitted) 1,383 71 -- -- -- -- Ratio of operating expense to average net assets 1.40% 1.40% -- -- -- -- ------------------------------------------------------------------------------------------------------------------------------------ SUBACCOUNT EFM(6) (INVESTING IN SHARES OF FIDELITY VIP III MID CAP PORTFOLIO (SERVICE CLASS)) Accumulation unit value at beginning of period $1.24 $1.00 -- -- -- -- Accumulation unit value at end of period $1.64 $1.24 -- -- -- -- Number of accumulation units outstanding at end of period (000 omitted) 2,714 44 -- -- -- -- Ratio of operating expense to average net assets 1.40% 1.40% -- -- -- -- ------------------------------------------------------------------------------------------------------------------------------------
-------------------------------------------------------------------------------- 14 AMERICAN EXPRESS SIGNATURE VARIABLE ANNUITY
YEAR ENDED DEC. 31, 2000 1999 1998 1997 1996 1995 ------------------------------------------------------------------------------------------------------------------------------------ SUBACCOUNT EFO(6) (INVESTING IN SHARES OF FIDELITY VIP OVERSEAS PORTFOLIO (SERVICE CLASS)) Accumulation unit value at beginning of period $1.23 $1.00 -- -- -- -- Accumulation unit value at end of period $0.98 $1.23 -- -- -- -- Number of accumulation units outstanding at end of period (000 omitted) 516 33 -- -- -- -- Ratio of operating expense to average net assets 1.40% 1.40% -- -- -- -- ------------------------------------------------------------------------------------------------------------------------------------ SUBACCOUNT ERE(6) (INVESTING IN SHARES OF FTVIPT FRANKLIN REAL ESTATE FUND - CLASS 2) Accumulation unit value at beginning of period $0.97 $1.00 -- -- -- -- Accumulation unit value at end of period $1.25 $0.97 -- -- -- -- Number of accumulation units outstanding at end of period (000 omitted) 202 1 -- -- -- -- Ratio of operating expense to average net assets 1.40% 1.40% -- -- -- -- ------------------------------------------------------------------------------------------------------------------------------------ SUBACCOUNT EMU(6) (INVESTING IN SHARES OF FTVIPT MUTUAL SHARES SECURITIES FUND - CLASS 2) Accumulation unit value at beginning of period $1.05 $1.00 -- -- -- -- Accumulation unit value at end of period $1.17 $1.05 -- -- -- -- Number of accumulation units outstanding at end of period (000 omitted) 170 31 -- -- -- -- Ratio of operating expense to average net assets 1.40% 1.40% -- -- -- -- ------------------------------------------------------------------------------------------------------------------------------------ SUBACCOUNT EIS(6) (INVESTING IN SHARES OF FTVIPT TEMPLETON INTERNATIONAL SMALLER COMPANIES FUND - CLASS 2) Accumulation unit value at beginning of period $1.02 $1.00 -- -- -- -- Accumulation unit value at end of period $1.00 $1.02 -- -- -- -- Number of accumulation units outstanding at end of period (000 omitted) 106 1 -- -- -- -- Ratio of operating expense to average net assets 1.40% 1.40% -- -- -- -- ------------------------------------------------------------------------------------------------------------------------------------ SUBACCOUNT JCG(6) (INVESTING IN SHARES OF GOLDMAN SACHS VIT CAPITAL GROWTH FUND) Accumulation unit value at beginning of period $1.16 $1.00 -- -- -- -- Accumulation unit value at end of period $1.05 $1.16 -- -- -- -- Number of accumulation units outstanding at end of period (000 omitted) 613 226 -- -- -- -- Ratio of operating expense to average net assets 1.40% 1.40% -- -- -- -- ------------------------------------------------------------------------------------------------------------------------------------ SUBACCOUNT JUS(6) (INVESTING IN SHARES OF GOLDMAN SACHS VIT CORE-SM- U.S. EQUITY FUND) Accumulation unit value at beginning of period $1.12 $1.00 -- -- -- -- Accumulation unit value at end of period $1.00 $1.12 -- -- -- -- Number of accumulation units outstanding at end of period (000 omitted) 1,247 480 -- -- -- -- Ratio of operating expense to average net assets 1.40% 1.40% -- -- -- -- ------------------------------------------------------------------------------------------------------------------------------------ SUBACCOUNT JGL(6) (INVESTING IN SHARES OF GOLDMAN SACHS VIT GLOBAL INCOME FUND) Accumulation unit value at beginning of period $0.97 $1.00 -- -- -- -- Accumulation unit value at end of period $1.04 $0.97 -- -- -- -- Number of accumulation units outstanding at end of period (000 omitted) 398 34 -- -- -- -- Ratio of operating expense to average net assets 1.40% 1.40% -- -- -- -- ------------------------------------------------------------------------------------------------------------------------------------ SUBACCOUNT JIF(6) (INVESTING IN SHARES OF GOLDMAN SACHS VIT INTERNATIONAL EQUITY FUND) Accumulation unit value at beginning of period $1.27 $1.00 -- -- -- -- Accumulation unit value at end of period $1.08 $1.27 -- -- -- -- Number of accumulation units outstanding at end of period (000 omitted) 195 30 -- -- -- -- Ratio of operating expense to average net assets 1.40% 1.40% -- -- -- -- ------------------------------------------------------------------------------------------------------------------------------------ SUBACCOUNT EIT(1) (INVESTING IN SHARES OF GOLDMAN SACHS VIT INTERNET TOLLKEEPER FUND-SM-) Accumulation unit value at beginning of period $1.00 -- -- -- -- -- Accumulation unit value at end of period $0.67 -- -- -- -- -- Number of accumulation units outstanding at end of period (000 omitted) 319 -- -- -- -- -- Ratio of operating expense to average net assets 1.40% -- -- -- -- -- ------------------------------------------------------------------------------------------------------------------------------------ SUBACCOUNT EJA(1) (INVESTING IN SHARES OF JANUS ASPEN SERIES AGGRESSIVE GROWTH PORTFOLIO: SERVICE SHARES) Accumulation unit value at beginning of period $1.00 -- -- -- -- -- Accumulation unit value at end of period $0.70 -- -- -- -- -- Number of accumulation units outstanding at end of period (000 omitted) 1,737 -- -- -- -- -- Ratio of operating expense to average net assets 1.40% -- -- -- -- -- ------------------------------------------------------------------------------------------------------------------------------------ SUBACCOUNT EJT(1) (INVESTING IN SHARES OF JANUS ASPEN SERIES GLOBAL TECHNOLOGY PORTFOLIO: SERVICE SHARES) Accumulation unit value at beginning of period $1.00 -- -- -- -- -- Accumulation unit value at end of period $0.68 -- -- -- -- -- Number of accumulation units outstanding at end of period (000 omitted) 898 -- -- -- -- -- Ratio of operating expense to average net assets 1.40% -- -- -- -- -- ------------------------------------------------------------------------------------------------------------------------------------
-------------------------------------------------------------------------------- AMERICAN EXPRESS SIGNATURE VARIABLE ANNUITY -- PROSPECTUS 15
YEAR ENDED DEC. 31, 2000 1999 1998 1997 1996 1995 ------------------------------------------------------------------------------------------------------------------------------------ SUBACCOUNT EJG(1) (INVESTING IN SHARES OF JANUS ASPEN SERIES GROWTH PORTFOLIO: SERVICE SHARES) Accumulation unit value at beginning of period $1.00 -- -- -- -- -- Accumulation unit value at end of period $0.82 -- -- -- -- -- Number of accumulation units outstanding at end of period (000 omitted) 2,472 -- -- -- -- -- Ratio of operating expense to average net assets 1.40% -- -- -- -- -- ------------------------------------------------------------------------------------------------------------------------------------ SUBACCOUNT EJI(1) (INVESTING IN SHARES OF JANUS ASPEN SERIES INTERNATIONAL GROWTH PORTFOLIO: SERVICE SHARES) Accumulation unit value at beginning of period $1.00 -- -- -- -- -- Accumulation unit value at end of period $0.80 -- -- -- -- -- Number of accumulation units outstanding at end of period (000 omitted) 1,304 -- -- -- -- -- Ratio of operating expense to average net assets 1.40% -- -- -- -- -- ------------------------------------------------------------------------------------------------------------------------------------ SUBACCOUNT EDE(6) (INVESTING IN SHARES OF J.P. MORGAN U.S. DISCIPLINED EQUITY PORTFOLIO) Accumulation unit value at beginning of period $1.07 $1.00 -- -- -- -- Accumulation unit value at end of period $0.94 $1.07 -- -- -- -- Number of accumulation units outstanding at end of period (000 omitted) 673 51 -- -- -- -- Ratio of operating expense to average net assets 1.40% 1.40% -- -- -- -- ------------------------------------------------------------------------------------------------------------------------------------ SUBACCOUNT ERQ(6) (INVESTING IN SHARES OF LAZARD RETIREMENT EQUITY PORTFOLIO) Accumulation unit value at beginning of period $1.01 $1.00 -- -- -- -- Accumulation unit value at end of period $1.00 $1.01 -- -- -- -- Number of accumulation units outstanding at end of period (000 omitted) 154 1 -- -- -- -- Ratio of operating expense to average net assets 1.40% 1.40% -- -- -- -- ------------------------------------------------------------------------------------------------------------------------------------ SUBACCOUNT ERI(6) (INVESTING IN SHARES OF LAZARD RETIREMENT INTERNATIONAL EQUITY PORTFOLIO) Accumulation unit value at beginning of period $1.07 $1.00 -- -- -- -- Accumulation unit value at end of period $0.96 $1.07 -- -- -- -- Number of accumulation units outstanding at end of period (000 omitted) 62 1 -- -- -- -- Ratio of operating expense to average net assets 1.40% 1.40% -- -- -- -- ------------------------------------------------------------------------------------------------------------------------------------ SUBACCOUNT END(6) (INVESTING IN SHARES OF MFS-REGISTERED TRADEMARK- NEW DISCOVERY SERIES - INITIAL CLASS) Accumulation unit value at beginning of period $1.47 $1.00 -- -- -- -- Accumulation unit value at end of period $1.42 $1.47 -- -- -- -- Number of accumulation units outstanding at end of period (000 omitted) 2,229 64 -- -- -- -- Ratio of operating expense to average net assets 1.40% 1.40% -- -- -- -- ------------------------------------------------------------------------------------------------------------------------------------ SUBACCOUNT ERS(6) (INVESTING IN SHARES OF MFS-REGISTERED TRADEMARK- RESEARCH SERIES - INITIAL CLASS) Accumulation unit value at beginning of period $1.16 $1.00 -- -- -- -- Accumulation unit value at end of period $1.09 $1.16 -- -- -- -- Number of accumulation units outstanding at end of period (000 omitted) 1,902 242 -- -- -- -- Ratio of operating expense to average net assets 1.40% 1.40% -- -- -- -- ------------------------------------------------------------------------------------------------------------------------------------ SUBACCOUNT EUT(6) (INVESTING IN SHARES OF MFS-REGISTERED TRADEMARK- UTILITIES SERIES - INITIAL CLASS) Accumulation unit value at beginning of period $1.20 $1.00 -- -- -- -- Accumulation unit value at end of period $1.27 $1.20 -- -- -- -- Number of accumulation units outstanding at end of period (000 omitted) 1,939 30 -- -- -- -- Ratio of operating expense to average net assets 1.40% 1.40% -- -- -- -- ------------------------------------------------------------------------------------------------------------------------------------ SUBACCOUNT EPG(9) (INVESTING IN SHARES OF PUTNAM VT GROWTH AND INCOME FUND - CLASS IB SHARES) Accumulation unit value at beginning of period $1.18 $1.18 $1.00 -- -- -- Accumulation unit value at end of period $1.26 $1.18 $1.18 -- -- -- Number of accumulation units outstanding at end of period (000 omitted) 6,616 4,302 239 -- -- -- Ratio of operating expense to average net assets 1.40% 1.40% 1.40% -- -- -- ------------------------------------------------------------------------------------------------------------------------------------ SUBACCOUNT EPL(6) (INVESTING IN SHARES OF PUTNAM VT INTERNATIONAL GROWTH FUND - CLASS IB SHARES) Accumulation unit value at beginning of period $1.33 $1.00 -- -- -- -- Accumulation unit value at end of period $1.19 $1.33 -- -- -- -- Number of accumulation units outstanding at end of period (000 omitted) 2,192 347 -- -- -- -- Ratio of operating expense to average net assets 1.40% 1.40% -- -- -- -- ------------------------------------------------------------------------------------------------------------------------------------ SUBACCOUNT EPN(6) (INVESTING IN SHARES OF PUTNAM VT INTERNATIONAL NEW OPPORTUNITIES FUND - CLASS IB SHARES) Accumulation unit value at beginning of period $1.53 $1.00 -- -- -- -- Accumulation unit value at end of period $0.93 $1.53 -- -- -- -- Number of accumulation units outstanding at end of period (000 omitted) 847 35 -- -- -- -- Ratio of operating expense to average net assets 1.40% 1.40% -- -- -- -- ------------------------------------------------------------------------------------------------------------------------------------
-------------------------------------------------------------------------------- 16 AMERICAN EXPRESS SIGNATURE VARIABLE ANNUITY -- PROSPECTUS
YEAR ENDED DEC. 31, 2000 1999 1998 1997 1996 1995 ------------------------------------------------------------------------------------------------------------------------------------ SUBACCOUNT EMC(6) (INVESTING IN SHARES OF ROYCE MICRO-CAP PORTFOLIO) Accumulation unit value at beginning of period $1.15 $1.00 -- -- -- -- Accumulation unit value at end of period $1.34 $1.15 -- -- -- -- Number of accumulation units outstanding at end of period (000 omitted) 239 37 -- -- -- -- Ratio of operating expense to average net assets 1.40% 1.40% -- -- -- -- ------------------------------------------------------------------------------------------------------------------------------------ SUBACCOUNT EPR(6) (INVESTING IN SHARES OF ROYCE SMALL-CAP PORTFOLIO(10)) Accumulation unit value at beginning of period $1.05 $1.00 -- -- -- -- Accumulation unit value at end of period $1.38 $1.05 -- -- -- -- Number of accumulation units outstanding at end of period (000 omitted) 188 1 -- -- -- -- Ratio of operating expense to average net assets 1.40% 1.40% -- -- -- -- ------------------------------------------------------------------------------------------------------------------------------------ SUBACCOUNT ETV(1) (INVESTING IN SHARES OF THIRD AVENUE VALUE PORTFOLIO) 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 (000 omitted) 63 -- -- -- -- -- Ratio of operating expense to average net assets 1.40% -- -- -- -- -- ------------------------------------------------------------------------------------------------------------------------------------ SUBACCOUNT EIC(6) (INVESTING IN SHARES OF WANGER INTERNATIONAL SMALL CAP) Accumulation unit value at beginning of period $1.51 $1.00 -- -- -- -- Accumulation unit value at end of period $1.07 $1.51 -- -- -- -- Number of accumulation units outstanding at end of period (000 omitted) 431 28 -- -- -- -- Ratio of operating expense to average net assets 1.40% 1.40% -- -- -- -- ------------------------------------------------------------------------------------------------------------------------------------ SUBACCOUNT EUC(6) (INVESTING IN SHARES OF WANGER U.S. SMALL CAP) Accumulation unit value at beginning of period $1.15 $1.00 -- -- -- -- Accumulation unit value at end of period $1.04 $1.15 -- -- -- -- Number of accumulation units outstanding at end of period (000 omitted) 231 19 -- -- -- -- Ratio of operating expense to average net assets 1.40% 1.40% -- -- -- -- ------------------------------------------------------------------------------------------------------------------------------------
(1) Operations commenced on May 2, 2000. (2) Operations commenced on Feb. 21, 1995. (3) Net of annual contract administrative charge and mortality and expense risk fee. (4) Operations commenced on Aug. 26, 1999. (5) Operations commenced on Oct. 29, 1997. (6) Operations commenced on Sept. 22, 1999. (7) Operations commenced on Oct. 30, 1997. (8) Previously named Warburg Pincus Trust - Emerging Growth Portfolio. (9) Operations commenced on Oct. 5, 1998. (10) Previously named Royce Premier Portfolio. FINANCIAL STATEMENTS You can find the audited financial statements of the subaccounts in the SAI. You can find our audited financial statements later in this prospectus. -------------------------------------------------------------------------------- AMERICAN EXPRESS SIGNATURE VARIABLE ANNUITY -- PROSPECTUS 17 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 do not reflect any contract value credits on PCR credits. We may show total return quotations by means of schedules, charts or graphs. Total return figures reflect deduction of the following charges: - contract administrative charge, - variable account administrative charge, - the Guaranteed Minimum Income Benefit Rider fee, - mortality and expense risk fee, and - withdrawal charge (assuming a full withdrawal at the end of the illustrated period). We may also show optional total return quotations that reflect deduction of the 8% Performance Credit Rider fee. We also show optional total return quotations that do not reflect a withdrawal charge deduction (assuming no withdrawal), or fees for any of the optional features. 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. -------------------------------------------------------------------------------- 18 AMERICAN EXPRESS SIGNATURE VARIABLE ANNUITY 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:
------------- ----------------------------- ---------------------------------------- ----------------------------- SUBACCOUNT INVESTING IN INVESTMENT OBJECTIVES AND POLICIES INVESTMENT ADVISOR OR MANAGER ------------- ----------------------------- ---------------------------------------- ----------------------------- EVB AXP-Registered Trademark- Objective: long-term total return IDS Life, investment Variable Portfolio - Blue exceeding that of the U.S. stock manager; American Express Chip Advantage Fund market. Invests primarily in common Financial Corporation stocks of companies included in the (AEFC), investment advisor. unmanaged S&P 500 Index. ------------- ----------------------------- ---------------------------------------- ----------------------------- ESI AXP-Registered Trademark- Objective: high level of current IDS Life, investment Variable Portfolio - Bond income while conserving the value of manager; American Express Fund the investment and continuing a high Financial Corporation level of income for the longest time (AEFC), investment advisor. period. Invests primarily in bonds and other debt obligations. ------------- ----------------------------- ---------------------------------------- ----------------------------- ECR AXP-Registered Trademark- Objective: capital appreciation. IDS Life, investment Variable Portfolio - Invests primarily in U.S. common manager; AEFC, investment Capital Resource Fund stocks and other securities advisor. convertible into common stocks. ------------- ----------------------------- ---------------------------------------- ----------------------------- EMS AXP-Registered Trademark- Objective: maximum current income IDS Life, investment Variable Portfolio - Cash consistent with liquidity and manager; AEFC, investment Management Fund stability of principal. Invests in advisor. money market securities. ------------- ----------------------------- ---------------------------------------- ----------------------------- EVD AXP-Registered Trademark- Objective: a high level of current IDS Life, investment Variable Portfolio - income and, as a secondary goal, manager; AEFC, investment Diversified Equity Income steady growth of capital. Invests advisor. Fund primarily in dividend-paying common and preferred stocks. ------------- ----------------------------- ---------------------------------------- ----------------------------- EIA AXP-Registered Trademark- Objective: high current income, with IDS Life, investment Variable Portfolio - Extra capital growth as a secondary manager; AEFC, investment Income Fund objective. Invests primarily in advisor. high-yielding, high-risk corporate bonds issued by U.S. and foreign companies and governments. ------------- ----------------------------- ---------------------------------------- ----------------------------- EVF AXP-Registered Trademark- Objective: a high level of current IDS Life, investment Variable Portfolio - income and safety of principal manager; AEFC, investment Federal Income Fund consistent with an investment in U.S. advisor. government and government agency securities. Invests primarily in debt obligations issued or guaranteed as to principal and interest by the U.S. government, its agencies or instrumentalities. ------------- ----------------------------- ---------------------------------------- ----------------------------- EVG AXP-Registered Trademark- Objective: long-term capital growth. IDS Life, investment Variable Portfolio - Growth Invests primarily in common stocks and manager; AEFC, investment Fund securities convertible into common advisor. stocks that appear to offer growth opportunities. ------------- ----------------------------- ---------------------------------------- ----------------------------- EMG AXP-Registered Trademark- Objective: maximum total investment IDS Life, investment Variable Portfolio - return through a combination of manager; AEFC, investment Managed Fund capital growth and current income. advisor. Invests primarily in a combination of common and preferred stocks, convertible securities, bonds and other debt securities. ------------- ----------------------------- ---------------------------------------- ----------------------------- EGD AXP-Registered Trademark- Objective: long-term growth of IDS Life, investment Variable Portfolio - New capital. Invests primarily in common manager; AEFC, investment Dimensions Fund-Registered stocks of U.S. and foreign companies advisor. Trademark- showing potential for significant growth. ------------- ----------------------------- ---------------------------------------- -----------------------------
-------------------------------------------------------------------------------- AMERICAN EXPRESS SIGNATURE VARIABLE ANNUITY -- PROSPECTUS 19
------------- ----------------------------- ---------------------------------------- ----------------------------- SUBACCOUNT INVESTING IN INVESTMENT OBJECTIVES AND POLICIES INVESTMENT ADVISOR OR MANAGER ------------- ----------------------------- ---------------------------------------- ----------------------------- EVS AXP-Registered Trademark- Objective: long-term capital growth. IDS Life, investment Variable Portfolio - Small Invests primarily in equity stocks of manager; AEFC, investment Cap Advantage Fund small companies that are often advisor; Kenwood Capital included in the S&P SmallCap 600 Index Management LLC, or the Russell 2000 Index. sub-investment advisor. ------------- ----------------------------- ---------------------------------------- ----------------------------- ECA AIM V.I. Capital Objective: growth of capital. Invests A I M Advisors, Inc. Appreciation Fund mainly in common stocks of companies likely to benefit from new or innovative products, services or processes as well as those with above-average growth and excellent prospects for future growth. ------------- ----------------------------- ---------------------------------------- ----------------------------- ECD AIM V.I. Capital Objective: long term growth of A I M Advisors, Inc. Development Fund capital. Invests primarily in securities (including common stocks, convertible securities and bonds) of small- and medium-sized companies. ------------- ----------------------------- ---------------------------------------- ----------------------------- EVA AIM V.I. Value Fund Objective: long-term growth of capital A I M Advisors, Inc. with income as a secondary objective. Invests primarily in equity securities judged to be undervalued relative to the investment advisor's appraisal of the current or projected earnings of the companies issuing the securities, or relative to current market values of assets owned by the companies issuing the securities, or relative to the equity market generally. ------------- ----------------------------- ---------------------------------------- ----------------------------- EPP Alliance VP Premier Growth Objective: long-term growth of capital Alliance Capital Portfolio (Class B) by pursuing aggressive investment Management, L.P. policies. Invests primarily in equity securities of a limited number of large, carefully selected, high-quality U.S. companies that are judged likely to achieve superior earnings growth. ------------- ----------------------------- ---------------------------------------- ----------------------------- ETC Alliance VP Technology Objective: growth of capital. Current Alliance Capital Portfolio (Class B) income is only an incidental Management, L.P. consideration. Invests primarily in securities of companies expected to benefit from technological advances and improvements. ------------- ----------------------------- ---------------------------------------- ----------------------------- EHG Alliance VP U.S. Objective: high level of current Alliance Capital Government/High Grade income consistent with preservation of Management, L.P. Securities Portfolio capital. Invests primarily in (1) U.S. (Class B) Government securities and (2) other high-grade debt securities or, if unrated, of equivalent quality. ------------- ----------------------------- ---------------------------------------- ----------------------------- EAS Baron Capital Asset Fund - Objective: capital appreciation. BAMCO, Inc. Insurance Shares Invests primarily in securities of small and medium sized companies with undervalued assets or favorable growth prospects. ------------- ----------------------------- ---------------------------------------- ----------------------------- EEG Credit Suisse Warburg Objective: maximum capital Credit Suisse Asset Pincus Trust - Emerging appreciation. Invests in U.S. equity Management, LLC Growth Portfolio securities of emerging-growth (previously Warburg Pincus companies with growth characteristics Trust - Emerging Growth such as positive earnings and Portfolio) potential for accelerated growth. ------------- ----------------------------- ---------------------------------------- -----------------------------
-------------------------------------------------------------------------------- 20 AMERICAN EXPRESS SIGNATURE VARIABLE ANNUITY -- PROSPECTUS
------------- ----------------------------- ---------------------------------------- ----------------------------- SUBACCOUNT INVESTING IN INVESTMENT OBJECTIVES AND POLICIES INVESTMENT ADVISOR OR MANAGER ------------- ----------------------------- ---------------------------------------- ----------------------------- EFG Fidelity VIP III Growth & Objective: high total return through a Fidelity Management & Income Portfolio (Service combination of current income and Research Company (FMR), Class) capital appreciation. Invests investment manager; FMR primarily in common stocks with a U.K. and FMR Far East, focus on those that pay current sub-investment advisors. dividends and show potential for capital appreciation. ------------- ----------------------------- ---------------------------------------- ----------------------------- EFM Fidelity VIP III Mid Cap Objective: long-term growth of FMR, investment manager; Portfolio (Service Class) capital. Invests primarily in medium FMR U.K. and FMR Far East, market capitalization common stocks. sub-investment advisors. ------------- ----------------------------- ---------------------------------------- ----------------------------- EFO Fidelity VIP Overseas Objective: long-term growth of FMR, investment manager; Portfolio (Service Class) capital. Invests primarily in common FMR U.K., FMR Far East, stocks of foreign securities. Fidelity International Investment Advisors (FIIA) and FIIA U.K., sub-investment advisors. ------------- ----------------------------- ---------------------------------------- ----------------------------- ERE FTVIPT Franklin Real Estate Objective: capital appreciation with a Franklin Advisers, Inc. Fund - Class 2 secondary goal to earn current income. Invests primarily in securities of companies operating in the real estate industry, primarily equity real estate investment trusts (REITS). ------------- ----------------------------- ---------------------------------------- ----------------------------- EMU FTVIPT Mutual Shares Objective: capital appreciation with Franklin Mutual Advisers, Securities Fund - Class 2 income as a secondary goal. Invests LLC primarily in equity securities of companies that the manager believes are available at market prices less than their actual value based on certain recognized or objective criteria (intrinsic value). ------------- ----------------------------- ---------------------------------------- ----------------------------- EIS FTVIPT Templeton Objective: long-term capital Templeton Investment International Smaller appreciation. Invests primarily in Counsel, LLC Companies Fund - Class 2 equity securities of smaller companies located outside the U.S., including those in emerging markets. ------------- ----------------------------- ---------------------------------------- ----------------------------- JCG Goldman Sachs VIT Capital Objective: seeks long-term growth of Goldman Sachs Asset Growth Fund capital by investing in a diversified Management portfolio of equity securities that are considered by the investment adviser to have long-term capital appreciation potential. ------------- ----------------------------- ---------------------------------------- ----------------------------- JUS Goldman Sachs VIT CORE-SM- Objective: seeks long-term growth of Goldman Sachs Asset U.S. Equity Fund capital and dividend income. Invests Management primarily in a broadly diversified portfolio of large-cap and blue chip equity securities representing all major sectors of the U.S. economy. ------------- ----------------------------- ---------------------------------------- ----------------------------- JGL Goldman Sachs VIT Global Objective: seeks high total return, Goldman Sachs Asset Income Fund emphasizing current income, and, to a Management International lesser extent, providing opportunities for capital appreciation. Invests primarily in a portfolio of high quality fixed-income securities of U.S. and foreign issuers and enters into transactions in foreign currencies. ------------- ----------------------------- ---------------------------------------- -----------------------------
-------------------------------------------------------------------------------- AMERICAN EXPRESS SIGNATURE VARIABLE ANNUITY -- PROSPECTUS 21
------------- ----------------------------- ---------------------------------------- ----------------------------- SUBACCOUNT INVESTING IN INVESTMENT OBJECTIVES AND POLICIES INVESTMENT ADVISOR OR MANAGER ------------- ----------------------------- ---------------------------------------- ----------------------------- JIF Goldman Sachs VIT Objective: seeks long-term capital Goldman Sachs Asset International Equity Fund appreciation. Invests primarily in Management International equity securities of companies that are organized outside the U.S., or whose securities are principally traded outside the U.S. ------------- ----------------------------- ---------------------------------------- ----------------------------- EIT Goldman Sachs VIT Internet Objective: seeks long-term growth of Goldman Sachs Asset Tollkeeper Fund-SM- capital. Invests primarily in equity Management securities of companies the investment adviser believes will benefit from the growth of the Internet by providing access, infrastructure, content and services to Internet companies and customers. ------------- ----------------------------- ---------------------------------------- ----------------------------- EJA Janus Aspen Series Objective: long-term growth of Janus Capital Aggressive Growth capital. Non-diversified mutual fund Portfolio: Service Shares that primarily invests in common stocks selected for their growth potential and normally invests at least 50% of its equity assets in medium-sized companies. ------------- ----------------------------- ---------------------------------------- ----------------------------- EJT Janus Aspen Series Global Objective: long-term growth of Janus Capital Technology Portfolio: capital. Non-diversified mutual fund Service Shares that primarily invests in equity securities of U.S. and foreign companies selected for their growth potential. Normally invests at least 65% of assets in securities of companies that the manager believes will benefit significantly from advancements or improvements in technology. ------------- ----------------------------- ---------------------------------------- ----------------------------- EJG Janus Aspen Series Growth Objective: long-term growth of capital Janus Capital Portfolio: Service Shares in a manner consistent with the preservation of capital. Invests primarily in common stocks selected for their growth potential. ------------- ----------------------------- ---------------------------------------- ----------------------------- EJI Janus Aspen Series Objective: long-term growth of Janus Capital International Growth capital. Invests at least 65% of its Portfolio: Service Shares total assets in securities of issuers from at least five different countries, excluding the U.S. It may at times invest all of its assets in fewer than five countries or even a single country. ------------- ----------------------------- ---------------------------------------- ----------------------------- EDE J.P. Morgan U.S. Objective: seeks to provide a high J.P. Morgan Disciplined Equity Portfolio total return from a portfolio of selected equity securities. The portfolio invests primarily in large and medium capitalization U.S. companies. The portfolio is designed for investors who want an actively managed portfolio of selected equity securities that seeks to outperform the S&P 500 Index. ------------- ----------------------------- ---------------------------------------- -----------------------------
-------------------------------------------------------------------------------- 22 AMERICAN EXPRESS SIGNATURE VARIABLE ANNUITY -- PROSPECTUS
------------- ----------------------------- ---------------------------------------- ----------------------------- SUBACCOUNT INVESTING IN INVESTMENT OBJECTIVES AND POLICIES INVESTMENT ADVISOR OR MANAGER ------------- ----------------------------- ---------------------------------------- ----------------------------- ERQ Lazard Retirement Equity Objective: long-term capital Lazard Asset Management Portfolio appreciation. Invests primarily in equity securities, principally common stocks, of relatively large U.S. companies with market capitalizations in the range of the S&P 500-Registered Trademark- Index that the Investment Manager believes are undervalued based on their earnings, cash flow or asset values. ------------- ----------------------------- ---------------------------------------- ----------------------------- ERI Lazard Retirement Objective: long-term capital Lazard Asset Management International Equity appreciation. Invests primarily in Portfolio equity securities, principally common stocks, of relatively large non-U.S. companies with market capitalizations in the range of the Morgan Stanley Capital International (MSCI) Europe, Australia and Far East (EAFE-Registered Trademark-) Index that the Investment Manager believes are undervalued based on their earnings, cash flow or asset values. ------------- ----------------------------- ---------------------------------------- ----------------------------- END MFS-Registered Trademark- Objective: capital appreciation. MFS Investment New Discovery Series - Invests primarily in equity securities Management-Registered Initial Class of emerging growth companies. Trademark- ------------- ----------------------------- ---------------------------------------- ----------------------------- ERS MFS-Registered Trademark- Objective: long-term growth of capital MFS Investment Research Series - Initial and future income. Invests primarily Management-Registered Class in common stocks and related Trademark- securities that have favorable prospects for long-term growth, attractive valuations based on current and expected earnings or cash flow, dominant or growing market share, and superior management. ------------- ----------------------------- ---------------------------------------- ----------------------------- EUT MFS-Registered Trademark- Objective: capital growth and current MFS Investment Utilities Series - Initial income. Invests primarily in equity Management-Registered Class and debt securities of domestic and Trademark- foreign companies in the utilities industry. ------------- ----------------------------- ---------------------------------------- ----------------------------- EPG Putnam VT Growth and Income Objective: capital growth and current Putnam Investment Fund - Class IB Shares income. Invests mainly in common Management, LLC stocks of U.S. companies with a focus on value stocks that offer the potential for capital growth, current income or both. ------------- ----------------------------- ---------------------------------------- ----------------------------- EPL Putnam VT International Objective: capital appreciation. Putnam Investment Growth Fund - Class IB Invests mainly in stocks outside the Management, LLC Shares United States that reflect a value lower than that which Putnam Management places on the company or whose earnings they believe are likely to grow over time. ------------- ----------------------------- ---------------------------------------- ----------------------------- EPN Putnam VT International New Objective: long-term capital Putnam Investment Opportunities Fund - Class appreciation by investing in common Management, LLC IB Shares stocks of companies outside the U.S. that Putnam Investment Management, LLC (Putnam Management) believes are fast growing and whose earnings are likely to increase overtime. ------------- ----------------------------- ---------------------------------------- -----------------------------
-------------------------------------------------------------------------------- AMERICAN EXPRESS SIGNATURE VARIABLE ANNUITY -- PROSPECTUS 23
------------- ----------------------------- ---------------------------------------- ----------------------------- SUBACCOUNT INVESTING IN INVESTMENT OBJECTIVES AND POLICIES INVESTMENT ADVISOR OR MANAGER ------------- ----------------------------- ---------------------------------------- ----------------------------- EMC Royce Micro-Cap Portfolio Objective: long-term growth of Royce & Associates, Inc. capital. Invests primarily in a broadly diversified portfolio of equity securities issued by micro-cap companies (companies with stock market capitalizations below $300 million). ------------- ----------------------------- ---------------------------------------- ----------------------------- EPR Royce Small-Cap Portfolio Objective: long-term growth of capital Royce & Associates, Inc. (previously Royce Premier with current income as a secondary Portfolio) objective. Invests primarily in a limited number of equity securities issued by small companies with stock market capitalization between $300 million and $1.5 billion. ------------- ----------------------------- ---------------------------------------- ----------------------------- ETV Third Avenue Value Portfolio Objective: long-term capital EQSF Advisers, Inc. appreciation. Invests primarily in common stocks of well financed, well managed companies at a substantial discount to what the Adviser believes is their true value. ------------- ----------------------------- ---------------------------------------- ----------------------------- EIC Wanger International Small Objective: long-term growth of Liberty Wanger Asset Cap capital. Invests primarily in stocks Management, L.P. of small- and medium-size non-U.S. companies with capitalizations of less than $2 billion. ------------- ----------------------------- ---------------------------------------- ----------------------------- EUC Wanger U.S. Small Cap Objective: long-term growth of Liberty Wanger Asset capital. Invests primarily in stocks Management, L.P. of small- and medium-size U.S. companies with capitalizations of less than $2 billion. ------------- ----------------------------- ---------------------------------------- -----------------------------
A fund underlying your contract in which a subaccount invests may have a name, portfolio manager, objectives, strategies and characteristics that are the same or substantially similar to those of a publicly-traded retail mutual fund. Despite these similarities, an underlying fund is not the same as any publicly-traded retail mutual fund. Each underlying fund will have its own unique portfolio holdings, fees, operating expenses and operating results. The results of each underlying fund may differ significantly from any publicly-traded retail mutual fund. The investment managers and advisors cannot guarantee that the funds will meet their investment objectives. Please read the funds' prospectuses for facts you should know before investing. These prospectuses are also available by contacting us at the address or telephone number on the first page of this prospectus. All funds are available to serve as the underlying investments for variable annuities. Some funds also are available to serve as investment options for variable life insurance policies and tax-deferred retirement plans. It is possible that in the future, it may be disadvantageous for variable annuity accounts and variable life insurance accounts and/or tax-deferred retirement plans to invest in the available funds simultaneously. Although the insurance company and the funds do not currently foresee any such disadvantages, the boards of directors or trustees of the appropriate funds will monitor events in order to identify any material conflicts between annuity owners, policy owners and tax-deferred retirement plans and to determine what action, if any, should be taken in response to a conflict. If a board were to conclude that it should establish separate funds for the variable annuity, variable life insurance and tax-deferred retirement plan accounts, you would not bear any expenses associated with establishing separate funds. Please refer to the funds' prospectuses for risk disclosure regarding simultaneous investments by variable annuity, variable life insurance and tax-deferred retirement plan accounts. The Internal Revenue Service (IRS) issued final regulations relating to the diversification requirements under Section 817(h) of the Code. Each fund intends to comply with these requirements. The variable account was established under Indiana law on July 15, 1987, and the subaccounts are registered together as a single unit investment trust under the Investment Company Act of 1940 (the 1940 Act). This registration does not involve any supervision of our management or investment practices and policies by the SEC. All obligations arising under the contracts are general obligations of American Enterprise Life. -------------------------------------------------------------------------------- 24 AMERICAN EXPRESS SIGNATURE VARIABLE ANNUITY -- PROSPECTUS The variable account meets the definition of a separate account under federal securities laws. We credit or charge income, capital gains and capital losses of each subaccount only to that subaccount. State insurance law prohibits us from charging a subaccount with liabilities of any other subaccount or of our general business. The variable account includes other subaccounts that are available under contracts that are not described in this prospectus. The U.S. Treasury and the IRS indicated that they may provide additional guidance on investment control. This concerns how many variable subaccounts an insurance company may offer and how many exchanges among subaccounts it may allow before the contract owner would be currently taxed on income earned within subaccount assets. At this time, we do not know what the additional guidance will be or when action will be taken. We reserve the right to modify the contract, as necessary, so that the owner will not be subject to current taxation as the owner of the subaccount assets. We intend to comply with all federal tax laws so that the contract continues to qualify as an annuity for federal income tax purposes. We reserve the right to modify the contract as necessary to comply with any new tax laws. THE FIXED ACCOUNTS GUARANTEE PERIOD ACCOUNTS (GPAS) You may allocate purchase payments to one or more of the GPAs with Guarantee Periods ranging from two to ten years. These accounts are not available in all states and are not offered after annuity payouts begin. Some states also restrict the amount you can allocate to these accounts. Each GPA pays an interest rate that is declared when you allocate money to that account. That interest rate is then fixed for the Guarantee Period that you chose. We will periodically change the declared interest rate for any future allocations to these accounts, but we will not change the rate paid on money currently in a GPA. The minimum guaranteed interest rate on the GPAs is 3%. The interest rates that we will declare as guaranteed rates in the future are determined by us at our discretion. We will determine these rates based on various factors including, but not limited to, the interest rate environment, returns earned on investments backing these annuities, the rates currently in effect for new and existing American Enterprise Life annuities, product design, competition and American Enterprise Life's revenues and other expenses. We cannot predict nor can we guarantee future guaranteed interest rates above the 3% rate. You may transfer or withdraw contract value out of the GPAs within 30 days before the end of the Guarantee Period without receiving a MVA (see "Market Value Adjustment (MVA)" below.) At that time you may choose to start a new Guarantee Period of the same length, transfer the contract value to another GPA, transfer the contract value to any of the subaccounts, or withdraw the contract value from the contract (subject to applicable withdrawal provisions). If we do not receive any instructions at the end of your Guarantee Period, we will automatically transfer the contract value into the one-year fixed account. We hold amounts you allocate to the GPAs in a "nonunitized" separate account we have established under the Indiana Insurance Code. This separate account provides an additional measure of assurance that we will make full payment of amounts due under the GPAs. State insurance law prohibits us from charging this separate account with liabilities of any other separate account or of our general business. We own the assets of this separate account as well as any favorable investment performance of those assets. You do not participate in the performance of the assets held in this separate account. We guarantee all benefits relating to your value in the GPAs. This guarantee is based on the continued claims-paying ability of the company. We intend to construct and manage the investment portfolio relating to the separate account using a strategy known as "immunization." Immunization seeks to lock in a defined return on the pool of assets versus the pool of liabilities over a specified time horizon. Since the return on the assets versus the liabilities is locked in, it is "immune" to any potential fluctuations in interest rates during the given time. We achieve immunization by constructing a portfolio of assets with a price sensitivity to interest rate changes (i.e., price duration) that is essentially equal to the price duration of the corresponding portfolio of liabilities. Portfolio immunization provides us with flexibility and efficiency in creating and managing the asset portfolio, while still assuring safety and soundness for funding liability obligations. -------------------------------------------------------------------------------- AMERICAN EXPRESS SIGNATURE VARIABLE ANNUITY -- PROSPECTUS 25 We must invest this portfolio of assets in accordance with requirements established by applicable state laws regarding the nature and quality of investments that life insurance companies may make and the percentage of their assets that they may commit to any particular type of investment. Our investment strategy will incorporate the use of a variety of debt instruments having price durations tending to match the applicable Guarantee Periods. These instruments include, but are not necessarily limited to, the following: - Securities issued by the U.S. government or its agencies or instrumentalities, which issues may or may not be guaranteed by the U.S. government; - Debt securities that have an investment grade, at the time of purchase, within the four highest grades assigned by any of three nationally recognized rating agencies -- Standard & Poor's, Moody's Investors Service or Fitch (formerly Duff & Phelp's) -- or are rated in the two highest grades by the National Association of Insurance Commissioners; - Other debt instruments which are unrated or rated below investment grade, limited to 10% of assets at the time of purchase; and - Real estate mortgages, limited to 45% of portfolio assets at the time of acquisition. In addition, options and futures contracts on fixed income securities will be used from time to time to achieve and maintain appropriate investment and liquidity characteristics on the overall asset portfolio. While this information generally describes our investment strategy, we are not obligated to follow any particular strategy except as may be required by federal law and Indiana and other state insurance laws. MARKET VALUE ADJUSTMENT (MVA) We guarantee the contract value allocated to your GPA, including the interest credited, if you do not make any transfers or withdrawals from that GPA prior to 30 days before the end of the Guarantee Period. However, we will apply an MVA if a transfer or withdrawal occurs prior to this time. The MVA also affects amounts withdrawn from a GPA prior to 30 days before the end of the Guarantee Period that are used to purchase payouts under an annuity payout plan. We will refer to all of these transactions as "early withdrawals" in the discussion below. When you request an early withdrawal, we adjust the early withdrawal amount by an MVA formula. The early withdrawal amount reflects the relationship between the guaranteed interest rate you are earning in your current GPA and the interest rate we are crediting on new GPAs that end at the same time as your current GPA. The MVA is sensitive to changes in current interest rates. The magnitude of any applicable MVA will depend on our current schedule of guaranteed interest rates at the time of the withdrawal, the time remaining in your Guarantee Period and your guaranteed interest rate. The MVA is negative, zero or positive depending on how the guaranteed interest rate on your GPA compares to the interest rate of a new GPA for the same number of years as the Guarantee Period remaining on your GPA. Before we look at the MVA formula, it may help to look in a general way at how comparing your GPA's guaranteed rate and the rate for a new GPA affects the MVA. Relationship between your GPA's guaranteed rate and the new GPA for the same time as the Guarantee Period remaining on your GPA: IF YOUR GPA RATE IS: THE MVA IS: Less than the new GPA rate + 0.10% Negative Equal to the new GPA rate + 0.10% Zero Greater than the new GPA rate + 0.10% Positive GENERAL EXAMPLES Assume: - You purchase a contract and allocate part of your purchase payment to the ten-year GPA. - We guarantee an interest rate of 4.5% annually for your ten-year Guarantee Period. - After three years, you decide to make a withdrawal from your GPA. In other words, there are seven years left in your Guarantee Period. Remember that the MVA depends partly on the interest rate of a new GPA for the same number of years as the Guarantee Period remaining on your GPA. In this case, that is seven years. EXAMPLE 1: Remember that your GPA is earning 4.5%. Assume at the time of your withdrawal new GPAs that we offer with a seven-year Guarantee Period are earning 5.0%. We add 0.10% to the 5.0% rate to get 5.10%. Your GPA's 4.5% rate is less than the 5.10% rate and, as reflected in the table above, the MVA will be negative. EXAMPLE 2: Remember again that your GPA is earning 4.5%, and assume that new GPAs that we offer with a seven-year Guarantee Period are earning 4.0%. We add 0.10% to the 4.0% rate to get 4.10%. In this example, since your GPA's 4.5% rate is greater than the 4.10% rate, the MVA will be positive. To determine that adjustment precisely, you will have to use the formula described below. -------------------------------------------------------------------------------- AMERICAN EXPRESS SIGNATURE VARIABLE ANNUITY -- PROSPECTUS 26 SAMPLE MVA CALCULATIONS: The precise MVA formula we apply is as follows: 1 + i to the power of n/12 EARLY WITHDRAWAL AMOUNT x [( ------------ ) - 1] = MVA 1 + j + .001 Where i = rate earned in the GPA from which amounts are being transferred or withdrawn. j = current rate for a new Guaranteed Period equal to the remaining term in the current Guarantee Period. n = number of months remaining in the current Guarantee Period (rounded up). EXAMPLES Using assumptions similar to those we used in the examples above: - You purchase a contract and allocate part of your purchase payment to the ten-year GPA. - We guarantee an interest rate of 4.5% annually for your ten-year Guarantee Period. - After three years, you decide to make a $1,000 withdrawal from your GPA. In other words, there are seven years left in your Guarantee Period. EXAMPLE 1: You request an early withdrawal of $1,000 from your ten-year GPA earning a guaranteed interest rate of 4.5%. Assume at the time of your withdrawal new GPAs that we offer with a seven-year Guarantee Period are earning 5.0%. Using the formula above, we determine the MVA as follows: 1.045 to the power of 84/12 $1,000 x [( -------------- ) - 1] = -$39.28 1 + .05 + .001 In this example, the MVA is a negative $39.28. EXAMPLE 2: You request an early withdrawal of $1,000 from your ten-year GPA earning a guaranteed interest rate of 4.5%. Assume at the time of your withdrawal new GPAs that we offer with a seven-year Guarantee Period are earning 4.0%. Using the formula above, we determine the MVA as follows: 1.045 to the power of 84/12 $1,000 x [( -------------- ) - 1] = $27.21 1 + .04 + .001 In this example, the MVA is a positive $27.21. Please note that when you allocate your purchase payment to the ten-year GPA and you have begun your fourth contract year at the beginning of the Guarantee Period, your withdrawal charge percentage is 6%. (See "Charges -- Withdrawal Charge.") We do not apply MVAs to the amounts we deduct for withdrawal charges, so we would deduct the withdrawal charge from your early withdrawal after we applied the MVA. Also note that when you request an early withdrawal, we withdraw an amount from your GPA that will give you the net amount you requested after we apply the MVA and any applicable withdrawal charge, unless you request otherwise. The current interest rate we offer on the GPA will change periodically at our discretion. It is the rate we are then paying on purchase payments, renewals and transfers paid under this class of contracts for Guarantee Period durations equaling the remaining Guarantee Period of the GPA to which the formula is being applied. We will not apply MVAs to amounts withdrawn for the annual contract administrative charge, to amounts we pay as death claims or to automatic transfers from the two-year Guarantee Period Account. In some states, the MVA is limited. THE ONE-YEAR FIXED ACCOUNT You may also allocate purchase payments or transfer accumulated value to the one-year fixed account. Some states may restrict the amount you can allocate to this account. We back the principal and interest guarantees relating to the one-year fixed account. These guarantees are based on the continued claims-paying ability of the company. The value of the one-year fixed account increases as we credit interest to the account. Purchase payments and transfers to the one-year fixed account become part of our general account. We credit and compound interest daily to produce the annual effective rate which we declare. The interest rate we apply to each purchase payment or transfer to the one-year fixed account is guaranteed for one year. Thereafter we will change the 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 American Enterprise Life annuities, product design, competition, and American Enterprise Life's revenues and expenses. Interest in the one-year fixed account is not required to be registered with the SEC. However, the Market Value Adjustment interests under the contracts are registered with the SEC. The SEC staff does not review the disclosures in this prospectus on the one-year fixed account (but the SEC does review the disclosures in this prospectus on the Market Value Adjustment interests). Disclosures regarding -------------------------------------------------------------------------------- AMERICAN EXPRESS SIGNATURE VARIABLE ANNUITY -- PROSPECTUS 27 the one-year fixed account, however, may be subject to certain generally applicable provisions of the federal securities laws relating to the accuracy and completeness of statements made in prospectuses. (See "Making the Most of Your Contract -- Transfer policies" for restrictions on transfers involving the one-year fixed account.) BUYING YOUR CONTRACT Your sales representative will help you complete and submit an application and send it along with your initial purchase payment to our office. As the owner, you have all rights and may receive all benefits under the contract. You can own a nonqualified annuity in joint tenancy with rights of survivorship only in spousal situations. You cannot own a qualified annuity in joint tenancy. You can buy a contract or become an annuitant if you are 90 or younger. When you apply, you may select: - one of three death benefit options if both you and the annuitant are 79 or younger(1): -- Option A - Return of purchase payment death benefit; -- Option B - Maximum anniversary value death benefit, or -- Option C - 5% Accumulation death benefit rider(2); - the optional Guaranteed Minimum Income Benefit Rider(3); - the optional 8% Performance Credit Rider(3); - the one-year fixed account, Guarantee Period Accounts and/or subaccounts in which you want to invest(4); - how you want to make purchase payments; - the date you want to start receiving annuity payouts (the retirement date); and - a beneficiary. (1) If either you or the annuitant are 80 or older at contract issue, death benefit Option A will apply. (2) May not be available in all states. (3) You may select either the GMIB or the PCR, but not both. Riders may not be available in all states. The GMIB is only available if the annuitant is 75 or younger at contract issue. If you select the GMIB you must select either death benefit Option B or Option C. (4) Some states may restrict the amount you can allocate to the fixed accounts. The contract provides for allocation of purchase payments to the subaccounts of the variable account and/or to the fixed accounts in even 1% increments. If your application is complete, we will process it and apply your purchase payment to the fixed 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 it and return your payment. We will credit additional purchase payments you make to your accounts on the valuation date we receive them. We will value the additional payments at the next accumulation unit value calculated after we receive your payments at our office. You may make monthly payments to your contract under a Systematic Investment Plan (SIP). You must make an initial purchase payment of at least $5,000 in Texas, Washington or South Carolina or $2,000 in all other states. Then, to begin the SIP, you will complete and send a form and your first SIP payment along with your application. There is no charge for SIP. You can stop your SIP payments at any time. In most states, you may make additional purchase payments to nonqualified and qualified annuities until the retirement date. 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 30th day after the contract's effective date; and - no later than the annuitant's 85th birthday (or the tenth contract anniversary, if later). FOR QUALIFIED ANNUITIES (EXCEPT ROTH IRAS), to avoid IRS penalty taxes, the retirement date generally must be: - on or after the date the annuitant reaches age 59 1/2; and - for IRAs and SEPs, by April 1 of the year following the calendar year when the annuitant reaches age 70 1/2; or - for TSAs, by April 1 of the year following the calendar year when the annuitant reaches age 70 1/2 or, if later, retires (except that 5% business owners may not select a retirement date that is later than April 1 of the year following the calendar year when they reach age 70 1/2). -------------------------------------------------------------------------------- AMERICAN EXPRESS SIGNATURE VARIABLE ANNUITY -- PROSPECTUS 28 If you are taking the minimum IRA or TSA distributions as required by the Code from another tax-qualified investment, or in the form of partial withdrawals from this contract, annuity payouts can start as late as the annuitant's 85th birthday or the tenth contract anniversary, if later. BENEFICIARY If death benefits become payable before the retirement date (while the contract is in force and before annuity payouts begin), we will pay your named beneficiary all or part of the contract value. If there is no named beneficiary, then you or your estate will be the beneficiary. (See "Benefits in Case of Death" for more about beneficiaries.) PURCHASE PAYMENTS MINIMUM INITIAL PURCHASE PAYMENT: $5,000 for contracts issued in South Carolina, Texas, and Washington. $2,000 for contracts issued in all other states. MINIMUM ADDITIONAL PURCHASE PAYMENTS: $50 for SIPs. $100 for any other type of payment. MAXIMUM TOTAL PURCHASE PAYMENTS* (WITHOUT PRIOR APPROVAL): $1,000,000 for issue ages up to 85 $100,000 for issue ages 86 to 90 * These limits apply in total to all American Enterprise Life annuities you own. We reserve the right to increase maximum limits. For qualified annuities the tax-deferred retirement plan's or the Code's limits on annual contributions also apply. HOW TO MAKE PURCHASE PAYMENTS 1 BY LETTER: Send your check along with your name and contract number to: AMERICAN ENTERPRISE LIFE INSURANCE COMPANY 829 AXP FINANCIAL CENTER MINNEAPOLIS, MN 55474 2 BY SIP: Contact your sales representative to complete the necessary SIP paperwork. CHARGES CONTRACT ADMINISTRATIVE CHARGE We charge this fee for establishing and maintaining your records. We deduct $30 from the contract value on your contract anniversary at the end of each contract year. We prorate this charge among the subaccounts and the fixed account in the same proportion your interest in each account bears to your total contract value. We will waive this charge when your contract value is $50,000 or more on the current contract anniversary. If you take a full withdrawal from your contract, we will deduct this charge at the time of withdrawal regardless of the contract value. We cannot increase the annual contract administrative charge and it does not apply after annuity payouts begin or when we pay death benefits. VARIABLE ACCOUNT ADMINISTRATIVE CHARGE We apply this charge daily to the subaccounts. It is reflected in the unit values of your subaccounts and it totals 0.15% of their average daily net assets on an annual basis. It covers certain administrative and operating expenses of the subaccounts such as accounting, legal and data processing fees and expenses involved in the preparation and distribution of reports and prospectuses. We cannot increase the variable account administrative charge. MORTALITY AND EXPENSE RISK FEE We charge this fee daily to the subaccounts. The unit values of your subaccounts reflect this fee and it totals 1.25% of their average daily net assets on an annual basis. This fee includes coverage under any of the three death benefit options. This fee covers the mortality and expense risk that we assume. Approximately two-thirds of this amount is for our assumption of mortality risk, and one-third is for our assumption of expense risk. This fee does not apply to the fixed accounts. -------------------------------------------------------------------------------- AMERICAN EXPRESS SIGNATURE VARIABLE ANNUITY -- PROSPECTUS 29 Mortality risk arises because of our guarantee to pay a death benefit and our guarantee to make annuity payouts according to the terms of the contract, no matter how long a specific annuitant lives and no matter how long our entire group of annuitants live. If, as a group, annuitants outlive the life expectancy we assumed in our actuarial tables, then we must take money from our general assets to meet our obligations. If, as a group, annuitants do not live as long as expected, we could profit from the mortality risk fee. Expense risk arises because we cannot increase the contract administrative charge or variable account administrative charge and these charges may not cover our expenses. We would have to make up any deficit from our general assets. We could profit from the expense risk fee if future expenses are less than expected. The subaccounts pay us the mortality and expense risk fee they accrued as follows: - first, to the extent possible, the subaccounts pay this fee from any dividends distributed from the funds in which they invest; - then, if necessary, the funds redeem shares to cover any remaining fees payable. We may use any profits we realize from the subaccounts' payment to us of the mortality and expense risk fee for any proper corporate purpose, including, among others, payment of distribution (selling) expenses. We do not expect that the withdrawal charge, discussed in the following paragraphs, will cover sales and distribution expenses. GUARANTEED MINIMUM INCOME BENEFIT RIDER (GMIB) FEE We charge a fee (currently 0.35%) based on the adjusted contract value for this optional feature only if you select it.* If selected, we deduct the fee from the contract value on your contract anniversary at the end of each contract year. We prorate the GMIB fee among the subaccounts and fixed accounts in the same proportion your interest in each account bears to your total contract value. If the contract is terminated for any reason or when annuity payouts begin, we will deduct the GMIB fee, adjusted for the number of calendar days coverage was in place. We cannot increase the GMIB fee after the rider effective date and it does not apply after annuity payouts begin. We can increase the GMIB fee on new contracts up to a maximum of 0.75%. We calculate the fee as follows: 0.35% x (CV + ST - FAV) CV = contract value on the contract anniversary. ST = transfers from the subaccounts to the fixed accounts made six months before the contract anniversary. FAV = the value of your fixed accounts. The result of ST - FAV will never be greater than zero. This allows us to base the GMIB fee largely on the subaccounts, and not on the fixed accounts. EXAMPLE: - You purchase the contract with a payment of $50,000 on Jan. 1, 2001 and allocate all of your payment to the subaccounts. - On Sept. 1, 2001 your contract value is $75,000. You transfer $15,000 from the subaccounts to the one-year fixed account. - On Jan. 1, 2002 (the first contract anniversary) the one-year fixed account value is $15,250 and the subaccount value is $58,000. Your total contract value is $73,250. - The GMIB fee percentage is 0.35%. We calculate the charge for the GMIB as follows: Contract value on the contract anniversary: $73,250.00 plus transfers from the subaccounts to the fixed accounts in the six months before the contract anniversary: +15,000.00 minus the value of the fixed accounts on the contract anniversary: -15,250.00 ---------- $73,000.00 The GMIB fee charged to you: 0.35% x $73,000 = $ 255.50
8% PERFORMANCE CREDIT RIDER (PCR) FEE We charge a fee of 0.25% of your contract value for this optional feature only if you select it.* If selected, we deduct the PCR fee from your contract value on your contract anniversary date at the end of each contract year. We prorate this fee among the subaccounts and fixed accounts in the same proportion as your interest in each account bears to your total contract value. If the contract is terminated for any reason or when annuity payouts begin, we will deduct the PCR fee, adjusted for the number of calendar days coverage was in place. We cannot increase the PCR fee. * You may select either the GMIB or the PCR, but not both. Riders may not be available in all states. The GMIB is only available if the annuitant is 75 or younger at contract issue. If you select the GMIB you must select either death benefit Option B or Option C. -------------------------------------------------------------------------------- 30 AMERICAN EXPRESS SIGNATURE VARIABLE ANNUITY -- PROSPECTUS WITHDRAWAL CHARGE If you withdraw all or part of your contract, you may be subject to a withdrawal charge. A withdrawal charge applies if all or part of the withdrawal amount is from purchase payments we received within seven years before withdrawal. The withdrawal charge percentages that apply to you are shown in your contract. In addition, amounts withdrawn from a Guarantee Period Account more than 30 days before the end of the applicable Guarantee Period will be subject to a MVA. (See "The Fixed Accounts -- Market Value Adjustments (MVA).") For purposes of calculating any withdrawal charge, we treat amounts withdrawn from your contract in the following order: 1. First, in each contract year, we withdraw amounts totaling up to 10% of your prior anniversary's contract value. (We consider your initial purchase payment to be the prior anniversary's contract value during the first contract year.) We do not assess a withdrawal charge on this amount. 2. Next, we withdraw contract earnings, if any, that are greater than the annual 10% free withdrawal amount described in number one above. Contract earnings equal contract value less purchase payments received and not previously withdrawn. We do not assess a withdrawal charge on contract earnings. NOTE: We determine contract earnings by looking at the entire contract value, not the earnings of any particular subaccount or the fixed account. 3. Next, we withdraw purchase payments we received prior to the withdrawal charge period shown in your contract. We do not assess a withdrawal charge on these purchase payments. 4. Finally, if necessary, we withdraw purchase payments that are all within the withdrawal charge period shown in your contract. We withdraw these payments on a "first-in, first-out" (FIFO) basis. We do assess a withdrawal charge on these payments. We determine your withdrawal charge by multiplying each of these payments by the applicable withdrawal charge percentage, and then totaling the withdrawal charges. The withdrawal charge percentage depends on the number of years since you made the payments that are withdrawn.
YEARS FROM PURCHASE WITHDRAWAL CHARGE PAYMENT RECEIPT PERCENTAGE 1 7% 2 7 3 6 4 6 5 5 6 4 7 2 Thereafter 0
For a partial withdrawal that is subject to a withdrawal charge, the amount we actually deduct from your contract value will be the amount you request plus any applicable withdrawal charge. The withdrawal charge percentage is applied to this total amount. We pay you the amount you requested. Example: Assume you requested a withdrawal of $1,000 and there is a withdrawal charge of 7%. The total amount we actually deduct from your contract is $1,075.26. We determine this amount as follows: AMOUNT REQUESTED $1,000 ------------------------- OR ------ = $1,075.26 (1.00 - WITHDRAWAL CHARGE) .93 By applying the 7% withdrawal charge to $1,075.26, the withdrawal charge is $75.26. We pay you the $1,000 you requested. If you make a full withdrawal of your contract, we also will deduct the applicable contract administrative charge. WITHDRAWAL CHARGE UNDER ANNUITY PAYOUT PLAN E -- PAYOUTS FOR A SPECIFIED PERIOD: Under this payout plan, you can choose to take a withdrawal. The amount that you can withdraw is the present value of any remaining variable payouts. The discount rate we use in the calculation will be 5.27% if the assumed investment rate is 3.5% and 6.77% if the assumed investment rate is 5%. The withdrawal charge equals the present value of the remaining payouts using the assumed investment rate minus the present value of the remaining payouts using the discount rate. In no event would your withdrawal charge exceed 9% of the amount available for payouts under the plan. -------------------------------------------------------------------------------- AMERICAN EXPRESS SIGNATURE VARIABLE ANNUITY -- PROSPECTUS 31 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, 2001 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, 2001; -- $8,000 Dec. 31, 2006; -- $6,000 Feb. 20, 2009; and - You withdraw the contract for its total withdrawal value of $38,101 on Aug. 5, 2011 and made no other withdrawals during that contract year; and - The prior anniversary July 1, 2011 contract value was $38,488.
WITHDRAWAL CHARGE EXPLANATION $ 0 $3,848.80 is 10% of the prior anniversary's 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, 2001 payment was received eight or more years before withdrawal and is withdrawn without withdrawal charge; and 400 $8,000 Dec. 31, 2006 payment is in its fifth year from receipt, withdrawn with a 5% withdrawal charge; and 360 $6,000 Feb. 20, 2009 payment is in its third year from receipt, withdrawn with a 6% withdrawal charge. ---- $760
WAIVER OF WITHDRAWAL CHARGE We do not assess a withdrawal charge for: - withdrawals of any contract earnings; - withdrawals of amounts totaling up to 10% of your prior contract anniversary's 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 you and the annuitant are under age 76 at contract issue. 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 issued. 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. -------------------------------------------------------------------------------- 32 AMERICAN EXPRESS SIGNATURE VARIABLE ANNUITY -- PROSPECTUS VALUING YOUR INVESTMENT We value your accounts as follows: FIXED ACCOUNTS We value the amounts you allocated to the fixed accounts directly in dollars. The value of a fixed account equals: - the sum of your purchase payments and transfer amounts allocated to the one-year fixed account and the Guarantee Period Accounts; - plus any contract value credits allocated to the fixed accounts; - plus interest credited; - minus the sum of amounts withdrawn after any applicable MVA (including any applicable withdrawal charges) and amounts transferred out; - minus any prorated contract administrative charge; - minus any prorated portion of the Guaranteed Minimum Income Benefit Rider fee (if applicable); and - minus any prorated portion of the 8% Performance Credit Rider fee (if applicable). SUBACCOUNTS We convert amounts you allocated to the subaccounts into accumulation units. Each time you make a purchase payment or transfer amounts into one of the subaccounts or we apply any contract value credits, we credit a certain number of accumulation units to your contract for that subaccount. Conversely, each time you take a partial withdrawal, transfer amounts out of a subaccount, or we assess a contract administrative charge, or the 8% Performance Credit Rider fee, or the Guaranteed Minimum Income Benefit Rider fee, we subtract a certain number of accumulation units from your contract. The accumulation units are the true measure of investment value in each subaccount during the accumulation period. They are related to, but not the same as, the net asset value of the fund in which the subaccount invests. The dollar value of each accumulation unit can rise or fall daily depending on the variable account expenses, performance of the fund and on certain fund expenses. Here is how we calculate accumulation unit values: NUMBER OF UNITS: to calculate the number of accumulation units for a particular subaccount we divide your investment by the current accumulation unit value. ACCUMULATION UNIT VALUE: the current accumulation unit value for each subaccount equals the last value times the subaccount's current net investment factor. WE DETERMINE THE NET INVESTMENT FACTOR BY: - adding the fund's current net asset value per share, plus the per share amount of any accrued income or capital gain dividends to obtain a current adjusted net asset value per share; then - dividing that sum by the previous adjusted net asset value per share; and - subtracting the percentage factor representing the mortality and expense risk fee 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. -------------------------------------------------------------------------------- AMERICAN EXPRESS SIGNATURE VARIABLE ANNUITY -- PROSPECTUS 33 FACTORS THAT AFFECT SUBACCOUNT ACCUMULATION UNITS: accumulation units may change in two ways-- in number and in value. The number of accumulation units you own may fluctuate due to: - additional purchase payments you allocate to the subaccounts; - any contract value credits allocated to the subaccounts; - transfers into or out of the subaccounts; - partial withdrawals; - withdrawal charges; - prorated portions of the contract administrative charge; - prorated portions of the Guaranteed Minimum Income Benefit Rider fee (if applicable); and/or - prorated portions of the 8% Performance Credit Rider fee (if applicable). Accumulation unit values will fluctuate due to: - changes in funds' net asset value; - dividends distributed to the subaccounts; - capital gains or losses of funds; - fund operating expenses; and/or - mortality and expense risk fee and the variable account administrative charge. CONTRACT VALUE CREDITS You are eligible to receive a contract value credit if you select death benefit Option A -- Return of purchase payment. Before annuity payouts begin while this contract is in force we will apply contract value credits to your contract beginning on the eighth contract anniversary if there are "eligible purchase payments." Generally, we will apply contract value credits on an annual basis at your contract anniversary. However, we reserve the right to apply contract value credits on a quarterly or a monthly basis. Eligible purchase payments: purchase payments not previously withdrawn that are no longer subject to a withdrawal charge (i.e. that are eight or more years old). Annual contract value credit formula: 0.50% X (CV X (EPP / TPP)) CV = contract value at the time of the calculation. EPP = eligible purchase payments at the time of the calculation. TPP = total purchase payments at the time of the calculation. If we calculate and apply contract value credits on a quarterly basis, we will change the percentage we use in the calculation from 0.50% to 0.125%. If we calculate and apply the credit on a monthly basis, we will change the percentage we use in the calculation from 0.50% to 0.04167%. We allocate contract value credits to the fixed accounts and subaccounts according to the asset allocation instructions that you have in place at the time we apply the contract value credit. We continue to apply contract value credits for the life of your contract until total withdrawal or annuity payouts begin. The contract value credits will be taxable when we distribute contract value to you. The contract value credit is available because of lower costs associated with a reduced death benefit guarantee. Because the guaranteed death benefit is lower in situations where the contract value credit is paid, there may be circumstances where you may be worse off for having received the credit than in other contracts. In particular, if the market were to decline, and a death benefit became payable, the amount paid might be less. Example: - You purchase a contract on Jan. 1, 2001 with a payment of $100,000 and you select death benefit Option A -- Return of purchase payment. - You make an additional payment on Jan. 1, 2005 of $60,000. - Your contract value on Jan. 1, 2009 grows to $250,000. We choose to apply contract value credits on an annual basis. Your eligible purchase payment on Jan. 1, 2009 is the original $100,000 payment; the additional $60,000 payment made on Jan. 1, 2005 is still subject to a withdrawal charge. We calculate the contract value credit as follows: 0.50% x ($250,000 x ($100,000 / $160,000) = $781.25 After application of the contract value credit, your contract value on Jan. 1, 2009 would be $250,781.25. -------------------------------------------------------------------------------- 34 AMERICAN EXPRESS SIGNATURE VARIABLE ANNUITY -- PROSPECTUS MAKING THE MOST OF YOUR CONTRACT AUTOMATED DOLLAR-COST AVERAGING Currently, you can use automated transfers to take advantage of dollar-cost averaging (investing a fixed amount at regular intervals). For example, you might transfer a set amount monthly from a relatively conservative subaccount to a more aggressive one, or to several others, or from the one-year fixed account or the two-year Guarantee Period Accounts (without MVA) to one or more subaccounts. The three to ten year Guarantee Period Accounts are not available for automated transfers. You can also obtain the benefits of dollar-cost averaging by setting up regular automatic SIP payments. There is no charge for dollar-cost averaging. This systematic approach can help you benefit from fluctuations in accumulation unit values caused by fluctuations in the market values of the funds. Since you invest the same amount each period, you automatically acquire more units when the market value falls and fewer units when it rises. The potential effect is to lower your average cost per unit. HOW DOLLAR-COST AVERAGING WORKS
By investing an equal number NUMBER of dollars each month ... AMOUNT ACCUMULATION OF UNITS MONTH INVESTED UNIT VALUE PURCHASED Jan $100 $20 5.00 Feb 100 18 5.56 you automatically buy Mar 100 17 5.88 more units when the per unit market price is low ... ---> Apr 100 15 6.67 May 100 16 6.25 Jun 100 18 5.56 Jul 100 17 5.88 and fewer units Aug 100 19 5.26 when the per unit market price is high. ---> Sept 100 21 4.76 Oct 100 20 5.00
You paid an average price of only $17.91 per unit over the 10 months, while the average market price actually was $18.10. Dollar-cost averaging does not guarantee that any subaccount will gain in value nor will it protect against a decline in value if market prices fall. Because dollar-cost averaging involves continuous investing, your success will depend upon your willingness to continue to invest regularly through periods of low price levels. Dollar-cost averaging can be an effective way to help meet your long-term goals. For specific features contact your sales representative. TIERED DOLLAR-COST AVERAGING (TIERED DCA) PROGRAM If your net contract value(1) is at least $10,000, you can choose to participate in the Tiered DCA program. There is no charge for the Tiered DCA program. Under the Tiered DCA program, you can allocate a new purchase payment to one of two special Tiered DCA accounts. We determine which Tiered DCA account you are eligible for as follows:
IF YOUR NET CONTRACT VALUE(1) IS ... WE ALLOCATE YOUR NEW PURCHASE PAYMENTS TO: $10,000 - $49,999 Tier 1 DCA account $50,000 or more Tier 2 DCA account(2)
(1) "Net contract value" equals your current contract value plus any new purchase payment you make. If this is a new contract funded by purchase payments from multiple sources, we determine your net contract value based on the purchase payments, withdrawal requests and exchange requests submitted with your application. (2) You cannot allocate your new purchase payments to a Tier 1 DCA account if you are eligible to participate in a Tier 2 DCA account. You may only allocate a new purchase payment of at least $1,000 to the Tiered DCA account for which you are eligible. You cannot transfer existing contract values into the Tiered DCA account. Each Tiered DCA account lasts for only six months from the time we receive your first purchase payment. We make monthly transfers of your total Tiered DCA account value into the other accounts you selected over the six-month period. We credit interest to each Tiered DCA account at rates that generally are higher than those we credit to the one-year fixed account and the two-year Guarantee Period Account. We credit higher rates on the Tier 2 DCA account than on the Tier 1 DCA account. We will change the interest rate on each Tiered DCA account from time to time at our discretion. We base these rates on competition and on the interest rate we are crediting to the one-year fixed account at the time of the change. Once we credit interest to a particular purchase payment, that rate does not change even if we change the rate we credit on new purchase payments or if your net contract value changes. -------------------------------------------------------------------------------- AMERICAN EXPRESS SIGNATURE VARIABLE ANNUITY -- PROSPECTUS 35 We credit each Tiered DCA account with current guaranteed annual rate that is in effect on the date we receive your purchase payment. However, we credit this annual rate over the six-month period on the balance remaining in your Tiered DCA account. Therefore, the net effective interest rate you receive is less than the stated annual rate. We do not credit this interest after we transfer the value out of the Tiered DCA account into the accounts you selected. Once you establish a Tiered DCA account, you cannot allocate additional purchase payments to it. However, you may establish another new Tiered DCA account and allocate new purchase payments to it when we change the interest rates we offer on these accounts. If you are funding a Tiered DCA account come from multiple sources, we apply each purchase payment to the account and credit interest on that purchase payment on the date we receive it. This means that all purchase payments may not be in the Tiered DCA account at the beginning of the six-month period. Therefore, you may receive less total interest than you would have if all your purchase payments were in the Tiered DCA account from the beginning. If we receive any of your multiple payments after the six-month period ends, you can either allocate those payments to a new Tiered DCA account (if available) or to any other accounts available under your contract. You cannot participate in the Tiered DCA program if you are making payments under a Systematic Investment Plan. You may simultaneously participate in the Tiered DCA program and the asset-rebalancing program as long as your subaccount allocation is the same under both programs. If you elect to change your subaccount allocation under one program, we automatically will change it under the other program so they match. If you participate in more than one Tiered DCA account, the asset allocation for each account may be different as long as you are not also participating in the asset-rebalancing program. You may terminate your participation in the Tiered DCA program at any time. If you do, we will not credit the current guaranteed annual interest rate on any remaining Tiered DCA account balance. We will transfer the remaining balance from your Tiered DCA account to the other accounts you selected for your DCA transfers or we will allocate it in any manner you specify. Similarly, if we cannot accept any additional purchase payments into the Tiered DCA program, we will allocate the purchase payments to the other accounts you selected for your DCA transfers or in any other manner you specify. We can modify the terms or discontinue the Tiered DCA program at any time. Any modifications will not affect any purchase payments that are already in a Tiered DCA account. For more information on the Tiered DCA program, contact your sales representative. ASSET REBALANCING You can ask us in writing to automatically rebalance the subaccount portion of your contract value either quarterly, semi-annually, or annually. The period you select will start to run on the date we record your request. On the first valuation date of each of these periods, we automatically will rebalance your contract value so that the value in each subaccount matches your current subaccount percentage allocations. These percentage allocations must be in whole numbers. Asset rebalancing does not apply to the fixed accounts. There is no charge for asset rebalancing. The contract value must be at least $2,000. You can change your percentage allocations or your rebalancing period at any time by contacting us in writing. If you are also participating in the Tiered DCA program and you change your subaccount asset allocation for the asset-rebalancing program, we will change your subaccount asset allocation under the Tiered DCA program to match. 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 BETWEEN ACCOUNTS You may transfer contract value from any one subaccount, or the fixed accounts, to another subaccount before annuity payouts begin. (Certain restrictions apply to transfers involving the fixed accounts.) We will process your transfer on the valuation date we receive your request. We will value your transfer at the next accumulation unit value calculated after we receive your request. There is no charge for transfers. Before making a transfer, you should consider the risks involved in changing investments. Transfers out of the Guarantee Period Accounts will be subject to a MVA if done more than 30 days before the end of the Guarantee Period. We may suspend or modify transfer privileges at any time. Excessive trading activity can disrupt fund management strategy and increase expenses, which are borne by all contract owners who allocated purchase payments to the fund regardless of their transfer activity. We may apply modifications or restrictions in any reasonable manner to prevent transfers we believe will disadvantage other contract owners. These modifications could include, but not be limited to: - requiring a minimum time period between each transfer; - not accepting transfer requests of an agent acting under power of attorney on behalf of more than one contract owner; or - limiting the dollar amount that a contract owner may transfer at any one time. -------------------------------------------------------------------------------- 36 AMERICAN EXPRESS SIGNATURE VARIABLE ANNUITY -- PROSPECTUS 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 accounts at any time. However, if you made a transfer from the one-year fixed account to the subaccounts, you may not make a transfer from any subaccount back to the one-year fixed account for six months following that transfer. - You may transfer contract values from the one-year fixed account to the subaccounts or the Guarantee Period Accounts once a year on or within 30 days before or after the contract anniversary (except for automated transfers, which can be set up at any time for certain transfer periods subject to certain minimums). Transfers from the one-year fixed account are not subject to a MVA. - You may transfer contract values from a Guarantee Period Account any time after 60 days of transfer or payment allocation to the account. Transfers made more than 30 days before the end of the Guarantee Period will receive a MVA, which may result in a gain or loss of contract value. - If we receive your request on or within 30 days before or after the contract anniversary date, the transfer from the one-year fixed account to the subaccounts or the Guarantee Period Accounts will be effective on the valuation date we receive it. - We will not accept requests for transfers from the one-year fixed account at any other time. - Once annuity payouts begin, you may not make transfers to or from the one-year fixed account, but you may make transfers once per contract year among the subaccounts. During the annuity payout period, we reserve the right to limit the number of subaccounts in which you may invest. - Once annuity payouts begin, you may not make any transfers to the Guarantee Period Accounts. HOW TO REQUEST A TRANSFER OR WITHDRAWAL 1 BY LETTER: Send your name, contract number, Social Security Number or Taxpayer Identification Number and signed request for a transfer or withdrawal to: AMERICAN ENTERPRISE LIFE INSURANCE COMPANY 829 AXP FINANCIAL CENTER MINNEAPOLIS, MN 55474 MINIMUM AMOUNT Transfers or withdrawals: $500 or entire account balance MAXIMUM AMOUNT Transfers or withdrawals: Contract value or entire account balance 2 BY AUTOMATED TRANSFERS AND AUTOMATED PARTIAL WITHDRAWALS: Your sales representative can help you set up automated transfers or partial withdrawals among your subaccounts or fixed accounts. You can start or stop this service by written request or other method acceptable to us. You must allow 30 days for us to change any instructions that are currently in place. - Automated transfers from the one-year fixed account to any one of the subaccounts may not exceed an amount that, if continued, would deplete the one-year fixed account within 12 months. - Automated withdrawals may be restricted by applicable law under some contracts. - You may not make additional purchase payments if automated partial withdrawals are in effect. - Automated partial withdrawals may result in IRS taxes and penalties on all or part of the amount withdrawn. MINIMUM AMOUNT Transfers or withdrawals: $100 monthly $250 quarterly, semiannually or annually -------------------------------------------------------------------------------- AMERICAN EXPRESS SIGNATURE VARIABLE ANNUITY -- PROSPECTUS 37 3 BY PHONE: Call between 8 a.m. and 7 p.m. Central time: (800) 333-3437 MINIMUM AMOUNT Transfers or withdrawals: $500 or entire account balance MAXIMUM AMOUNT Transfers: Contract value or entire account balance Withdrawals: $25,000 We answer telephone requests promptly, but you may experience delays when the call volume is unusually high. If you are unable to get through, use the mail procedure as an alternative. We will honor any telephone transfer or withdrawal requests that we believe are authentic and we will use reasonable procedures to confirm that they are. This includes asking identifying questions and tape recording calls. We will not allow a telephone withdrawal within 30 days of a phoned-in address change. As long as we follow the procedures, we (and our affiliates) will not be liable for any loss resulting from fraudulent requests. Telephone transfers and withdrawals are automatically available. You may request that telephone transfers and withdrawals not be authorized from your account by writing to us. 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 full withdrawals, we will compute the value of your contract at the next accumulation unit value calculated after we receive your request. We may ask you to return the contract. You may have to pay charges (see "Charges -- Withdrawal Charge") and IRS taxes and penalties (see "Taxes"). You cannot make withdrawals after annuity payouts begin except under Plan E (see "The Annuity Payout Period -- Annuity Payout Plans"). WITHDRAWAL POLICIES If you have a balance in more than one account and you request a partial withdrawal, we will withdraw money from all your subaccounts and/or the fixed accounts in the same proportion as your value in each account correlates to your total contract value, unless you request otherwise. RECEIVING PAYMENT By regular or express mail: - payable to owner; - mailed to address of record. NOTE: We will charge you a fee if you request express mail delivery. Normally, we will send the payment within seven days after receiving your request. However, we may postpone the payment if: -- the withdrawal amount includes a purchase payment check that has not cleared; -- the NYSE is closed, except for normal holiday and weekend closings; -- trading on the NYSE is restricted, according to SEC rules; -- an emergency, as defined by SEC rules, makes it impractical to sell securities or value the net assets of the accounts; or -- the SEC permits us to delay payment for the protection of security holders. -------------------------------------------------------------------------------- 38 AMERICAN EXPRESS SIGNATURE VARIABLE ANNUITY -- PROSPECTUS TSA -- SPECIAL WITHDRAWAL PROVISIONS PARTICIPANTS IN TAX-SHELTERED ANNUITIES The Code imposes certain restrictions on your right to receive early distributions from a TSA: - Distributions attributable to salary reduction contributions (plus earnings) made after Dec. 31, 1988, or to transfers or rollovers from other contracts, may be made from the TSA only if: -- you are at least age 59 1/2; -- you are disabled as defined in the Code; -- you separated from the service of the employer who purchased the contract; or -- the distribution is because of your death. - If you encounter a financial hardship (as defined by the Code), you may receive a distribution of all contract values attributable to salary reduction contributions made after Dec. 31, 1988, but not the earnings on them. - Even though a distribution may be permitted under the above rules, it may be subject to IRS taxes and penalties (see "Taxes"). - The above restrictions on distributions do not affect the availability of the amount credited to the contract as of Dec. 31, 1988. The restrictions also do not apply to transfers or exchanges of contract value within the contract, or to another registered variable annuity contract or investment vehicle available through the employer. CHANGING OWNERSHIP You may change ownership of your nonqualified annuity at any time by completing a change of ownership form we approve and sending it to our office. The change will become binding upon us when we receive and record it. We will honor any change of ownership request that we believe is authentic and we will use reasonable procedures to confirm authenticity. If we follow these procedures, we will not take any responsibility for the validity of the change. If you have a nonqualified annuity, you may incur income tax liability by transferring, assigning or pledging any part of it. (See "Taxes.") If you have a qualified annuity, you may not sell, assign, transfer, discount or pledge your contract as collateral for a loan, or as security for the performance of an obligation or for any other purpose except as required or permitted by the Code. However, if the owner is a trust or custodian, or an employer acting in a similar capacity, ownership of the contract may be transferred to the annuitant. BENEFITS IN CASE OF DEATH There are three death benefit options under this contract: - Option A -- Return of purchase payment death benefit; - Option B -- Maximum anniversary value death benefit; and - Option C -- 5% Accumulation death benefit rider. If either you or the annuitant are 80 or older at contract issue, death benefit Option A will apply. If both you and the annuitant 79 or younger at contract issue, you can elect either death benefit Option A, Option B or Option C (if its available in your state) on your application. If you select the Guaranteed Minimum Income Benefit Rider you must select either death benefit Option B or Option C. Once you elect an option, you cannot change it. We show the option that applies in your contract. There are no additional charges for any of the death benefit options. However, if you select death benefit Option A you may be eligible for contract value credits (see "Valuing Your Investments -- Contract Value Credits"). Under all options, we will pay the death benefit to your beneficiary upon the earlier of your death or the annuitant's death. We will base the benefit paid on the death benefit coverage you select when you purchase the contract. If a contract has more than one person as the owner, we will pay benefits upon the first to die of any owner or the annuitant. -------------------------------------------------------------------------------- AMERICAN EXPRESS SIGNATURE VARIABLE ANNUITY -- PROSPECTUS 39 OPTION A -- RETURN OF PURCHASE PAYMENT DEATH BENEFIT Death benefit Option A is intended to help protect your beneficiaries financially in that they will never receive less than your purchase payments adjusted for withdrawals. If you or the annuitant die before annuity payouts begin while this contract is in force, we will pay the beneficiary the greater of: 1. contract value; or 2. total purchase payments minus adjusted partial withdrawals. (PW x DB) ADJUSTED PARTIAL WITHDRAWALS FOR DEATH BENEFIT OPTION A OR OPTION B = -------- CV PW = the partial withdrawal including any applicable withdrawal charge or MVA. DB = the death benefit on the date of (but prior to) the partial withdrawal. CV = contract value on the date of (but prior to) the partial withdrawal. EXAMPLE: - You purchase the contract with a payment of $20,000 on Jan. 1, 2001. - On Jan. 1, 2002 you make an additional purchase payment of $5,000. - On March 1, 2002 the contract value falls to $22,000 and you take a $1,500 partial withdrawal. - On March 1, 2003 the contract value falls to $23,000. We calculate the Option A death benefit on March 1, 2003 as follows: Contract value at death: $23,000 ========== Purchase payments minus adjusted partial withdrawals: Total purchase payments: $25,000.00 minus adjusted partial withdrawals calculated as: (1,500 x 25,000) / 22,000 = -1,704.54 ---------- for a death benefit of: $23,295.45 ========== Option A death benefit, calculated as the greatest of these two values: $23,295.45
OPTION B-- MAXIMUM ANNIVERSARY VALUE DEATH BENEFIT Death benefit Option B is intended to help protect your beneficiaries financially while your investments have the opportunity to grow. Death benefit Option B does not provide any additional benefit before the first contract anniversary and it may not be appropriate for issue ages 75 to 79 because the benefit values may be limited after age 81. Be sure to discuss with your sales representative whether or not death benefit Option B is appropriate for your situation. If both you and the annuitant are age 79 or younger at contract issue, you may choose to add death benefit Option B to your contract. If you select the Guaranteed Minimum Income Benefit Rider you must select either death benefit Option B or Option C. Death benefit Option B provides that if you or the annuitant die before annuity payouts begin while this contract is in force, we will pay the beneficiary the greatest of the following: 1. contract value; 2. total purchase payments minus adjusted partial withdrawals; or 3. the maximum anniversary value immediately preceding the date of death plus any payments since that anniversary minus adjusted partial withdrawals since that anniversary. MAXIMUM ANNIVERSARY VALUE (MAV): This is the greatest of your contract values on any contract anniversary plus subsequent purchase payments minus adjusted partial withdrawals. We calculate the MAV on each contract anniversary through age 80. There is no MAV prior to the first contract anniversary. On the first contract anniversary we set the MAV equal to the highest of: (a) your current contract value, or (b) total purchase payments minus adjusted partial withdrawals. Every contract anniversary after that, through age 80, we compare the previous anniversary's MAV to the current contract value and we reset the MAV if the current contract value is higher. We stop resetting the MAV after you or the annuitant reach age 81. However, we continue to add subsequent purchase payments and subtract adjusted partial withdrawals from the MAV. -------------------------------------------------------------------------------- 40 AMERICAN EXPRESS SIGNATURE VARIABLE ANNUITY -- PROSPECTUS EXAMPLE: - You purchase the contract with a payment of $20,000 on Jan. 1, 2001. - On Jan. 1, 2002 (the first contract anniversary) the contract value grows to $29,000. - On March 1, 2002 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 death benefit Option B on March 1, 2002 as follows: Contract value at death: $20,500.00 ========== Purchase payments minus adjusted partial withdrawals: Total purchase payments $20,000.00 minus adjusted partial withdrawals, calculated as: ($1,500 x $20,000) / $22,000 = -1,363.64 ---------- for a death benefit of: $18,636.36 ==========
The MAV immediately preceding the date of death plus any payments made since that anniversary minus adjusted partial withdrawals: Greatest of your contract anniversary contract values $29,000.00 plus purchase payments made since that anniversary +0.00 minus adjusted partial withdrawals, calculated as: ($1,500 x $29,000) / $22,000 = -1,977.27 ---------- for a death benefit of: $27,022.73 ========== The Option B death benefit, calculated as the greatest of these three values, which is the MAV: $27,022.73
OPTION C-- 5% ACCUMULATION DEATH BENEFIT RIDER Death benefit Option C is intended to help protect your beneficiaries financially while your investments have the opportunity to grow. Death benefit Option C does not provide any additional benefit before the first contract anniversary and it may not be appropriate for issue ages 75 to 79 because the benefit values may be limited after age 81. Be sure to discuss with your sales representative whether or not death benefit Option C is appropriate for your situation. If this rider is available in your state and both you and the annuitant are 79 or younger at contract issue, you may choose to add death benefit Option C to you contract. If you select the Guaranteed Minimum Income Benefit Rider you must select either death benefit Option B or Option C. Death benefit Option C provides that if you or the annuitant die before annuity payouts begin while this contract is in force, we will pay the beneficiary the greatest of: 1. contract value; 2. total purchase payments minus adjusted partial withdrawals; or 3. the 5% rising floor. 5% RISING FLOOR: This is the sum of the value of your fixed accounts plus the variable account floor. We calculate the variable account floor on each contract anniversary through age 80. There is no variable account floor prior to the first contract anniversary. On the first contract anniversary, we set the variable account floor equal to: - the initial purchase payments allocated to the subaccounts increased by 5%, - plus any subsequent amounts allocated to the subaccounts, and - minus adjusted transfers or partial withdrawals from the subaccounts. -------------------------------------------------------------------------------- AMERICAN EXPRESS SIGNATURE VARIABLE ANNUITY -- PROSPECTUS 41 Every contract anniversary after that, through age 80, we reset the variable account floor by accumulating the prior anniversary's variable account floor at 5% plus any subsequent amounts allocated to the subaccounts minus adjusted transfers or partial withdrawals from the subaccounts. We stop resetting the variable account floor after you or the annuitant reach age 81. However, we continue to add subsequent amounts you allocate to the subaccounts and subtract adjusted transfers or partial withdrawals from the subaccounts. 5% RISING FLOOR ADJUSTED TRANSFERS OR PARTIAL WITHDRAWALS = (PWT x VAF) / SV PWT = the amount transferred from the subaccounts or the amount of the partial withdrawal (including any applicable withdrawal charge) from the subaccounts. VAF = variable account floor on the date of (but prior to) the transfer or partial withdrawal. SV = value of the subaccounts on the date of (but prior to) the transfer or partial withdrawal. EXAMPLE: - You purchase the contract with a payment of $25,000 on Jan. 1, 2001 with $5,000 allocated to the one-year fixed account and $20,000 allocated to the subaccounts. - On Jan. 1, 2002 (the first contract anniversary), the one-year fixed account value is $5,200 and the subaccount value is $17,000. Total contract value is $23,200. - On March 1, 2002, the one-year fixed account value is $5,300 and the subaccount value is $19,000. Total contract value is $24,300. You take a $1,500 partial withdrawal all from the subaccounts, leaving the contract value at $22,800. The death benefit on March 1, 2002 is calculated as follows: Contract value at death: $22,800.00 ========== Purchase payments minus adjusted partial withdrawals: Total purchase payments: $25,000.00 minus adjusted partial withdrawals, calculated as: ($1,500 x $25,000) / $24,300 = -1,543.21 ---------- for a death benefit of: $23,456.79 ========== The 5% rising floor: The variable account floor on Jan. 1, 2002, calculated as: 1.05 x $20,000 = $21,000.00 plus amounts allocated to the subaccounts since that anniversary: +0.00 minus the 5% rising floor adjusted partial withdrawal from the subaccounts, calculated as: ($1,500 x $21,000) / $19,000 = -$1,657.89 ---------- variable account floor benefit: $19,342.11 plus the one-year fixed account value: +5,300.00 ---------- 5% rising floor (value of the fixed accounts plus the variable account floor): $24,642.11 ========== Option C death benefit, calculated as the greatest of these three values, which is the 5% rising floor: $24,642.11
If you die before your retirement date: 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, 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. Nonqualified annuities: If your spouse is sole beneficiary and you die before the retirement date, your spouse may keep the contract as owner with the contract value equal to the death benefit that would otherwise have been paid. To do this your spouse must, within 60 days after we receive proof of death, give us written instructions to keep the contract in force. There will be no withdrawal charges on the contract from that point forward unless additional purchase payments are made. The Guaranteed Minimum Income Benefit Rider (see "Optional Benefits"), if selected, will terminate. -------------------------------------------------------------------------------- 42 AMERICAN EXPRESS SIGNATURE VARIABLE ANNUITY -- PROSPECTUS If your beneficiary is not your spouse, 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. Qualified annutities: The IRS has issued proposed regulations which will affect distributions from your qualified annuity. These are proposed regulations that may take effect Jan. 1, 2002. The information below is an explanation based on existing law. Contact your tax advisor if you have any questions as to the impact of the new proposed rules on your situation. If your spouse is the sole beneficiary, your spouse may keep the contract as owner until the date on which the annuitant would have reached age 70 1/2, or any other date permitted by the Code. The contract value will be equal to the death benefit that would otherwise have been paid. There will be no withdrawal charges on the contract from that point forward unless additional purchase payments are made. The Guaranteed Minimum Income Benefit Rider (see "Optional Benefits"), if selected, will terminate. If your beneficiary is not your spouse, 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 following the year of your death; and - the payout period does not extend beyond the beneficiary's life or life expectancy. OPTIONAL BENEFITS GUARANTEED MINIMUM INCOME BENEFIT RIDER (GMIB) The GMIB is intended to provide you with a guaranteed minimum lifetime income regardless of the volatility inherent in the investments in the subaccounts. If the annuitant is between age 73 and age 75 at contract issue, you should consider whether the GMIB is appropriate for your situation because: - you must hold the GMIB for 7 years, - the GMIB terminates after the annuitant's 86th birthday, - you can only exercise the GMIB within 30 days after a contract anniversary, - the 6% rising floor value we use in the GMIB benefit base to calculate annuity payouts under the GMIB is limited after age 81, and - the additional costs associated with the rider. Be sure to discuss whether or not the GMIB is appropriate for your situation with your sales representative. If this rider is available in your state and the annuitant is 75 or younger at contract issue, you may choose to add this benefit to your contract for an additional annual charge (see "Charges). You cannot select this rider if you select the 8% Performance Credit Rider. You must elect the GMIB along with either death benefit Option B or Option C at the time you purchase your contract and your rider effective date will be the contract issue date. In some instances we may allow you to add the GMIB to your contract at a later date if it was not available when you initially purchased your contract. In these instances, we would add the GMIB at the next contract anniversary and this would become the rider effective date. For purposes of calculating the GMIB benefit base under these circumstances, we consider the contract value on the rider effective date to be the initial purchase payment; we disregard all previous purchase payments, transfers and withdrawals in the GMIB calculations. Investment selection under the GMIB: You may allocate your purchase payments or transfers to any of the subaccounts or the fixed accounts. However, we reserve the right to limit the amount you allocate to subaccounts investing in the AXP-Registered Trademark- Variable Portfolio - Cash Management Fund to 10% of the total amount in the subaccounts. If we are required to activate this restriction, and you have more than 10% of your subaccount value in this fund, we will send you a notice and ask that you reallocate your contract value so that the 10% limitation is satisfied within 60 days. We will terminate the GMIB if you have not satisfied the limitation after 60 days. -------------------------------------------------------------------------------- AMERICAN EXPRESS SIGNATURE VARIABLE ANNUITY -- PROSPECTUS 43 EXERCISING THE GMIB: - you may only exercise the GMIB within 30 days after any contract anniversary following the expiration of a seven-year waiting period from the rider effective date. - the annuitant on the retirement date must be between 50 and 86 years old. - you can only take an annuity payout under one of the following annuity payout plans: -- Plan A - Life Annuity -- no refund -- Plan B - Life Annuity with ten years certain -- Plan D - Joint and last survivor life annuity-- no refund - you may change the annuitant for the payouts. The GMIB guarantees a minimum amount of fixed annuity lifetime income or a minimum first year variable annuity payout. We calculate fixed annuity payouts and first year variable annuity payouts based on the guaranteed annuity purchase rates stated in Table B of the contract but using a 2.5% guaranteed annual effective interest rate which is lower than the 3% rate used in Table B of the contract. Therefore, your payout rates under the GMIB will be lower than the payout rates stated in Table B. This 2.5% Table is not stated in your contract. After the first year, lifetime income variable annuity payouts will depend on the investment performance of the subaccounts you select. The payouts will be higher if your investment performance is greater than a 5% annual return and lower if investment performance is less than a 5% annual return. The GMIB benchmarks the contract growth at each anniversary against several comparison values and sets the GMIB benefit base (described below) equal to the largest value. The GMIB benefit base, less any applicable premium tax, is the value we apply to the guaranteed annuity purchase rates we use in the 2.5% Table to calculate the minimum annuity payouts you will receive if you exercise the GMIB. If the GMIB benefit base is greater than the contract value, the GMIB may provide a higher annuity payout level than is otherwise available. However, the GMIB uses guaranteed annuity purchase rates that are more conservative than the annuity purchase rates that we will apply at annuitization under the standard contract provisions. Therefore, the level of income provided by the GMIB may be less than the income the contract otherwise provides. If the annuity payouts through the standard contract provisions are more favorable than the payouts available through the GMIB, you may elect the higher standard payout option. The GMIB does not create contract value or guarantee the performance of any investment option. GMIB BENEFIT BASE: If the GMIB is effective at contract issue, the GMIB benefit base is the greatest of: 1. contract value; 2. total purchase payments minus adjusted partial withdrawals; or 3. the 6% rising floor. 6% RISING FLOOR: We calculate this in the same manner as the 5% rising floor but we use a 6% accumulation rate. This is the sum of the value of your fixed accounts plus the variable account floor. We calculate the variable account floor on each contract anniversary through age 80. There is no variable account floor prior to the first contract anniversary. On the first contract anniversary, we set the variable account floor equal to: - the initial purchase payments allocated to the subaccounts increased by 6%, - plus any subsequent amounts allocated to the subaccounts, and - minus adjusted transfers or partial withdrawals from the subaccounts. Every contract anniversary after that, through age 80, we reset the variable account floor by accumulating the prior anniversary's variable account floor at 6% plus any subsequent amounts allocated to the subaccounts minus adjusted transfers or partial withdrawals from the subaccounts. We stop resetting the variable account floor after you or the annuitant reach age 81. However, we continue to add subsequent amounts you allocate to the subaccounts and subtract adjusted transfers or partial withdrawals from the subaccounts. We calculate adjusted transfers or partial withdrawals for the 6% rising floor using the same formula as adjusted transfers or partial withdrawals for the 5% rising floor. Keep in mind that the 6% rising floor is limited after age 81. We reserve the right to exclude from the GMIB benefit base any purchase payments you make in the five years before you exercise the GMIB. We would do so only if such payments total $50,000 or more or if they are 25% or more of total contract payments. If we exercise this right, we: - subtract each payment adjusted for market value from the contract value. - subtract each payment from the 6% rising floor. We adjust the payments made to the fixed account for market value. We increase payments allocated to the subaccounts by 6% for the number of full contract years they have been in the contract before we subtract them from the 6% rising floor. -------------------------------------------------------------------------------- 44 AMERICAN EXPRESS SIGNATURE VARIABLE ANNUITY -- PROSPECTUS For each payment, we calculate the market value adjustment to the contract value and the fixed account value of the 6% rising floor as: (PMT x CVG) / ECV PMT = each purchase payment made in the five years before you exercise the GMIB. CVG = current contract value at the time you exercise the GMIB. ECV = the estimated contract value on the anniversary prior to the payment in question. We assume that all payments and partial withdrawals occur at the beginning of a contract year. For each payment, we calculate the 6% increase of payments allocated to the subaccounts as: PMT x (1.06)To The Power of CY CY = the full number of contract years the payment has been in the contract. TERMINATING THE GMIB: - You may terminate the rider within 30 days after the first rider anniversaries. - You may terminate the rider any time after the seventh rider aniversary. - The rider will terminate on the date: -- you make a full withdrawal from the contract; -- a death benefit is payable; or -- you choose to begin taking annuity payouts under the regular contract provisions. - The rider will terminate on the contract anniversary after the annuitant's 86th birthday. EXAMPLE: - You purchase the contract with a payment of $100,000 on Jan. 1, 2001 and you allocate all of your purchase payment to the subaccounts. - There are no additional purchase payments and no partial withdrawals. - Assume the annuitant is male and age 55 at contract issue. For the joint and last survivor option (annuity payout Plan D), the joint annuitant is female and age 55 at contract issue. Taking into account fluctuations in contract value due to market conditions, we calculate the GMIB benefit base as:
CONTRACT GMIB ANNIVERSARY CONTRACT VALUE PURCHASE PAYMENTS 6% RISING FLOOR BENEFIT BASE 1 $107,000 $100,000 $106,000 2 125,000 100,000 112,360 3 132,000 100,000 119,102 4 150,000 100,000 126,248 5 85,000 100,000 133,823 6 120,000 100,000 141,852 7 138,000 100,000 150,363 $150,363 8 152,000 100,000 159,388 159,388 9 139,000 100,000 168,948 168,948 10 126,000 100,000 179,085 179,085 11 138,000 100,000 189,830 189,830 12 147,000 100,000 201,220 201,220 13 215,000 100,000 213,293 215,000 14 234,000 100,000 226,090 234,000 15 240,000 100,000 239,655 240,000
NOTE: The 6% rising floor value is limited after age 81, but the GMIB benefit base may increase if the contract value increases. However, you should keep in mind that you are always entitled to annuitize using the contract value without exercising the GMIB. -------------------------------------------------------------------------------- AMERICAN EXPRESS SIGNATURE VARIABLE ANNUITY -- PROSPECTUS 45 If you annuitize the contract within 30 days after a contract anniversary, the payout under a fixed annuity option (which is the same as the minimum payout for the first year under a variable annuity options) would be:
MINIMUM GUARANTEED MONTHLY INCOME CONTRACT PLAN A - PLAN B - PLAN D - JOINT AND ANNIVERSARY GMIB LIFE ANNUITY-- LIFE ANNUITY WITH LAST SURVIVOR LIFE AT EXERCISE BENEFIT BASE NO REFUND TEN YEARS CERTAIN ANNUITY-- NO REFUND 10 $179,085 (6% Rising Floor) $ 881.10 $ 857.82 $ 694.85 15 240,000 (Contract Value) 1,363.20 1,298.40 1,041.60
The payouts above are shown at guaranteed annuity rates we use in the 2.5% Table. Payouts under the standard provisions of this contract will be based on our annuity rates in effect at annuitization and are guaranteed to be greater than or equal to the guaranteed annuity rates stated in Table B of the contract. The fixed annuity payout available under the standard provisions of this contract would be at least as great as shown below:
CONTRACT PLAN A - PLAN B - PLAN D - JOINT AND ANNIVERSARY LIFE ANNUITY-- LIFE ANNUITY WITH LAST SURVIVOR LIFE AT EXERCISE CONTRACT VALUE NO REFUND TEN YEARS CERTAIN ANNUITY-- NO REFUND 10 $126,000 $ 656.46 $ 638.82 $ 522.90 15 240,000 1,430.40 1,363.20 1,106.40
At the 15th contract anniversary you would not experience a benefit from the GMIB as the payout available to you is equal to or less than the payout available under the standard provisions of the contract. Remember that after the first year, lifetime income payouts under a variable annuity payout option will depend on the investment performance of the subaccounts you select. The payouts will be higher if investment performance is greater than a 5% annual return and lower if investment performance is less than a 5% annual return. 8% PERFORMANCE CREDIT RIDER (PCR) The PCR is intended to provide you with an additional benefit if your earnings are less than the target value on the seventh and tenth rider anniversaries (see below). This is an optional benefit you may select for an additional annual charge of 0.25% of your contract value. The PCR does not provide any additional benefit before the seventh rider anniversary and it may not be appropriate for issue ages 83 or older due to this required holding period. Be sure to discuss with your sales representative whether or not the PCR is appropriate for your situation. If the PCR is available in your state, you may choose to add this benefit to your contract at issue. You cannot select the PCR if you select the GMIB. In some instances we may allow you to add the PCR to your contract at a later date if it was not available when you initially purchased your contract. In these instances, we would add the PCR at the next contract anniversary and this would become the rider effective date. For purposes of calculating the target value under these circumstances, we consider the contract value on the rider effective date to be the first contract year's purchase payments. Investment selection under the PCR: You may allocate your purchase payments or transfers to any of the subaccounts or the fixed accounts. However, we reserve the right to limit the aggregate amount in your fixed accounts and amounts you allocate to subaccounts investing in the AXP-Registered Trademark- Variable Portfolio - Cash Management Fund to 10% of your total contract value. If we are required to activate this restriction, and you have more than 10% of your contract value in these accounts, we will send you a notice and ask that you reallocate your contract value so that the 10% limitation is satisfied within 60 days. We will terminate the PCR if you have not satisfied the limitation after 60 days. Target value: We calculate the target value on each rider anniversary. There is no target value prior to the first rider anniversary. On the first rider anniversary we set the target value equal to your first year's purchase payments minus the target value adjusted partial withdrawals accumulated at an annual effective rate of 8%. Every rider anniversary after that, we recalculate the target value by accumulating the prior anniversary's target value and any additional purchase payments minus the target value adjusted partial withdrawals at an annual effective rate of 8%. TARGET VALUE ADJUSTED PARTIAL WITHDRAWALS = (PW X TV) / CV PW = the partial withdrawal including any applicable withdrawal charge or MVA. TV = the target value on the date of (but prior to) the partial withdrawal. CV = contract value on the date of (but prior to) the partial withdrawal. -------------------------------------------------------------------------------- 46 AMERICAN EXPRESS SIGNATURE VARIABLE ANNUITY -- PROSPECTUS YOUR BENEFITS UNDER THE PCR ARE AS FOLLOWS: (a) If on the seventh rider anniversary your contract value is less than the target value, we will add a PCR credit to your contract equal to 3% of your purchase payments minus the PCR adjusted partial withdrawals minus purchase payments made in the last five years. (b) If on the tenth rider anniversary your contract value is less than the target value, we will add a PCR credit to your contract equal to 5% of your purchase payments minus the PCR adjusted partial withdrawals minus purchase payments made in the last five years. The PCR adjusted partial withdrawal amount is an adjustment we make to determine the proportionate amount of any partial withdrawal attributable to purchase payments received five or more years before the target value is calculated (on the seventh and tenth rider anniversaries). We restart the calculation period for the PCR on the tenth rider anniversary and every ten years after that while you own the contract. We use the contract value (including any credits) on that anniversary as your first contract year's payments for calculating the target value and any applicable PCR credit. We may then apply additional PCR credits to your contract at the end of each seven and ten-year period as described above. PCR RESET: You can elect to lock in your contract growth by restarting the ten-year PCR calculation period on any contract anniversary. If you elect to restart the calculation period, the contract value on the restart date is used as the first year's payments for the calculating the target value and any applicable PCR credit. The next calculation period for the PCR will restart at the end of this new ten-year period. We must receive your request to restart the PCR calculation period within 30 days after a contract anniversary. TERMINATING THE PCR: - You may terminate the PCR within 30 days following the first contract anniversary after the PCR rider effective date. - You may terminate the PCR within 30 days following the later of the tenth contract anniversary after the PCR rider effective date or the last rider reset date. - The PCR will terminate on the date: -- you make a full withdrawal from the contract, -- that a death benefit is payable, or -- you choose to begin taking annuity payouts. EXAMPLE: - You purchase the contract with a payment of $104,000 on Jan. 1, 2001. - There are no additional purchase payments and no partial withdrawals. - On Jan. 1, 2008, the contract value is $150,000. - We determine the target value on Jan. 1, 2008 as your purchase payments (there are no partial withdrawals to subtract) accumulated at an annual effective rate of 8% or: $104,000 x (1.08)To The Power of 7 = $104,000 x 1.71382 = $178,237.72. Your contract value ($150,000) is less than the target value ($178,237.72) so we will add a PCR credit to your contract equal to 3% of your purchase payments (there are no partial withdrawals or purchase payments made in the last five years to subtract), which is: 0.03 x $104,000 = $3,120. After application of the PCR credit, your total contract value on Jan. 1, 2008 would be $153,120. - On Jan. 1, 2011, the contract value is $220,000. - We determine the target value on Jan. 1, 2011 as your purchase payments (there are no partial withdrawals to subtract) accumulated at an annual effective rate of 8% or: $104,000 x (1.08)To The Power of 10 = $104,000 x 2.158924 = $224,528.20 Your contract value ($220,000) is less than the target value ($224,528.20) so we will add a PCR credit to your contract equal to 5% of your purchase payments (there are no partial withdrawals or purchase payments made in the last five years to subtract), which is: 0.05 x $104,000 = $5,200. After application of the PCR credit, your total contract value on Jan. 1, 2011 would be $225,200. - The PCR calculation period automatically restarts on Jan. 1, 2011 with the target values first year's payments equal to $225,200. We would make the next PCR credit determination on Jan. 1, 2018. -------------------------------------------------------------------------------- AMERICAN EXPRESS SIGNATURE VARIABLE ANNUITY -- PROSPECTUS 47 THE ANNUITY PAYOUT PERIOD As owner of the contract, you have the right to decide how and to whom annuity payouts will be made starting at the retirement date. You may select one of the annuity payout plans outlined below, or we may mutually agree on other payout arrangements. We do not deduct any withdrawal charges under the payout plans listed below. You also decide whether we will make annuity payouts on a fixed or variable basis, or a combination of fixed and variable. The 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 one-year fixed account to provide fixed dollar payouts and/or among the subaccounts to provide variable annuity payouts. During the annuity payout period, we reserve the right to limit the number of subaccounts in which you may invest. The Guarantee Period Accounts are not available during this payout period. AMOUNTS OF FIXED AND VARIABLE PAYOUTS DEPEND ON: - the annuity payout plan you select; - the annuitant's age and, in most cases, sex; - the annuity table in the contract; and - the amounts you allocated to the accounts at settlement. In addition, for variable payouts only, amounts depend on the investment performance of the subaccounts you select. These payouts will vary from month to month because the performance of the funds will fluctuate. (In the case of fixed annuities, payouts remain the same from month to month.) For information with respect to transfers between accounts after annuity payouts begin, see "Making the Most of Your Contract -- Transfer policies." ANNUITY TABLES The annuity tables in your contract show the amount of the monthly payout 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.) Table B shows the minimum amount of each fixed payout. Amounts in Table B are based on the guaranteed annual effective interest rate shown in your contract. We declare current payout rates that we use in determining the actual amount of your fixed payout. The current payout rates will equal or exceed the guaranteed payout rates shown in Table B. We will furnish these rates to you upon request. Table A shows the amount of the first monthly variable payout assuming 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. 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 A 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 Table A results in a higher initial payment, but later payouts will increase more slowly when annuity unit values rise and decrease more rapidly when they decline. -------------------------------------------------------------------------------- 48 AMERICAN EXPRESS SIGNATURE VARIABLE ANNUITY -- PROSPECTUS 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 payout. The discount rate we use in the calculation will vary between 5.27% and 6.77% depending on the applicable assumed investment rate. (See "Charges -- Withdrawal charge under Annuity Payout Plan E.") You can also take a portion of the discounted value once a year. If you do so, your monthly payouts will be reduced by the proportion of your withdrawal to the full discounted value. A 10% IRS penalty tax could apply if you take a withdrawal. (See "Taxes.") ANNUITY PAYOUT PLAN REQUIREMENTS FOR QUALIFIED ANNUITIES: If you purchased a qualified annuity, you must select a payout plan as of the retirement date set forth in your contract. You have the responsibility for electing a payout plan that complies with your contract and with applicable law. Your contract describes your payout plan options. The options will meet certain IRS regulations governing required minimum distributions if the payout plan meets the incidental distribution benefit requirements, if any, and the payouts are made: - in equal or substantially equal payments over a period not longer than the life of the annuitant or over the life of the annuitant and designated beneficiary; or - in equal or substantially equal payments over a period not longer than the life expectancy of the annuitant or over the life expectancy of the annuitant and designated beneficiary; or - over a period certain not longer than the life expectancy of the annuitant or over the life expectancy of the annuitant and designated beneficiary. IF WE DO NOT RECEIVE INSTRUCTIONS: You must give us written instructions for the annuity payouts at least 30 days before the annuitant's retirement date. If you do not, we will make payouts under Plan B, with 120 monthly payouts guaranteed. Contract values that you allocated to the one-year fixed account will provide fixed dollar payouts and contract values that you allocated among the subaccounts will provide variable annuity payouts. IF MONTHLY PAYOUTS WOULD BE LESS THAN $20: We will calculate the amount of monthly payouts at the time the contract value is used to purchase a payout plan. If the calculations show that monthly payouts would be less than $20, we have the right to pay the contract value to 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. -------------------------------------------------------------------------------- AMERICAN EXPRESS SIGNATURE VARIABLE ANNUITY -- PROSPECTUS 49 TAXES Generally, under current law, your contract has a tax-deferral feature. This means any increase in the value of the fixed accounts and/or subaccounts in which you invest is taxable to you only when you receive a payout or withdrawal (see detailed discussion below). Any portion of the annuity payouts and any withdrawals you request that represent ordinary income normally are taxable. We will send you a tax information reporting form for any year in which we made a taxable distribution according to our records. Roth IRAs may grow and be distributed tax free if you meet certain distribution requirements. Annuity payouts under nonqualified annuities: A portion of each payout will be ordinary income and subject to tax, and a portion of each payout will be considered a return of part of your investment and will not be taxed. All amounts you receive after your investment in the contract is fully recovered will be subject to tax. Tax law requires that all nonqualified deferred annuity contracts issued by the same company (and possibly its affiliates) to the same owner during a calendar year be taxed as a single, unified contract when you take distributions from any one of those contracts. Qualified annuities: When you use your contract to fund a retirement plan that is already tax deferred under the Code, the contract will not provide any necessary or additional tax deferral for the retirement plan. Adverse tax consequences may result if you do not ensure that contributions, distributions and other transactions under the contract comply with the law. Qualified annuities have minimum distribution rules that govern the timing and amount of distributions during your life (except for Roth IRAs) and after your death. You should refer to your retirement plan or adoption agreement, or consult a tax advisor for more information about these distribution rules. Annuity payouts under qualified annuities (except Roth IRAs): Under a qualified annuity, the entire payout generally is includable as ordinary income and is subject to tax except to the extent that contributions were made with after-tax dollars. If you or your employer invested in your contract with deductible or pre-tax dollars as part of a tax-deferred retirement plan, such amounts are not considered to be part of your investment in the contract and will be taxed when paid to you. Contract value credits and PCR credits: These are considered earnings and are taxed accordingly. Withdrawals: If you withdraw part or all of your contract before your annuity payouts begin, your withdrawal payment will be taxed to the extent that the value of your contract immediately before the withdrawal exceeds your investment. You also may have to pay a 10% IRS penalty for withdrawals you make before reaching age 59 1/2 unless certain exceptions apply. For qualified annuities, other penalties may apply if you make withdrawals from your contract before your plan specifies that you can receive payouts. Death benefits to beneficiaries: The entire death benefit generally is taxable as ordinary income to the beneficiary in the year he or she receives the payments. Annuities owned by Corporations, partnerships or trusts: For nonqualified annuities, any annual increase in the value of annuities held by such entities generally will be treated as ordinary income received during that year. This provision is effective for purchase payments made after Feb. 28, 1986. However, if the trust was set up for the benefit of a natural person only, the income will remain tax deferred. Penalties: If you receive amounts from your contract before reaching age 59 1/2, you may have to pay a 10% IRS penalty on the amount includable in your ordinary income. However, this penalty will not apply to any amount received: - 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); - if it is allocable to an investment before Aug. 14, 1982 (except for qualified annuities); or - after you separate from service after you attain age 55 for Tax-Sheltered Annuities under 403(b) of the Code. For a qualified annuity, other exceptions may apply if you make premature withdrawals. 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. -------------------------------------------------------------------------------- 50 AMERICAN EXPRESS SIGNATURE VARIABLE ANNUITY -- PROSPECTUS Some states also may impose withholding requirements similar to the federal withholding described above. If this should be the case, we may deduct state withholding from any payment from which we deduct federal withholding. The withholding requirements may differ if we are making payment to a non-U.S. citizen or if we deliver the payment outside the United States. WITHHOLDING FROM TSAS: If you receive directly all or part of the contract value from your TSA, mandatory 20% Federal income tax withholding (and possibly state income tax withholding) generally will be imposed at the time we make the payout. This mandatory withholding is in place of the elective withholding discussed above. This mandatory withholding will not be imposed if: - instead of receiving the distribution check, you elect to have the distribution rolled over directly to an IRA or another eligible plan; - the payout is one in a series of substantially equal periodic payouts, made at least annually, over your life or the life expectancy (or the joint lives or life expectancies of you and your designated beneficiary) or over a specified period of ten years or more; or - the payout is a minimum distribution required under the Code. Payments we make to a surviving spouse instead of being directly rolled over to an IRA also may be subject to a mandatory 20% income tax withholding. State withholding also may be imposed on taxable distributions. TRANSFER OF OWNERSHIP OF A NONQUALIFIED ANNUITY: If you transfer a nonqualified annuity without receiving adequate consideration, the transfer is a gift and also may be a withdrawal for federal income tax purposes. If the gift is a currently taxable event for income tax purposes, the original owner will be taxed on the amount of deferred earnings at the time of the transfer and also may be subject to the 10% IRS penalty discussed earlier. In this case, the new owner's investment in the contract will be the value of the contract at the time of the transfer. COLLATERAL ASSIGNMENT OF A NONQUALIFIED ANNUITY: If you collaterally assign or pledge your contract, earnings on purchase payments you made after Aug. 13, 1982 will be taxed to you like a withdrawal. IMPORTANT: Our discussion of federal tax laws is based upon our understanding of current interpretations of these laws. Federal tax laws or current interpretations of them may change. For this reason and because tax consequences are complex and highly individual and cannot always be anticipated, you should consult a tax advisor if you have any questions about taxation of your contract. TAX QUALIFICATION: We intend that the contract qualify as an annuity for federal income tax purposes. To that end, the provisions of the contract are to be interpreted to ensure or maintain such tax qualification, in spite of any other provisions of the contract. We reserve the right to amend the contract to reflect any clarifications that may be needed or are appropriate to maintain such qualification or to conform the contract to any applicable changes in the tax qualification requirements. We will send you a copy of any amendments. VOTING RIGHTS As a contract owner with investments in the subaccounts, you may vote on important fund policies until annuity payouts begin. Once they begin, the person receiving them has voting rights. We will vote fund shares according to the instructions of the person with voting rights. Before annuity payouts begin, the number of votes you have is determined by applying your percentage interest in each subaccount to the total number of votes allowed to the subaccount. After annuity payouts begin, the number of votes you have is equal to: - the reserve held in each subaccount for your contract; divided by - the net asset value of one share of the applicable fund. As we make annuity payouts, the reserve for the contract decreases; therefore, the number of votes also will decrease. We calculate votes separately for each subaccount. We will send notice of shareholders' meetings, proxy materials and a statement of the number of votes to which the voter is entitled. We will vote shares for which we have not received instructions in the same proportion as the votes for which we received instructions. We also will vote the shares for which we have voting rights in the same proportion as the votes for which we received instructions. -------------------------------------------------------------------------------- AMERICAN EXPRESS SIGNATURE VARIABLE ANNUITY -- PROSPECTUS 51 SUBSTITUTION OF INVESTMENTS We may substitute the funds in which the subaccounts invest if: - laws or regulations change; - the existing funds become unavailable; or - in our judgment, the funds no longer are suitable for the subaccounts. If any of these situations occur, and if we believe it is in the best interest of persons having voting rights under the contract, we have the right to substitute the funds currently listed in this prospectus for other funds. We may also: - add new subaccounts; - combine any two or more subaccounts; - make additional subaccounts investing in additional funds; - transfer assets to and from the subaccounts or the variable account; and - eliminate or close any subaccounts. In the event of substitution or any of these changes, we may amend the contract and take whatever action is necessary and appropriate without your consent or approval. However, we will not make any substitution or change without the necessary approval of the SEC and state insurance departments. We will notify you of any substitution or change. ABOUT THE SERVICE PROVIDERS PRINCIPAL UNDERWRITER American Express Financial Advisors Inc. (AEFA) serves as the principal underwriter for the contract. Its offices are located at 70100 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, a financial services company headquartered in New York City. The contracts will be distributed by broker-dealers which have entered into distribution agreements with AEFA and American Enterprise Life. 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. American Enterprise Life is a stock life insurance company organized in 1981 under the laws of the state of Indiana. Its administrative offices are located at 829 AXP Financial Center, Minneapolis, MN 55474. Its statutory address is 100 Capitol Center South, 201 North Illinois Street, Indianapolis, IN 46204. American Enterprise Life conducts a conventional life insurance business. American Enterprise Life pays cash compensation to the broker-dealers and insurance agencies who have entered into distribution agreements with American Enterprise Life and AEFA for the sale of contracts. This compensation will not result in any charge to contract owners or to the variable account in addition to the charges described in this prospectus. This cash compensation will not be more than 9.0% of the purchase payments it receives on the contracts. From time to time and in accordance with applicable laws and regulations we will pay or permit other promotional incentives, in cash or credit or other compensation. 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 the suits, RICHARD W. AND ELIZABETH J. THORESEN V. 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 on Oct. 13, 1998. The action was brought by individuals who purchased an annuity in a qualified plan. They allege that the sale of annuities in tax-deferred contributory retirement investment plans (e.g., IRAs) is never appropriate. The plaintiffs purport to represent a class consisting of all persons who made similar purchases. The plaintiffs seek damages in an unspecified amount, including restitution of allegedly lost investment earnings and restoration of contract values. In January 2000, AEFC reached an agreement in principle to settle the three class-action lawsuits described above. It is expected the settlement will provide $215 million of benefits to more than two million participants and for release by class members of all insurance and annuity market conduct claims dating back to 1985. -------------------------------------------------------------------------------- 52 AMERICAN EXPRESS SIGNATURE VARIABLE ANNUITY -- PROSPECTUS In August, 2000 an action entitled LESA BENACQUISTO, DANIEL BENACQUISTO, RICHARD THORESEN, ELIZABETH THORESEN, ARNOLD MORK, ISABELLA MORK, RONALD MELCHERT AND SUSAN MELCHERT V. AMERICAN EXPRESS FINANCIAL CORPORATION, AMERICAN EXPRESS FINANCIAL ADVISORS, AMERICAN CENTURION LIFE ASSURANCE COMPANY, AMERICAN ENTERPRISE LIFE INSURANCE COMPANY, AMERICAN PARTNERS LIFE INSURANCE COMPANY, IDS LIFE INSURANCE COMPANY AND IDS LIFE INSURANCE COMPANY OF NEW YORK was commenced in the United States District Court for the District of Minnesota. The complaint put at issue various alleged sales practices and misrepresentations and allegations of violations of federal laws. In September, 2000 the plaintiffs filed a consolidated complaint in State Court alleging the same claims as the previous actions. On Oct. 2, 2000 the District Court, Fourth Judicial District for the State of Minnesota, County of Hennepin and the United States District Court for the District of Minnesota entered an order conditionally certifying a class for settlement purposes, preliminarily approving the class settlement, directing the issuance of a class notice to the class and scheduling a hearing to determine the fairness of settlement for March, 2001. On March 6, 2001 the District Court, Fourth Judicial District for the State of Minnesota, County of Hennepin and the United States District Court for the District of Minnesota heard oral arguments on plaintiffs' motions for final approval of the class action settlement. Six motions to intervene were filed together with objections to the proposed settlement. We are awaiting a final order from the court. ADDITIONAL INFORMATION ABOUT AMERICAN ENTERPRISE LIFE SELECTED FINANCIAL DATA The following selected financial data for American Enterprise Life should be read in conjunction with the financial statements and notes.
Three months ended YEARS ENDED DEC. 31 (THOUSANDS) March 31, 2001 March 31, 2000 2000 1999 1998 1997 1996 ------------------------------------------------------------------------------------------------------------------------------------ Net investment income $ 69,460 $ 77,586 $ 299,759 $ 322,746 $ 340,219 $ 332,268 $ 271,719 Net loss on investments (18,542) (2,425) 469 6,565 (4,788) (509) (5,258) Other 3,765 2,289 12,248 8,338 7,662 6,329 5,753 Total revenues $ 54,863 $ 77,450 $ 312,476 $ 337,649 $ 343,093 $ 338,088 $ 272,214 Income before income taxes $ (11,624) $ 9,978 $ 38,452 $ 50,662 $ 36,421 $ 44,958 $ 35,735 Net income $ (7,637) $ 6,332 $ 24,365 $ 33,987 $ 22,026 $ 28,313 $ 22,823 Total assets $4,617,668 $4,532,394 $4,652,221 $4,603,343 $4,885,621 $4,973,413 $4,425,837 ------------------------------------------------------------------------------------------------------------------------------------
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS Three Months Ended March 31, 2001 Compared to Three Months Ended March 31, 2000: Net loss was $7.6 million in the first quarter of 2001, compared to net income of $6.3 million in the first quarter of 2000. Loss before income taxes totaled $11.6 million in the first quarter 2001, compared with income of $10.0 million in the first quarter of 2000. This decline primarily reflects a net pre-tax loss of $18.5 from the write-down and sale of certain high-yield securities. Total investment contract deposits received increased to $202 million in the first quarter of 2001, compared with $67 million in the first quarter of 2000. This increase is primarily due to an increase in variable annuity deposits received from sales. Total revenues decreased to $54.9 million in the first quarter of 2001, compared with $77.5 million in the first quarter of 2000. The decrease is primarily due to net realized losses on investments and decreases in net investment income. Net investment income, the largest component of revenues, decreased 10% from the same period of the prior year, reflecting a decrease in investments owned and lower investment yields. Policyholder and contractholder charges increased 13% to $1.7 million in the first quarter of 2001, compared with $1.5 million in the first quarter of 2000, reflecting an increase in annuity surrender charges. American Enterprise Life receives mortality and expense risk fees from the separate accounts. Mortality and expense risk fees increased 175% to $2.2 million in the first quarter of 2001, compared with $.8 million in the first quarter of 2000, reflecting an increase in separate account assets. Net realized loss on investments was $18.5 million in the first quarter of 2001, compared with a net loss of $2.4 million in the first quarter of 2000. The increase in net realized losses was primarily due to the loss on sale and writedowns of fixed maturity investments. Total benefits and expenses decreased 1% to $66.5 million in the first quarter of 2001, compared with $67.5 million in 2000. The largest component of expenses, interest credited on investment contracts, decreased $6.6 million to $42.5 million in the first quarter of 2001, compared to $49.1 in the first quarter of 2000, reflecting a decrease in fixed annuities in force and lower crediting rates. Amortization of deferred policy acquisition costs increased to $12.2 million, compared to $10.7 million in the first quarter of 2000. This increase was due primarily to increased aggregate amounts in force. Other operating expenses increased 55% to $11.9 million in the first quarter of 2001, compared to $7.7 million in the first quarter of 2000. This increase is mainly due to higher technology costs related to growth initiatives. -------------------------------------------------------------------------------- AMERICAN EXPRESS SIGNATURE VARIABLE ANNUITY -- PROSPECTUS 53 Three Months Ended March 31, 2000 Compared to Three Months Ended March 31, 1999: Net income decreased 2% to $6.3 million in the first quarter of 2000, compared to $6.5 million in the first quarter of 1999. Earnings decline resulted primarily from weak equity markets and narrower spreads on the investment portfolio. Total investment contract deposits received decreased to $67 million in the first quarter of 2000, compared with $71 million in the first quarter of 1999. This decrease is primarily due to a decrease in variable annuity deposits in 2000. Total revenues decreased to $77.5 million in the first quarter of 2000, compared with $78.3 million in the first quarter of 1999. The decrease is primarily due to a decrease in net investment income. Net investment income, the largest component of revenues, decreased 4% from the same period of the prior year, reflecting a decrease in investments owned and lower investment yields. Policyholder and contractholder charges increased 25% to $1.5 million in the first quarter of 2000, compared with $1.2 million in the first quarter of 1999, reflecting an increase in annuity surrender charges. American Enterprise Life receives mortality and expense risk fees from the separate accounts. Mortality and expense risk fees increased 60% to $.8 million in the first quarter of 2000, compared with $.5 million in the first quarter of 1999, this reflects the increase in separate account assets. Net realized loss on investments was $2.4 million in the first quarter of 2000, compared with a net loss of $3.8 million in 1999. The net realized loss was primarily due to losses on the sale and writedown of fixed maturity investments. Total benefits and expenses decreased 1% to $67.5 million in the first quarter of 2000, compared with $68.3 million in 1999. The largest component of expenses, interest credited on investment contracts, decreased $3.2 million to $49.1 million for the first quarter of 2000, compared to $52.3 million in the first quarter of 1999. This reflects a decrease in fixed annuities in force and lower crediting rates. Amortization of deferred policy acquisition costs increased to $10.7 million, compared to $9.2 million in the first quarter of 1999. This increase was due primarily to increased aggregate amounts in force. Other operating expenses increased 15% to $7.7 million in the first quarter of 2000, compared to $6.7 million in the first quarter of 1999. This increase is mainly due to higher technology costs related to growth initiatives. DEC. 31, 2000 COMPARED TO DEC. 31, 1999: Net income decreased 29% to $24 million in 2000, compared to $34 million in 1999. Income before income taxes totaled $38 million in 2000, compared with $51 million in 1999. The decrease was primarily the result of lower net investment income of $300 million in 2000, compared with $323 million in 1999. Total investment contract deposits received increased to $721 million in 2000, compared with $336 million in 1999. This increase is primarily due to an increase in variable annuity deposits in 2000. Total revenues decreased to $312 million in 2000, compared with $338 million in 1999. The decrease is primarily due to decreases in net investment income and net realized gains on investments. Net investment income, the largest component of revenues, decreased 7% from the prior year, reflecting a decrease in investments owned and lower investment yields. Policyholder and contractholder charges increased 13% to $6.9 million in 2000, compared with $6.1 million in 1999, reflecting an increase in annuity withdrawal charges. American Enterprise Life receives mortality and expense risk fees from the separate accounts. Mortality and expense risk fees increased 135% to $5.4 million in 2000, compared with $2.3 million in 1999, this reflects the increase in separate account assets. Net realized gain on investments was $0.5 million in 2000, compared with $6.6 million in 1999. The decrease in net realized gains was primarily due to the loss on sale and writedowns of fixed maturity investments. Total benefits and expenses decreased 5% to $274 million in 2000, compared with $287 million in 1999. The largest component of expenses, interest credited on investment contracts, decreased to $191 million, reflecting a decrease in fixed annuities in force and lower crediting rates. Amortization of deferred policy acquisition costs increased to $48 million, compared to $43 million in 1999. This increase was due primarily to increased aggregate amounts in force. Other operating expenses remained steady at $35 million in 2000. DEC. 31, 1999 COMPARED TO DEC. 31, 1998: Net income increased 54% to $34 million in 1999, compared to $22 million in 1998. Earnings growth resulted primarily net realized gains of $6.6 million in 1999, compared to net realized losses of $4.8 in 1998. Income before income taxes totaled $51 million in 1999, compared with $36 million in 1998. Total investment contract deposits received decreased to $336 million in 1999, compared with $348 million in 1998. This decrease is primarily due to a decrease in sales of variable annuities in 1999. Total revenues decreased to $338 million in 1999, compared with $343 million in 1998. The decrease is primarily due to decreased net investment income which was partially offset by an increase in realized gain on investments. Net investment income, the largest component of revenues, decreased 5% from the prior year, reflecting decreases in investments owned and investment yields. -------------------------------------------------------------------------------- 54 AMERICAN EXPRESS SIGNATURE VARIABLE ANNUITY -- PROSPECTUS Contractholder charges decreased 5% to $6.1 million in 1999, compared with $6.4 million in 1998, reflecting a decrease in fixed annuities inforce. American Enterprise Life receives mortality and expense risk fees from the separate accounts. Mortality and expense risk fees increased 77% to $2.3 million in 1999, compared with $1.3 million in 1998, this reflects the increase in separate account assets. Net realized gain on investments was $6.6 million in 1999, compared to a net realized loss on investments of $4.8 million in 1998. The net realized gains were primarily due to the sale of available for sale fixed maturity investments at a gain as well as a decrease in the allowance for mortgage loan losses based on management's regular evaluation of allowance adequacy. Total benefits and expenses decreased slightly to $287 million in 1999. The largest component of expenses, interest credited on investment contracts, decreased to $209 million, reflecting a decrease in fixed annuities in force and lower interest rates. Amortization of deferred policy acquisition costs decreased to $43 million, compared to $54 million in 1998. This decrease was due primarily to decreased aggregate amounts in force, as well as the impact of changing prospective assumptions in 1998 based on actual lapse experience on certain fixed annuities. Other operating expenses increased 46% to $35 million in 1999, compared to $24 million in 1998. This increase primarily reflects technology costs related to growth initiatives. RISK MANAGEMENT The sensitivity analysis of the test of market risk discussed below estimates the effects of hypothetical sudden and sustained changes in the applicable market conditions on the ensuing year's earnings based on year-end positions. The market changes, assumed to occur as of year-end, is a 100 basis point increase in market interest rates. Computations of the prospective effects of hypothetical interest rate change based on numerous assumptions, including relative levels of market interest rates as well as the levels of assets and liabilities. The hypothetical changes and assumptions will be different from what actually occurs in the future. Furthermore, the computations do not anticipate actions that may be taken by management if the hypothetical market changes actually occurred over time. As a result, actual earnings effects in the future will differ from those quantified below. American Enterprise Life primarily invests in fixed income securities over a broad range of maturities for the purpose of providing fixed annuity clients with a competitive rate of return on their investments while minimizing risk, and to provide a dependable and targeted spread between the interest rate earned on investments and the interest rate credited to contractholders' accounts. American Enterprise Life does not invest in securities to generate trading profits. American Enterprise Life has an investment committee that holds regularly scheduled meetings and, when necessary, special meetings. At these meetings, the committee reviews models projecting different interest rate scenarios and their impact on profitability. The objective of the committee is to structure the investment security portfolio based upon the type and behavior of products in the liability portfolio so as to achieve targeted levels of profitability. Rates credited to contractholders' accounts are generally reset at shorter intervals than the maturity of underlying investments. Therefore, margins may be negatively impacted by increases in the general level of interest rates. Part of the committee's strategy includes the purchase of some types of derivatives, such as interest rate caps, swaps and floors, for hedging purposes. These derivatives protect margins by increasing investment returns if there is a sudden and severe rise in interest rates, thereby mitigating the impact of an increase in rates credited to contractholders' accounts. The negative effect on American Enterprise Life's pretax earnings of a 100 basis point increase in interest rates, which assumes repricings and customer behavior based on the application of proprietary models to the book of business at Dec. 31, 2000, would be approximately $4.6 million. LIQUIDITY AND CAPITAL RESOURCES The liquidity requirements of American Enterprise Life are met by funds provided by annuity considerations, investment income, proceeds from sales of investments as well as maturities and periodic repayments of investment principal. The primary uses of funds are policy benefits, commissions and operating expenses, policy loans, and investment purchases. American Enterprise Life has an available line of credit with AEFC aggregating $50 million. The line of credit is used strictly as a short-term source of funds. No borrowings were outstanding under the agreement at Dec. 31, 2000. At Dec. 31, 2000, outstanding reverse repurchase agreements totaled $25 million. At Dec. 31, 2000, investments in fixed maturities comprised 80% of American Enterprise Life's total invested assets. Of the fixed maturity portfolio, approximately 30% is invested in GNMA, FNMA and FHLMC mortgage-backed securities which are considered AAA/Aaa quality. At Dec. 31, 2000, approximately 15% of American Enterprise Life's investments in fixed maturities were below investment grade bonds. These investments may be subject to a higher degree of risk than the investment grade issues because of the borrower's generally greater sensitivity to adverse economic conditions, such as recession or increasing interest rates, and in certain instances, the lack of an active secondary market. Expected returns on below investment grade bonds reflect consideration of such factors. American Enterprise Life has identified those fixed maturities for which a decline in fair value is determined to be other than temporary, and has written them down to fair value with a charge to earnings. -------------------------------------------------------------------------------- AMERICAN EXPRESS SIGNATURE VARIABLE ANNUITY -- PROSPECTUS 55 At Dec. 31, 2000, net unrealized depreciation on fixed maturities held to maturity included $10.7 million of gross unrealized appreciation and $17.8 million of gross unrealized depreciation. Net unrealized depreciation on fixed maturities available for sale included $30.2 million of gross unrealized appreciation and $125.6 million of gross unrealized depreciation. At Dec. 31, 2000, American Enterprise Life had an allowance for losses for mortgage loans totaling $3.3 million. The economy and other factors have caused a number of insurance companies to go under regulatory supervision. This circumstance has resulted in assessments by state guaranty associations to cover losses to policyholders of insolvent or rehabilitated companies. Some assessments can be partially recovered through a reduction in future premium taxes in certain states. American Enterprise Life established an asset for guaranty association assessments paid to those states allowing a reduction in future premium taxes over a reasonable period of time. The asset is being amortized as premium taxes are reduced. American Enterprise Life has also estimated the potential effect of future assessments on American Enterprise Life's financial position and results of operations and has established a reserve for such potential assessments. The National Association of Insurance Commissioners has established risk-based capital standards to determine the capital requirements of a life insurance company based upon the risks inherent in its operations. These standards require the computation of a risk-based capital amount which is then compared to a company's actual total adjusted capital. The computation involves applying factors to various statutory financial data to address four primary risks: asset default, adverse insurance experience, interest rate risk and external events. These standards provide for regulatory attention when the percentage of total adjusted capital to authorized control level risk-based capital is below certain levels. As of Dec. 31, 2000, American Enterprise Life's total adjusted capital was well in excess of the levels requiring regulatory attention. RESERVES In accordance with the insurance laws and regulations under which we operate, we are obligated to carry on our books, as liabilities, actuarially determined reserves to meet our obligations on our outstanding annuity contracts. We base our reserves for deferred annuity contracts on accumulation value and for fixed annuity contracts in a benefit status on established industry mortality tables. These reserves are computed amounts that will be sufficient to meet our policy obligations at their maturities. INVESTMENTS Of our total investments of $3,735,994 at Dec. 31, 2000, 27% was invested in mortgage-backed securities, 54% in corporate and other bonds, 19% in primary mortgage loans on real estate and less than 1% in other investments. COMPETITION We are engaged in a business that is highly competitive due to the large number of stock and mutual life insurance companies and other entities marketing insurance products. There are over 1,600 stock, mutual and other types of insurers in the life insurance business. BEST'S INSURANCE REPORTS, Life-Health edition 2000, assigned us one of its highest classifications, A+ (Superior). EMPLOYEES As of Dec. 31, 2000, we had no employees. PROPERTIES We occupy office space in Minneapolis, MN, which is leased by AEFC. We reimburse AEFC for rent based on direct and indirect allocation methods. Facilities occupied by us are believed to be adequate for the purposes for which they are used and well maintained. STATE REGULATION American Enterprise Life is subject to the laws of the State of Indiana governing insurance companies and to the regulations of the Indiana Department of Insurance. An annual statement in the prescribed form is filed with the Indiana Department of Insurance each year covering our operation for the preceding year and its financial condition at the end of such year. Regulation by the Indiana Department of Insurance includes periodic examination to determine American Enterprise's contract liabilities and reserves so that the Indiana Department of Insurance may certify that these items are correct. The Company's books and accounts are subject to review by the Indiana Department of Insurance at all times. Such regulation does not, however, involve any supervision of the account's management or the company's investment practices or policies. In addition, American Enterprise Life is subject to regulation under the insurance laws of other jurisdictions in which it operates. A full examination of American Enterprise Life's operations is conducted periodically by the National Association of Insurance Commissioners. Under insurance guaranty fund laws, in most states, insurers doing business therein can be assessed up to prescribed limits for policyholder losses incurred by insolvent companies. Most of these laws do provide however, that an assessment may be excused or deferred if it would threaten an insurer's own financial strength. -------------------------------------------------------------------------------- 56 AMERICAN EXPRESS SIGNATURE VARIABLE ANNUITY -- PROSPECTUS DIRECTORS AND EXECUTIVE OFFICERS* The directors and principal executive officers of American Enterprise Life and the principal occupation of each during the last five years is as follows: DIRECTORS GUMER C. ALVERO Born in 1967 Director, chairman of the board and executive vice president - Annuities since January 2001; vice president - Variable Annuities, AEFC, since April 1998; executive assistant to president/CEO, AEFC, from April 1996 to April 1998. CAROL A. HOLTON Born in 1952 Director, president and chief executive officer since January 2001; vice president - Third Party Distribution, AEFC, since April 1998; director - Distributor Services, AEFC, from September 1997 to April 1998; director - Business Systems and Operations, F&G Life, from July 1996 to August 1997. PAUL S. MANNWEILER** Born in 1949 Director since 1986; Partner at Locke Reynolds Boyd & Weisell since 1980. TERESA J. RASMUSSEN Born in 1956 Director, vice president, general counsel and secretary since December 2000; vice president and assistant general counsel, AEFC, since August 2000; assistant vice president, AEFC, from October 1995 to August 2000. OFFICERS OTHER THAN DIRECTORS LORRAINE R. HART Born in 1951 Vice president - Investments since 1992; vice president - Insurance Investments, AEFC since 1998; and vice president - Investments, American Express Certificate Company since 1994. STUART A. SEDLACEK Born in 1957 Executive vice president since 1998; executive vice president - Assured Assets, 1994 to 1998; senior vice president and chief financial officer, AEFC, since 1998; vice president, AEFC, from September 1988 to 1998. PHILIP C. WENTZEL Born in 1961 Vice president and controller since 1998; director of financial reporting and analyses, AEFC, from 1992 to 1997. DAVID L. YOWAN Born in 1957 Vice president and treasurer since March 2001; senior vice president and assistant treasurer of American Express Company since January 1999; vice president and corporate treasurer, AEFC, since April 2001; senior portfolio and risk management officer for the North American Consumer Bank of Citigroup from August 1987 to January 1999. * The address for all of the directors and principal officers is: 200 AXP Financial Center, Minneapolis, MN 55474 except for Mr. Mannweiler who is an independent director. ** Mr. Mannweiler's address is: 201 No. Illinois Street, Indianapolis, IN 46204 -------------------------------------------------------------------------------- AMERICAN EXPRESS SIGNATURE VARIABLE ANNUITY -- PROSPECTUS 57 EXECUTIVE COMPENSATION Our executive officers also may serve one or more affiliated companies. The following table reflects cash compensation paid to the five most highly compensated executive officers as a group for services rendered in the most recent year to us and our affiliates. The table also shows the total cash compensation paid to all our executive officers, as a group, who were executive officers at any time during the most recent year.
NAME OF INDIVIDUAL OR NUMBER IN GROUP POSITION HELD CASH COMPENSATION Five most highly compensated executive officers as a group: $ 8,138,209 Stephen W. Roszell President and Chief Executive Officer Richard W. Kling Chairman of the Board Lorraine R. Hart Vice President - Investments David M. Kuplic Assistant Vice President - Investments Stuart A. Sedlacek Executive Vice President All executive officers as a group (11) $11,289,475
SECURITY OWNERSHIP OF MANAGEMENT Our directors and officers do not beneficially own any outstanding shares of stock of the company. All of our outstanding shares of stock are beneficially owned by IDS Life. The percentage of shares of IDS Life owned by any director, and by all our directors and officers as a group, does not exceed 1% of the class outstanding. EXPERTS Ernst & Young LLP, independent auditors, have audited the financial statements of American Enterprise Life Insurance Company at Dec. 31, 2000 and 1999, and for each of the three years in the period ended Dec. 31, 2000, and the individual and combined statements of the segregated asset subaccounts of American Enterprise Variable Annuity Account as of Dec. 31, 2000 and for the periods indicated therein, as set forth in their reports. We've included our financial statements in the prospectus and elsewhere in the registration statement in reliance on Ernst & Young LLP's reports, given on their authority as experts in accounting and auditing. -------------------------------------------------------------------------------- 58 AMERICAN EXPRESS SIGNATURE VARIABLE ANNUITY -- PROSPECTUS American Enterprise Life Insurance Company Balance sheet March 31, 2001 (unaudited) ($ thousands, except share amounts) Assets Investments: Fixed maturities: Available for sale, at fair value (amortized cost: $2,938,428) $2,983,792 Mortgage loans on real estate 715,916 Other investments 918 ------------------------------------------------------------------------------- Total investments 3,700,626 Cash and cash equivalents 78,310 Amounts due from brokers 2,244 Accounts receivable 893 Accrued investment income 48,281 Deferred policy acquisition costs 200,740 Deferred income taxes 17,815 Other assets 8,560 Separate account assets 560,199 ------------------------------------------------------------------------------- Total assets $4,617,668 =============================================================================== Liabilities and Stockholder's Equity Liabilities: Future policy benefits: Fixed annuities $3,536,944 Universal life-type insurance 8 Policy claims and other policyholders' funds 5,291 Amounts due to brokers 2,077 Other liabilities 56,813 Separate account liabilities 560,199 ------------------------------------------------------------------------------- Total liabilities 4,161,332 Stockholder's equity: Capital stock, $150 par value per share; 100,000 shares authorized, 20,000 shares issued and outstanding 3,000 Additional paid-in capital 281,872 Accumulated other comprehensive loss: Net unrealized securities losses (8,450) Net unrealized derivative losses (27,987) Retained earnings 207,901 ------------------------------------------------------------------------------- Total stockholder's equity 456,336 ------------------------------------------------------------------------------- Total liabilities and stockholder's equity $4,617,668 =============================================================================== See accompanying notes. -------------------------------------------------------------------------------- AMERICAN EXPRESS SIGNATURE VARIABLE ANNUITY -- PROSPECTUS 59 American Enterprise Life Insurance Company Statements of income Three months ended March 31, (unaudited) ($ thousands) 2001 2000 Revenues: Policyholder and contractholder charges $ 1,746 $ 1,476 Mortality and expense risk fees 2,199 813 Net investment income 69,460 77,586 Net realized loss on investments (18,542) (2,425) -------------------------------------------------------------------------------- Total revenues 54,863 77,450 ------------------------------------------------------------------------------- Benefits and expenses: Interest credited on investment contracts 42,473 49,052 Amortization of deferred policy acquisition costs 12,155 10,745 Other operating expenses 11,859 7,675 ------------------------------------------------------------------------------- Total benefits and expenses 66,487 67,472 ------------------------------------------------------------------------------- (Loss) income before income taxes (11,624) 9,978 Income taxes (3,987) 3,646 ------------------------------------------------------------------------------- Net (loss) income $ (7,637) $ 6,332 =============================================================================== See accompanying notes. -------------------------------------------------------------------------------- 60 AMERICAN EXPRESS SIGNATURE VARIABLE ANNUITY -- PROSPECTUS American Enterprise Life Insurance Company Statements of cash flows Three months ended March 31, (unaudited) ($ thousands) 2001 2000 Cash flows from operating activities: Net (loss) income $ (7,637) $ 6,332 Adjustments to reconcile net (loss) income to net cash provided by operating activities: Change in accrued investment income 6,660 2,481 Change in accounts receivable (26) (2) Change in other assets 2,791 (11) Change in deferred policy acquisition costs, net (2,118) 4,306 Change in policy claims and other policyholders' funds (4,004) (4,317) Deferred income tax provision (5,077) (1,883) Change in other liabilities 5,225 12,723 (Accretion of discount) amortization of premium, net (58) 641 Net realized loss on investments 18,542 2,425 Other, net 4,514 (131) ------------------------------------------------------------------------------- Net cash provided by operating activities 18,812 22,564 Cash flows from investing activities: Fixed maturities held to maturity: Maturities, sinking fund payments and calls -- 10,022 Fixed maturities available for sale: Purchases (39,196) (1,496) Maturities, sinking fund payments and calls 49,904 58,318 Sales 76,926 5,495 Other investments, excluding policy loans: Purchases (1,696) (1,388) Sales 9,789 12,779 Change in amounts due from brokers (928) -- Change in amounts due to brokers (22,310) 275 -------------------------------------------------------------------------------- Net cash provided by investing activities 72,489 84,005 Cash flows from financing activities: Activity related to universal life-type insurance and investment contracts: Considerations received 159,985 52,023 Surrenders and death benefits (250,299) (207,644) Interest credited to account balances 42,471 49,052 ------------------------------------------------------------------------------- Net cash used in financing activities (47,843) (106,569) -------------------------------------------------------------------------------- Net increase in cash and cash equivalents 43,458 -- Cash and cash equivalents at beginning of period 34,852 -- ------------------------------------------------------------------------------- Cash and cash equivalents at end of period $ 78,310 $ -- =============================================================================== See accompanying notes. -------------------------------------------------------------------------------- AMERICAN EXPRESS SIGNATURE VARIABLE ANNUITY -- PROSPECTUS 61 American Enterprise Life Insurance Company Notes to Financial Statements (unaudited) ($ thousands) 1. GENERAL In the opinion of the management of American Enterprise Life Insurance Company (the Company), the accompanying unaudited financial statements contain all adjustments (consisting of normal recurring adjustments) necessary to present fairly its balance sheet as of March 31, 2001 and the related statements of income and cash flows for the three month periods ended March 31, 2001 and 2000. 2. NEW ACCOUNTING PRONOUNCEMENT In June 1998, the Financial Accounting Standards Board (FASB) issued, and subsequently amended, Statement of Financial Accounting Standards (SFAS) No. 133, "Accounting for Derivative Instruments and Hedging Activities," which the Company adopted on January 1, 2001. This Statement establishes accounting and reporting standards for derivative instruments, including some embedded in other contracts, and hedging activities. It requires that an entity recognize all derivatives as either assets or liabilities on the balance sheet and measure those instruments at fair value. Derivatives that are not hedges must be adjusted to fair value through income. Changes in the fair value of a derivative are recorded in income or directly to equity, depending on the instrument's designated use. For those derivative instruments that are designated and qualify as hedging instruments under SFAS 133, a company must designate the hedging instrument, based upon the exposure being hedged, as either a fair value hedge, cash flow hedge or a hedge of a net investment in a foreign operation. For derivative instruments not designated as hedging instruments per SFAS 133, changes in fair value are adjusted immediately through earnings. Currently, the Company does not carry derivatives that are designated or qualify as hedging instruments under SFAS No. 133. Because of changes to the rules for hedging investments, the transition provisions of SFAS 133, as amended, permitted held-to-maturity securities under SFAS No. 115, "Accounting for Certain Investments in Debt and Equity Securities," to be reclassified at the date of adoption to available-for-sale or trading. The Company reclassified all held-to-maturity securities to available-for-sale upon adoption. Prior to adopting SFAS No. 133, the Company's interest rate caps, floors and swaps qualified as cash flow hedges. The derivatives do not qualify for hedge accounting per SFAS No. 133. For "pre-existing" cash flow-type hedges, the transition adjustment upon adoption of SFAS No. 133 was reported in accumulated other comprehensive income (OCI) as a cumulative effect of an accounting change. This resulted in a decrease of $34,727 to other comprehensive income (OCI), net of tax. The Company estimates $7,500 of net derivative losses included in OCI will be reclassified into earnings within the next twelve months. The adoption of SFAS No. 133 did not have a significant impact on the Company's results of operations. 3. COMPREHENSIVE INCOME Total comprehensive income (loss) was $18,022 and ($4,551) for the three months ended March 31, 2001 and 2000, respectively. March 31, 2001 March 31, 2000 Net (Loss) Income $ (7,637) $ 6,332 Other comprehensive loss Unrealized gains on available-for-sale securities, net of tax 53,646 (10,883) Net unrealized loss on derivative instruments, net of tax (27,987) -- -------------------------------------------------------------------------------- Total comprehensive income $ 18,022 $ (4,551) -------------------------------------------------------------------------------- 4. INCOME TAXES The Company's effective income tax rate was 34.3% for the three months ended March 31, 2001 compared to 36.5% for the three months ended March 31, 2000. The net impact of changes in state tax rules for certain states had a favorable impact on the effective tax rate for the Company. -------------------------------------------------------------------------------- 62 AMERICAN EXPRESS SIGNATURE VARIABLE ANNUITY -- PROSPECTUS American Enterprise Life Insurance Company ------------------------------------------------------------------------------- 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, 2000 and 1999, and the related statements of income, stockholder's equity and cash flows for each of the three years in the period ended December 31, 2000. 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, 2000 and 1999, and the results of its operations and its cash flows for each of the three years in the period ended December 31, 2000, in conformity with accounting principles generally accepted in the United States. /S/ Ernst & Young LLP Ernst & Young LLP February 8, 2001 Minneapolis, Minnesota American Enterprise Life Insurance Company ------------------------------------------------------------------------------- Balance sheets December 31, ($ thousands, except share amounts) 2000 1999 Assets Investments: Fixed maturities: Held to maturity, at amortized cost (fair value: 2000, $927,031; 1999, $984,103) $ 934,091 $1,006,349 Available for sale, at fair value (amortized cost: 2000, $2,163,906; 1999, $2,411,799) 2,068,487 2,304,487 --------- --------- 3,002,578 3,310,836 Mortgage loans on real estate 724,009 785,253 Other investments 9,407 11,470 ----- ------ Total investments 3,735,994 4,107,559 Cash and cash equivalents 34,852 -- Amounts due from brokers 1,316 -- Accounts receivable 867 316 Accrued investment income 54,941 56,676 Deferred policy acquisition costs 198,622 180,288 Deferred income taxes 26,350 37,501 Other assets 9,969 9 Separate account assets 589,310 220,994 ------- ------- Total assets $4,652,221 $4,603,343 ========== ========== Liabilities and stockholder's equi1ty Liabilities: Future policy benefits for: Fixed annuities $3,584,784 $3,921,513 Universal life-type insurance 10 -- Policy claims and other policyholders' funds 9,295 12,097 Amounts due to brokers 24,387 25,215 Other liabilities 6,326 17,436 Separate account liabilities 589,310 220,994 ------- ------- Total liabilities 4,214,112 4,197,255 Commitments and contingencies 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: Net unrealized securities losses (62,097) (69,753) Retained earnings 215,334 190,969 ------- ------- Total stockholder's equity 438,109 406,088 ------- ------- Total liabilities and stockholder's equity $4,652,221 $4,603,343 ========== ========== See accompanying notes. American Enterprise Life Insurance Company ------------------------------------------------------------------------------- Statements of income Years ended December 31, ($ thousands) 2000 1999 1998 Revenues: Net investment income $299,759 $322,746 $340,219 Policyholder and contractholder charges 6,865 6,069 6,387 Mortality and expense risk fees 5,383 2,269 1,275 Net realized gain (loss) on investments 469 6,565 (4,788) --- ----- ------ Total revenues 312,476 337,649 343,093 ------- ------- ------- Benefits and expenses: Interest credited on investment contracts 191,040 208,583 228,533 Amortization of deferred policy acquisition costs 47,676 43,257 53,663 Other operating expenses 35,308 35,147 24,476 ------ ------ ------ Total benefits and expenses 274,024 286,987 306,672 ------- ------- ------- Income before income taxes 38,452 50,662 36,421 Income taxes 14,087 16,675 14,395 ------ ------ ------ Net income $ 24,365 $ 33,987 $ 22,026 ======== ======== ======== See accompanying notes. American Enterprise Life Insurance Company -------------------------------------------------------------------------------
Statements of stockholder's equity Accumulated Other Total Additional Comprehensive Stockholder's Capital Paid-In (Loss) Income, Retained Three years ended December 31, ($ thousands) Equity Stock Capital Net of Tax Earnings Balance, January 1, 1998 $ 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 of $2,179 (4,047) -- -- (4,047) -- ------ ----- ----- ------ ----- 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 Comprehensive income: Net income 24,365 -- -- -- 24,365 Unrealized holding gains arising during the year, net of taxes of $(4,812) 8,937 -- -- 8,937 -- Reclassification adjustment for gains included in net income, net of tax of $690 (1,281) -- -- (1,281) -- ------ ----- ----- ------ ----- Other comprehensive income 7,656 -- -- 7,656 -- ----- ----- ----- ----- ----- Comprehensive income 32,021 ------ Balance, December 31, 2000 $ 438,109 $2,000 $282,872 $ (62,097) $215,334 ========= ====== ======== =========== ======== See accompanying notes.
American Enterprise Life Insurance Company -------------------------------------------------------------------------------
Statements of cash flows Years ended December 31, ($ thousands) 2000 1999 1998 Cash flows from operating activities: Net income $ 24,365 $ 33,987 $ 22,026 Adjustments to reconcile net income to net cash (used in) provided by operating activities: Change in accrued investment income 1,735 5,064 (2,152) Change in accounts receivable (551) (102) 349 Change in deferred policy acquisition costs, net (18,334) 16,191 28,022 Change in other assets (9,960) 34 74 Change in policy claims and other policyholders' funds (2,802) 4,708 (3,939) Deferred income tax provision (benefit) 7,029 711 (9,591) Change in other liabilities (11,110) (7,064) 7,595 Amortization of premium, net 2,682 2,315 122 Net realized (gain) loss on investments (469) (6,565) 4,788 Other, net (233) (1,562) 2,544 ---- ------ ----- Net cash (used in) provided by operating activities (7,648) 47,717 49,838 Cash flows from investing activities: Fixed maturities held to maturity: Maturities 65,716 65,705 73,601 Sales 5,128 8,466 31,117 Fixed maturities available for sale: Purchases (101,665) (593,888) (298,885) Maturities 171,297 248,317 335,357 Sales 176,296 469,126 48,492 Other investments: Purchases (1,388) (28,520) (161,252) Sales 65,978 57,548 78,681 Change in amounts due from brokers (1,316) -- -- Change in amounts due to brokers (828) (29,132) 19,412 ---- ------- ------ Net cash provided by investing activities 379,218 197,622 126,523 Cash flows from financing activities: Activity related to universal life type insurance and investment contracts: Considerations received 398,462 299,899 302,158 Surrenders and other benefits (926,220) (753,821) (707,052) Interest credited to account balances 191,040 208,583 228,533 ------- ------- ------- Net cash used in financing activities (336,718) (245,339) (176,361) -------- -------- -------- Net increase in cash and cash equivalents 34,852 -- -- Cash and cash equivalents at beginning of year -- -- -- ---- ---- ---- Cash and cash equivalents at end of year $ 34,852 $ -- $ -- ========= ========= ========= See accompanying notes.
American Enterprise Life Insurance Company ------------------------------------------------------------------------------- Notes to Financial Statements 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 and variable universal life are offered as well. The Company distributes its products through financial institutions and unbranded independent financial advisors. 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 and marketable equity securities 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. 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. Mortgage loans on real estate are carried at amortized cost less a reserve 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. 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 a reserve for mortgage loan losses. The reserve 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 reserve 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 reserve 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. Amounts paid or received under interest rate swap agreements are recognized as an adjustment to investment income. American Enterprise Life Insurance Company ------------------------------------------------------------------------------- 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: 2000 1999 1998 Cash paid during the year for: Income taxes $14,861 $22,007 $19,035 Interest on borrowings 1,073 2,187 5,437 Recognition of profits on annuity contracts Profits on fixed and variable deferred annuities are recognized by the Company over the lives of the contracts, using primarily the interest method. Profits on fixed annuities represent the excess of investment income earned from investment of contract considerations over interest credited to contract owners and other expenses. Profits on variable annuities represent the excess of contractholder charges over the costs of benefits provided and other expenses. The retrospective deposit method is used in accounting for fixed and variable universal life-type insurance. Under this method, profits are recognized over the lives of the policies in proportion to the estimated gross profits expected to be realized. Policyholder and contractholder charges include surrender charges and fees collected regarding the issue and administration of annuity contracts. 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 variable 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 2000, unlocking adjustments resulted in a net increase in amortization of $1.5 million. Net unlocking adjustments in 1999 were not significant. During 1998, unlocking adjustments resulted in a net increase in amortization of $11 million. Liabilities for future policy benefits Liabilities for universal-life type insurance and fixed and variable deferred annuities are accumulation values. Liabilities for fixed annuities in a benefit status are based on established industry mortality tables and interest rates ranging from 5% to 9.5%, depending on year of issue. Federal income taxes The Company's taxable income is included in the consolidated federal income tax return of American Express Company. The Company provides for income taxes on a separate return basis, except that, under an agreement between AEFC and American Express Company, tax benefit is recognized for losses to the extent they can be used on the consolidated tax return. It is the policy of AEFC and its subsidiaries that AEFC will reimburse subsidiaries for all tax benefits. Included in other liabilities at December 31, 2000 and 1999 are $9,944 and $2,147, receivable from and payable to, respectively, IDS Life for federal income taxes. Separate account business The separate account assets and liabilities represent funds held for the exclusive benefit of the variable annuity contract owners. The Company receives mortality and expense risk fees from the variable annuity separate accounts. The Company makes contractual mortality assurances to the variable annuity contract owners that the net assets of the separate accounts will not be affected by future variations in the actual life expectancy experience of the annuitants and beneficiaries from the mortality assumptions implicit in the annuity contracts. The Company makes periodic fund transfers to, or withdrawals from, the separate account assets for such actuarial adjustments for variable annuities that are in the benefit payment period. The Company also guarantees that the rates at which administrative fees are deducted from contract funds will not exceed contractual maximums. American Enterprise Life Insurance Company ------------------------------------------------------------------------------- Accounting changes In June 1998, the Financial Accounting Standards Board (FASB) issued, and subsequently amended, Statement of Financial Accounting Standards (SFAS) No. 133, "Accounting for Derivative Instruments and Hedging Activities," which the company adopted on January 1, 2001. This Statement establishes accounting and reporting standards for derivative instruments, including some embedded in other contracts, and hedging activities. It requires that an entity recognize all derivatives as either assets or liabilities on the balance sheet and measure those instruments at fair value. Changes in the fair value of a derivative will be recorded in income or directly to equity, depending on the instrument's designated use. A one-time opportunity to reclassify held-to-maturity investments to available-for-sale is allowed without tainting the remaining securities in the held-to-maturity portfolio. The Company has elected to take this opportunity to reclass its held-to-maturity investments to available-for-sale. As of January 1, 2001, the cumulative impact of applying the Statement's accounting requirements will not have a significant impact on the Company's financial position or results of operations. In September 2000, the FASB issued SFAS No. 140, "Accounting for Transfers and Servicing of Financial Assets and Extinguishments of Liabilities," superceding SFAS No. 125. The Statement is effective for transfers and servicing of financial assets and extinguishments of liabilities occurring after March 31, 2001. The Statement is effective for recognition and reclassification of collateral and for disclosures relating to securitization transactions and collateral for fiscal years ending after December 15, 2000. The company does not expect SFAS No. 140 to have a material impact on the company's financial position or results of operations. In July 2000, the FASB's Emerging Issues Task Force (EITF) issued a consensus on Issue 99-20, "Recognition of Interest Income and Impairment on Purchased Beneficial Interests in Securitized Financial Assets." The consensus must be adopted for fiscal quarters beginning after March 15, 2001, with earlier adoption permitted. Issue 99-20 prescribes new procedures for recording interest income and measuring impairment on retained and purchased beneficial interests. Application of the provisions of the consensus will not have a material impact on the Company's financial position or results of operations. Reclassifications Certain 1999 and 1998 amounts have been reclassified to conform to the 2000 presentation. 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, 2000 are as follows: Gross Gross Amortized unrealized unrealized Fair Held to maturity cost gains losses value U.S. Government agency obligations $ 6,949 $ 26 $ 55 $ 6,920 State and municipal obligations 2,101 1 -- 2,102 Corporate bonds and obligations 773,630 9,876 17,470 766,036 Mortgage-backed securities 151,411 801 239 151,973 ------- --- --- ------- $934,091 $10,704 $ 17,764 $ 927,031 ======== ======= ======== ========== Available for sale U.S. Government agency obligations $ 5,154 $ 284 $ -- $ 5,438 State and municipal obligations 2,250 5 -- 2,255 Corporate bonds and obligations 1,319,781 19,103 123,865 1,215,019 Mortgage-backed securities 836,721 10,780 1,726 845,775 ------- ------ ----- ------- $2,163,906 $30,172 $125,591 $2,068,487 ========== ======= ======== ========== American Enterprise Life Insurance Company ------------------------------------------------------------------------------- The amortized cost, gross unrealized gains and losses and fair value of investments in fixed maturities at December 31, 1999 are as follows: 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 and fair value of investments in fixed maturities at December 31, 2000 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 from one to five years $405,375 $402,691 Due from five to ten years 321,802 317,320 Due in more than ten years 55,503 55,047 Mortgage-backed securities 151,411 151,973 ------- ------- $934,091 $927,031 ======== ======== Amortized Fair Available for sale cost value Due from one to five years $ 61,851 $ 67,514 Due from five to ten years 965,579 878,853 Due in more than ten years 299,755 276,345 Mortgage-backed securities 836,721 845,775 ------- ------- $2,163,906 $2,068,487 ========== ========== During the years ended December 31, 2000, 1999 and 1998, fixed maturities classified as held to maturity were sold with amortized cost of $5,128, $8,466 and $31,117, 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 2000 with proceeds of $176,296 and gross realized gains and losses of $3,488 and $1,516 respectively. 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. At December 31, 2000, bonds carried at $3,259 were on deposit with various states as required by law. At December 31, 2000, investments in fixed maturities comprised 80 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 $463 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 2000 1999 Aaa/AAA $ 998,333 $1,168,144 Aaa/AA 1,000 -- Aa/AA 34,535 42,859 Aa/A 59,569 52,416 A/A 367,643 422,668 A/BBB 121,028 189,072 Baa/BBB 989,301 995,152 Baa/BB 67,156 64,137 Below investment grade 459,432 483,700 ------- ------- $3,097,997 $3,418,148 ========== ========== American Enterprise Life Insurance Company ------------------------------------------------------------------------------- At December 31, 2000, approximately 92 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, 2000, 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: December 31, 2000 December 31, 1999 On balance Commitments On balance Commitments Region sheet to purchase sheet to purchase South Atlantic $172,349 $-- $194,325 $ -- Middle Atlantic 106,376 -- 118,699 -- East North Central 122,354 -- 126,243 -- Mountain 100,208 -- 103,751 -- West North Central 110,669 -- 125,891 513 New England 39,877 -- 43,345 802 Pacific 38,559 -- 41,396 -- West South Central 30,172 -- 31,153 -- East South Central 6,749 -- 7,100 -- ----- ----- ----- ----- 727,313 -- 791,903 1,315 Less allowance for losses 3,304 -- 6,650 -- ----- ----- ----- ----- $724,009 $-- $785,253 $1,315 ======== === ======== ====== December 31, 2000 December 31, 1999 On balance Commitments On balance Commitments Property type sheet to purchase sheet to purchase Department/retail stores $214,927 $-- $232,449 $1,315 Apartments 152,906 -- 181,346 -- Office buildings 191,767 -- 202,132 -- Industrial buildings 80,330 -- 83,186 -- Hotels/Motels 41,977 -- 43,839 -- Medical buildings 29,173 -- 32,284 -- Nursing/retirement homes 6,471 -- 6,608 -- Mixed Use 9,762 -- 10,059 -- ----- ----- ------ ----- 727,313 -- 791,903 1,315 Less allowance for losses 3,304 -- 6,650 -- ----- ----- ----- ----- $724,009 $-- $785,253 $1,315 ======== === ======== ====== 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, 2000 and 1999, the Company's recorded investment in impaired loans was $9,014 and $5,200, respectively, with allowances of $500 and $1,250, respectively. During 2000 and 1999, the average recorded investment in impaired loans was $4,684 and $5,399, respectively. The Company recognized $221, $136 and $251 of interest income related to impaired loans for the years ended December 31, 2000, 1999 and 1998, respectively. American Enterprise Life Insurance Company ------------------------------------------------------------------------------- The following table presents changes in the allowance for investment losses related to all loans: 2000 1999 1998 Balance, January 1 $6,650 $8,500 $3,718 (Reduction) provision for investment losses (3,346) (1,850) 4,782 ------ ------ ----- Balance, December 31 $3,304 $6,650 $8,500 ====== ====== ====== At December 31, 2000 the Company had no commitments to purchase investments. Net investment income for the years ended December 31 is summarized as follows: 2000 1999 1998 Interest on fixed maturities $237,201 $265,199 $285,260 Interest on mortgage loans 59,686 63,721 65,351 Interest on cash equivalents 1,136 534 137 Other 5,693 (1,755) (2,493) ----- ------ ------ 303,716 327,699 348,255 Less investment expenses 3,957 4,953 8,036 ----- ----- ----- $299,759 $322,746 $340,219 ======== ======== ======== Net realized gain (loss) on investments for the years ended December 31 is summarized as follows: 2000 1999 1998 Fixed maturities $ (2,877) $ 4,715 $ 28 Mortgage loans 3,346 (1,650) (4,816) ----- ------ ------ $ 469 $ 3,065 $(4,788) ======== ======= ======= Changes in net unrealized appreciation (depreciation) of investments for the years ended December 31 are summarized as follows: 2000 1999 1998 Fixed maturities available for sale $11,894 $(175,458) $(8,032) 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 for the years ended December 31, consists of the following: 2000 1999 1998 Federal income taxes: Current $ 6,170 $15,531 $23,227 Deferred 7,029 711 (9,591) ----- --- ------ 13,199 16,242 13,636 State income taxes-- current 888 433 759 --- --- --- Income tax expense $14,087 $16,675 $14,395 ======= ======= =======
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: 2000 1999 1998 Provision Rate Provision Rate Provision Rate Federal income taxes based on the statutory rate $13,458 35.0% $17,731 35.0% $13,972 35.0% Increases (decreases) are attributable to : Tax-excluded interest (4) -- (14) -- (35) (0.1) State tax, net of federal benefit 578 1.5 281 0.5 493 1.2 Other, net 55 0.1 (1,323) (2.6) (35) -- -- --- ------ ---- --- --- Total income taxes $14,087 36.6% $16,675 32.9% $14,395 36.1% ======= ==== ======= ==== ======= ====
Significant components of the Company's deferred income tax assets and liabilities as of December 31 are as follows: Deferred income tax assets: 2000 1999 Policy reserves $40,242 $46,243 Unrealized losses on investments 31,441 39,678 Other 6,208 1,070 ----- ----- Total deferred income tax assets 77,891 86,991 ------ ------ Deferred income tax liabilities: Deferred policy acquisition costs 51,541 49,490 ------ ------ Total deferred income tax liabilities 51,541 49,490 ------ ------ Net deferred income tax assets $26,350 $37,501 ======= ======= American Enterprise Life Insurance Company ------------------------------------------------------------------------------- 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 $31,152 and $58,223 as of December 31, 2000 and 1999, respectively. In addition, dividends in excess of $nil would require approval by the Insurance Department of the state of Indiana. Statutory net (loss) income for the years ended December 31 and statutory capital and surplus as of December 31, are summarized as follows: 2000 1999 1998 Statutory net (loss) income $(11,928) $ 15,241 $ 37,902 Statutory capital and surplus 315,930 343,094 330,588 The National Association of Insurance Commissioners (NAIC) revised the Accounting Practices and Procedures Manual in a process referred to as Codification. The revised manual will be effective January 1, 2001. The state of Indiana has adopted the provisions of the revised manual. The revised manual has changed, to some extent, prescribed statutory accounting practices and will result in changes to the accounting practices that the Company uses to prepare their statutory-basis financial statements. Management believes these changes will not adversely impact the Company's statutory-basis capital and surplus as of January 1, 2001. 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 $6,489 and $8,258 at December 31, 2000 and 1999, 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 $45,191, $38,931 and $28,482 for the years ended December 31, 2000, 1999 and 1998, respectively. Certain of these costs are included in deferred policy acquisition costs. 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, 2000 or 1999. 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. American Enterprise Life Insurance Company ------------------------------------------------------------------------------- The Company's holdings of derivative financial instruments are as follows: Notional Carrying Fair Total credit December 31, 2000 amount amount value exposure Assets: Interest rate caps $ 500,000 $2,037 $ 414 $ 414 Interest rate floors 2,000,000 6,489 13,185 13,185 Off balance sheet: Interest rate swaps 2,000,000 -- (51,369) (51,369) --------- ------ ------- ------- $8,526 $(37,770) $(37,770) ====== ======== ======== Notional Carrying Fair Total credit December 31, 1999 amount amount value exposure 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: Interest rate swaps 2,000,000 -- 18,274 18,274 --------- ----- ------ ------ $11,470 $24,962 $24,962 ======= ======= ======= 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 2001 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.
December 31, 2000 December 31, 1999 Carrying Fair Carrying Fair Financial Assets amount value amount value Investments: Fixed maturities (Note 2): Held to maturity $ 934,091 $ 927,031 $1,006,349 $ 984,103 Available for sale 2,068,487 2,068,487 2,304,487 2,304,487 Mortgage loans on real estate (Note 2) 724,009 740,992 785,253 770,095 Derivative financial instruments (Note 7) 8,526 (37,770) 11,470 24,962 Separate account assets (Note 1) 589,310 589,310 220,994 220,994 Cash and cash equivalents 34,852 34,852 -- -- Financial Liabilities Future policy benefits for fixed annuities $3,567,085 $3,480,270 $3,905,849 $3,778,945 Separate account liabilities 589,310 567,989 220,994 209,942 ------- ------- ------- -------
At December 31, 2000 and 1999, the carrying amount and fair value of future policy benefits for fixed annuities exclude life insurance-related contracts carried at $17,699 and $15,633, respectively. The fair value of these benefits is based on the status of the annuities at December 31, 2000 and 1999. 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 2000 and 1999. 9. COMMITMENTS AND CONTINGENCIES In January 2000, AEFC reached an agreement in principle to settle three class-action lawsuits related to the sales of insurance and annuity products, anticipated to provide for approximately $215 million of benefits. The Company had been named as a co-defendant in one of these lawsuits. In September 2000, the court gave preliminary approval to the proposed settlement and AEFC has mailed notices to all of the over two million class members. A fairness hearing is scheduled for March 2001, with final approval anticipated in the second quarter, pending any legal appeals. The anticipated costs of settlement remain unchanged from 1999. The portion of the settlement allocated to the Company did not have a material impact on the Company's financial position or results of operations. The agreement 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 final court approval. TABLE OF CONTENTS OF THE STATEMENT OF ADDITIONAL INFORMATION Performance Information .......................3 Calculating Annuity Payouts ..................17 Rating Agencies ..............................18 Principal Underwriter ........................18 Independent Auditors .........................18 Financial Statements -------------------------------------------------------------------------------- 76 AMERICAN EXPRESS SIGNATURE VARIABLE ANNUITY -- PROSPECTUS American Enterprise Life Insurance Company (American Express logo) 829 AXP Financial Center Minneapolis, MN 55474 (800)333-3437 43444 E (7/01) [AMERICAN EXPRESS LOGO] AMERICAN EXPRESS (R) SIGNATURE ONE VARIABLE ANNUITY ISSUED BY: AMERICAN ENTERPRISE LIFE INSURANCE COMPANY PROSPECTUS July 23, 2001 INDIVIDUAL OR GROUP FLEXIBLE PREMIUM DEFERRED COMBINATION FIXED/VARIABLE ANNUITY AMERICAN ENTERPRISE VARIABLE ANNUITY ACCOUNT ISSUED BY: AMERICAN ENTERPRISE LIFE INSURANCE COMPANY (AMERICAN ENTERPRISE LIFE) 829 AXP Financial Center Minneapolis, MN 55474 Telephone: (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 - Alliance Variable Products Series Fund - Baron Capital Funds Trust - Credit Suisse Warburg Pincus Trust - Fidelity Variable Insurance Products - Service Class - Franklin-Registered Trademark- Templeton-Registered Trademark- Variable Insurance Products Trust (FTVIPT) - Class 2 - Goldman Sachs Variable Insurance Trust (VIT) - Janus Aspen Series: Service Shares - J. P. Morgan Series Trust II - Lazard Retirement Series, Inc. - MFS-Registered Trademark- Variable Insurance TrustSM - Royce Capital Fund - Third Avenue Variable Series Trust - Wanger Advisors Trust - Wells Fargo Variable Trust Funds Please read the prospectuses carefully and keep them for future reference. The contract provides for purchase payment credits which we may reverse up to the maximum withdrawal charge under certain circumstances. Expense charges from contracts with purchase payment credits may be higher than charges for contracts without such credits. The amount of the credit may be more than offset by additional fees and charges associated with the credit. THE SECURITIES AND EXCHANGE COMMISSION (SEC) HAS NOT APPROVED OR DISAPPROVED THESE SECURITIES OR PASSED UPON THE ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE. AN INVESTMENT IN THIS CONTRACT IS NOT A DEPOSIT OF A BANK OR FINANCIAL INSTITUTION AND IS NOT INSURED OR GUARANTEED BY THE FEDERAL DEPOSIT INSURANCE CORPORATION OR ANY OTHER GOVERNMENT AGENCY. AN INVESTMENT IN THIS CONTRACT INVOLVES INVESTMENT RISK INCLUDING THE POSSIBLE LOSS OF PRINCIPAL. A Statement of Additional Information (SAI), dated the same date as this prospectus, is incorporated by reference into this prospectus. It is filed with the SEC and is available without charge by contacting American Enterprise Life at the telephone number and address listed above. The table of contents of the SAI is on the last page of this prospectus. The SEC maintains an Internet site. This prospectus, the SAI and other information about the product are available on the EDGAR Database on the SEC's Internet site at (http://www.sec.gov). Variable annuities are complex investment vehicles. Before you invest, be sure to ask your sales representative about the variable annuity's features, benefits, risks and fees, and whether the variable annuity is appropriate for you, based upon your financial situation and objectives. American Enterprise Life offers several different annuities which your sales representative may be authorized to offer to you. Each annuity has different features and benefits that may be appropriate for you based on your financial situation and needs, your age and how you intend to use the annuity. The different features and benefits may include the investment and fund manager options, variations in interest rate amount and guarantees, credits, withdrawal charge schedules and access to annuity account values. The fees and charges may also be different between each annuity. TABLE OF CONTENTS KEY TERMS ................................................3 THE CONTRACT IN BRIEF ....................................4 EXPENSE SUMMARY ..........................................6 CONDENSED FINANCIAL INFORMATION (UNAUDITED) .............13 FINANCIAL STATEMENTS ....................................21 PERFORMANCE INFORMATION .................................22 THE VARIABLE ACCOUNT AND THE FUNDS ......................23 THE FIXED ACCOUNTS ......................................29 BUYING YOUR CONTRACT ....................................32 CHARGES .................................................34 VALUING YOUR INVESTMENT .................................37 MAKING THE MOST OF YOUR CONTRACT ........................39 WITHDRAWALS .............................................41 CHANGING OWNERSHIP ......................................41 BENEFITS IN CASE OF DEATH ...............................42 OPTIONAL BENEFITS .......................................46 THE ANNUITY PAYOUT PERIOD ...............................51 TAXES ...................................................53 VOTING RIGHTS ...........................................54 SUBSTITUTION OF INVESTMENTS .............................54 ABOUT THE SERVICE PROVIDERS .............................55 ADDITIONAL INFORMATION ABOUT AMERICAN ENTERPRISE LIFE .......................................56 DIRECTORS AND EXECUTIVE OFFICERS ........................60 EXPERTS .................................................61 AMERICAN ENTERPRISE LIFE INSURANCE COMPANY FINANCIAL INFORMATION .........................62 TABLE OF CONTENTS OF THE STATEMENT OF ADDITIONAL INFORMATION ...................79 2 AMERICAN EXPRESS SIGNATURE ONE VARIABLE ANNUITY -- PROSPECTUS 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. ASSUMED INVESTMENT RATE: The rate of return we assume your investments will earn when we calculate your initial annuity payout amount using the annuity table in your contract. The standard assumed investment rate we use is 5% but you may request we substitute an assumed investment rate of 3.5%. BENEFICIARY: The person you designate to receive benefits in case of the owner's or annuitant's death while the contract is in force and before annuity payouts begin. CLOSE OF BUSINESS: When the New York Stock Exchange (NYSE) closes, normally 4 p.m. Eastern time. CONTRACT: A deferred annuity contract, or a certificate showing your interest under a group annuity contract, that permits you to accumulate money for retirement by making one or more purchase payments. It provides for lifetime or other forms of payouts beginning at a specified time in the future. CONTRACT VALUE: The total value of your contract before we deduct any applicable charges. CONTRACT YEAR: A period of 12 months, starting on the effective date of your contract and on each anniversary of the effective date. FIXED ACCOUNTS: The one-year fixed account is an account to which you may allocate purchase payments. Amounts you allocate to this account earn interest at rates that we declare periodically. Guarantee Period Accounts are fixed accounts to which you may also allocate purchase payments. These accounts have guaranteed interest rates declared for periods ranging from two to ten years. Withdrawals from the Guarantee Period Accounts done more than 30 days before the end of the Guarantee Period will receive a Market Value Adjustment, which may result in a gain or loss of principal. FUNDS: Investment options under your contract. You may allocate your purchase payments into subaccounts investing in shares of any or all of these funds. GUARANTEE PERIOD: The number of years that a guaranteed interest rate is credited. MARKET VALUE ADJUSTMENT (MVA): A positive or negative adjustment assessed if any portion of a Guarantee Period Account is withdrawn or transferred more than 30 days before the end of its Guarantee Period. OWNER (YOU, YOUR): The person who controls the contract (decides on investment allocations, transfers, payout options, etc.). Usually, but not always, the owner is also the annuitant. The owner is responsible for taxes, regardless of whether he or she receives the contract's benefits. PURCHASE PAYMENT CREDITS: An addition we make to your contract value. We base the amount of the credit on total net payments (total payments less total withdrawals). We apply the credit to your contract based on your current payment. QUALIFIED ANNUITY: A contract that you purchase to fund one of the following tax-deferred retirement plans that is subject to applicable federal law and any rules of the plan itself: - Individual Retirement Annuities (IRAs) under Section 408(b) of the Internal Revenue Code of 1986, as amended (the Code) - Roth IRAs under Section 408A of the Code - Simplified Employee Pension (SEP) plans under Section 408(k) of the Code A qualified annuity will not provide any necessary or additional tax deferral if it is used to fund a retirement plan that is already tax deferred. All other contracts are considered NONQUALIFIED ANNUITIES. RETIREMENT DATE: The date when annuity payouts are scheduled to begin. RIDER EFFECTIVE DATE: The date you add a rider to the contract. 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. AMERICAN EXPRESS SIGNATURE ONE VARIABLE ANNUITY -- PROSPECTUS 3 THE CONTRACT IN BRIEF PURPOSE: The purpose of the contract is to allow you to accumulate money for retirement. You do this by making one or more purchase payments. You may allocate your purchase payments to the fixed accounts and/or subaccounts under the contract. These accounts, in turn, may earn returns that increase the value of the contract. Beginning at a specified time in the future called the retirement date, the contract provides lifetime or other forms of payouts of your contract value (less any applicable premium tax). As in the case of other annuities, it may not be advantageous for you to purchase this contract as a replacement for, or in addition to, an existing annuity or life insurance contract. Most annuities have a tax-deferred feature. So do many retirement plans under the Internal Revenue Code. As a result, when you use an annuity to fund a retirement plan that is tax deferred, your annuity will not provide any necessary or additional tax deferral for that retirement plan. But annuities do have features other than tax deferral that may help you reach your retirement goals. You should consult your tax advisor prior to making a purchase for an explanation of the tax implications to you. FREE LOOK PERIOD: You may return your contract to your sales representative or to our office within the time stated on the first page of your contract and receive a full refund of the contract value, less any purchase payment credits up to the maximum withdrawal charges. (See "Buying Your Contract -- Purchase Payment Credits.") However, you bear the investment risk from the time of purchase until you return the contract; the refund amount may be more or less than the payment you made. (Exception: If the law requires, we will refund all of your purchase payments.) ACCOUNTS: Currently, you may allocate your purchase payments among any or all of: - the subaccounts, each of which invests in a fund with a particular investment objective. The value of each subaccount varies with the performance of the particular fund in which it invests. We cannot guarantee that the value at the retirement date will equal or exceed the total purchase payments you allocate to the subaccounts. (p. 23) - the fixed accounts, which earn interest at rates that we adjust periodically. Some states restrict the amount you can allocate to these accounts. (p. 29) BUYING YOUR CONTRACT: Your sales representative will help you complete and submit an application. Applications are subject to acceptance at our office. You may buy a nonqualified annuity or a qualified annuity. After your initial purchase payment, you have the option of making additional purchase payments in the future. (p. 32) - Minimum initial purchase payment: $25,000. - Minimum additional purchase payment: $50 for Systematic Investment Plans. $100 for any other type of payment. - 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 contract value among the accounts without charge at any time until annuity payouts begin, and once per contract year among the subaccounts after annuity payouts begin. Transfers out of the Guarantee Period Accounts done more than 30 days before the end of the Guarantee Period will be subject to a MVA. You may establish automated transfers among the accounts. Fixed account transfers are subject to special restrictions. (p. 39) WITHDRAWALS: You may withdraw all or part of your contract value at any time before the retirement date. You also may establish automated partial withdrawals. Withdrawals may be subject to charges and tax penalties (including a 10% IRS penalty if you make withdrawals prior to your reaching age 591/2) and may have other tax consequences; also, certain restrictions apply. (p. 41) 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. 41) 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. 42) OPTIONAL BENEFITS: This contract offers optional features that are available for additional charges if you meet certain criteria. (p. 46) ANNUITY PAYOUTS: You can apply your contract value to an annuity payout plan that begins on the retirement date. You may choose from a variety of plans to make sure that payouts continue as long as you like. If you purchased a qualified annuity, the payout schedule must meet the requirements of the tax-deferred retirement plan. We can make payouts on a fixed or variable basis, or both. Total monthly payouts may include amounts from each subaccount and the one-year fixed account. During the annuity payout period, your choices for subaccounts may be limited. The Guarantee Period Accounts are not available during the payout period. (p. 51) 4 AMERICAN EXPRESS SIGNATURE ONE VARIABLE ANNUITY -- PROSPECTUS 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. 53) CHARGES: We assess certain charges in connection with your contract (p. 34): - $40 annual contract administrative charge; - 0.15% variable account administrative charge (if you allocate money to one or more subaccounts); - 1.45% mortality and expense risk fee (if you allocate money to one or more subaccounts); - if you select death benefit Option A -- the Value option return of purchase payment(1), a reduction of 0.10% in the mortality and expense risk fee (if you allocate money to one or more subaccounts); - if you select the Guaranteed Minimum Income Benefit Rider(2) (GMIB), an annual fee (currently at 0.35%) based on the adjusted contract value; - if you select the 8% Performance Credit Rider(2) (PCR), an annual fee of 0.25% of the contract value; - withdrawal charge; - any premium taxes that may be imposed on us by state or local governments (currently, we deduct any applicable premium tax when you make a total withdrawal or when annuity payouts begin, but we reserve the right to deduct this tax at other times such as when you make purchase payments); and - the operating expenses of the funds in which the subaccounts invest. (1) Available if both you and the annuitant are 79 or younger at contract issue. May not be available in all states. (2) You may select either the GMIB or the PCR, but not both. Riders may not be available in all states. The GMIB is only available to annuitants 75 or younger at contract issue. If you select the GMIB you must select either death benefit Option B or Option C. AMERICAN EXPRESS SIGNATURE ONE VARIABLE ANNUITY -- PROSPECTUS 5 EXPENSE SUMMARY The purpose of the following information is to help you understand the various costs and expenses associated with your contract. You pay no sales charge when you purchase your contract. We show all costs that we deduct directly from your contract or indirectly from the subaccounts and funds below. Some expenses may vary as we explain under "Charges." Please see the funds' prospectuses for more information on the operating expenses for each fund. CONTRACT OWNER EXPENSES WITHDRAWAL CHARGE (contingent deferred sales charge as a percentage of purchase payment withdrawn)
YEARS FROM PURCHASE WITHDRAWAL CHARGE PAYMENT RECEIPT PERCENTAGE 1 8% 2 8 3 8 4 8 5 7 6 6 7 6 8 4 9 2 Thereafter 0
A withdrawal charge also applies to payouts under certain annuity payout plans (see "Charges -- Withdrawal charge" and "The Annuity Payout Period -- Annuity payout plans"). ANNUAL CONTRACT ADMINISTRATIVE CHARGE: $40* * We will waive this charge when your contract value is $100,000 or more on the current contract anniversary GUARANTEED MINIMUM INCOME BENEFIT RIDER (GMIB) FEE: 0.35% (As a percentage of an adjusted contract value charged annually at the contract anniversary. This is an optional expense.) 8% PERFORMANCE CREDIT RIDER (PCR) FEE: 0.25% (As a percentage of the contract value charged annually at contract anniversary charged annually. This is an optional expense.) ANNUAL VARIABLE ACCOUNT EXPENSES (As a percentage of average subaccount value) You can choose the death benefit guarantee provided.
DEATH BENEFIT OPTION B-- MAXIMUM OPTION A-- VALUE ANNIVERSARY VALUE OR OPTION RETURN OF OPTION C-- 5% PURCHASE PAYMENT ACCUMULATION VARIABLE ACCOUNT ADMINISTRATIVE CHARGE: 0.15% 0.15% MORTALITY AND EXPENSE RISK FEE: 1.45 1.35 ---- ---- TOTAL ANNUAL VARIABLE ACCOUNT EXPENSES: 1.60% 1.50%
6 AMERICAN EXPRESS SIGNATURE ONE VARIABLE ANNUITY -- PROSPECTUS ANNUAL OPERATING EXPENSES OF THE FUNDS (AFTER FEE WAIVERS AND/OR EXPENSE REIMBURSEMENTS, IF APPLICABLE, AS A PERCENTAGE OF AVERAGE DAILY NET ASSETS)
MANAGEMENT 12b-1 OTHER FEES FEES EXPENSES TOTAL AXP-Registered Trademark- Variable Portfolio - Blue Chip Advantage Fund .56% .13% .26% .95%(1) Bond Fund .60 .13 .06 .79(2) Capital Resource Fund .60 .13 .04 .77(2) Cash Management Fund .51 .13 .04 .68(2) Diversified Equity Income Fund .56 .13 .26 .95(1) Extra Income Fund .62 .13 .07 .82(2) Federal Income Fund .61 .13 .13 .87(1) Growth Fund .64 .13 .18 .95(1) Managed Fund .59 .13 .03 .75(2) New Dimensions Fund-Registered Trademark- .60 .13 .05 .78(2) Small Cap Advantage Fund .75 .13 .31 1.19(1) AIM V.I. Capital Appreciation Fund .61 -- .21 .82(3) Capital Development Fund .75 -- .63 1.38(3),(4) Value Fund .61 -- .23 .84(3) Alliance VP Premier Growth Portfolio (Class B) 1.00 .25 .05 1.30(5) Technology Portfolio (Class B) .99 .25 .07 1.31(5) U.S. Government/High Grade Securities Portfolio (Class B) .60 .25 .35 1.20(5) Baron Capital Funds Trust Capital Asset Fund - Insurance Shares 1.00 .25 .25 1.50(6) Credit Suisse Warburg Pincus Trust - Emerging Growth Portfolio (previously Warburg Pincus Trust - Emerging Growth Portfolio) .90 -- .35 1.25(7) Fidelity VIP III Growth & Income Portfolio (Service Class) .48 .10 .11 .69(8) III Mid Cap Portfolio (Service Class) .57 .10 .17 .84(8) Overseas Portfolio (Service Class) .72 .10 .17 .99(8) Franklin Templeton VIP Trust Franklin Real Estate Fund - Class 2 .58 .25 .02 .85(9),(10) Mutual Shares Securities Fund - Class 2 .60 .25 .20 1.05(10) Templeton International Smaller Companies Fund - Class 2 .85 .25 .26 1.36(10) Goldman Sachs VIT Capital Growth Fund .75 -- .25 1.00(11) CORE-SM- U.S. Equity Fund .70 -- .20 .90(11) Global Income Fund .90 -- .25 1.15(11) International Equity Fund 1.00 -- .35 1.35(11) Internet Tollkeeper Fund-SM- 1.00 -- .25 1.25(11) Janus Aspen Series Aggressive Growth Portfolio: Service Shares .65 .25 .02 .92(12) Global Technology Portfolio: Service Shares .65 .25 .04 .94(12) Growth Portfolio: Service Shares .65 .25 .02 .92(12) International Growth Portfolio: Service Shares .65 .25 .06 .96(12)
AMERICAN EXPRESS SIGNATURE ONE VARIABLE ANNUITY -- PROSPECTUS 7 ANNUAL OPERATING EXPENSES OF THE FUNDS (AFTER FEE WAIVERS AND/OR EXPENSE REIMBURSEMENTS, IF APPLICABLE, AS A PERCENTAGE OF AVERAGE DAILY NET ASSETS) (CONTINUED)
MANAGEMENT 12b-1 OTHER FEES FEES EXPENSES TOTAL J.P. Morgan U.S. Disciplined Equity Portfolio .35% --% .50% .85%(3) Lazard Retirement Series Equity Portfolio .75 .25 .25 1.25(13) International Equity Portfolio .75 .25 .25 1.25(13) MFS-Registered Trademark- New Discovery Series - Initial Class .90 -- .16 1.06(14),(15) Research Series - Initial Class .75 -- .10 .85(14) Utilities Series - Initial Class .75 -- .16 .91(14) Royce Capital Fund Micro-Cap Portfolio 1.25 -- .10 1.35(16) Small-Cap Portfolio (previously Royce Premier Portfolio) 1.00 -- .35 1.35(16) Third Avenue Value Portfolio .90 -- .40 1.30(17) Wanger International Small Cap 1.20 -- .21 1.41(3),(18) U.S. Small Cap .95 -- .05 1.00(3),(18) Wells Fargo VT Equity Income Fund .53 .25 .22 1.00(19)
(1) The fund's expense figures are based on actual expenses, after fee waivers and expense reimbursements, for the fiscal year ending Aug. 31, 2000. Without fee waivers and expense reimbursements "Other Expenses" and "Total" would be 0.27% and 0.96% for AXP Variable Portfolio - Blue Chip Advantage Fund, 0.80% and 1.49% for AXP Variable Portfolio - Diversified Equity Income Fund, 0.15% and 0.89% for AXP Variable Portfolio - Federal Income Fund, 0.20% and 0.97% for AXP Variable Portfolio - Growth Fund, and 0.55% and 1.43% for AXP Variable Portfolio - Small Cap Advantage Fund. (2) The fund's expense figures are based on actual expenses for the fiscal year ended Aug. 31, 2000. (3) Figures in "Management Fees," "12b-1 Fees," "Other Expenses" and "Total" are based on actual expenses for the fiscal year ended Dec. 31, 2000. (4) Expenses have been restated to reflect current fees. (5) Figures in "Management Fees," "12b-1 Fees," "Other Expenses" and "Total" are based on actual expenses for the fiscal period ended Dec. 31, 2000. Absent fee waivers and expense reimbursements "Management Fees," "12b-1 Fees," "Other Expenses" and "Total" would be 1.00%, 0.25%, 0.08% and 1.33% for Alliance VP Technology Portfolio. (6) The Advisor is contractually obligated to reduce its fee to the extent required to limit Baron Capital Asset Fund's total operating expenses to 1.50% for the first $250 million of assets in the Fund, 1.35% for Fund assets over $250 million and 1.25% for Fund assets over $500 million. Without the expense limitations, total operating expenses for the Fund for the period Dec. 31, 2000 would have been 1.66%. (7) Expense ratios are shown after fee waivers and expenses reimbursements by the investment adviser. The total expense ratios before the waivers and reimbursements would have been: Credit Suisse Warburg Pincus Trust Emerging Growth Portfolio (0.90%, 0%, 0.40% and 1.30%). (8) There were no reimbursement or expense reductions for the period ended Dec. 31, 2000. Actual annual class operating expenses were lower because a portion of the brokerage commissions that the fund paid was used to reduce the fund's expenses, and/or because through arrangements with the fund's custodian, credits realized as a result of uninvested cash balances were used to reduce a portion of the fund's custodian expenses. See the accompanying fund prospectus for details. (9) The Fund administration fee is paid indirectly through the management fee. (10) The Fund's Class 2 distribution plan or "Rule 12b-1 plan" is described in the Fund's prospectus. (11) Expense ratios are shown after fee waivers and expense reimbursements by the investment adviser. The expense ratios before the waivers and reimbursements would have been: 0.75%, 1.09% and 1.84% for Capital Growth Fund, 0.70%, 0.17%, and 0.87% for CORE-SM- U.S. Equity Fund, 0.90%, 2.05% and 2.95% for Global Income Fund, 1.00%, 0.99% and 1.99% for International Equity Fund and 1.00%, 4.62% and 5.62% for Internet Tollkeeper Fund-SM-. CORE-SM- and Internet Tollkeeper Fund-SM- are service marks of Goldman, Sachs & Co. (12) Expenses are based upon expenses for the fiscal year ended Dec. 31, 2000, restated to reflect a reduction in the management fee for Aggressive Growth Portfolio, Growth Portfolio and International Growth Portfolio. Expenses are stated both with and without contractual waivers by Janus Capital. Waivers, if applicable, are first applied against the management fee and then against other expenses, and will continue until at least the next annual renewal of the advisory agreement. All expenses are shown without the effect of expense offset arrangements. (13) Absent fee waivers and/or reimbursements, "Other Expenses" and "Total" expenses for the year ended Dec. 31, 2000 would have been 4.07% and 5.07% for Equity Portfolio and 1.32% and 2.32% for International Equity Portfolio. (14) Each series has an expense offset arrangement which reduces the series' custodian fee based upon the amount of cash maintained by the series with its custodian and dividend disbursing agent. Each series may enter into other such arrangements and directed brokerage arrangements, which would also have the effect of reducing the series' expenses. "Other Expenses" do not take into account these expense reductions, and are therefore higher than the actual expenses of the series. Had these fee reductions been taken into account, "Net Expenses" would be lower for certain series and would equal: 1.05% for New Discovery Series, 0.84% for Research Series, and 0.90% for Utilities Series. (15) 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 Expenses" and "Total" would have been 0.19% and 1.09%. These contractual fee arrangements will continue until at least May 1, 2002, unless changed with the consent of the board of trustees which oversees the series. 8 AMERICAN EXPRESS SIGNATURE ONE VARIABLE ANNUITY -- PROSPECTUS (16) Royce has contractually agreed to waive its fees and reimburse expenses to the extent necessary to maintain the Funds Net Annual Operating Expense ratio at or below 1.35% through Dec. 31, 2001 and 1.99% through Dec. 31, 2010. Absent fee waivers "Other Expenses" and "Total" would be 0.33% and 1.58% for Royce Micro-Cap Portfolio and 2.89% and 3.89% for Royce Small-Cap Portfolio. (17) The fund's expense figures are based on actual expenses, after fee waivers and expense reimbursements, for the fiscal year ending Dec. 31, 2000. Without fee waivers and expense reimbursements "Other Expenses" and "Total" would be 1.62% and 2.52% for Third Avenue Value Portfolio. (18) Annualized operating expenses of funds at Dec. 31, 2000. Liberty Wanger Asset Management, L.P. will reimburse the Fund if its annual ordinary operating expenses exceed 2.00% of average daily net assets. This commitment expires on Sept. 30, 2002. (19) Amounts represent expenses as of Dec. 31, 2000. Expenses are shown after fee waivers and expense reimbursements. Without fee waivers and expense reimbursements "Management Fee" and "Total" would have been 0.70% and 1.17% for Wells Fargo VT Equity Income Fund. EXAMPLES*: These examples assume that applicable fund fee waivers and/or expense reimbursements will continue for the periods shown. You would pay the following expenses on a $1,000 investment if you selected the Guaranteed Minimum Income Benefit Rider and assuming a 5% annual return and ...
NO WITHDRAWAL OR SELECTION FULL WITHDRAWAL AT THE OF AN ANNUITY PAYOUT PLAN AT THE END OF EACH TIME PERIOD END OF EACH TIME PERIOD 1 YEAR 3 YEARS 5 YEARS 10 YEARS 1 YEAR 3 YEARS 5 YEARS 10 YEARS AXP-Registered Trademark- Variable Portfolio - Blue Chip Advantage Fund $109.89 $171.48 $225.58 $327.44 $29.89 $ 91.48 $155.58 $327.44 Bond Fund 108.25 166.60 217.52 311.81 28.25 86.60 147.52 311.81 Capital Resource Fund 108.04 165.99 216.51 309.83 28.04 85.99 146.51 309.83 Cash Management Fund 107.12 163.24 211.96 300.91 27.12 83.24 141.96 300.91 Diversified Equity Income Fund 109.89 171.48 225.58 327.44 29.89 91.48 155.58 327.44 Extra Income Fund 108.56 167.52 219.04 314.76 28.56 87.52 149.04 314.76 Federal Income Fund 109.07 169.05 221.56 319.66 29.07 89.05 151.56 319.66 Growth Fund 109.89 171.48 225.58 327.44 29.89 91.48 155.58 327.44 Managed Fund 107.84 165.38 215.50 307.86 27.84 85.38 145.50 307.86 New Dimensions Fund-Registered Trademark- 108.15 166.30 217.02 310.82 28.15 86.30 147.02 310.82 Small Cap Advantage Fund 112.35 178.77 237.56 350.43 32.35 98.77 167.56 350.43 AIM V.I. Capital Appreciation Fund 108.56 167.52 219.04 314.76 28.56 87.52 149.04 314.76 Capital Development Fund 114.30 184.51 246.95 368.24 34.30 104.51 176.95 368.24 Value Fund 108.76 168.13 220.05 316.72 28.76 88.13 150.05 316.72 Alliance VP Premier Growth Portfolio (Class B) 113.48 182.10 243.01 360.79 33.48 102.10 173.01 360.79 Technology Portfolio (Class B) 113.58 182.40 243.50 361.72 33.58 102.40 173.50 361.72 U.S. Government/High Grade Securities Portfolio (Class B) 112.45 179.07 238.05 351.38 32.45 99.07 168.05 351.38 Baron Capital Funds Trust Capital Asset Fund - Insurance Shares 115.53 188.13 252.85 379.32 35.53 108.13 182.85 379.32 Credit Suisse Warburg Pincus Trust - Emerging Growth Portfolio (previously Warburg Pincus Trust - Emerging Growth Portfolio) 112.96 180.59 240.53 356.09 32.96 100.59 170.53 356.09 Fidelity VIP III Growth & Income Portfolio (Service Class) 107.22 163.55 212.46 301.91 27.22 83.55 142.46 301.91 III Mid Cap Portfolio (Service Class) 108.76 168.13 220.05 316.72 28.76 88.13 150.05 316.72 Overseas Portfolio (Service Class) 110.30 172.70 227.58 331.31 30.30 92.70 157.58 331.31 Franklin Templeton VIP Trust Franklin Real Estate Fund - Class 2 108.86 168.44 220.55 317.70 28.86 88.44 150.55 317.70 Mutual Shares Securities Fund - Class 2 110.91 174.52 230.58 337.09 30.91 94.52 160.58 337.09 Templeton International Smaller Companies Fund - Class 2 114.09 183.91 245.97 366.39 34.09 103.91 175.97 366.39
AMERICAN EXPRESS SIGNATURE ONE VARIABLE ANNUITY -- PROSPECTUS 9 You would pay the following expenses on a $1,000 investment if you selected the Guaranteed Minimum Income Benefit Rider and assuming a 5% annual return and ... (continued)
NO WITHDRAWAL OR SELECTION FULL WITHDRAWAL AT THE OF AN ANNUITY PAYOUT PLAN AT THE END OF EACH TIME PERIOD END OF EACH TIME PERIOD 1 YEAR 3 YEARS 5 YEARS 10 YEARS 1 YEAR 3 YEARS 5 YEARS 10 YEARS Goldman Sachs VIT Capital Growth Fund $110.40 $173.00 $228.08 $332.28 $30.40 $ 93.00 $158.08 $332.28 CORE-SM- U.S. Equity Fund 109.38 169.96 223.07 322.58 29.38 89.96 153.07 322.58 Global Income Fund 111.94 177.56 235.57 346.64 31.94 97.56 165.57 346.64 International Equity Fund 113.99 183.61 245.47 365.45 33.99 103.61 175.47 365.45 Internet Tollkeeper Fund-SM- 112.96 180.59 240.53 356.09 32.96 100.59 170.53 356.09 Janus Aspen Series Aggressive Growth Portfolio: Service Shares 109.58 170.57 224.07 324.53 29.58 90.57 154.07 324.53 Global Technology Portfolio: Service Shares 109.79 171.18 225.08 326.47 29.79 91.18 155.08 326.47 Growth Portfolio: Service Shares 109.58 170.57 224.07 324.53 29.58 90.57 154.07 324.53 International Growth Portfolio: Service Shares 109.99 171.79 226.08 328.41 29.99 91.79 156.08 328.41 J.P. Morgan U.S. Disciplined Equity Portfolio 108.86 168.44 220.55 317.70 28.86 88.44 150.55 317.70 Lazard Retirement Series Equity Portfolio 112.96 180.59 240.53 356.09 32.96 100.59 170.53 356.09 International Equity Portfolio 112.96 180.59 240.53 356.09 32.96 100.59 170.53 356.09 MFS-Registered Trademark- New Discovery Series - Initial Class 111.02 174.83 231.08 338.05 31.02 94.83 161.08 338.05 Research Series - Initial Class 108.86 168.44 220.55 317.70 28.86 88.44 150.55 317.70 Utilities Series - Initial Class 109.48 170.26 223.57 323.56 29.48 90.26 153.57 323.56 Royce Capital Fund Micro-Cap Portfolio 113.99 183.61 245.47 365.45 33.99 103.61 175.47 365.45 Small-Cap Portfolio (previously Royce Premier Portfolio) 113.99 183.61 245.47 365.45 33.99 103.61 175.47 365.45 Third Avenue Value Portfolio 113.48 182.10 243.01 360.79 33.48 102.10 173.01 360.79 Wanger International Small Cap 114.60 185.42 248.43 371.03 34.60 105.42 178.43 371.03 U.S. Small Cap 110.40 173.00 228.08 332.28 30.40 93.00 158.08 332.28 Wells Fargo VT Equity Income Fund 110.40 173.00 228.08 332.28 30.40 93.00 158.08 332.28
10 AMERICAN EXPRESS SIGNATURE ONE VARIABLE ANNUITY -- PROSPECTUS You would pay the following expenses on a $1,000 investment if you selected death benefit Option A and assuming a 5% annual return and ...
NO WITHDRAWAL OR SELECTION FULL WITHDRAWAL AT THE OF AN ANNUITY PAYOUT PLAN AT THE END OF EACH TIME PERIOD END OF EACH TIME PERIOD 1 YEAR 3 YEARS 5 YEARS 10 YEARS 1 YEAR 3 YEARS 5 YEARS 10 YEARS AXP-Registered Trademark- Variable Portfolio - Blue Chip Advantage Fund $105.28 $157.72 $202.79 $282.82 $25.28 $77.72 $132.79 $282.82 Bond Fund 103.64 152.80 194.58 266.47 23.64 72.80 124.58 266.47 Capital Resource Fund 103.43 152.18 193.55 264.41 23.43 72.18 123.55 264.41 Cash Management Fund 102.51 149.40 188.91 255.08 22.51 69.40 118.91 255.08 Diversified Equity Income Fund 105.28 157.72 202.79 282.82 25.28 77.72 132.79 282.82 Extra Income Fund 103.94 153.72 196.12 269.56 23.94 73.72 126.12 269.56 Federal Income Fund 104.46 155.26 198.69 274.68 24.46 75.26 128.69 274.68 Growth Fund 105.28 157.72 202.79 282.82 25.28 77.72 132.79 282.82 Managed Fund 103.23 151.56 192.52 262.34 23.23 71.56 122.52 262.34 New Dimensions Fund-Registered Trademark- 103.53 152.49 194.07 265.44 23.53 72.49 124.07 265.44 Small Cap Advantage Fund 107.74 165.08 215.00 306.87 27.74 85.08 145.00 306.87 AIM V.I. Capital Appreciation Fund 103.94 153.72 196.12 269.56 23.94 73.72 126.12 269.56 Capital Development Fund 109.68 170.87 224.57 325.50 29.68 90.87 154.57 325.50 Value Fund 104.15 154.34 197.15 271.61 24.15 74.34 127.15 271.61 Alliance VP Premier Growth Portfolio (Class B) 108.86 168.44 220.55 317.70 28.86 88.44 150.55 317.70 Technology Portfolio (Class B) 108.97 168.74 221.05 318.68 28.97 88.74 151.05 318.68 U.S. Government/High Grade Securities Portfolio (Class B) 107.84 165.38 215.50 307.86 27.84 85.38 145.50 307.86 Baron Capital Funds Trust Capital Asset Fund - Insurance Shares 110.91 174.52 230.58 337.09 30.91 94.52 160.58 337.09 Credit Suisse Warburg Pincus Trust - Emerging Growth Portfolio (previously Warburg Pincus Trust - Emerging Growth Portfolio) 108.35 166.91 218.03 312.79 28.35 86.91 148.03 312.79 Fidelity VIP III Growth & Income Portfolio (Service Class) 102.61 149.71 189.42 256.12 22.61 69.71 119.42 256.12 III Mid Cap Portfolio (Service Class) 104.15 154.34 197.15 271.61 24.15 74.34 127.15 271.61 Overseas Portfolio (Service Class) 105.69 158.95 204.83 286.87 25.69 78.95 134.83 286.87 Franklin Templeton VIP Trust Franklin Real Estate Fund - Class 2 104.25 154.64 197.66 272.63 24.25 74.64 127.66 272.63 Mutual Shares Securities Fund - Class 2 106.30 160.79 207.89 292.91 26.30 80.79 137.89 292.91 Templeton International Smaller Companies Fund - Class 2 109.48 170.26 223.57 323.56 29.48 90.26 153.57 323.56 Goldman Sachs VIT Capital Growth Fund 105.79 159.26 205.34 287.88 25.79 79.26 135.34 287.88 CORE-SM- U.S. Equity Fund 104.76 156.18 200.23 277.74 24.76 76.18 130.23 277.74 Global Income Fund 107.33 163.85 212.97 302.90 27.33 83.85 142.97 302.90 International Equity Fund 109.38 169.96 223.07 322.58 29.38 89.96 153.07 322.58 Internet Tollkeeper Fund-SM- 108.35 166.91 218.03 312.79 28.35 86.91 148.03 312.79 Janus Aspen Series Aggressive Growth Portfolio: Service Shares 104.97 156.80 201.25 279.78 24.97 76.80 131.25 279.78 Global Technology Portfolio: Service Shares 105.17 157.41 202.28 281.81 25.17 77.41 132.28 281.81 Growth Portfolio: Service Shares 104.97 156.80 201.25 279.78 24.97 76.80 131.25 279.78 International Growth Portfolio: Service Shares 105.38 158.03 203.30 283.84 25.38 78.03 133.30 283.84
AMERICAN EXPRESS SIGNATURE ONE VARIABLE ANNUITY -- PROSPECTUS 11 You would pay the following expenses on a $1,000 investment if you selected death benefit Option A and assuming a 5% annual return and ...(continued)
NO WITHDRAWAL OR SELECTION FULL WITHDRAWAL AT THE OF AN ANNUITY PAYOUT PLAN AT THE END OF EACH TIME PERIOD END OF EACH TIME PERIOD 1 YEAR 3 YEARS 5 YEARS 10 YEARS 1 YEAR 3 YEARS 5 YEARS 10 YEARS J.P. Morgan U.S. Disciplined Equity Portfolio $104.25 $154.64 $197.66 $272.63 $24.25 $74.64 $127.66 $272.63 Lazard Retirement Series Equity Portfolio 108.35 166.91 218.03 312.79 28.35 86.91 148.03 312.79 International Equity Portfolio 108.35 166.91 218.03 312.79 28.35 86.91 148.03 312.79 MFS-Registered Trademark- New Discovery Series - Initial Class 106.40 161.10 208.40 293.92 26.40 81.10 138.40 293.92 Research Series - Initial Class 104.25 154.64 197.66 272.63 24.25 74.64 127.66 272.63 Utilities Series - Initial Class 104.87 156.49 200.74 278.76 24.87 76.49 130.74 278.76 Royce Capital Fund Micro-Cap Portfolio 109.38 169.96 223.07 322.58 29.38 89.96 153.07 322.58 Small-Cap Portfolio (previously Royce Premier Portfolio) 109.38 169.96 223.07 322.58 29.38 89.96 153.07 322.58 Third Avenue Value Portfolio 108.86 168.44 220.55 317.70 28.86 88.44 150.55 317.70 Wanger International Small Cap 109.99 171.79 226.08 328.41 29.99 91.79 156.08 328.41 U.S. Small Cap 105.79 159.26 205.34 287.88 25.79 79.26 135.34 287.88 Wells Fargo VT Equity Income Fund 105.79 159.26 205.34 287.88 25.79 79.26 135.34 287.88
* In these examples, the $30 contract administrative charge is approximated as a 0.016% charge based on our average contract size. Premium taxes imposed by some state and local governments are not reflected in these tables. We entered into certain arrangements under which we are compensated by the funds' advisers 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. 12 AMERICAN EXPRESS SIGNATURE ONE VARIABLE ANNUITY -- PROSPECTUS CONDENSED FINANCIAL INFORMATION (UNAUDITED) The following tables give per-unit information about the financial history of each subaccount.
YEAR ENDED DEC. 31, 2000 ---------------------------------------------------------------------------------------------------------------------------------- SUBACCOUNT SBCA1(1) (INVESTING IN SHARES OF AXP-Registered Trademark- VARIABLE PORTFOLIO - BLUE CHIP ADVANTAGE FUND) Accumulation unit value at beginning of period $1.00 Accumulation unit value at end of period $0.93 Number of accumulation units outstanding at end of period (000 omitted) 738 Ratio of operating expense to average net assets 1.60% ---------------------------------------------------------------------------------------------------------------------------------- SUBACCOUNT WBCA3(2) (INVESTING IN SHARES OF AXP-registered trademark- VARIABLE PORTFOLIO - BLUE CHIP ADVANTAGE FUND) Accumulation unit value at beginning of period $1.00 Accumulation unit value at end of period $0.91 Number of accumulation units outstanding at end of period (000 omitted) 789 Ratio of operating expense to average net assets 1.50% ---------------------------------------------------------------------------------------------------------------------------------- SUBACCOUNT SBND1(1) (INVESTING IN SHARES OF AXP-Registered Trademark- VARIABLE PORTFOLIO - BOND 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 (000 omitted) 688 Ratio of operating expense to average net assets 1.60% ---------------------------------------------------------------------------------------------------------------------------------- SUBACCOUNT SBND2(3) (INVESTING IN SHARES OF AXP-Registered Trademark- VARIABLE PORTFOLIO - BOND 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 (000 omitted) 64 Ratio of operating expense to average net assets 1.50% ---------------------------------------------------------------------------------------------------------------------------------- SUBACCOUNT SCAR1(1) (INVESTING IN SHARES OF AXP-Registered Trademark- VARIABLE PORTFOLIO - CAPITAL RESOURCE FUND) Accumulation unit value at beginning of period $1.00 Accumulation unit value at end of period $0.85 Number of accumulation units outstanding at end of period (000 omitted) 785 Ratio of operating expense to average net assets 1.60% ---------------------------------------------------------------------------------------------------------------------------------- SUBACCOUNT WCAR3(2) (INVESTING IN SHARES OF AXP-Registered Trademark- VARIABLE PORTFOLIO - CAPITAL RESOURCE FUND) Accumulation unit value at beginning of period $1.00 Accumulation unit value at end of period $0.83 Number of accumulation units outstanding at end of period (000 omitted) 479 Ratio of operating expense to average net assets 1.50% ---------------------------------------------------------------------------------------------------------------------------------- SUBACCOUNT SCMG1(1) (INVESTING IN SHARES OF AXP-Registered Trademark- VARIABLE PORTFOLIO - CASH MANAGEMENT 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 (000 omitted) 11,511 Ratio of operating expense to average net assets 1.60% Simple yield(4) 4.33% Compound yield(4) 4.42% ---------------------------------------------------------------------------------------------------------------------------------- SUBACCOUNT SCMG2(3) (INVESTING IN SHARES OF AXP-Registered Trademark- VARIABLE PORTFOLIO - CASH MANAGEMENT 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 (000 omitted) 2,613 Ratio of operating expense to average net assets 1.50% Simple yield(4) 4.45% Compound yield(4) 4.55% ---------------------------------------------------------------------------------------------------------------------------------- SUBACCOUNT SDEI1(1) (INVESTING IN SHARES OF AXP-Registered Trademark- VARIABLE PORTFOLIO - DIVERSIFIED EQUITY INCOME FUND) Accumulation unit value at beginning of period $1.00 Accumulation unit value at end of period $1.07 Number of accumulation units outstanding at end of period (000 omitted) 52 Ratio of operating expense to average net assets 1.60% ----------------------------------------------------------------------------------------------------------------------------------
AMERICAN EXPRESS SIGNATURE ONE VARIABLE ANNUITY -- PROSPECTUS 13
YEAR ENDED DEC. 31, 2000 ---------------------------------------------------------------------------------------------------------------------------------- SUBACCOUNT WDEI3(2) (INVESTING IN SHARES OF AXP-Registered Trademark- VARIABLE PORTFOLIO - DIVERSIFIED EQUITY INCOME 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 (000 omitted) 66 Ratio of operating expense to average net assets 1.50% ---------------------------------------------------------------------------------------------------------------------------------- SUBACCOUNT SEXI1(1) (INVESTING IN SHARES OF AXP-Registered Trademark- VARIABLE PORTFOLIO - EXTRA INCOME FUND) Accumulation unit value at beginning of period $1.00 Accumulation unit value at end of period $0.88 Number of accumulation units outstanding at end of period (000 omitted) 390 Ratio of operating expense to average net assets 1.60% ---------------------------------------------------------------------------------------------------------------------------------- SUBACCOUNT WEXI3(2) (INVESTING IN SHARES OF AXP-Registered Trademark- VARIABLE PORTFOLIO - EXTRA INCOME FUND) Accumulation unit value at beginning of period $1.00 Accumulation unit value at end of period $0.87 Number of accumulation units outstanding at end of period (000 omitted) 310 Ratio of operating expense to average net assets 1.50% ---------------------------------------------------------------------------------------------------------------------------------- SUBACCOUNT SFDI1(1) (INVESTING IN SHARES OF AXP-Registered Trademark- VARIABLE PORTFOLIO - FEDERAL INCOME FUND) Accumulation unit value at beginning of period $1.00 Accumulation unit value at end of period $1.06 Number of accumulation units outstanding at end of period (000 omitted) 24 Ratio of operating expense to average net assets 1.60% ---------------------------------------------------------------------------------------------------------------------------------- SUBACCOUNT WFDI3(2) (INVESTING IN SHARES OF AXP-Registered Trademark- VARIABLE PORTFOLIO - FEDERAL INCOME FUND) Accumulation unit value at beginning of period $1.00 Accumulation unit value at end of period $1.05 Number of accumulation units outstanding at end of period (000 omitted) 272 Ratio of operating expense to average net assets 1.50% ---------------------------------------------------------------------------------------------------------------------------------- SUBACCOUNT SGRO1(1) (INVESTING IN SHARES OF AXP-Registered Trademark- VARIABLE PORTFOLIO - GROWTH FUND) Accumulation unit value at beginning of period $1.00 Accumulation unit value at end of period $0.77 Number of accumulation units outstanding at end of period (000 omitted) 554 Ratio of operating expense to average net assets 1.60% ---------------------------------------------------------------------------------------------------------------------------------- SUBACCOUNT SGRO2(3) (INVESTING IN SHARES OF AXP-Registered Trademark- VARIABLE PORTFOLIO - GROWTH FUND) Accumulation unit value at beginning of period $1.00 Accumulation unit value at end of period $0.74 Number of accumulation units outstanding at end of period (000 omitted) 211 Ratio of operating expense to average net assets 1.50% ---------------------------------------------------------------------------------------------------------------------------------- SUBACCOUNT SMGD1(1) (INVESTING IN SHARES OF AXP-Registered Trademark- VARIABLE PORTFOLIO - MANAGED FUND) Accumulation unit value at beginning of period $1.00 Accumulation unit value at end of period $0.98 Number of accumulation units outstanding at end of period (000 omitted) 613 Ratio of operating expense to average net assets 1.60% ---------------------------------------------------------------------------------------------------------------------------------- SUBACCOUNT SMGD2(3) (INVESTING IN SHARES OF AXP-Registered Trademark- VARIABLE PORTFOLIO - MANAGED FUND) Accumulation unit value at beginning of period $1.00 Accumulation unit value at end of period $0.94 Number of accumulation units outstanding at end of period (000 omitted) 51 Ratio of operating expense to average net assets 1.50% ---------------------------------------------------------------------------------------------------------------------------------- SUBACCOUNT SNDM1(1) (INVESTING IN SHARES OF AXP-Registered Trademark- VARIABLE PORTFOLIO - NEW DIMENSIONS FUND-Registered Trademark-) Accumulation unit value at beginning of period $1.00 Accumulation unit value at end of period $0.90 Number of accumulation units outstanding at end of period (000 omitted) 2,468 Ratio of operating expense to average net assets 1.60% ---------------------------------------------------------------------------------------------------------------------------------- SUBACCOUNT WNDM3(2) (INVESTING IN SHARES OF AXP-Registered Trademark- VARIABLE PORTFOLIO - NEW DIMENSIONS FUND-Registered Trademark-) Accumulation unit value at beginning of period $1.00 Accumulation unit value at end of period $0.86 Number of accumulation units outstanding at end of period (000 omitted) 2,130 Ratio of operating expense to average net assets 1.50% ----------------------------------------------------------------------------------------------------------------------------------
14 AMERICAN EXPRESS SIGNATURE ONE VARIABLE ANNUITY -- PROSPECTUS
YEAR ENDED DEC. 31, 2000 ---------------------------------------------------------------------------------------------------------------------------------- SUBACCOUNT SSCA1(1) (INVESTING IN SHARES OF AXP-Registered Trademark- VARIABLE PORTFOLIO - SMALL CAP ADVANTAGE FUND) Accumulation unit value at beginning of period $1.00 Accumulation unit value at end of period $1.00 Number of accumulation units outstanding at end of period (000 omitted) 147 Ratio of operating expense to average net assets 1.60% ---------------------------------------------------------------------------------------------------------------------------------- SUBACCOUNT WSCA3(2) (INVESTING IN SHARES OF AXP-Registered Trademark- VARIABLE PORTFOLIO - SMALL CAP ADVANTAGE FUND) Accumulation unit value at beginning of period $1.00 Accumulation unit value at end of period $0.90 Number of accumulation units outstanding at end of period (000 omitted) 173 Ratio of operating expense to average net assets 1.50% ---------------------------------------------------------------------------------------------------------------------------------- SUBACCOUNT SCAP1(1) (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 $0.83 Number of accumulation units outstanding at end of period (000 omitted) 8,641 Ratio of operating expense to average net assets 1.60% ---------------------------------------------------------------------------------------------------------------------------------- SUBACCOUNT WCAP3(2) (INVESTING IN SHARES OF AIM V.I. CAPITAL APPRECIATION FUND) Accumulation unit value at beginning of period $1.00 Accumulation unit value at end of period $0.75 Number of accumulation units outstanding at end of period (000 omitted) 5,686 Ratio of operating expense to average net assets 1.50% ---------------------------------------------------------------------------------------------------------------------------------- SUBACCOUNT SCDV1(1) (INVESTING IN SHARES OF AIM V.I. CAPITAL DEVELOPMENT FUND) Accumulation unit value at beginning of period $1.00 Accumulation unit value at end of period $0.97 Number of accumulation units outstanding at end of period (000 omitted) 3,627 Ratio of operating expense to average net assets 1.60% ---------------------------------------------------------------------------------------------------------------------------------- SUBACCOUNT SCDV2(3) (INVESTING IN SHARES OF AIM V.I. CAPITAL DEVELOPMENT FUND) Accumulation unit value at beginning of period $1.00 Accumulation unit value at end of period $0.97 Number of accumulation units outstanding at end of period (000 omitted) 850 Ratio of operating expense to average net assets 1.50% ---------------------------------------------------------------------------------------------------------------------------------- SUBACCOUNT SVAL1(1) (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 $0.83 Number of accumulation units outstanding at end of period (000 omitted) 10,738 Ratio of operating expense to average net assets 1.60% ---------------------------------------------------------------------------------------------------------------------------------- SUBACCOUNT WVAL3(2) (INVESTING IN SHARES OF AIM V.I. VALUE FUND) Accumulation unit value at beginning of period $1.00 Accumulation unit value at end of period $0.81 Number of accumulation units outstanding at end of period (000 omitted) 6,187 Ratio of operating expense to average net assets 1.50% ---------------------------------------------------------------------------------------------------------------------------------- SUBACCOUNT SPGR1(1) (INVESTING IN SHARES OF ALLIANCE VP PREMIER GROWTH PORTFOLIO (CLASS B)) Accumulation unit value at beginning of period $1.00 Accumulation unit value at end of period $0.86 Number of accumulation units outstanding at end of period (000 omitted) 9,298 Ratio of operating expense to average net assets 1.60% ---------------------------------------------------------------------------------------------------------------------------------- SUBACCOUNT SPGR2(3) (INVESTING IN SHARES OF ALLIANCE VP PREMIER GROWTH PORTFOLIO (CLASS B)) Accumulation unit value at beginning of period $1.00 Accumulation unit value at end of period $0.80 Number of accumulation units outstanding at end of period (000 omitted) 1,899 Ratio of operating expense to average net assets 1.50% ---------------------------------------------------------------------------------------------------------------------------------- SUBACCOUNT STEC1(1) (INVESTING IN SHARES OF ALLIANCE VP TECHNOLOGY PORTFOLIO (CLASS B)) Accumulation unit value at beginning of period $1.00 Accumulation unit value at end of period $0.70 Number of accumulation units outstanding at end of period (000 omitted) 9,543 Ratio of operating expense to average net assets 1.60% ----------------------------------------------------------------------------------------------------------------------------------
AMERICAN EXPRESS SIGNATURE ONE VARIABLE ANNUITY -- PROSPECTUS 15
YEAR ENDED DEC. 31, 2000 ---------------------------------------------------------------------------------------------------------------------------------- SUBACCOUNT STEC2(3) (INVESTING IN SHARES OF ALLIANCE VP TECHNOLOGY PORTFOLIO (CLASS B)) Accumulation unit value at beginning of period $1.00 Accumulation unit value at end of period $0.65 Number of accumulation units outstanding at end of period (000 omitted) 2,882 Ratio of operating expense to average net assets 1.50% ---------------------------------------------------------------------------------------------------------------------------------- SUBACCOUNT SUGH1(1) (INVESTING IN SHARES OF ALLIANCE VP U.S. GOVERNMENT/HIGH GRADE SECURITIES PORTFOLIO (CLASS B)) Accumulation unit value at beginning of period $1.00 Accumulation unit value at end of period $1.09 Number of accumulation units outstanding at end of period (000 omitted) 319 Ratio of operating expense to average net assets 1.60% ---------------------------------------------------------------------------------------------------------------------------------- SUBACCOUNT SUGH2(3) (INVESTING IN SHARES OF ALLIANCE VP U.S. GOVERNMENT/HIGH GRADE SECURITIES PORTFOLIO (CLASS B)) Accumulation unit value at beginning of period $1.00 Accumulation unit value at end of period $1.01 Number of accumulation units outstanding at end of period (000 omitted) 405 Ratio of operating expense to average net assets 1.50% ---------------------------------------------------------------------------------------------------------------------------------- SUBACCOUNT SCAS1(1) (INVESTING IN SHARES OF BARON CAPITAL ASSET FUND - INSURANCE SHARES) Accumulation unit value at beginning of period $1.00 Accumulation unit value at end of period $0.96 Number of accumulation units outstanding at end of period (000 omitted) 668 Ratio of operating expense to average net assets 1.60% ---------------------------------------------------------------------------------------------------------------------------------- SUBACCOUNT SCAS2(3) (INVESTING IN SHARES OF BARON CAPITAL ASSET FUND - INSURANCE SHARES) Accumulation unit value at beginning of period $1.00 Accumulation unit value at end of period $0.95 Number of accumulation units outstanding at end of period (000 omitted) 44 Ratio of operating expense to average net assets 1.50% ---------------------------------------------------------------------------------------------------------------------------------- SUBACCOUNT SEGR1(1) (INVESTING IN SHARES OF CREDIT SUISSE WARBURG PINCUS TRUST - EMERGING GROWTH PORTFOLIO(5)) Accumulation unit value at beginning of period $1.00 Accumulation unit value at end of period $0.83 Number of accumulation units outstanding at end of period (000 omitted) 1,637 Ratio of operating expense to average net assets 1.60% ---------------------------------------------------------------------------------------------------------------------------------- SUBACCOUNT SEGR2(3) (INVESTING IN SHARES OF CREDIT SUISSE WARBURG PINCUS TRUST - EMERGING GROWTH PORTFOLIO(5)) Accumulation unit value at beginning of period $1.00 Accumulation unit value at end of period $0.93 Number of accumulation units outstanding at end of period (000 omitted) 103 Ratio of operating expense to average net assets 1.50% ---------------------------------------------------------------------------------------------------------------------------------- SUBACCOUNT SGRI1(1) (INVESTING IN SHARES OF FIDELITY VIP III GROWTH & Income Portfolio (Service Class)) Accumulation unit value at beginning of period $1.00 Accumulation unit value at end of period $1.01 Number of accumulation units outstanding at end of period (000 omitted) 2,250 Ratio of operating expense to average net assets 1.60% ---------------------------------------------------------------------------------------------------------------------------------- SUBACCOUNT SGRI2(3) (INVESTING IN SHARES OF FIDELITY VIP III GROWTH & Income Portfolio (Service Class)) Accumulation unit value at beginning of period $1.00 Accumulation unit value at end of period $0.99 Number of accumulation units outstanding at end of period (000 omitted) 637 Ratio of operating expense to average net assets 1.50% ---------------------------------------------------------------------------------------------------------------------------------- SUBACCOUNT SMDC1(1) (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 $1.14 Number of accumulation units outstanding at end of period (000 omitted) 10,072 Ratio of operating expense to average net assets 1.60% ---------------------------------------------------------------------------------------------------------------------------------- SUBACCOUNT SMDC2(3) (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 $1.14 Number of accumulation units outstanding at end of period (000 omitted) 3,650 Ratio of operating expense to average net assets 1.50% ----------------------------------------------------------------------------------------------------------------------------------
16 AMERICAN EXPRESS SIGNATURE ONE VARIABLE ANNUITY -- PROSPECTUS
YEAR ENDED DEC. 31, 2000 ---------------------------------------------------------------------------------------------------------------------------------- SUBACCOUNT SOVS1(1) (INVESTING IN SHARES OF FIDELITY VIP OVERSEAS PORTFOLIO (SERVICE CLASS)) Accumulation unit value at beginning of period $1.00 Accumulation unit value at end of period $0.80 Number of accumulation units outstanding at end of period (000 omitted) 1,064 Ratio of operating expense to average net assets 1.60% ---------------------------------------------------------------------------------------------------------------------------------- SUBACCOUNT SOVS2(3) (INVESTING IN SHARES OF FIDELITY VIP OVERSEAS PORTFOLIO (SERVICE CLASS)) Accumulation unit value at beginning of period $1.00 Accumulation unit value at end of period $0.85 Number of accumulation units outstanding at end of period (000 omitted) 506 Ratio of operating expense to average net assets 1.50% ---------------------------------------------------------------------------------------------------------------------------------- SUBACCOUNT SRES1(1) (INVESTING IN SHARES OF FTVIPT FRANKLIN REAL ESTATE FUND - CLASS 2) Accumulation unit value at beginning of period $1.00 Accumulation unit value at end of period $1.32 Number of accumulation units outstanding at end of period (000 omitted) 269 Ratio of operating expense to average net assets 1.60% ---------------------------------------------------------------------------------------------------------------------------------- SUBACCOUNT WRES3(2) (INVESTING IN SHARES OF FTVIPT FRANKLIN REAL ESTATE FUND - CLASS 2) Accumulation unit value at beginning of period $1.00 Accumulation unit value at end of period $1.18 Number of accumulation units outstanding at end of period (000 omitted) 92 Ratio of operating expense to average net assets 1.50% ---------------------------------------------------------------------------------------------------------------------------------- SUBACCOUNT SMSS1(1) (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 $1.19 Number of accumulation units outstanding at end of period (000 omitted) 79 Ratio of operating expense to average net assets 1.60% ---------------------------------------------------------------------------------------------------------------------------------- SUBACCOUNT WMSS3(2) (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 $1.11 Number of accumulation units outstanding at end of period (000 omitted) 39 Ratio of operating expense to average net assets 1.50% ---------------------------------------------------------------------------------------------------------------------------------- SUBACCOUNT SISC1(1) (INVESTING IN SHARES OF FTVIPT TEMPLETON INTERNATIONAL SMALLER COMPANIES FUND - CLASS 2) Accumulation unit value at beginning of period $1.00 Accumulation unit value at end of period $0.96 Number of accumulation units outstanding at end of period (000 omitted) 199 Ratio of operating expense to average net assets 1.60% ---------------------------------------------------------------------------------------------------------------------------------- SUBACCOUNT SISC2(3) (INVESTING IN SHARES OF FTVIPT TEMPLETON INTERNATIONAL SMALLER COMPANIES FUND - CLASS 2) Accumulation unit value at beginning of period $1.00 Accumulation unit value at end of period $0.96 Number of accumulation units outstanding at end of period (000 omitted) 33 Ratio of operating expense to average net assets 1.50% ---------------------------------------------------------------------------------------------------------------------------------- SUBACCOUNT SCGR1(1) (INVESTING IN SHARES OF GOLDMAN SACHS VIT CAPITAL GROWTH FUND) Accumulation unit value at beginning of period $1.00 Accumulation unit value at end of period $0.95 Number of accumulation units outstanding at end of period (000 omitted) 1,157 Ratio of operating expense to average net assets 1.60% ---------------------------------------------------------------------------------------------------------------------------------- SUBACCOUNT SCGR2(3) (INVESTING IN SHARES OF GOLDMAN SACHS VIT CAPITAL GROWTH FUND) Accumulation unit value at beginning of period $1.00 Accumulation unit value at end of period $0.91 Number of accumulation units outstanding at end of period (000 omitted) 89 Ratio of operating expense to average net assets 1.50% ---------------------------------------------------------------------------------------------------------------------------------- SUBACCOUNT SUSE1(1) (INVESTING IN SHARES OF GOLDMAN SACHS VIT CORE-SM- U.S. EQUITY FUND) Accumulation unit value at beginning of period $1.00 Accumulation unit value at end of period $0.94 Number of accumulation units outstanding at end of period (000 omitted) 1,910 Ratio of operating expense to average net assets 1.60% ----------------------------------------------------------------------------------------------------------------------------------
AMERICAN EXPRESS SIGNATURE ONE VARIABLE ANNUITY -- PROSPECTUS 17
YEAR ENDED DEC. 31, 2000 ---------------------------------------------------------------------------------------------------------------------------------- SUBACCOUNT WUSE3(2) (INVESTING IN SHARES OF GOLDMAN SACHS VIT CORE-SM- U.S. EQUITY FUND) Accumulation unit value at beginning of period $1.00 Accumulation unit value at end of period $0.92 Number of accumulation units outstanding at end of period (000 omitted) 587 Ratio of operating expense to average net assets 1.50% ---------------------------------------------------------------------------------------------------------------------------------- SUBACCOUNT SGLI1(1) (INVESTING IN SHARES OF GOLDMAN SACHS VIT GLOBAL INCOME FUND) Accumulation unit value at beginning of period $1.00 Accumulation unit value at end of period $1.07 Number of accumulation units outstanding at end of period (000 omitted) 260 Ratio of operating expense to average net assets 1.60% ---------------------------------------------------------------------------------------------------------------------------------- SUBACCOUNT WGLI3(2) (INVESTING IN SHARES OF GOLDMAN SACHS VIT GLOBAL INCOME FUND) Accumulation unit value at beginning of period $1.00 Accumulation unit value at end of period $1.07 Number of accumulation units outstanding at end of period (000 omitted) 58 Ratio of operating expense to average net assets 1.50% ---------------------------------------------------------------------------------------------------------------------------------- SUBACCOUNT SIEQ1(1) (INVESTING IN SHARES OF GOLDMAN SACHS VIT INTERNATIONAL EQUITY FUND) Accumulation unit value at beginning of period $1.00 Accumulation unit value at end of period $0.85 Number of accumulation units outstanding at end of period (000 omitted) 621 Ratio of operating expense to average net assets 1.60% ---------------------------------------------------------------------------------------------------------------------------------- SUBACCOUNT SIEQ2(3) (INVESTING IN SHARES OF GOLDMAN SACHS VIT INTERNATIONAL EQUITY FUND) Accumulation unit value at beginning of period $1.00 Accumulation unit value at end of period $0.88 Number of accumulation units outstanding at end of period (000 omitted) 77 Ratio of operating expense to average net assets 1.50% ---------------------------------------------------------------------------------------------------------------------------------- SUBACCOUNT SITO1(3) (INVESTING IN SHARES OF GOLDMAN SACHS VIT INTERNET TOLLKEEPER FUND-SM-) Accumulation unit value at beginning of period $1.00 Accumulation unit value at end of period $0.67 Number of accumulation units outstanding at end of period (000 omitted) 2,260 Ratio of operating expense to average net assets 1.60% ---------------------------------------------------------------------------------------------------------------------------------- SUBACCOUNT SITO2(3) (INVESTING IN SHARES OF GOLDMAN SACHS VIT INTERNET TOLLKEEPER FUND-SM-) Accumulation unit value at beginning of period $1.00 Accumulation unit value at end of period $0.67 Number of accumulation units outstanding at end of period (000 omitted) 420 Ratio of operating expense to average net assets 1.50% ---------------------------------------------------------------------------------------------------------------------------------- SUBACCOUNT SAGP1(1) (INVESTING IN SHARES OF JANUS ASPEN SERIES AGGRESSIVE GROWTH PORTFOLIO: SERVICE SHARES) Accumulation unit value at beginning of period $1.00 Accumulation unit value at end of period $0.58 Number of accumulation units outstanding at end of period (000 omitted) 8,739 Ratio of operating expense to average net assets 1.60% ---------------------------------------------------------------------------------------------------------------------------------- SUBACCOUNT SAGP2(3) (INVESTING IN SHARES OF JANUS ASPEN SERIES AGGRESSIVE GROWTH PORTFOLIO: SERVICE SHARES) Accumulation unit value at beginning of period $1.00 Accumulation unit value at end of period $0.70 Number of accumulation units outstanding at end of period (000 omitted) 1,050 Ratio of operating expense to average net assets 1.50% ---------------------------------------------------------------------------------------------------------------------------------- SUBACCOUNT SGLT1(3) (INVESTING IN SHARES OF JANUS ASPEN SERIES GLOBAL TECHNOLOGY PORTFOLIO: SERVICE SHARES) Accumulation unit value at beginning of period $1.00 Accumulation unit value at end of period $0.68 Number of accumulation units outstanding at end of period (000 omitted) 3,873 Ratio of operating expense to average net assets 1.60% ---------------------------------------------------------------------------------------------------------------------------------- SUBACCOUNT SGLT2(3) (INVESTING IN SHARES OF JANUS ASPEN SERIES GLOBAL TECHNOLOGY PORTFOLIO: SERVICE SHARES) Accumulation unit value at beginning of period $1.00 Accumulation unit value at end of period $0.68 Number of accumulation units outstanding at end of period (000 omitted) 769 Ratio of operating expense to average net assets 1.50% ----------------------------------------------------------------------------------------------------------------------------------
18 AMERICAN EXPRESS SIGNATURE ONE VARIABLE ANNUITY -- PROSPECTUS
YEAR ENDED DEC. 31, 2000 ---------------------------------------------------------------------------------------------------------------------------------- SUBACCOUNT SGRP1(1) (INVESTING IN SHARES OF JANUS ASPEN SERIES GROWTH PORTFOLIO: SERVICE SHARES) Accumulation unit value at beginning of period $1.00 Accumulation unit value at end of period $0.81 Number of accumulation units outstanding at end of period (000 omitted) 12,345 Ratio of operating expense to average net assets 1.60% ---------------------------------------------------------------------------------------------------------------------------------- SUBACCOUNT SGRP2(3) (INVESTING IN SHARES OF JANUS ASPEN SERIES GROWTH PORTFOLIO: SERVICE SHARES) Accumulation unit value at beginning of period $1.00 Accumulation unit value at end of period $0.82 Number of accumulation units outstanding at end of period (000 omitted) 4,333 Ratio of operating expense to average net assets 1.50% ---------------------------------------------------------------------------------------------------------------------------------- SUBACCOUNT SINT1(1) (INVESTING IN SHARES OF JANUS ASPEN SERIES INTERNATIONAL GROWTH PORTFOLIO: SERVICE SHARES) Accumulation unit value at beginning of period $1.00 Accumulation unit value at end of period $0.73 Number of accumulation units outstanding at end of period (000 omitted) 7,309 Ratio of operating expense to average net assets 1.60% ---------------------------------------------------------------------------------------------------------------------------------- SUBACCOUNT SINT2(3) (INVESTING IN SHARES OF JANUS ASPEN SERIES INTERNATIONAL GROWTH PORTFOLIO: SERVICE SHARES) Accumulation unit value at beginning of period $1.00 Accumulation unit value at end of period $0.80 Number of accumulation units outstanding at end of period (000 omitted) 1,077 Ratio of operating expense to average net assets 1.50% ---------------------------------------------------------------------------------------------------------------------------------- SUBACCOUNT SUDE1(1) (INVESTING IN SHARES OF J.P. MORGAN U.S. DISCIPLINED EQUITY PORTFOLIO) Accumulation unit value at beginning of period $1.00 Accumulation unit value at end of period $0.93 Number of accumulation units outstanding at end of period (000 omitted) 696 Ratio of operating expense to average net assets 1.60% ---------------------------------------------------------------------------------------------------------------------------------- SUBACCOUNT SUDE2(3) (INVESTING IN SHARES OF J.P. MORGAN U.S. DISCIPLINED EQUITY PORTFOLIO) Accumulation unit value at beginning of period $1.00 Accumulation unit value at end of period $0.89 Number of accumulation units outstanding at end of period (000 omitted) 225 Ratio of operating expense to average net assets 1.50% ---------------------------------------------------------------------------------------------------------------------------------- SUBACCOUNT SREQ1(1) (INVESTING IN SHARES OF LAZARD RETIREMENT EQUITY PORTFOLIO) 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 (000 omitted) 70 Ratio of operating expense to average net assets 1.60% ---------------------------------------------------------------------------------------------------------------------------------- SUBACCOUNT SREQ2(3) (INVESTING IN SHARES OF LAZARD RETIREMENT EQUITY PORTFOLIO) Accumulation unit value at beginning of period $1.00 Accumulation unit value at end of period $1.00 Number of accumulation units outstanding at end of period (000 omitted) 18 Ratio of operating expense to average net assets 1.50% ---------------------------------------------------------------------------------------------------------------------------------- SUBACCOUNT SRIE1(1) (INVESTING IN SHARES OF LAZARD RETIREMENT INTERNATIONAL EQUITY PORTFOLIO) Accumulation unit value at beginning of period $1.00 Accumulation unit value at end of period $0.95 Number of accumulation units outstanding at end of period (000 omitted) 101 Ratio of operating expense to average net assets 1.60% ---------------------------------------------------------------------------------------------------------------------------------- SUBACCOUNT SRIE2(3) (INVESTING IN SHARES OF LAZARD RETIREMENT INTERNATIONAL EQUITY PORTFOLIO) Accumulation unit value at beginning of period $1.00 Accumulation unit value at end of period $0.95 Number of accumulation units outstanding at end of period (000 omitted) 11 Ratio of operating expense to average net assets 1.50% ---------------------------------------------------------------------------------------------------------------------------------- SUBACCOUNT SNDS1(1) (INVESTING IN SHARES OF MFS-Registered Trademark- NEW DISCOVERY SERIES - INITIAL CLASS) Accumulation unit value at beginning of period $1.00 Accumulation unit value at end of period $0.88 Number of accumulation units outstanding at end of period (000 omitted) 5,110 Ratio of operating expense to average net assets 1.60% ----------------------------------------------------------------------------------------------------------------------------------
AMERICAN EXPRESS SIGNATURE ONE VARIABLE ANNUITY -- PROSPECTUS 19
YEAR ENDED DEC. 31, 2000 ---------------------------------------------------------------------------------------------------------------------------------- SUBACCOUNT SNDS2(3) (INVESTING IN SHARES OF MFS-Registered Trademark- NEW DISCOVERY SERIES - INITIAL CLASS) Accumulation unit value at beginning of period $1.00 Accumulation unit value at end of period $0.95 Number of accumulation units outstanding at end of period (000 omitted) 1,292 Ratio of operating expense to average net assets 1.50% ---------------------------------------------------------------------------------------------------------------------------------- SUBACCOUNT SRSS1(1) (INVESTING IN SHARES OF MFS-Registered Trademark- RESEARCH SERIES - INITIAL CLASS) Accumulation unit value at beginning of period $1.00 Accumulation unit value at end of period $0.95 Number of accumulation units outstanding at end of period (000 omitted) 2,978 Ratio of operating expense to average net assets 1.60% ---------------------------------------------------------------------------------------------------------------------------------- SUBACCOUNT SRSS2(3) (INVESTING IN SHARES OF MFS-Registered Trademark- RESEARCH SERIES - INITIAL CLASS) Accumulation unit value at beginning of period $1.00 Accumulation unit value at end of period $0.90 Number of accumulation units outstanding at end of period (000 omitted) 1,014 Ratio of operating expense to average net assets 1.50% ---------------------------------------------------------------------------------------------------------------------------------- SUBACCOUNT SUTS1(1) (INVESTING IN SHARES OF MFS-Registered Trademark- UTILITIES SERIES - INITIAL CLASS) Accumulation unit value at beginning of period $1.00 Accumulation unit value at end of period $0.98 Number of accumulation units outstanding at end of period (000 omitted) 3,551 Ratio of operating expense to average net assets 1.60% ---------------------------------------------------------------------------------------------------------------------------------- SUBACCOUNT WUTS3(2) (INVESTING IN SHARES OF MFS-Registered Trademark- UTILITIES SERIES - INITIAL CLASS) Accumulation unit value at beginning of period $1.00 Accumulation unit value at end of period $0.85 Number of accumulation units outstanding at end of period (000 omitted) 1,785 Ratio of operating expense to average net assets 1.50% ---------------------------------------------------------------------------------------------------------------------------------- SUBACCOUNT SMCC1(1) (INVESTING IN SHARES OF ROYCE MICRO-CAP PORTFOLIO) Accumulation unit value at beginning of period $1.00 Accumulation unit value at end of period $1.18 Number of accumulation units outstanding at end of period (000 omitted) 491 Ratio of operating expense to average net assets 1.60% ---------------------------------------------------------------------------------------------------------------------------------- SUBACCOUNT SMCC2(3) (INVESTING IN SHARES OF ROYCE MICRO-CAP PORTFOLIO) Accumulation unit value at beginning of period $1.00 Accumulation unit value at end of period $1.13 Number of accumulation units outstanding at end of period (000 omitted) 173 Ratio of operating expense to average net assets 1.50% ---------------------------------------------------------------------------------------------------------------------------------- SUBACCOUNT SPRM1(1) (INVESTING IN SHARES OF ROYCE SMALL-CAP PORTFOLIO(6)) Accumulation unit value at beginning of period $1.00 Accumulation unit value at end of period $1.33 Number of accumulation units outstanding at end of period (000 omitted) 640 Ratio of operating expense to average net assets 1.60% ---------------------------------------------------------------------------------------------------------------------------------- SUBACCOUNT SPRM2(3) (INVESTING IN SHARES OF ROYCE SMALL-CAP PORTFOLIO(6)) Accumulation unit value at beginning of period $1.00 Accumulation unit value at end of period $1.15 Number of accumulation units outstanding at end of period (000 omitted) 284 Ratio of operating expense to average net assets 1.50% ---------------------------------------------------------------------------------------------------------------------------------- SUBACCOUNT SVLU1(1) (INVESTING IN SHARES OF THIRD AVENUE VALUE PORTFOLIO) Accumulation unit value at beginning of period $1.00 Accumulation unit value at end of period $1.39 Number of accumulation units outstanding at end of period (000 omitted) 785 Ratio of operating expense to average net assets 1.60% ---------------------------------------------------------------------------------------------------------------------------------- SUBACCOUNT SVLU2(3) (INVESTING IN SHARES OF THIRD AVENUE VALUE PORTFOLIO) 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 (000 omitted) 486 Ratio of operating expense to average net assets 1.50% ----------------------------------------------------------------------------------------------------------------------------------
20 AMERICAN EXPRESS SIGNATURE ONE VARIABLE ANNUITY -- PROSPECTUS
YEAR ENDED DEC. 31, 2000 ---------------------------------------------------------------------------------------------------------------------------------- SUBACCOUNT SISM1(1) (INVESTING IN SHARES OF WANGER INTERNATIONAL SMALL CAP) Accumulation unit value at beginning of period $1.00 Accumulation unit value at end of period $0.54 Number of accumulation units outstanding at end of period (000 omitted) 1,867 Ratio of operating expense to average net assets 1.60% ---------------------------------------------------------------------------------------------------------------------------------- SUBACCOUNT SISM2(3) (INVESTING IN SHARES OF WANGER INTERNATIONAL SMALL CAP) Accumulation unit value at beginning of period $1.00 Accumulation unit value at end of period $0.71 Number of accumulation units outstanding at end of period (000 omitted) 434 Ratio of operating expense to average net assets 1.50% ---------------------------------------------------------------------------------------------------------------------------------- SUBACCOUNT SUSC1(1) (INVESTING IN SHARES OF WANGER U.S. SMALL CAP) Accumulation unit value at beginning of period $1.00 Accumulation unit value at end of period $0.80 Number of accumulation units outstanding at end of period (000 omitted) 527 Ratio of operating expense to average net assets 1.60% ---------------------------------------------------------------------------------------------------------------------------------- SUBACCOUNT SUSC2(3) (INVESTING IN SHARES OF WANGER U.S. SMALL CAP) Accumulation unit value at beginning of period $1.00 Accumulation unit value at end of period $1.04 Number of accumulation units outstanding at end of period (000 omitted) 31 Ratio of operating expense to average net assets 1.50% ---------------------------------------------------------------------------------------------------------------------------------- SUBACCOUNT SEQI1(1) (INVESTING IN SHARES OF WELLS FARGO VT EQUITY INCOME FUND) 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 (000 omitted) 47 Ratio of operating expense to average net assets 1.60% ---------------------------------------------------------------------------------------------------------------------------------- SUBACCOUNT WEQI3(2) (INVESTING IN SHARES OF WELLS FARGO VT EQUITY INCOME FUND) 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 (000 omitted) 437 Ratio of operating expense to average net assets 1.50% ----------------------------------------------------------------------------------------------------------------------------------
(1) Operations commenced on Feb. 11, 2000. (2) Operations commenced on March 3, 2000. (3) Operations commenced on May 1, 2000. (4) Net of annual contract administrative charge and mortality and expense risk fee. (5) Previously named Warburg Pincus Trust - Emerging Growth Portfolio. (6) Previously named Royce Premier Portfolio. FINANCIAL STATEMENTS You can find the audited financial statements of the subaccounts with financial history in the SAI. You can find our audited financial statements later in this prospectus. AMERICAN EXPRESS SIGNATURE ONE VARIABLE ANNUITY -- PROSPECTUS 21 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 do not reflect any purchase payment credits or PCR credits. We may show total return quotations by means of schedules, charts, or graphs. Total return figures reflect deduction of the following charges: - contract administrative charge, - variable account administrative charge, - the Guaranteed Minimum Income Benefit Rider fee, - applicable mortality and expense risk fee, and - withdrawal charge (assuming a full withdrawal at the end of the illustrated period). We may also show optional total return quotations that reflect deduction of the 8% Performance Credit Rider fee. We also show optional total return quotations that do not reflect a withdrawal charge deduction (assuming no withdrawal), or fees for any of the optional features. 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. 22 AMERICAN EXPRESS SIGNATURE ONE VARIABLE ANNUITY -- PROSPECTUS 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
------------------------------------------------------------------------------------------------------------------------- SUBACCOUNT INVESTING IN INVESTMENT OBJECTIVES AND POLICIES INVESTMENT ADVISOR OR MANAGER ------------------------------------------------------------------------------------------------------------------------- SBCA1 AXP-Registered Trademark- Objective: long-term total return IDS Life, investment WBCA3 Variable Portfolio - Blue exceeding that of the U.S. stock market. manager; American Express Chip Advantage Fund Invests primarily in common stocks of Financial Corporation companies included in the unmanaged S&P (AEFC), investment advisor. 500 Index. ------------------------------------------------------------------------------------------------------------------------- SBND1 AXP-Registered Trademark- Objective: high level of current income IDS Life, investment SBND2 Variable Portfolio - Bond while conserving the value of the manager; AEFC, investment Fund investment and continuing a high level of advisor. income for the longest time period. Invests primarily in bonds and other debt obligations. ------------------------------------------------------------------------------------------------------------------------- SCAR1 AXP-Registered Trademark- Objective: capital appreciation. Invests IDS Life, investment WCAR3 Variable Portfolio - Capital primarily in U.S. common stocks and other manager; AEFC, investment Resource Fund securities convertible into common stocks. advisor. ------------------------------------------------------------------------------------------------------------------------- SCMG1 AXP-Registered Trademark- Objective: maximum current income IDS Life, investment SCMG2 Variable Portfolio - Cash consistent with liquidity and stability manager; AEFC, investment Management Fund of principal. Invests in money market advisor. securities. ------------------------------------------------------------------------------------------------------------------------- SDEI1 AXP-Registered Trademark- Objective: a high level of current income IDS Life, investment WDEI3 Variable Portfolio - and, as a secondary goal, steady growth manager; AEFC, investment Diversified Equity Income of capital. Invests primarily in advisor. Fund dividend-paying common and preferred stocks. ------------------------------------------------------------------------------------------------------------------------- SEXI1 AXP-Registered Trademark- Objective: high current income, with IDS Life, investment WEXI3 Variable Portfolio - Extra capital growth as a secondary objective. manager; AEFC, investment Income Fund Invests primarily in high-yielding, advisor. high-risk corporate bonds issued by U.S. and foreign companies and governments. ------------------------------------------------------------------------------------------------------------------------- SFDI1 AXP-Registered Trademark- Objective: a high level of current income IDS Life, investment WFDI3 Variable Portfolio - Federal and safety of principal consistent with manager; AEFC, investment Income Fund an investment in U.S. government and advisor. government agency securities. Invests primarily in debt obligations issued or guaranteed as to principal and interest by the U.S. government, its agencies or instrumentalities. ------------------------------------------------------------------------------------------------------------------------- SGRO1 AXP-Registered Trademark- Objective: long-term capital growth. IDS Life, investment SGRO2 Variable Portfolio - Growth Invests primarily in common stocks and manager; AEFC, investment Fund securities convertible into common stocks advisor. that appear to offer growth opportunities. ------------------------------------------------------------------------------------------------------------------------- SMGD1 AXP-Registered Trademark- Objective: maximum total investment IDS Life, investment SMGD2 Variable Portfolio - Managed return through a combination of capital manager; AEFC, investment Fund growth and current income. Invests advisor. primarily in a combination of common and preferred stocks, convertible securities, bonds and other debt securities. -------------------------------------------------------------------------------------------------------------------------
AMERICAN EXPRESS SIGNATURE ONE VARIABLE ANNUITY -- PROSPECTUS 23
------------------------------------------------------------------------------------------------------------------------- SUBACCOUNT INVESTING IN INVESTMENT OBJECTIVES AND POLICIES INVESTMENT ADVISOR OR MANAGER ------------------------------------------------------------------------------------------------------------------------- SNDM1 AXP-Registered Trademark- Objective: long-term growth of capital. IDS Life, investment WNDM3 Variable Portfolio - New Invests primarily in common stocks of manager; AEFC, investment Dimensions Fund-Registered U.S. and foreign companies showing advisor. Trademark- potential for significant growth. ------------------------------------------------------------------------------------------------------------------------- SSCA1 AXP-Registered Trademark- Objective: long-term capital growth. IDS Life, investment WSCA3 Variable Portfolio - Small Invests primarily in equity stocks of manager; AEFC, investment Cap Advantage Fund small companies that are often included advisor; Kenwood Capital in the S&P SmallCap 600 Index or the Management LLC, Russell 2000 Index. sub-investment advisor. ------------------------------------------------------------------------------------------------------------------------- SCAP1 AIM V.I. Capital Objective: growth of capital. Invests A I M Advisors, Inc. WCAP3 Appreciation Fund mainly in common stocks of companies likely to benefit from new or innovative products, services or processes as well as those with above-average growth and excellent prospects for future growth. ------------------------------------------------------------------------------------------------------------------------- SCDV1 AIM V.I. Capital Objective: long term growth of capital. A I M Advisors, Inc. SCDV2 Development Fund Invests primarily in securities (including common stocks, convertible securities and bonds) of small- and medium-sized companies. ------------------------------------------------------------------------------------------------------------------------- SVAL1 AIM V.I. Value Fund Objective: long-term growth of capital A I M Advisors, Inc. WVAL3 with income as a secondary objective. Invests primarily in equity securities judged to be undervalued relative to the investment advisor's appraisal of the current or projected earnings of the companies issuing the securities, or relative to current market values of assets owned by the companies issuing the securities, or relative to the equity market generally. ------------------------------------------------------------------------------------------------------------------------- SPGR1 Alliance VP Premier Growth Objective: growth of capital by pursuing Alliance Capital SPGR2 Portfolio (Class B) aggressive investment policies. Invests Management, L.P. primarily in equity securities of a limited number of large, carefully selected, high-quality U.S. companies that are judged likely to achieve superior earnings growth. ------------------------------------------------------------------------------------------------------------------------- STEC1 Alliance VP Technology Objective: growth of capital. Current Alliance Capital STEC2 Portfolio (Class B) income is only an incidental Management, L.P. consideration. Invests primarily in securities of companies expected to benefit from technological advances and improvements. ------------------------------------------------------------------------------------------------------------------------- SUGH1 Alliance VP U.S. Government/ Objective: high level of current income Alliance Capital SUGH2 High Grade Securities consistent with preservation of capital. Management, L.P. Portfolio (Class B) Invests primarily in (1) U.S. Government securities and (2) other high-grade debt securities or, if unrated, of equivalent quality. ------------------------------------------------------------------------------------------------------------------------- SCAS1 Baron Capital Asset Fund - Objective: capital appreciation. Invests BAMCO, Inc. SCAS2 Insurance Shares primarily in securities of small and medium sized companies with undervalued assets or favorable growth prospects. -------------------------------------------------------------------------------------------------------------------------
24 AMERICAN EXPRESS SIGNATURE ONE VARIABLE ANNUITY -- PROSPECTUS
------------------------------------------------------------------------------------------------------------------------- SUBACCOUNT INVESTING IN INVESTMENT OBJECTIVES AND POLICIES INVESTMENT ADVISOR OR MANAGER ------------------------------------------------------------------------------------------------------------------------- SEGR1 Credit Suisse Warburg Pincus Objective: maximum capital appreciation. Credit Suisse Asset SEGR2 Trust - Emerging Growth Invests in U.S. equity securities Management, LLC Portfolio (previously emerging-growth companies with growth Warburg Pincus Trust - characteristics such as positive earnings Emerging Growth Portfolio) and potential for accelerated growth. ------------------------------------------------------------------------------------------------------------------------- SGRI1 Fidelity VIP III Growth & Objective: high total return through a Fidelity Management & SGRI2 Income Portfolio (Service combination of current income and capital Research Company (FMR), Class) appreciation. Invests primarily in common investment manager; FMR stocks with a focus on those that pay U.K. and FMR Far East, current dividends and show potential for sub-investment advisors. capital appreciation. ------------------------------------------------------------------------------------------------------------------------- SMDC1 Fidelity VIP III Mid Cap Objective: long-term growth of capital. FMR, investment manager; SMDC2 Portfolio (Service Class) Invests primarily in medium market FMR U.K. and FMR Far East, capitalization common stocks. sub-investment advisors. ------------------------------------------------------------------------------------------------------------------------- SOVS1 Fidelity VIP Overseas Objective: long-term growth of capital. FMR, investment manager; SOVS2 Portfolio (Service Class) Invests primarily in common stocks of FMR U.K., FMR Far East, foreign securities. Fidelity International Investment Advisors (FIIA) and FIIA U.K., sub-investment advisors. ------------------------------------------------------------------------------------------------------------------------- SRES1 FTVIPT Franklin Real Estate Objective: capital appreciation with a Franklin Advisers, Inc. WRES3 Fund - Class 2 secondary goal to earn current income. Invests primarily in securities of companies operating in the real estate industry, primarily equity real estate investment trusts (REITS). ------------------------------------------------------------------------------------------------------------------------- SMSS1 FTVIPT Mutual Shares Objective: capital appreciation with Franklin Mutual Advisers, WMSS3 Securities Fund - Class 2 income as a secondary goal. Invests LLC primarily in equity securities of companies that the manager believes are available at market prices less than their value based on certain recognized or objective criteria (intrinsic value). ------------------------------------------------------------------------------------------------------------------------- SISC1 FTVIPT Templeton Objective: long-term capital Templeton Investment SISC2 International Smaller appreciation. Invests primarily in equity Counsel, LLC Companies Fund - Class 2 securities of smaller companies located outside the U.S., including those in emerging markets. ------------------------------------------------------------------------------------------------------------------------- SCGR1 Goldman Sachs VIT Capital Objective: seeks long-term growth of Goldman Sachs Asset SCGR2 Growth Fund capital by investing in a diversified Management portfolio of equity securities that are considered by the investment adviser to have long-term capital appreciation potential. ------------------------------------------------------------------------------------------------------------------------- SUSE1 Goldman Sachs VIT CORE-SM- Objective: seeks long-term growth of Goldman Sachs Asset WUSE3 U.S. Equity Fund capital and dividend income. Invests Management primarily in a broadly diversified portfolio of large-cap and blue chip equity securities representing all major sectors of the U.S. economy. -------------------------------------------------------------------------------------------------------------------------
AMERICAN EXPRESS SIGNATURE ONE VARIABLE ANNUITY -- PROSPECTUS 25
------------------------------------------------------------------------------------------------------------------------- SUBACCOUNT INVESTING IN INVESTMENT OBJECTIVES AND POLICIES INVESTMENT ADVISOR OR MANAGER ------------------------------------------------------------------------------------------------------------------------- SGLI1 Goldman Sachs VIT Global Objective: seeks high total return, Goldman Sachs Asset WGLI3 Income Fund emphasizing current income, and, to a Management International lesser extent, providing opportunities for capital appreciation. Invests primarily in a portfolio of high quality fixed-income securities of U.S. and foreign issuers and enters into transactions in foreign currencies. ------------------------------------------------------------------------------------------------------------------------- SIEQ1 Goldman Sachs VIT Objective: seeks long-term capital Goldman Sachs Asset SIEQ2 International Equity Fund appreciation. Invests primarily in equity Management International securities of companies that are organized outside the U.S., or whose securities are principally traded outside the U.S. ------------------------------------------------------------------------------------------------------------------------- SITO1 Goldman Sachs VIT Internet Objective: seeks long-term growth of Goldman Sachs Asset SITO2 Tollkeeper Fund-SM- capital. Invests primarily in equity Management securities of companies the investment adviser believes will benefit from the growth of the Internet by providing access, infrastructure, content and services to Internet companies and customers. ------------------------------------------------------------------------------------------------------------------------- SAGP1 Janus Aspen Series Objective: long-term growth of capital. Janus Capital SAGP2 Aggressive Growth Non-diversified mutual fund that Portfolio: Service Shares primarily invests in common stocks selected for their growth potential and normally invests at least 50% of its equity assets in medium-sized companies. ------------------------------------------------------------------------------------------------------------------------- SGLT1 Janus Aspen Series Global Objective: long-term growth of capital. Janus Capital SGLT2 Technology Portfolio: Non-diversified mutual fund that Service Shares primarily invests in equity securities of U.S. and foreign companies selected for their growth potential. Normally invests at least 65% of assets in securities of companies that the manager believes will benefit significantly from advancements or improvements in technology. ------------------------------------------------------------------------------------------------------------------------- SGRP1 Janus Aspen Series Growth Objective: long-term growth of capital in Janus Capital SGRP2 Portfolio: Service Shares a manner consistent with the preservation of capital. Invests primarily in common stocks selected for their growth potential. ------------------------------------------------------------------------------------------------------------------------- SINT1 Janus Aspen Series Objective: long-term growth of capital. Janus Capital SINT2 International Growth Invests at least 65% of its total assets Portfolio: in securities of issuers from at least Service Shares five different countries, excluding the U.S. It may at times invest all of its assets in fewer than five countries or even a single country. ------------------------------------------------------------------------------------------------------------------------- SUDE1 J.P. Morgan U.S. Disciplined Objective: seeks to provide a high total J.P. Morgan SUDE2 Equity Portfolio return from a portfolio of selected equity securities. The portfolio invests primarily in large and medium capitalization U.S. companies. The portfolio is designed for investors who want an actively managed portfolio of selected equity securities that seeks to outperform the S&P 500 Index. -------------------------------------------------------------------------------------------------------------------------
26 AMERICAN EXPRESS SIGNATURE ONE VARIABLE ANNUITY -- PROSPECTUS
------------------------------------------------------------------------------------------------------------------------- SUBACCOUNT INVESTING IN INVESTMENT OBJECTIVES AND POLICIES INVESTMENT ADVISOR OR MANAGER ------------------------------------------------------------------------------------------------------------------------- SREQ1 Lazard Retirement Equity Objective: long-term capital Lazard Asset Management SREQ2 Portfolio appreciation. Invests primarily in equity securities, principally common stocks, of relatively large U.S. companies with market capitalizations in the range of the S&P 500-Registered Trademark- Index that the Investment Manager believes are undervalued based on their earnings, cash flow or asset values. ------------------------------------------------------------------------------------------------------------------------- SRIE1 Lazard Retirement Objective: long-term capital Lazard Asset Management SRIE2 International Equity appreciation. Invests primarily in equity Portfolio securities, principally common stocks, of relatively large non-U.S. companies with market capitalizations in the range of the Morgan Stanley Capital International (MSCI) Europe, Australia and Far East (EAFE-Registered Trademark-) Index that the Investment Manager believes are undervalued based on their earnings, cash flow or asset values. ------------------------------------------------------------------------------------------------------------------------- SNDS1 MFS-Registered Trademark- Objective: capital appreciation. Invests MFS Investment SNDS2 New Discovery Series - primarily in equity securities of Management-Registered Initial Class emerging growth companies. Trademark- ------------------------------------------------------------------------------------------------------------------------- SRSS1 MFS-Registered Trademark- Objective: long-term growth of capital MFS Investment SRSS2 Research Series - Initial and future income. Invests primarily in Management-Registered Class common stocks and related securities that Trademark- have favorable prospects for long-term growth, attractive valuations based on current and expected earnings or cash flow, dominant or growing market share, and superior management. ------------------------------------------------------------------------------------------------------------------------- SUTS1 MFS-Registered Trademark- Objective: capital growth and current MFS Investment WUTS3 Utilities Series - Initial income. Invests primarily in equity and Management-Registered Class debt securities of domestic and foreign Trademark- companies in the utilities industry. ------------------------------------------------------------------------------------------------------------------------- SMCC1 Royce Micro-Cap Portfolio Objective: long-term growth of capital. Royce & Associates, Inc. SMCC2 Invests primarily in a broadly diversified portfolio of equity securities issued by micro-cap companies (companies with stock market capitalizations below $300 million). ------------------------------------------------------------------------------------------------------------------------- SPRM1 Royce Small-Cap Portfolio Objective: long-term growth of capital Royce & Associates, Inc. SPRM2 (previously Royce Premium with current income as a secondary Portfolio) objective. Invests primarily in a limited number of equity securities issued by small companies with stock market capitalization between $300 million and $1.5 billion. ------------------------------------------------------------------------------------------------------------------------- SVLU1 Third Avenue Value Portfolio Objective: long-term capital EQSF Advisers, Inc. SVLU2 appreciation. Invests primarily in common stocks of well financed, well managed companies at a substantial discount to what the Adviser believes is their true value. -------------------------------------------------------------------------------------------------------------------------
AMERICAN EXPRESS SIGNATURE ONE VARIABLE ANNUITY -- PROSPECTUS 27
------------------------------------------------------------------------------------------------------------------------- SUBACCOUNT INVESTING IN INVESTMENT OBJECTIVES AND POLICIES INVESTMENT ADVISOR OR MANAGER ------------------------------------------------------------------------------------------------------------------------- SISM1 Wanger International Small Objective: long-term growth of capital. Liberty Wanger Asset SISM2 Cap Invests primarily in stocks of small- and Management, L.P. medium-size non-U.S. companies with capitalizations of less than $2 billion. ------------------------------------------------------------------------------------------------------------------------- SUSC1 Wanger U.S. Small Cap Objective: long-term growth of capital. Liberty Wanger Asset SUSC2 Invests primarily in stocks of small- and Management, L.P. medium-size U.S. companies with capitalizations of less than $2 billion. ------------------------------------------------------------------------------------------------------------------------- SEQI1 Wells Fargo VT Equity Objective: long-term capital appreciation Wells Fargo Funds WEQI3 Income Fund and above-average dividend income. Management, LLC, advisor; Invests primarily in common Wells Capital Management stocks of large, high-quality Incorporated, sub-advisor. domestic companies with above-average return potential and above-average dividend income. -------------------------------------------------------------------------------------------------------------------------
A fund underlying your contract in which a subaccount invests may have a name, portfolio manager, objectives, strategies and characteristics that are the same or substantially similar to those of a publicly-traded retail mutual fund. Despite these similarities, an underlying fund is not the same as any publicly-traded retail mutual fund. Each underlying fund will have its own unique portfolio holdings, fees, operating expenses and operating results. The results of each underlying fund may differ significantly from any publicly-traded retail mutual fund. The investment managers and advisors cannot guarantee that the funds will meet their investment objectives. Please read the funds' prospectuses for facts you should know before investing. These prospectuses are also available by contacting us at the address or telephone number on the first page of this prospectus. All funds are available to serve as the underlying investments for variable annuities. Some funds also are available to serve as investment options for variable life insurance policies and tax-deferred retirement plans. It is possible that in the future, it may be disadvantageous for variable annuity accounts and variable life insurance accounts and/or tax-deferred retirement plans to invest in the available funds simultaneously. Although the insurance company and the funds do not currently foresee any such disadvantages, the boards of directors or trustees of the appropriate funds will monitor events in order to identify any material conflicts between annuity owners, policy owners and tax-deferred retirement plans and to determine what action, if any, should be taken in response to a conflict. If a board were to conclude that it should establish separate funds for the variable annuity, variable life insurance and tax-deferred retirement plan accounts, you would not bear any expenses associated with establishing separate funds. Please refer to the funds' prospectuses for risk disclosure regarding simultaneous investments by variable annuity, variable life insurance and tax-deferred retirement plan accounts. The Internal Revenue Service (IRS) issued final regulations relating to the diversification requirements under Section 817(h) of the Code. Each fund intends to comply with these requirements. The variable account was established under Indiana law on July 15, 1987, and the subaccounts are registered together as a single unit investment trust under the Investment Company Act of 1940 (the 1940 Act). This registration does not involve any supervision of our management or investment practices and policies by the SEC. All obligations arising under the contracts are general obligations of American Enterprise Life. The variable account meets the definition of a separate account under federal securities laws. We credit or charge income, capital gains and capital losses of each subaccount only to that subaccount. State insurance law prohibits us from charging a subaccount with liabilities of any other subaccount or of our general business. The variable account includes other subaccounts that are available under contracts that are not described in this prospectus. The U.S. Treasury and the IRS indicated that they may provide additional guidance on investment control. This concerns how many variable subaccounts an insurance company may offer and how many exchanges among subaccounts it may allow before the contract owner would be currently taxed on income earned within subaccount assets. At this time, we do not know what the additional guidance will be or when action will be taken. We reserve the right to modify the contract, as necessary, so that the owner will not be subject to current taxation as the owner of the subaccount assets. We intend to comply with all federal tax laws so that the contract continues to qualify as an annuity for federal income tax purposes. We reserve the right to modify the contract as necessary to comply with any new tax laws. 28 AMERICAN EXPRESS SIGNATURE ONE VARIABLE ANNUITY -- PROSPECTUS THE FIXED ACCOUNTS GUARANTEE PERIOD ACCOUNTS (GPAS) You may allocate purchase payments to one or more of the GPAs with Guarantee Periods ranging from two to ten years. These accounts are not available in all states and are not offered after annuity payouts begin. Some states also restrict the amount you can allocate to these accounts. Each GPA pays an interest rate that is declared when you allocate money to that account. That interest rate is then fixed for the Guarantee Period that you chose. We will periodically change the declared interest rate for any future allocations to these accounts, but we will not change the rate paid on money currently in a GPA. The minimum guaranteed interest rate on the GPAs is 3%. The interest rates that we will declare as guaranteed rates in the future are determined by us at our discretion. We will determine these rates based on various factors including, but not limited to, the interest rate environment, returns earned on investments backing these annuities, The rates currently in effect for new and existing American Enterprise Life annuities, product design, competition and American Enterprise Life's revenues and other expenses. WE CANNOT PREDICT NOR CAN WE GUARANTEE FUTURE GUARANTEED INTEREST RATES ABOVE THE 3% RATE. You may transfer or withdraw contract value out of the GPAs within 30 days before the end of the Guarantee Period without receiving a MVA (see "Market Value Adjustment (MVA)" below.) At that time you may choose to start a new Guarantee Period of the same length, transfer the contract value to another GPA, transfer the contract value to any of the subaccounts, or withdraw the contract value from the contract (subject to applicable withdrawal provisions). If we do not receive any instructions at the end of your Guarantee Period, we will automatically transfer the contract value into the one-year fixed account. We hold amounts you allocate to the GPAs in a "nonunitized" separate account we have established under the Indiana Insurance Code. This separate account provides an additional measure of assurance that we will make full payment of amounts due under the GPAs. State insurance law prohibits us from charging this separate account with liabilities of any other separate account or of our general business. We own the assets of this separate account as well as any favorable investment performance of those assets. You do not participate in the performance of the assets held in this separate account. We guarantee all benefits relating to your value in the GPAs. This guarantee is based on the continued claims-paying ability of the company. We intend to construct and manage the investment portfolio relating to the separate account using a strategy known as "immunization." Immunization seeks to lock in a defined return on the pool of assets versus the pool of liabilities over a specified time horizon. Since the return on the assets versus the liabilities is locked in, it is "immune" to any potential fluctuations in interest rates during the given time. We achieve immunization by constructing a portfolio of assets with a price sensitivity to interest rate changes (i.e., price duration) that is essentially equal to the price duration of the corresponding portfolio of liabilities. Portfolio immunization provides us with flexibility and efficiency in creating and managing the asset portfolio, while still assuring safety and soundness for funding liability obligations. We must invest this portfolio of assets in accordance with requirements established by applicable state laws regarding the nature and quality of investments that life insurance companies may make and the percentage of their assets that they may commit to any particular type of investment. Our investment strategy will incorporate the use of a variety of debt instruments having price durations tending to match the applicable Guarantee Periods. These instruments include, but are not necessarily limited to, the following: - Securities issued by the U.S. government or its agencies or instrumentalities, which issues may or may not be guaranteed by the U.S. government; - Debt securities that have an investment grade, at the time of purchase, within the four highest grades assigned by any of three nationally recognized rating agencies -- Standard & Poor's, Moody's Investors Service or Fitch (formerly Duff & Phelp's) -- or are rated in the two highest grades by the National Association of Insurance Commissioners; - Other debt instruments which are unrated or rated below investment grade, limited to 10% of assets at the time of purchase; and - Real estate mortgages, limited to 45% of portfolio assets at the time of acquisition. In addition, options and futures contracts on fixed income securities will be used from time to time to achieve and maintain appropriate investment and liquidity characteristics on the overall asset portfolio. While this information generally describes our investment strategy, we are not obligated to follow any particular strategy except as may be required by federal law and Indiana and other state insurance laws. AMERICAN EXPRESS SIGNATURE ONE VARIABLE ANNUITY -- PROSPECTUS 29 MARKET VALUE ADJUSTMENT (MVA) We guarantee the contract value allocated to your GPA, including the interest credited, if you do not make any transfers or withdrawals from that GPA prior to 30 days before the end of the Guarantee Period. However, we will apply an MVA if a transfer or withdrawal occurs prior to this time. The MVA also affects amounts withdrawn from a GPA prior to 30 days before the end of the Guarantee Period that are used to purchase payouts under an annuity payout plan. We will refer to all of these transactions as "early withdrawals" in the discussion below. When you request an early withdrawal, we adjust the early withdrawal amount by an MVA formula. The early withdrawal amount reflects the relationship between the guaranteed interest rate you are earning in your current GPA and the interest rate we are crediting on new GPAs that end at the same time as your current GPA. The MVA is sensitive to changes in current interest rates. The magnitude of any applicable MVA will depend on our current schedule of guaranteed interest rates at the time of the withdrawal, the time remaining in your Guarantee Period and your guaranteed interest rate. The MVA is negative, zero or positive depending on how the guaranteed interest rate on your GPA compares to the interest rate of a new GPA for the same number of years as the Guarantee Period remaining on your GPA. Before we look at the MVA formula, it may help to look in a general way at how comparing your GPA's guaranteed rate and the rate for a new GPA affects the MVA. Relationship between your GPA's guaranteed rate and the new GPA for the same time as the Guarantee Period remaining on your GPA: IF YOUR GPA RATE IS: THE MVA IS: Less than the new GPA rate + 0.10% Negative Equal to the new GPA rate + 0.10% Zero Greater than the new GPA rate + 0.10% Positive GENERAL EXAMPLES Assume: - You purchase a contract and allocate part of your purchase payment to the ten-year GPA. - We guarantee an interest rate of 4.5% annually for your ten-year Guarantee Period. - After three years, you decide to make a withdrawal from your GPA. In other words, there are seven years left in your Guarantee Period. Remember that the MVA depends partly on the interest rate of a new GPA for the same number of years as the Guarantee Period remaining on your GPA. In this case, that is seven years. EXAMPLE 1: Remember that your GPA is earning 4.5%. Assume at the time of your withdrawal new GPAs that we offer with a seven-year Guarantee Period are earning 5.0%. We add 0.10% to the 5.0% rate to get 5.10%. Your GPA's 4.5% rate is less than the 5.10% rate and, as reflected in the table above, the MVA will be negative. EXAMPLE 2: Remember again that your GPA is earning 4.5%, and assume that new GPAs that we offer with a seven-year Guarantee Period are earning 4.0%. We add 0.10% to the 4.0% rate to get 4.10%. In this example, since your GPA's 4.5% rate is greater than the 4.10% rate, the MVA will be positive. To determine that adjustment precisely, you will have to use the formula described below. SAMPLE MVA CALCULATIONS: The precise MVA formula we apply is as follows: 1 + i to the power of n/12 EARLY WITHDRAWAL AMOUNT x [( ------------ )- 1] = MVA 1 + j + .001 Where i = rate earned in the GPA from which amounts are being transferred or withdrawn. j = current rate for a new Guaranteed Period equal to the remaining term in the current Guarantee Period. n = number of months remaining in the current Guarantee Period (rounded up). 30 AMERICAN EXPRESS SIGNATURE ONE VARIABLE ANNUITY -- PROSPECTUS EXAMPLES Using assumptions similar to those we used in the examples above: - You purchase a contract and allocate part of your purchase payment to the ten-year GPA. - We guarantee an interest rate of 4.5% annually for your ten-year Guarantee Period. - After three years, you decide to make a $1,000 withdrawal from your GPA. In other words, there are seven years left in your Guarantee Period. EXAMPLE 1: You request an early withdrawal of $1,000 from your ten-year GPA earning a guaranteed interest rate of 4.5%. Assume at the time of your withdrawal new GPAs that we offer with a seven-year Guarantee Period are earning 5.0%. Using the formula above, we determine the MVA as follows: 1.045 to the power of 84/12 $1,000 x [( -------------- )- 1] = -$39.28 1 + .05 + .001 In this example, the MVA is a negative $39.28. EXAMPLE 2: You request an early withdrawal of $1,000 from your ten-year GPA earning a guaranteed interest rate of 4.5%. Assume at the time of your withdrawal new GPAs that we offer with a seven-year Guarantee Period are earning 4.0%. Using the formula above, we determine the MVA as follows: 1.045 to the power of 84/12 $1,000 x [( -------------- )- 1] = $27.21 1 + .04 + .001 In this example, the MVA is a positive $27.21. Please note that when you allocate your purchase payment to the ten-year GPA and you have begun your fourth contract year at the beginning of the Guarantee Period, your withdrawal charge percentage is 8%. (See "Charges -- Withdrawal Charge.") We do not apply MVAs to the amounts we deduct for withdrawal charges, so we would deduct the withdrawal charge from your early withdrawal after we applied the MVA. Also note that when you request an early withdrawal, we withdraw an amount from your GPA that will give you the net amount you requested after we apply the MVA and any applicable withdrawal charge, unless you request otherwise. The current interest rate we offer on the GPA will change periodically at our discretion. It is the rate we are then paying on purchase payments, renewals and transfers paid under this class of contracts for Guarantee Period durations equaling the remaining Guarantee Period of the GPA to which the formula is being applied. We will not apply MVAs to amounts withdrawn for the annual contract administrative charge, to amounts we pay as death claims or to automatic transfers from the two-year Guarantee Period Account. In some states, the MVA is limited. THE ONE-YEAR FIXED ACCOUNT You may also allocate purchase payments or transfer accumulated value to the one-year fixed account. Some states may restrict the amount you can allocate to this account. We back the principal and interest guarantees relating to the one-year fixed account. These guarantees are based on the continued claims-paying ability of the company. The value of the one-year fixed account increases as we credit interest to the account. Purchase payments and transfers to the one-year fixed account become part of our general account. We credit and compound interest daily to produce the annual effective rate which we declare. The interest rate we apply to each purchase payment or transfer to the one-year fixed account is guaranteed for one year. Thereafter we will change the 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 American Enterprise Life annuities, product design, competition, and American Enterprise Life's revenues and expenses. Interest in the one-year fixed account is not required to be registered with the SEC. However, the Market Value Adjustment interests under the contracts are registered with the SEC. The SEC staff does not review the disclosures in this prospectus on the one-year fixed account (but the SEC does review the disclosures in this prospectus on the Market Value Adjustment interests). Disclosures regarding the one-year fixed account, however, may be subject to certain generally applicable provisions of the federal securities laws relating to the accuracy and completeness of statements made in prospectuses. (See "Making the Most of Your Contract -- Transfer policies" for restrictions on transfers involving the one-year fixed account.) AMERICAN EXPRESS SIGNATURE ONE VARIABLE ANNUITY -- PROSPECTUS 31 BUYING YOUR CONTRACT Your sales representative will help you complete and submit an application and send it along with your initial purchase payment to our office. As the owner, you have all rights and may receive all benefits under the contract. You can own a nonqualified annuity in joint tenancy with rights of survivorship only in spousal situations. You cannot own a qualified annuity in joint tenancy. You can buy a contract or become an annuitant if you are 90 or younger. (The age limit may be younger for qualified annuities in some states.) When you apply, you may select: - one of three death benefit options if you and the annuitant are 79 or younger(1): -- Option A-- Value option return of purchase payment death benefit, -- Option B-- Maximum anniversary value death benefit, or -- Option C-- 5% Accumulation death benefit rider(2); - the optional Guaranteed Minimum Income Benefit Rider(3); - the optional 8% Performance Credit Rider(3); - the one-year fixed account, Guarantee Period Accounts and/or subaccounts in which you want to invest(4); - how you want to make purchase payments; and - a beneficiary. (1) If either you or the annuitant are 80 or older at contract issue, death benefit Option A will apply. (2) May not be available in all states. (3) You may select either the GMIB or the PCR, but not both. Riders may not be available in all states. The GMIB is only available to annuitants 75 or younger at contract issue. If you select the GMIB you must select either death benefit Option B or Option C. (4) Some states restrict the amount you can allocate to the fixed accounts. The contract provides for allocation of purchase payments to the subaccounts of the variable account and/or to the fixed accounts in even 1% increments. If your application is complete, we will process it and apply your purchase payment to the fixed accounts and subaccounts you selected within two business days after we receive it at our office. If we accept your application, we will send you a contract. If we cannot accept your application within five business days, we will decline it and return your payment. We will credit additional purchase payments you make to your accounts on the valuation date we receive them. We will value the additional payments at the next accumulation unit value calculated after we receive your payments at our office. You may make monthly payments to your contract under a Systematic Investment Plan (SIP). You must make an initial purchase payment of $25,000. Then, to begin the SIP, you will complete and send a form and your first SIP payment along with your application. There is no charge for SIP. You can stop your SIP payments at any time. In most states, you may make additional purchase payments to nonqualified and qualified annuities until the retirement date. THE RETIREMENT DATE Annuity payouts are scheduled to begin on the retirement date. When we process your application, we will establish the retirement date to the maximum age or date described below. You can also select a date within the maximum limits. You can align this date with your actual retirement from a job, or it can be a different future date, depending on your needs and goals and on certain restrictions. You also can change the date, provided you send us written instructions at least 30 days before annuity payouts begin. FOR NONQUALIFIED ANNUITIES AND ROTH IRAS, THE RETIREMENT DATE MUST BE: - no earlier than the 30th day after the contract's effective date; and - no later than the annuitant's 85th birthday or the tenth contract anniversary, if purchased after age 75. FOR QUALIFIED ANNUITIES (EXCEPT ROTH IRAS), to avoid IRS penalty taxes, the retirement date generally must be: - on or after the date the annuitant reaches age 59 1/2; and - for IRAs and SEPs, by April 1 of the year following the calendar year when the annuitant reaches age 70 1/2. If you take the minimum IRA distribution as required by the Code from another tax-qualified investment, or in the form of partial withdrawals from this contract, annuity payouts can start as late as the annuitant's 85th birthday or the tenth contract anniversary, if later. BENEFICIARY We will pay your named beneficiary the death benefit if it becomes payable before the retirement date (while the contract is in force and before annuity payouts begin). If there is no named beneficiary, then you or your estate will be the beneficiary. (See "Benefits in Case of Death" for more about beneficiaries.) 32 AMERICAN EXPRESS SIGNATURE ONE VARIABLE ANNUITY -- PROSPECTUS PURCHASE PAYMENTS MINIMUM INITIAL PURCHASE PAYMENT: $25,000 MINIMUM ADDITIONAL PURCHASE PAYMENTS: $50 for SIPs. $100 for any other type of payment. MAXIMUM TOTAL ALLOWABLE PURCHASE PAYMENTS* (WITHOUT PRIOR APPROVAL): $1,000,000 for issue ages up to 85. $100,000 for issue ages 86 to 90. * This limit applies in total to all American Enterprise Life annuities you own. We reserve the right to increase the maximum limit. For qualified annuities, the tax-deferred retirement plan's limits on annual contributions also apply. HOW TO MAKE PURCHASE PAYMENTS 1 BY LETTER: Send your check along with your name and contract number to: AMERICAN ENTERPRISE LIFE INSURANCE COMPANY 829 AXP FINANCIAL CENTER MINNEAPOLIS, MN 55474 2 BY SIP: Contact your sales representative to complete the necessary SIP paperwork. PURCHASE PAYMENT CREDITS You will generally receive a purchase payment credit with every payment you make to your contract. We apply this credit immediately. We allocate the credit to the fixed accounts and subaccounts in the same proportions as your purchase payment. We apply the credit as a percentage of your current payment based on the following schedule:
IF TOTAL NET PAYMENTS* MADE DURING THEN THE PURCHASE PAYMENT THE LIFE OF THE CONTRACT EQUALS... CREDIT PERCENTAGE EQUALS... $25,000 to less than $100,000 3% $100,000 to less than $1 million 4 $1 million and over 5
* Net payments equal total payments less total withdrawals. If you make any additional payments that cause the contract to become eligible for a higher percentage credit, we will add credits to your prior payments (less total withdrawals). We allocate credits according to the purchase payment allocation on the date we add the credits to the contract. We fund the credit from our general account. We do not consider credits to be "investments" for income tax purposes. (See "Taxes.") We will reverse credits from the contract value for any purchase payment that is not honored (if, for example, your purchase payment check is returned for insufficient funds). To the extent a death benefit or withdrawal payment includes purchase payment credits applied within twelve months preceding: (1) the date of death that results in a lump sum death benefit under this contract; or (2) a request for withdrawal charge waiver due to "Contingent events" (see "Charges -- Contingent events"), we will assess a charge, similar to a withdrawal charge, equal to the amount of the purchase payment credits. The amount we pay to you under these circumstances will always equal or exceed your withdrawal value. The amount returned to you under the free look provision also will not include any credits applied to your contract. Because of these higher charges, there may be circumstances where you may be worse off for having received the credit than in other contracts. All things being equal (such as guarantee availability or fund performance and availability), this may occur if you hold your contract for 15 years or more. For contracts less than $100,000, this may also occur if you make a full withdrawal in the fifth to ninth contract years. You should consider these higher charges and other relevant factors before you buy this contract or before you exchange a contract you currently own for this contract. AMERICAN EXPRESS SIGNATURE ONE VARIABLE ANNUITY -- PROSPECTUS 33 This credit is available because of lower costs associated with larger sized contracts and through revenue from a higher and longer withdrawal charge schedule, a higher contract administrative charge and a higher mortality and expense risk fee. In general, we do not profit from the higher charges assessed to cover the cost of the purchase payment credit. We use all the revenue from these higher charges to pay for the cost of the credits. However, we could profit from the higher charges if market appreciation is higher than expected or if contract owners hold their contracts for longer than expected. We reserve the right to increase the amount of the credit for certain groups of contract owners. The increase will not be greater than 8% of total net payments. Increases in credit amounts are funded by reduced expenses expected from such groups. CHARGES CONTRACT ADMINISTRATIVE CHARGE We charge this fee for establishing and maintaining your records. We deduct $40 from the contract value on your contract anniversary at the end of each contract year. We prorate this charge among the subaccounts and the fixed accounts in the same proportion your interest in each account bears to your total contract value. We will waive this charge when your contract value is $100,000 or more on the current contract anniversary. If you take a full withdrawal from your contract, we will deduct the charge at the time of withdrawal regardless of the contract value. We cannot increase the annual contract administrative charge and it does not apply after annuity payouts begin or when we pay death benefits. VARIABLE ACCOUNT ADMINISTRATIVE CHARGE We apply this charge daily to the subaccounts. It is reflected in the unit values of your subaccounts and it totals 0.15% of their average daily net assets on an annual basis. It covers certain administrative and operating expenses of the subaccounts such as accounting, legal and data processing fees and expenses involved in the preparation and distribution of reports and prospectuses. We cannot increase the variable account administrative charge. MORTALITY AND EXPENSE RISK FEE We charge this fee daily to the subaccounts. The unit values of your subaccounts reflect this fee and it totals 1.45% of their average daily net assets on an annual basis. This fee includes coverage in the contract under either death benefit Option B or Option C. The fee would be 1.35% if you choose death benefit Option A. We cannot increase this fee. These fees cover the mortality and expense risk that we assume. Approximately two-thirds of this amount is for our assumption of mortality risk, and one-third is for our assumption of expense risk. These fees do not apply to the fixed accounts. Mortality risk arises because of our guarantee to pay a death benefit and our guarantee to make annuity payouts according to the terms of the contract, no matter how long a specific annuitant lives and no matter how long our entire group of annuitants live. If, as a group, annuitants outlive the life expectancy we assumed in our actuarial tables, then we must take money from our general assets to meet our obligations. If, as a group, annuitants do not live as long as expected, we could profit from the mortality risk fee. Expense risk arises because we cannot increase the contract administrative charge or the variable account administrative charge and these charges may not cover our expenses. We would have to make up any deficit from our general assets. We could profit from the expense risk fee if future expenses are less than expected. The subaccounts pay us the mortality and expense risk fee they accrued as follows: - first, to the extent possible, the subaccounts pay this fee from any dividends distributed from the funds in which they invest; - then, if necessary, the funds redeem shares to cover any remaining fees payable. We may use any profits we realize from the subaccounts' payment to us of the mortality and expense risk fee for any proper corporate purpose, including, among others, payment of distribution (selling) expenses. We do not expect that the withdrawal charge, discussed in the following paragraphs, will cover sales and distribution expenses. GUARANTEED MINIMUM INCOME BENEFIT RIDER (GMIB) FEE We charge a fee (currently 0.35%) based on the adjusted contract value for this optional feature only if you select it.* If selected, we deduct the fee from the contract value on your contract anniversary at the end of each contract year. We prorate the GMIB fee among the subaccounts and fixed accounts in the same proportion your interest in each account bears to your total contract value. If the contract is terminated for any reason or when annuity payouts begin, we will deduct the GMIB fee, adjusted for the number of calendar days coverage was in place. We cannot increase the GMIB fee after the rider effective date and it does not apply after annuity payouts begin. We can increase the GMIB fee on new contracts up to a maximum of 0.75%. 34 AMERICAN EXPRESS SIGNATURE ONE VARIABLE ANNUITY -- PROSPECTUS We calculate the fee as follows: 0.35% x (CV + ST - FAV) CV = contract value on the contract anniversary. ST = transfers from the subaccounts to the fixed accounts made six months before the contract anniversary. FAV = the value of your fixed accounts. The result of ST - FAV will never be greater than zero. This allows us to base the GMIB fee largely on the subaccounts, and not on the fixed accounts. EXAMPLE: - You purchase the contract with a payment of $50,000 on Jan. 1, 2001 and we add a $1,500 purchase payment credit to your contract. You allocate all of your payment and purchase payment credit to the subaccounts. - On Sept. 1, 2001 your contract value is $75,000. You transfer $15,000 from the subaccounts to the one-year fixed account. - On Jan. 1, 2002 (the first contract anniversary) the one-year fixed account value is $15,250 and the subaccount value is $58,000. Your total contract value is $73,250. - The GMIB fee percentage is 0.35%. We calculate the charge for the GMIB as follows: Contract value on the contract anniversary: $73,250.00 plus transfers from the subaccounts to the fixed accounts in the six months before the contract anniversary: +15,000.00 minus the value of the fixed accounts on the contract anniversary: -15,250.00 ---------- $73,000.00 The GMIB fee charged to you: 0.35% x $73,000 = $ 255.50
8% PERFORMANCE CREDIT RIDER (PCR) FEE We charge a fee of 0.25% of your contract value for this optional feature only if you select it.* If selected, we deduct the PCR fee from your contract value on your contract anniversary at the end of each contract year. We prorate this fee among the subaccounts and fixed accounts in the same proportion as your interest in each account bears to your total contract value. If the contract is terminated for any reason or when annuity payouts begin, we will deduct the PCR fee, adjusted for the number of calendar days coverage was in place. We cannot increase the PCR fee. * You may select either the GMIB or the PCR, but not both. Riders may not be available in all states. The GMIB is only available to annuitants age 75 or younger at contract issue. If you select the GMIB you must select either death benefit Option B or Option C. WITHDRAWAL CHARGE If you withdraw all or part of your contract, you may be subject to a withdrawal charge. A withdrawal charge applies if all or part of the withdrawal amount is from purchase payments we received within nine years before withdrawal. The withdrawal charge percentages that apply to you are shown in your contract. In addition, amounts withdrawn from a Guarantee Period Account more than 30 days before the end of the applicable Guarantee Period will be subject to a MVA. (See "The Fixed Accounts -- Market Value Adjustments (MVA).") For purposes of calculating any withdrawal charge, we treat amounts withdrawn from your contract value in the following order: 1. First, in each contract year, we withdraw amounts totaling up to 10% of your prior anniversary's contract value. (We consider your initial purchase payment to be the prior anniversary's contract value during the first contract year.) We do not assess a withdrawal charge on this amount. 2. Next we withdraw contract earnings, if any, that are greater than the annual 10% free withdrawal amount described in number one above. Contract earnings equal contract value less purchase payments received and not previously withdrawn. We do not assess a withdrawal charge on contract earnings. NOTE: We determine contract earnings by looking at the entire contract value, not the earnings of any particular subaccount or the fixed accounts. 3. Next we withdraw purchase payments received prior to the withdrawal charge period shown in your contract. We do not assess a withdrawal charge on these purchase payments. 4. Finally, if necessary, we withdraw purchase payments received that are still within the withdrawal charge period shown in your contract. We withdraw these payments on a first-in, first-out (FIFO) basis. We do assess a withdrawal charge on these payments. We determine your withdrawal charge by multiplying each of your payments withdrawn by the applicable withdrawal charge percentage, and then adding the total withdrawal charges. AMERICAN EXPRESS SIGNATURE ONE VARIABLE ANNUITY -- PROSPECTUS 35 The withdrawal charge percentage depends on the number of years since you made the payments that are withdrawn:
YEARS FROM PURCHASE WITHDRAWAL CHARGE PAYMENT RECEIPT PERCENTAGE 1 8% 2 8 3 8 4 8 5 7 6 6 7 6 8 4 9 2 Thereafter 0
For a partial withdrawal that is subject to a withdrawal charge, the amount we actually deduct from your contract value will be the amount you request plus any applicable withdrawal charge. The withdrawal charge percentage is applied to this total amount. We pay you the amount you requested. EXAMPLE: Assume you requested a withdrawal of $1,000 and there is a withdrawal charge of 7%. The total amount we actually deduct from your contract is $1,075.26. We determine this amount as follows: AMOUNT REQUESTED $1,000 --------------------------- OR ------ = $1,075.26 (1.00 - WITHDRAWAL CHARGE) .93 By applying the 7% withdrawal charge to $1,075.26, the withdrawal charge is $75.26. We pay you the $1,000 you requested. If you make a full withdrawal of your contract, we also will deduct the applicable contract administrative charge. WITHDRAWAL CHARGE UNDER ANNUITY PAYOUT PLAN E -- PAYOUTS FOR A SPECIFIED PERIOD: Under this payout plan, you can choose to take a withdrawal. The amount that you can withdraw is the present value of any remaining variable payouts. The discount rate we use in the calculation will be 5.36% if the assumed investment rate is 3.5% and 6.86% if the assumed investment rate is 5%. The withdrawal charge equals the present value of the remaining payouts using the assumed investment rate minus the present value of the remaining payouts using the discount rate. In no event would your withdrawal charge exceed 9% of the amount available for payouts under the plan. WITHDRAWAL CHARGE CALCULATION EXAMPLE: The following is an example of the calculation we would make to determine the withdrawal charge on a contract with this history: - The contract date is Nov. 1, 2001 with a contract year of Nov. 1 through Oct. 30 and with an anniversary date of Nov. 1 each year; and - We received these payments -- $10,000 Nov. 1, 2001; -- $8,000 Dec. 31, 2007; -- $6,000 Feb. 20, 2009; and - You withdraw the contract for its total withdrawal value of $38,101 on Aug. 5, 2011 and made no other withdrawals during that contract year; and - The prior anniversary Nov. 1, 2010 contract value was $38,488. WITHDRAWAL CHARGE EXPLANATION $ 0 $3,848.80 is 10% of the prior anniversary's contract value withdrawn without withdrawal charge; and 0 $10,252.20 is contract earnings in excess of the 10% free withdrawal amount withdrawn without withdrawal charge; and 0 $10,000 Nov. 1, 2001 payment was received more than nine years before withdrawal and is withdrawn without withdrawal charge; and 640 $8,000 Dec. 31, 2007 payment is in its fourth year from receipt, withdrawn with an 8% withdrawal charge; and 480 $6,000 Feb. 20, 2009 payment is in its third year from receipt withdrawn with an 8% withdrawal charge. ------ $1,120 36 AMERICAN EXPRESS SIGNATURE ONE VARIABLE ANNUITY -- PROSPECTUS WAIVER OF WITHDRAWAL CHARGES We do not assess withdrawal charges for: - withdrawals of any contract earnings; - withdrawals of amounts totaling up to 10% of your prior contract anniversary's contract value to the extent that it exceeds contract earnings; - required minimum distributions from a qualified annuity (for those amounts required to be distributed from the contract described in this prospectus); - contracts settled using an annuity payout plan; - withdrawals made as a result of one of the "Contingent events"* described below to the extent permitted by state law (see your contract for additional conditions and restrictions); - amounts we refund to you during the free look period*; and - death benefits.* * However, we will reverse certain purchase payment credits up to the maximum withdrawal charge. (See "Buying Your Contract -- Purchase Payment Credits.") CONTINGENT EVENTS - Withdrawals you make if you or the annuitant are confined to a hospital or nursing home and have been for the prior 60 days. Your contract will include this provision when you and the annuitant are under age 76 at contract issue. You must provide proof satisfactory to us of the confinement as of the date you request withdrawal. - To the extent permitted by state law, withdrawals you make if you or the annuitant are diagnosed in the second or later contract years as disabled with a medical condition that with reasonable medical certainty will result in death within 12 months or less from the date of the licensed physician's statement. You must provide us with a licensed physician's statement containing the terminal illness diagnosis and the date the terminal illness was initially diagnosed. POSSIBLE GROUP REDUCTIONS: In some cases we may incur lower sales and administrative expenses due to the size of the group, the average contribution and the use of group enrollment procedures. In such cases, we may be able to reduce or eliminate the contract administrative and withdrawal charges. However, we expect this to occur infrequently. PREMIUM TAXES Certain state and local governments impose premium taxes on us (up to 3.5%). These taxes depend upon your state of residence or the state in which the contract was issued. Currently, we deduct any applicable premium tax when annuity payouts begin but we reserve the right to deduct this tax at other times, such as when you make purchase payments or when you make a full withdrawal from your contract. VALUING YOUR INVESTMENT We value your fixed accounts and subaccounts as follows: FIXED ACCOUNTS We value the amounts you allocated to the fixed accounts directly in dollars. The value of a fixed account equals: - the sum of your purchase payments and transfer amounts allocated to the one-year fixed account and the Guarantee Period Accounts; - plus any purchase payment credits allocated to the fixed accounts; - plus interest credited; - minus the sum of amounts withdrawn after any applicable MVA (including any applicable withdrawal charges) and amounts transferred out; - minus any prorated contract administrative charge; - minus any prorated portion of the Guaranteed Minimum Income Benefit Rider fee (if applicable); and - minus any prorated portion of the 8% Performance Credit Rider fee (if applicable). SUBACCOUNTS We convert amounts you allocated to the subaccounts into accumulation units. Each time you make a purchase payment or transfer amounts into one of the subaccounts or we apply any purchase payment credits, we credit a certain number of accumulation units to your contract for that subaccount. Conversely, each time you take a partial withdrawal, transfer amounts out of a subaccount, or we assess a contract administrative charge, or the 8% Performance Credit Rider fee, or the Guaranteed Minimum Income Benefit Rider fee, we subtract a certain number of accumulation units from your contract. The accumulation units are the true measure of investment value in each subaccount during the accumulation period. They are related to, but not the same as, the net asset value of the fund in which the subaccount invests. The dollar value of each accumulation unit can rise or fall daily depending on the variable account expenses, performance of the fund and on certain fund expenses. AMERICAN EXPRESS SIGNATURE ONE VARIABLE ANNUITY -- PROSPECTUS 37 Here is how we calculate accumulation unit values: NUMBER OF UNITS: to calculate the number of accumulation units for a particular subaccount, we divide your investment by the current accumulation unit value. ACCUMULATION UNIT VALUE: the current accumulation unit value for each subaccount equals the last value times the subaccount's current net investment factor. WE DETERMINE THE NET INVESTMENT FACTOR BY: - adding the fund's current net asset value per share, plus the per share amount of any accrued income or capital gain dividends to obtain a current adjusted net asset value per share; then - dividing that sum by the previous adjusted net asset value per share; and - subtracting the percentage factor representing the mortality and expense risk fee and the variable account administrative charge from the result. Because the net asset value of the fund may fluctuate, the accumulation unit value may increase or decrease. You bear all the investment risk in a subaccount. FACTORS THAT AFFECT SUBACCOUNT ACCUMULATION UNITS: accumulation units may change in two ways -- in number and in value. The number of accumulation units you own may fluctuate due to: - additional purchase payments you allocate to the subaccounts; - any purchase payment credits allocated to the subaccounts; - transfers into or out of the subaccounts; - partial withdrawals; - withdrawal charges; - prorated portions of the contract administrative charge; - prorated portions of the Guaranteed Minimum Income Benefit Rider fee (if applicable); and/or - prorated portions of the 8% Performance Credit Rider fee (if applicable). Accumulation unit values will fluctuate due to: - changes in funds' net asset value; - dividends distributed to the subaccounts; - capital gains or losses of funds; - fund operating expenses; and/or - mortality and expense risk fee and the variable account administrative charge. 38 AMERICAN EXPRESS SIGNATURE ONE VARIABLE ANNUITY -- PROSPECTUS MAKING THE MOST OF YOUR CONTRACT AUTOMATED DOLLAR-COST AVERAGING Currently, you can use automated transfers to take advantage of dollar-cost averaging (investing a fixed amount at regular intervals). For example, you might transfer a set amount monthly from a relatively conservative subaccount to a more aggressive one, or to several others, or from the one-year fixed account or the two-year Guarantee Period Accounts (without a MVA) to one or more subaccounts. The three to ten year Guarantee Period Accounts are not available for automated transfers. You can also obtain the benefits of dollar-cost averaging by setting up regular automatic SIP payments. There is no charge for dollar-cost averaging. This systematic approach can help you benefit from fluctuations in accumulation unit values caused by fluctuations in the market values of the funds. Since you invest the same amount each period, you automatically acquire more units when the market value falls and fewer units when it rises. The potential effect is to lower your average cost per unit. HOW DOLLAR-COST AVERAGING WORKS
By investing an equal number NUMBER of dollars each month ... AMOUNT ACCUMULATION OF UNITS MONTH INVESTED UNIT VALUE PURCHASED Jan $100 $20 5.00 you automatically buy Feb 100 18 5.56 more units when the Mar 100 17 5.88 per unit market price is low ... ---------> Apr 100 15 6.67 May 100 16 6.25 Jun 100 18 5.56 Jul 100 17 5.88 and fewer units when the Aug 100 19 5.26 per unit market price is high. ---------> Sept 100 21 4.76 Oct 100 20 5.00
You paid an average price of only $17.91 per unit over the 10 months, while the average market price actually was $18.10. Dollar-cost averaging does not guarantee that any subaccount will gain in value nor will it protect against a decline in value if market prices fall. Because dollar-cost averaging involves continuous investing, your success will depend upon your willingness to continue to invest regularly through periods of low price levels. Dollar-cost averaging can be an effective way to help meet your long-term goals. For specific features contact your sales representative. ASSET REBALANCING You can ask us in writing to automatically rebalance the subaccount portion of your contract value either quarterly, semi-annually, or annually. The period you select will start to run on the date we record your request. On the first valuation date of each of these periods, we automatically will rebalance your contract value so that the value in each subaccount matches your current subaccount percentage allocations. These percentage allocations must be in whole numbers. Asset rebalancing does not apply to the fixed accounts. There is no charge for asset rebalancing. The contract value must be at least $2,000. You can change your percentage allocations or your rebalancing period at any time by contacting us in writing. We will restart the rebalancing period you selected as of the date we record your change. You also can ask us in writing to stop rebalancing your contract value. You must allow 30 days for us to change any instructions that currently are in place. For more information on asset rebalancing, contact your sales representative. TRANSFERRING BETWEEN ACCOUNTS You may transfer contract value from any one subaccount, or the fixed accounts, to another subaccount before annuity payouts begin. (Certain restrictions apply to transfers involving the fixed accounts.) We will process your transfer on the valuation date we receive your request. We will value your transfer at the next accumulation unit value calculated after we receive your request. There is no charge for transfers. Before making a transfer, you should consider the risks involved in changing investments. Transfers out of the Guarantee Period Accounts will be subject to a MVA if done more than 30 days before the end of the Guarantee Period. AMERICAN EXPRESS SIGNATURE ONE VARIABLE ANNUITY -- PROSPECTUS 39 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 accounts at any time. However, if you made a transfer from the one-year fixed account to the subaccounts, you may not make a transfer from any subaccount back to the one-year fixed account for six months following that transfer. - You may transfer contract values from the one-year fixed account to the subaccounts or the Guarantee Period Accounts once a year on or within 30 days before or after the contract anniversary (except for automated transfers, which can be set up at any time for certain transfer periods subject to certain minimums). Transfers from the one-year fixed account are not subject to a MVA. - You may transfer contract values from a Guarantee Period Account any time after 60 days of transfer or payment allocation to the account. Transfers made more than 30 days before the end of the Guarantee Period will receive a MVA, which may result in a gain or loss of contract value. - If we receive your request on or within 30 days before or after the contract anniversary date, the transfer from the one-year fixed account to the subaccounts or the Guarantee Period Accounts will be effective on the valuation date we receive it. - We will not accept requests for transfers from the one-year fixed account at any other time. - Once annuity payouts begin, you may not make transfers to or from the one-year fixed account, but you may make transfers once per contract year among the subaccounts. During the annuity payout period, we reserve the right to limit the number of subaccounts in which you may invest. - Once annuity payouts begin, you may not make any transfers to the Guarantee Period Accounts. HOW TO REQUEST A TRANSFER OR WITHDRAWAL 1 BY LETTER: Send your name, contract number, Social Security Number or Taxpayer Identification Number and signed request for a transfer or withdrawal to: AMERICAN ENTERPRISE LIFE INSURANCE COMPANY 829 AXP FINANCIAL CENTER MINNEAPOLIS, MN 55474 MINIMUM AMOUNT Transfers or withdrawals: $500 or entire account balance MAXIMUM AMOUNT Transfers or withdrawals: Contract value or entire account balance 2 BY AUTOMATED TRANSFERS AND AUTOMATED PARTIAL WITHDRAWALS: Your sales representative can help you set up automated transfers or partial withdrawals among your subaccounts or fixed accounts. You can start or stop this service by written request or other method acceptable to us. You must allow 30 days for us to change any instructions that are currently in place. - Automated transfers from the one-year fixed account to any one of the subaccounts may not exceed an amount that, if continued, would deplete the one-year fixed account within 12 months. - Automated withdrawals may be restricted by applicable law under some contracts. - You may not make additional purchase payments if automated partial withdrawals are in effect. - Automated partial withdrawals may result in IRS taxes and penalties on all or part of the amount withdrawn. MINIMUM AMOUNT Transfers or withdrawals: $100 monthly $250 quarterly, semiannually or annually 40 AMERICAN EXPRESS SIGNATURE ONE VARIABLE ANNUITY -- PROSPECTUS 3 BY PHONE: Call between 8 a.m. and 7 p.m. Central time: (800) 333-3437 MINIMUM AMOUNT Transfers or withdrawals: $500 or entire account balance MAXIMUM AMOUNT Transfers: Contract value or entire account balance Withdrawals: $25,000 We answer telephone requests promptly, but you may experience delays when the call volume is unusually high. If you are unable to get through, use the mail procedure as an alternative. We will honor any telephone transfer or withdrawal requests that we believe are authentic and we will use reasonable procedures to confirm that they are. This includes asking identifying questions and tape recording calls. We will not allow a telephone withdrawal within 30 days of a phoned-in address change. As long as we follow the procedures, we (and our affiliates) will not be liable for any loss resulting from fraudulent requests. Telephone transfers and withdrawals are automatically available. You may request that telephone transfers and withdrawals not be authorized from your account by writing to us. 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 full withdrawals, we will compute the value of your contract at the next accumulation unit value calculated after we receive your request. We may ask you to return the contract. You may have to pay charges (see "Charges -- Withdrawal Charge") and IRS taxes and penalties (see "Taxes"). You cannot make withdrawals after annuity payouts begin except under Plan E (see "The Annuity Payout Period -- Annuity Payout Plans"). WITHDRAWAL POLICIES If you have a balance in more than one account and you request a partial withdrawal, we will withdraw money from all your subaccounts and/or the fixed accounts in the same proportion as your value in each account correlates to your total contract value, unless you request otherwise. RECEIVING PAYMENT By regular or express mail: - payable to owner; - mailed to address of record. NOTE: We will charge you a fee if you request express mail delivery. Normally, we will send the payment within seven days after receiving your request. However, we may postpone the payment if: -- the withdrawal amount includes a purchase payment check that has not cleared; -- the NYSE is closed, except for normal holiday and weekend closings; -- trading on the NYSE is restricted, according to SEC rules; -- an emergency, as defined by SEC rules, makes it impractical to sell securities or value the net assets of the accounts; or -- the SEC permits us to delay payment for the protection of security holders. CHANGING OWNERSHIP You may change ownership of your nonqualified annuity at any time by completing a change of ownership form we approve and sending it to our office. The change will become binding upon us when we receive and record it. We will honor any change of ownership request that we believe is authentic and we will use reasonable procedures to confirm authenticity. If we follow these procedures, we will not take any responsibility for the validity of the change. If you have a nonqualified annuity, you may incur income tax liability by transferring, assigning or pledging any part of it. (See "Taxes.") If you have a qualified annuity, you may not sell, assign, transfer, discount or pledge your contract as collateral for a loan, or as security for the performance of an obligation or for any other purpose except as required or permitted by the Code. However, if the owner is a trust or custodian, or an employer acting in a similar capacity, ownership of the contract may be transferred to the annuitant. AMERICAN EXPRESS SIGNATURE ONE VARIABLE ANNUITY -- PROSPECTUS 41 BENEFITS IN CASE OF DEATH There are three death benefit options under this contract: - Option A -- Value option return of purchase payment death benefit; - Option B -- Maximum anniversary value death benefit; and - Option C -- 5% Accumulation death benefit rider. If either you or the annuitant are age 80 or older at contract issue, death benefit Option A will apply. If both you and the annuitant are age 79 or younger at contract issue, you can elect death benefit Option A, Option B or Option C (if its available in your state) on your application. If you select the Guaranteed Minimum Income Benefit Rider you must select either death benefit Option B or Option C. Once you elect an option, you cannot change it. We show the option that applies in your contract. There is a 0.10% reduction of the mortality expense risk fee if you select death benefit Option A. Under all options, we will pay the death benefit to your beneficiary upon the earlier of your death or the annuitant's death. We will base the benefit paid on the death benefit coverage you select when you purchased the contract. If a contract has more than one person as the owner, we will pay benefits upon the first to die of any owner or the annuitant. OPTION A-- VALUE OPTION RETURN OF PURCHASE PAYMENT DEATH BENEFIT Death benefit Option A is intended to help protect your beneficiaries financially in that they will never receive less than your purchase payments adjusted for withdrawals. If you or the annuitant dies before annuity payouts begin while this contract is in force, we will pay the beneficiary the greatest of the following amounts less any purchase payment credits added to the contract in the last 12 months: 1. contract value; or 2. total purchase payments plus purchase payment credits minus adjusted partial withdrawals. (PW X DB) ADJUSTED PARTIAL WITHDRAWALS FOR DEATH BENEFIT OPTION A OR OPTION B = --------- CV PW = the partial withdrawal including any applicable withdrawal charge or MVA. DB = the death benefit on the date of (but prior to) the partial withdrawal. CV = the contract value on the date of (but prior to) the partial withdrawal. EXAMPLE: - You purchase the contract with a payment of $100,000 on January 1, 2001. We add a purchase payment credit of $4,000 to the contract. - On January 1, 2002, you make an additional payment of $20,000. We add a purchase payment credit of $800. - On March 1, 2002, the contract value is $110,000 and you take a $10,000 withdrawal. - On March, 1, 2003, the contract value is $105,000. We calculate the Option A death benefit on March 1, 2003, as follows: Contract Value at death: $ 105,000 =========== Purchase payments plus credits minus adjusted partial withdrawals: Total purchase payments: $120,000.00 plus purchase payment credits: 4,800.00 minus adjusted partial withdrawals calculated as: (10,000 x 124,800) ------------------ = -11,345.45 110,000 ----------- for a death benefit of: $113,454.55 =========== Option A death benefit, calculated as the greatest of these two values: $113,454.55
42 AMERICAN EXPRESS SIGNATURE ONE VARIABLE ANNUITY -- PROSPECTUS OPTION B-- MAXIMUM ANNIVERSARY VALUE DEATH BENEFIT Death benefit Option B is intended to help protect your beneficiaries financially while your investments have the opportunity to grow. Death benefit Option B does not provide any additional benefit before the first contract anniversary and it may not be appropriate for issue ages 75 to 79 because the benefit values may be limited after age 81. Be sure to discuss with your sales representative whether or not death benefit Option B is appropriate for your situation. If both you and the annuitant are age 79 or younger at contract issue, you may choose to add death benefit Option B to your contract. If you select the Guaranteed Minimum Income Benefit Rider you must select either death benefit Option B or Option C. Death benefit Option B provides that if you or the annuitant die before annuity payouts begin while this contract is in force, we will pay the beneficiary the greatest of the following less any purchase payment credits added to the contract in the last 12 months: 1. contract value; 2. total purchase payments plus purchase payment credits minus adjusted partial withdrawals; or 3. the maximum anniversary value immediately preceding the date of death plus any payments and purchase payment credits since that anniversary minus adjusted partial withdrawals since that anniversary. MAXIMUM ANNIVERSARY VALUE (MAV): This is the greatest of your contract values on any contract anniversary plus subsequent purchase payments minus adjusted partial withdrawals. We calculate the MAV on each contract anniversary through age 80. There is no MAV prior to the first contract anniversary. On the first contract anniversary we set the MAV equal to the highest of: (a) your current contract value, or (b) total purchase payments and purchase payment credits minus adjusted partial withdrawals. Every contract anniversary after that, through age 80, we compare the previous anniversary's MAV to the current contract value and we reset the MAV if the current contract value is higher. We stop resetting the MAV after you or the annuitant reach age 81. However, we continue to add subsequent purchase payments and purchase payment credits and subtract adjusted partial withdrawals from the MAV. EXAMPLE: - You purchase the contract with a payment of $25,000 on Jan. 1, 2001. We add a purchase payment credit of $750 to your contract. - On Jan. 1, 2002 (the first contract anniversary) the contract value grows to $29,000. - On March 1, 2002 the contract value falls to $27,000, at which point you take a $1,500 partial withdrawal, leaving a contract value of $25,500. We calculate death benefit Option B on March 1, 2002 as follows: Contract value at death: $25,500.00 ========== Purchase payments plus purchase payment credits minus adjusted partial withdrawals: Total purchase payments and purchase payment credits: $25,750.00 minus adjusted partial withdrawals, calculated as: ($1,500 x $25,750) ------------------ = -1,430.56 $27,000 ---------- for a death benefit of: $24,319.44 ========== The MAV immediately preceding the date of death plus any payments made since that anniversary minus adjusted partial withdrawals: Greatest of your contract anniversary contract values: $29,000.00 plus purchase payments and purchase payment credits made since that anniversary: +0.00 minus adjusted partial withdrawals, calculated as: ($1,500 x $29,000) ------------------ = -1,611.11 $27,000 ---------- for a death benefit of: $27,388.89 ========== The Option B death benefit, calculated as the greatest of these three values, which is the MAV: $27,388.89
AMERICAN EXPRESS SIGNATURE ONE VARIABLE ANNUITY -- PROSPECTUS 43 OPTION C-- 5% ACCUMULATION DEATH BENEFIT RIDER Death benefit Option C is intended to help protect your beneficiaries financially while your investments have the opportunity to grow. Death benefit Option C does not provide any additional benefit before the first contract anniversary and it may not be appropriate for issue ages 75 to 79 because the benefit values may be limited after age 81. Be sure to discuss with your sales representative whether or not death benefit Option C is appropriate for your situation. If this rider is available in your state and both you and the annuitant are 79 or younger at contract issue, you may choose to add death benefit Option C to you contract. If you select the Guaranteed Minimum Income Benefit Rider you must select either death benefit Option B or Option C. Death benefit Option C provides that if you or the annuitant die before annuity payouts begin while this contract is in force, we will pay the beneficiary the greatest of the following less any purchase payment credits added to the contract in the last 12 months: 1. contract value; 2. total purchase payments plus purchase payment credits minus adjusted partial withdrawals; or 3. the 5% rising floor. 5% RISING FLOOR: This is the sum of the value of your fixed accounts plus the variable account floor. We calculate the variable account floor on each contract anniversary through age 80. There is no variable account floor prior to the first contract anniversary. On the first contract anniversary, we set the variable account floor equal to: - the initial purchase payments and purchase payment credits allocated to the subaccounts increased by 5%, - plus any subsequent amounts allocated to the subaccounts, and - minus adjusted transfers or partial withdrawals from the subaccounts. Every contract anniversary after that, through age 80, we reset the variable account floor by accumulating the prior anniversary's variable account floor at 5% plus any subsequent amounts allocated to the subaccounts minus adjusted transfers or partial withdrawals from the subaccounts. We stop resetting the variable account floor after you or the annuitant reach age 81. However, we continue to add subsequent amounts you allocate to the subaccounts and subtract adjusted transfers or partial withdrawals from the subaccounts. PWT X VAF 5% RISING FLOOR ADJUSTED TRANSFERS OR PARTIAL WITHDRAWALS = ----------- SV PWT = the amount transferred from the subaccounts or the amount of the partial withdrawal (including any applicable withdrawal charge) from the subaccounts. VAF = variable account floor on the date of (but prior to) the transfer or partial withdrawal. SV = value of the subaccounts on the date of (but prior to) the transfer or partial withdrawal. EXAMPLE: - You purchase the contract with a payment of $25,000 on Jan. 1, 2001 and we add a purchase payment credit of $750 to your contract. You allocate $5,100 to the one-year fixed account and $20,650 to the subaccounts. - On Jan. 1, 2002 (the first contract anniversary), the one-year fixed account value is $5,200 and the subaccount value is $17,000. Total contract value is $23,200. - On March 1, 2002, the one-year fixed account value is $5,300 and the subaccount value is $19,000. Total contract value is $24,300. You take a $1,500 partial withdrawal all from the subaccounts, leaving the contract value at $22,800. 44 AMERICAN EXPRESS SIGNATURE ONE VARIABLE ANNUITY -- PROSPECTUS The death benefit on March 1, 2002 is calculated as follows: Contract value at death: $22,800.00 ========== Purchase payments plus purchase payment credits minus adjusted partial withdrawals: Total purchase payments and purchase payment credits: $25,750.00 ========== minus adjusted partial withdrawals, calculated as: $1,500 x $25,750 ------------------ = -1,589.51 $24,300 ---------- for a death benefit of: $24,160.49 ========== The 5% rising floor: The variable account floor on Jan. 1, 2002, calculated as: 1.05 x $20,650 = $21,682.50 plus amounts allocated to the subaccounts since that anniversary: +0.00 minus the 5% rising floor adjusted partial withdrawal from the subaccounts, calculated as: $1,500 x $21,682.50 ------------------- = -$1,711.78 $19,000 ---------- variable account floor benefit: $19,970.72 plus the one-year fixed account value: +5,300.00 ---------- 5% rising floor (value of the fixed accounts plus the variable account floor): $25,270.72 ========== Option C death benefit, calculated as the greatest of these three values, which is the 5% rising floor: $25,270.72
IF YOU DIE BEFORE YOUR RETIREMENT DATE: 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, 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. NONQUALIFIED ANNUITIES: If your spouse is sole beneficiary and you die before the retirement date, your spouse may keep the contract as owner with the contract value equal to the death benefit that would otherwise have been paid. To do this your spouse must, within 60 days after we receive proof of death, give us written instructions to keep the contract in force. There will be no withdrawal charges on the contract from that point forward unless additional purchase payments are made. The Guaranteed Minimum Income Benefit Rider (see "Optional Benefits"), if selected, will terminate. If your beneficiary is not your spouse, 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. QUALIFIED ANNUITIES: The IRS has issued proposed regulations which will affect distributions from your qualified annuity. These are proposed regulations that may take effect Jan. 1, 2002. The information below is an explanation based on existing law. Contact your tax advisor if you have any questions as to the impact of the new proposed rules on your situation. If your spouse is the sole beneficiary, your spouse may keep the contract as owner until the date on which the annuitant would have reached age 70 1/2, or any other date permitted by the Code. The contract value will be equal to the death benefit that would otherwise have been paid. There will be no withdrawal charges on the contract from that point forward unless additional purchase payments are made. The Guaranteed Minimum Income Benefit Rider (see "Optional Benefits"), if selected, will terminate. AMERICAN EXPRESS SIGNATURE ONE VARIABLE ANNUITY -- PROSPECTUS 45 If your beneficiary is not your spouse, 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 following the year of your death; and - the payout period does not extend beyond the beneficiary's life or life expectancy. OPTIONAL BENEFITS GUARANTEED MINIMUM INCOME BENEFIT RIDER (GMIB) The GMIB is intended to provide you with a guaranteed minimum lifetime income regardless of the volatility inherent in the investments in the subaccounts. If the annuitant is between age 73 and age 75 at contract issue, you should consider whether the GMIB is appropriate for your situation because: - you must hold the GMIB for 7 years, - the GMIB terminates after the annuitant's 86th birthday, - you can only exercise the GMIB within 30 days after a contract anniversary, - the 6% rising floor value we use in the GMIB benefit base to calculate annuity payouts under the GMIB is limited after age 81, and - the additional costs associated with the rider. Be sure to discuss whether or not the GMIB is appropriate for your situation with your sales representative. If this rider is available in your state and the annuitant is 75 or younger at contract issue, you may choose to add this benefit to your contract for an additional annual charge (see "Charges). You cannot select this rider if you select the 8% Performance Credit Rider. You must elect the GMIB along with either death benefit Option B or Option C at the time you purchase your contract and your rider effective date will be the contract issue date. In some instances we may allow you to add the GMIB to your contract at a later date if it was not available when you initially purchased your contract. In these instances, we would add the GMIB at the next contract anniversary and this would become the rider effective date. For purposes of calculating the GMIB benefit base under these circumstances, we consider the contract value on the rider effective date to be the initial purchase payment and purchase payment credit; we disregard all previous purchase payments, purchase payment credits, transfers and withdrawals in the GMIB calculations. INVESTMENT SELECTION UNDER THE GMIB: You may allocate your purchase payments and purchase payment credits or transfers to any of the subaccounts or the fixed accounts. However, we reserve the right to limit the amount you allocate to subaccounts investing in the AXP-Registered Trademark- Variable Portfolio - Cash Management Fund to 10% of the total amount in the subaccounts. If we are required to activate this restriction, and you have more than 10% of your subaccount value in this fund, we will send you a notice and ask that you reallocate your contract value so that the 10% limitation is satisfied within 60 days. We will terminate the GMIB if you have not satisfied the limitation after 60 days. EXERCISING THE GMIB: - you may only exercise the GMIB within 30 days after any contract anniversary following the expiration of a seven-year waiting period from the rider effective date. - the annuitant on the retirement date must be between 50 and 86 years old. - you can only take an annuity payout under one of the following annuity payout plans: -- Plan A - Life Annuity -- no refund -- Plan B - Life Annuity with ten years certain -- Plan D - Joint and last survivor life annuity-- no refund - you may change the annuitant for the payouts. The GMIB guarantees a minimum amount of fixed annuity lifetime income or a minimum first year variable annuity payout. We calculate fixed annuity payouts and first year variable annuity payouts based on the guaranteed annuity purchase rates stated in Table B of the contract but using a 2.5% guaranteed annual effective interest rate which is lower than the 3% rate used in Table B of the contract. Therefore, your payout rates under the GMIB will be lower than the payout rates stated in Table B. This 2.5% Table is not stated in your contract. After the first year, lifetime income variable annuity payouts will depend on the investment performance of the subaccounts you select. The payouts will be higher if your investment performance is greater than a 5% annual return and lower if investment performance is less than a 5% annual return. AMERICAN EXPRESS SIGNATURE ONE VARIABLE ANNUITY -- PROSPECTUS 46 The GMIB benchmarks the contract growth at each anniversary against several comparison values and sets the GMIB benefit base (described below) equal to the largest value. The GMIB benefit base, less any applicable premium tax, is the value we apply to the guaranteed annuity purchase rates stated in Table B of the contract to calculate the minimum annuity payouts you will receive if you exercise the GMIB. If the GMIB benefit base is greater than the contract value, the GMIB may provide a higher annuity payout level than is otherwise available. However, the GMIB uses guaranteed annuity purchase rates that are more conservative than the annuity purchase rates that we will apply at annuitization under the standard contract provisions. Therefore, the level of income provided by the GMIB may be less than the income the contract otherwise provides. If the annuity payouts through the standard contract provisions are more favorable than the payouts available through the GMIB, you may elect the higher standard payout option. The GMIB does not create contract value or guarantee the performance of any investment option. GMIB BENEFIT BASE: If the GMIB is effective at contract issue, the GMIB benefit base is the greatest of: 1. contract value; 2. total purchase payments plus purchase payment credits minus adjusted partial withdrawals; or 3. the 6% rising floor. 6% RISING FLOOR: We calculate this in the same manner as the 5% rising floor but we use a 6% accumulation rate. This is the sum of the value of your fixed accounts plus the variable account floor. We calculate the variable account floor on each contract anniversary through age 80. There is no variable account floor prior to the first contract anniversary. On the first contract anniversary, we set the variable account floor equal to: - the initial purchase payments and purchase payment credits allocated to the subaccounts increased by 6%, - plus any subsequent amounts allocated to the subaccounts, and - minus adjusted transfers or partial withdrawals from the subaccounts. Every contract anniversary after that, through age 80, we reset the variable account floor by accumulating the prior anniversary's variable account floor at 6% plus any subsequent amounts allocated to the subaccounts minus adjusted transfers or partial withdrawals from the subaccounts. We stop resetting the variable account floor after you or the annuitant reach age 81. However, we continue to add subsequent amounts you allocate to the subaccounts and subtract adjusted transfers or partial withdrawals from the subaccounts. We calculate adjusted transfers or partial withdrawals for the 6% rising floor using the same formula as adjusted transfers or partial withdrawals for the 5% rising floor. Keep in mind that the 6% rising floor is limited after age 81. We reserve the right to exclude from the GMIB benefit base any purchase payments and purchase payment credits made in the five years before you exercise the GMIB. We would do so only if such payments and credits total $50,000 or more or if they are 25% or more of total contract payments. If we exercise this right, we: - subtract each payment and purchase payment credit adjusted for market value from the contract value. - subtract each payment and purchase payment credit from the 6% rising floor. We adjust the payments and purchase payment credit made to the fixed account for market value. We increase payments and purchase payment credit allocated to the subaccounts by 6% for the number of full contract years they have been in the contract before we subtract them from the 6% rising floor. For each payment and purchase payment credit, we calculate the market value adjustment to the contract value and the fixed account value of the 6% rising floor as: PMT x CVG --------- ECV PMT = each purchase payment and purchase payment credit made in the five years before you exercise the GMIB. CVG = current contract value at the time you exercise the GMIB. ECV = the estimated contract value on the anniversary prior to the payment in question. We assume that all payments, purchase payment credits and partial withdrawals occur at the beginning of a contract year. For each payment and purchase payment credit, we calculate the 6% increase of payments and purchase payment credits allocated to the subaccounts as: to the power of CY PMT x (1.06) CY = the full number of contract years the payment and purchase payment credit have been in the contract. AMERICAN EXPRESS SIGNATURE ONE VARIABLE ANNUITY -- PROSPECTUS 47 TERMINATING THE GMIB: - You may terminate the rider within 30 days after the first rider anniversary. - You may terminate the rider any time after the seventh rider anniversary. - The rider will terminate on the date: -- you make a full withdrawal from the contract; -- a death benefit is payable; or -- you choose to begin taking annuity payouts under the regular contract provisions. - The rider will terminate on the contract anniversary after the annuitant's 86th birthday. EXAMPLE: - You purchase the contract with a payment of $100,000 on Jan. 1, 2001 and we add a $4,000 purchase payment credit to your contract. You allocate all of your purchase payment and purchase payment credit to the subaccounts. - There are no additional purchase payments and no partial withdrawals. - Assume the annuitant is male and age 55 at contract issue. For the joint and last survivor option (annuity payout Plan D), the joint annuitant is female and age 55 at contract issue. Taking into account fluctuations in contract value due to market conditions, we calculate the GMIB benefit base as:
CONTRACT PURCHASE PAYMENTS AND GMIB ANNIVERSARY CONTRACT VALUE PURCHASE PAYMENT CREDIT 6% RISING FLOOR BENEFIT BASE 1 $112,000 $104,000 $110,240 2 130,000 104,000 116,854 3 137,000 104,000 123,866 4 156,000 104,000 131,298 5 88,000 104,000 139,175 6 125,000 104,000 147,526 7 144,000 104,000 156,378 $156,378 8 158,000 104,000 165,760 165,760 9 145,000 104,000 175,706 175,706 10 133,000 104,000 186,248 186,248 11 146,000 104,000 197,423 197,423 12 153,000 104,000 209,268 209,268 13 225,000 104,000 221,825 225,000 14 245,000 104,000 235,134 245,000 15 250,000 104,000 249,242 250,000
NOTE: The 6% rising floor value is limited after age 81, but the GMIB benefit base may increase if the contract value increases. However, you should keep in mind that you are always entitled to annuitize using the contract value without exercising the GMIB. AMERICAN EXPRESS SIGNATURE ONE VARIABLE ANNUITY -- PROSPECTUS 48 If you annuitize the contract within 30 days after a contract anniversary, the payout under a fixed annuity option (which is the same as the minimum payout for the first year under a variable annuity options) would be:
MINIMUM GUARANTEED MONTHLY INCOME CONTRACT PLAN A - PLAN B - PLAN D - JOINT AND ANNIVERSARY GMIB LIFE ANNUITY-- LIFE ANNUITY WITH LAST SURVIVOR LIFE AT EXERCISE BENEFIT BASE NO REFUND TEN YEARS CERTAIN ANNUITY-- NO REFUND 10 $186,248 (6% Rising Floor) $ 916.34 $ 892.13 $ 722.64 15 250,000 (Contract Value) 1,420.00 1,352.50 1,085.00
The payouts above are shown at guaranteed annuity rates we use in the 2.5% Table. Payouts under the standard provisions of this contract will be based on our annuity rates in effect at annuitization and are guaranteed to be greater than or equal to the guaranteed annuity rates stated in Table B of the contract. The fixed annuity payout available under the standard provisions of this contract would be at least as great as shown below:
CONTRACT PLAN A - PLAN B - PLAN D - JOINT AND ANNIVERSARY LIFE ANNUITY-- LIFE ANNUITY WITH LAST SURVIVOR LIFE AT EXERCISE CONTRACT VALUE NO REFUND TEN YEARS CERTAIN ANNUITY-- NO REFUND 10 $133,000 $ 692.93 $ 674.31 $ 551.95 15 250,000 1,490.00 1,420.00 1,152.50
At the 15th contract anniversary you would not experience a benefit from the GMIB as the payout available to you is equal to or less than the payout available under the standard provisions of the contract. Remember that after the first year, lifetime income payouts under a variable annuity payout option will depend on the investment performance of the subaccounts you select. The payouts will be higher if investment performance is greater than a 5% annual return and lower if investment performance is less than a 5% annual return. 8% PERFORMANCE CREDIT RIDER (PCR) The PCR is intended to provide you with an additional benefit if your earnings are less than the target value on the seventh and tenth rider anniversaries (see below). This is an optional benefit you may select for an additional charge (see "Charges"). The PCR does not provide any additional benefit before the seventh rider anniversary and it may not be appropriate for issue ages 83 or older due to this required holding period. Be sure to discuss with your sales representative whether or not the PCR is appropriate for your situation. If the PCR is available in your state, you may choose to add this benefit to your contract at issue. You cannot select the PCR if you select the GMIB. In some instances we may allow you to add the PCR to your contract at a later date if it was not available when you initially purchased your contract. In these instances, we would add the PCR at the next contract anniversary and this would become the rider effective date. For purposes of calculating the target value under these circumstances, we consider the contract value on the rider effective date to be the first contract year's purchase payments. INVESTMENT SELECTION UNDER THE PCR: You may allocate your purchase payments and purchase payment credits or transfers to any of the subaccounts or the fixed accounts. However, we reserve the right to limit the aggregate amount in your fixed accounts and amounts you allocate to subaccounts investing in the AXP-Registered Trademark- Variable Portfolio - Cash Management Fund to 10% of your total contract value. If we are required to activate this restriction, and you have more than 10% of your contract value in these accounts, we will send you a notice and ask that you reallocate your contract value so that the 10% limitation is satisfied within 60 days. We will terminate the PCR if you have not satisfied the limitation after 60 days. TARGET VALUE: We calculate the target value on each rider anniversary. There is no target value prior to the first rider anniversary. On the first rider anniversary we set the target value equal to your first year's purchase payments plus purchase payment credits minus the target value adjusted partial withdrawals accumulated at an annual effective rate of 8%. Every rider anniversary after that, we recalculate the target value by accumulating the prior anniversary's target value and any additional purchase payments and purchase payment credits minus the target value adjusted partial withdrawals at an annual effective rate of 8%. TARGET VALUE ADJUSTED PARTIAL WITHDRAWALS = PW X TV ------- CV PW = the partial withdrawal including any applicable withdrawal charge or MVA. TV = the target value on the date of (but prior to) the partial withdrawal. CV = contract value on the date of (but prior to) the partial withdrawal. AMERICAN EXPRESS SIGNATURE ONE VARIABLE ANNUITY -- PROSPECTUS 49 YOUR BENEFITS UNDER THE PCR ARE AS FOLLOWS: (a) If on the seventh rider anniversary your contract value is less than the target value, we will add a PCR credit to your contract equal to 3% of your purchase payments plus purchase payment credits minus PCR adjusted partial withdrawals minus purchase payments (and purchase payment credits) made in the last five years. (b) If on the tenth rider anniversary your contract value is less than the target value, we will add a PCR credit to your contract equal to 5% of your purchase payments plus purchase payment credits minus PCR adjusted partial withdrawals minus purchase payments (and purchase payment credits) made in the last five years. The PCR adjusted partial withdrawal amount is an adjustment we make to determine the proportionate amount of any partial withdrawal attributable to purchase payments received five or more years before the target value is calculated (on the seventh and tenth rider anniversaries). We restart the calculation period for the PCR on the tenth rider anniversary and every ten years after that while you own the contract. We use the contract value (including any credits) on that anniversary as your first contract year's payments for calculating the target value and any applicable PCR credit. We may then apply additional PCR credits to your contract at the end of each seven and ten-year period as described above. PCR RESET: You can elect to lock in your contract growth by restarting the ten-year PCR calculation period on any contract anniversary. If you elect to restart the calculation period, the contract value on the restart date is used as the first year's payments for the calculating the target value and any applicable PCR credit. The next calculation period for the PCR will restart at the end of this new ten-year period. We must receive your request to restart the PCR calculation period within 30 days after a contract anniversary. TERMINATING THE PCR: - You may terminate the PCR within 30 days following the first contract anniversary after the PCR rider effective date. - You may terminate the PCR within 30 days following the later of the tenth contract anniversary after the PCR rider effective date or the last rider reset date. - The PCR will terminate on the date: -- you make a full withdrawal from the contract, -- that a death benefit is payable, or -- you choose to begin taking annuity payouts. EXAMPLE: - You purchase the contract with a payment of $100,000 on Jan. 1, 2001 and we add a purchase payment credit $4,000 to your contract. - There are no additional purchase payments and no partial withdrawals. - On Jan. 1, 2008, the contract value is $150,000. - We determine the target value on Jan. 1, 2008 as your purchase payments plus purchase payment credits (there are no partial withdrawals to subtract) accumulated at an annual effective rate of 8% or: $104,000 x (1.08) to the power of 7 = $104,000 x 1.71382 = $178,237.72. Your contract value ($150,000) is less than the target value ($178,237.72) so we will add a PCR credit to your contract equal to 3% of your purchase payments and purchase payment credits (there are no partial withdrawals or purchase payments made in the last five years to subtract), which is: 0.03 x $104,000 = $3,120. After application of the PCR credit, your total contract value on Jan. 1, 2008 would be $153,120. - On Jan. 1, 2011, the contract value is $220,000. - We determine the target value on Jan. 1, 2011 as your purchase payments plus purchase payment credits (there are no partial withdrawals to subtract) accumulated at an annual effective rate of 8% or: $104,000 x (1.08) to the power of 10 = $104,000 x 2.158924 = $224,528.20 Your contract value ($220,000) is less than the target value ($224,528.20) so we will add a PCR credit to your contract equal to 5% of your purchase payments and purchase payment credits (there are no partial withdrawals or purchase payments made in the last five years to subtract), which is: 0.05 x $104,000 = $5,200. After application of the PCR credit, your total contract value on Jan. 1, 2011 would be $225,200. - The PCR calculation period automatically restarts on Jan. 1, 2011 with the target values first year's payments equal to $225,200. We would make the next PCR credit determination on Jan. 1, 2018. 50 AMERICAN EXPRESS SIGNATURE ONE VARIABLE ANNUITY -- PROSPECTUS THE ANNUITY PAYOUT PERIOD As owner of the contract, you have the right to decide how and to whom annuity payouts will be made starting at the retirement date. You may select one of the annuity payout plans outlined below, or we may mutually agree on other payout arrangements. We do not deduct any withdrawal charges under the payout plans listed below. You also decide whether we will make annuity payouts on a fixed or variable basis, or a combination of fixed and variable. The 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 one-year fixed account to provide fixed dollar payouts and/or among the subaccounts to provide variable annuity payouts. During the annuity payout period, we reserve the right to limit the number of subaccounts in which you may invest. The Guarantee Period Accounts are not available during this payout period. AMOUNTS OF FIXED AND VARIABLE PAYOUTS DEPEND ON: - the annuity payout plan you select; - the annuitant's age and, in most cases, sex; - the annuity table in the contract; and - the amounts you allocated to the accounts at settlement. In addition, for variable payouts only, amounts depend on the investment performance of the subaccounts you select. These payouts will vary from month to month because the performance of the funds will fluctuate. (In the case of fixed annuities, payouts remain the same from month to month.) For information with respect to transfers between accounts after annuity payouts begin, see "Making the Most of Your Contract -- Transfer policies." ANNUITY TABLES The annuity tables in your contract show the amount of the monthly payout 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.) Table B shows the minimum amount of each fixed payout. Amounts in Table B are based on the guaranteed annual effective interest rate shown in your contract. We declare current payout rates that we use in determining the actual amount of your fixed payout. The current payout rates will equal or exceed the guaranteed payout rates shown in Table B. We will furnish these rates to you upon request. Table A shows the amount of the first monthly variable payout assuming 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. 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 A 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 Table A results in a higher initial payment, but later payouts will increase more slowly when annuity unit values rise and decrease more rapidly when they decline. AMERICAN EXPRESS SIGNATURE ONE VARIABLE ANNUITY -- PROSPECTUS 51 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 payout. The discount rate we use in the calculation will vary between 5.36% and 6.86% depending on the applicable assumed investment rate. (See "Charges -- Withdrawal charge under Annuity Payout Plan E.") You can also take a portion of the discounted value once a year. If you do so, your monthly payouts will be reduced by the proportion of your withdrawal to the full discounted value. A 10% IRS penalty tax could apply if you take a withdrawal. (See "Taxes.") ANNUITY PAYOUT PLAN REQUIREMENTS FOR QUALIFIED ANNUITIES: If you purchased a qualified annuity, you must select a payout plan as of the retirement date set forth in your contract. You have the responsibility for electing a payout plan that complies with your contract and with applicable law. Your contract describes your payout plan options. The options will meet certain IRS regulations governing required minimum distributions if the payout plan meets the incidental distribution benefit requirements, if any, and the payouts are made: - in equal or substantially equal payments over a period not longer than the life of the annuitant or over the life of the annuitant and designated beneficiary; or - in equal or substantially equal payments over a period not longer than the life expectancy of the annuitant or over the life expectancy of the annuitant and designated beneficiary; or - over a period certain not longer than the life expectancy of the annuitant or over the life expectancy of the annuitant and designated beneficiary. IF WE DO NOT RECEIVE INSTRUCTIONS: You must give us written instructions for the annuity payouts at least 30 days before the annuitant's retirement date. If you do not, we will make payouts under Plan B, with 120 monthly payouts guaranteed. Contract values that you allocated to the one-year fixed account will provide fixed dollar payouts and contract values that you allocated among the subaccounts will provide variable annuity payouts. IF MONTHLY PAYOUTS WOULD BE LESS THAN $20: We will calculate the amount of monthly payouts at the time the contract value is used to purchase a payout plan. If the calculations show that monthly payouts would be less than $20, we have the right to pay the contract value to 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. 52 AMERICAN EXPRESS SIGNATURE ONE VARIABLE ANNUITY -- PROSPECTUS TAXES Generally, under current law, your contract has a tax-deferral feature. This means any increase in the value of the fixed accounts and/or subaccounts in which you invest is taxable to you only when you receive a payout or withdrawal (see detailed discussion below). Any portion of the annuity payouts and any withdrawals you request that represent ordinary income normally are taxable. We will send you a tax information reporting form for any year in which we made a taxable distribution according to our records. Roth IRAs may grow and be distributed tax free if you meet certain distribution requirements. ANNUITY PAYOUTS UNDER NONQUALIFIED ANNUITIES: A portion of each payout will be ordinary income and subject to tax, and a portion of each payout will be considered a return of part of your investment and will not be taxed. All amounts you receive after your investment in the contract is fully recovered will be subject to tax. Tax law requires that all nonqualified deferred annuity contracts issued by the same company (and possibly its affiliates) to the same owner during a calendar year be taxed as a single, unified contract when you take distributions from any one of those contracts. QUALIFIED ANNUITIES: When you use your contract to fund a retirement plan that is already tax deferred under the Code, the contract will not provide any necessary or additional tax deferral for the retirement plan. Adverse tax consequences may result if you do not ensure that contributions, distributions and other transactions under the contract comply with the law. Qualified annuities have minimum distribution rules that govern the timing and amount of distributions during your life (except for Roth IRAs) and after your death. You should refer to your retirement plan or adoption agreement, or consult a tax advisor for more information about these distribution rules. ANNUITY PAYOUTS UNDER QUALIFIED ANNUITIES (EXCEPT ROTH IRAs): Under a qualified annuity, the entire payout generally is includable as ordinary income and is subject to tax except to the extent that contributions were made with after-tax dollars. If you or your employer invested in your contract with deductible or pre-tax dollars as part of a tax-deferred retirement plan, such amounts are not considered to be part of your investment in the contract and will be taxed when paid to you. PURCHASE PAYMENT CREDITS AND PCR CREDITS: These are considered earnings and are taxed accordingly. WITHDRAWALS: If you withdraw part or all of your contract before your annuity payouts begin, your withdrawal payment will be taxed to the extent that the value of your contract immediately before the withdrawal exceeds your investment. You also may have to pay a 10% IRS penalty for withdrawals you make before reaching age 591/2 unless certain exceptions apply. For qualified annuities, other penalties may apply if you make withdrawals from your contract before your plan specifies that you can receive payouts. DEATH BENEFITS TO BENEFICIARIES UNDER NONQUALIFIED ANNUITIES: The death benefit under a contract 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 year he or she receives the payments. DEATH BENEFITS TO BENEFICIARIES UNDER QUALIFIED ANNUITIES: The entire death benefit generally is taxable as ordinary income to the beneficiary in the year he or she receives the payments. Death benefits under a Roth IRA generally are not taxable as ordinary income to the beneficiary if certain distribution requirements are met. ANNUITIES OWNED BY CORPORATIONS, PARTNERSHIPS OR TRUSTS: For nonqualified annuities, any annual increase in the value of annuities held by such entities generally will be treated as ordinary income received during that year. This provision is effective for purchase payments made after Feb. 28, 1986. However, if the trust was set up for the benefit of a natural person only, the income will remain tax deferred. PENALTIES: If you receive amounts from your contract before reaching age 59 1/2, you may have to pay a 10% IRS penalty on the amount includable in your ordinary income. However, this penalty will not apply to any amount received: - 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 IRAs, other exceptions may apply if you make withdrawals from your contract prior to age 59 1/2. 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. AMERICAN EXPRESS SIGNATURE ONE VARIABLE ANNUITY -- PROSPECTUS 53 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. VOTING RIGHTS As a contract owner with investments in the subaccounts, you may vote on important fund policies until annuity payouts begin. Once they begin, the person receiving them has voting rights. We will vote fund shares according to the instructions of the person with voting rights. Before annuity payouts begin, the number of votes you have is determined by applying your percentage interest in each subaccount to the total number of votes allowed to the subaccount. After annuity payouts begin, the number of votes you have is equal to: - the reserve held in each subaccount for your contract; divided by - the net asset value of one share of the applicable fund. As we make annuity payouts, the reserve for the contract decreases; therefore, the number of votes also will decrease. We calculate votes separately for each subaccount. We will send notice of shareholders' meetings, proxy materials and a statement of the number of votes to which the voter is entitled. We will vote shares for which we have not received instructions in the same proportion as the votes for which we received instructions. We also will vote the shares for which we have voting rights in the same proportion as the votes for which we received instructions. SUBSTITUTION OF INVESTMENTS We may substitute the funds in which the subaccounts invest if: - laws or regulations change; - 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. 54 AMERICAN EXPRESS SIGNATURE ONE VARIABLE ANNUITY -- PROSPECTUS In the event of substitution or any of these changes, we may amend the contract and take whatever action is necessary and appropriate without your consent or approval. However, we will not make any substitution or change without the necessary approval of the SEC and state insurance departments. We will notify you of any substitution or change. ABOUT THE SERVICE PROVIDERS PRINCIPAL UNDERWRITER American Express Financial Advisors Inc. (AEFA) serves as the principal underwriter for the contract. Its offices are located at 70100 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, a financial services company headquartered in New York City. The contracts will be distributed by broker-dealers which have entered into distribution agreements with AEFA and American Enterprise Life. 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. American Enterprise Life is a stock life insurance company organized in 1981 under the laws of the state of Indiana. Its administrative offices are located at 829 AXP Financial Center, Minneapolis, MN 55474. Its statutory address is 100 Capitol Center South, 201 North Illinois Street, Indianapolis, IN 46204. American Enterprise Life conducts a conventional life insurance business. American Enterprise Life pays cash compensation to the broker-dealers and insurance agencies who have entered into distribution agreements with American Enterprise Life and AEFA for the sale of contracts. This compensation will not result in any charge to contract owners or to the variable account in addition to the charges described in this prospectus. This cash compensation will not be more than 9.0% of the purchase payments it receives on the contracts. From time to time and in accordance with applicable laws and regulations we will pay or permit other promotional incentives, in cash or credit or other compensation. 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 the suits, RICHARD W. AND ELIZABETH J. THORESEN V. 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 on Oct. 13, 1998. The action was brought by individuals who purchased an annuity in a qualified plan. They allege that the sale of annuities in tax-deferred contributory retirement investment plans (e.g., IRAs) is never appropriate. The plaintiffs purport to represent a class consisting of all persons who made similar purchases. The plaintiffs seek damages in an unspecified amount, including restitution of allegedly lost investment earnings and restoration of contract values. In January 2000, AEFC reached an agreement in principle to settle the three class-action lawsuits described above. It is expected the settlement will provide $215 million of benefits to more than two million participants and for release by class members of all insurance and annuity market conduct claims dating back to 1985. In August, 2000 an action entitled LESA BENACQUISTO, DANIEL BENACQUISTO, RICHARD THORESEN, ELIZABETH THORESEN, ARNOLD MORK, ISABELLA MORK, RONALD MELCHERT AND SUSAN MELCHERT V. AMERICAN EXPRESS FINANCIAL CORPORATION, AMERICAN EXPRESS FINANCIAL ADVISORS, AMERICAN CENTURION LIFE ASSURANCE COMPANY, AMERICAN ENTERPRISE LIFE INSURANCE COMPANY, AMERICAN PARTNERS LIFE INSURANCE COMPANY, IDS LIFE INSURANCE COMPANY AND IDS LIFE INSURANCE COMPANY OF NEW YORK was commenced in the United States District Court for the District of Minnesota. The complaint put at issue various alleged sales practices and misrepresentations and allegations of violations of federal laws. In September, 2000 the plaintiffs filed a consolidated complaint in State Court alleging the same claims as the previous actions. On Oct. 2, 2000 the District Court, Fourth Judicial District for the State of Minnesota, County of Hennepin and the United States District Court for the District of Minnesota entered an order conditionally certifying a class for settlement purposes, preliminarily approving the class settlement, directing the issuance of a class notice to the class and scheduling a hearing to determine the fairness of settlement for March, 2001. On March 6, 2001 the District Court, Fourth Judicial District for the State of Minnesota, County of Hennepin and the United States District Court for the District of Minnesota heard oral arguments on plaintiffs' motions for final approval of the class action settlement. Six motions to intervene were filed together with objections to the proposed settlement. We are awaiting a final order from the court. AMERICAN EXPRESS SIGNATURE ONE VARIABLE ANNUITY -- PROSPECTUS 55 ADDITIONAL INFORMATION ABOUT AMERICAN ENTERPRISE LIFE SELECTED FINANCIAL DATA The following selected financial data for American Enterprise Life should be read in conjunction with the financial statements and notes.
THREE MONTHS ENDED YEARS ENDED DEC. 31, (THOUSANDS) March 31, 2001 March 31, 2000 2000 1999 1998 1997 1996 ------------------------------------------------------------------------------------------------------------------------------------ Net investment income $ 69,460 $ 77,586 $ 299,759 $ 322,746 $ 340,219 $ 332,268 $ 271,719 Net loss on investments (18,542) (2,425) 469 6,565 (4,788) (509) (5,258) Other 3,765 2,289 12,248 8,338 7,662 6,329 5,753 Total revenues $ 54,863 $ 77,450 $ 312,476 $ 337,649 $ 343,093 $ 338,088 $ 272,214 Income before income taxes $ (11,624) $ 9,978 $ 38,452 $ 50,662 $ 36,421 $ 44,958 $ 35,735 Net income $ (7,637) $ 6,332 $ 24,365 $ 33,987 $ 22,026 $ 28,313 $ 22,823 Total assets $4,617,668 $4,532,394 $4,652,221 $4,603,343 $4,885,621 $4,973,413 $4,425,837 ------------------------------------------------------------------------------------------------------------------------------------
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS THREE MONTHS ENDED MARCH 31, 2001 COMPARED TO THREE MONTHS ENDED MARCH 31, 2000: Net loss was $7.6 million in the first quarter of 2001, compared to net income of $6.3 million in the first quarter of 2000. Loss before income taxes totaled $11.6 million in the first quarter 2001, compared with income of $10.0 million in the first quarter of 2000. This decline primarily reflects a net pre-tax loss of $18.5 from the write-down and sale of certain high-yield securities. Total investment contract deposits received increased to $202 million in the first quarter of 2001, compared with $67 million in the first quarter of 2000. This increase is primarily due to an increase in variable annuity deposits received from sales. Total revenues decreased to $54.9 million in the first quarter of 2001, compared with $77.5 million in the first quarter of 2000. The decrease is primarily due to net realized losses on investments and decreases in net investment income. Net investment income, the largest component of revenues, decreased 10% from the same period of the prior year, reflecting a decrease in investments owned and lower investment yields. Policyholder and contractholder charges increased 13% to $1.7 million in the first quarter of 2001, compared with $1.5 million in the first quarter of 2000, reflecting an increase in annuity surrender charges. American Enterprise Life receives mortality and expense risk fees from the separate accounts. Mortality and expense risk fees increased 175% to $2.2 million in the first quarter of 2001, compared with $.8 million in the first quarter of 2000, reflecting an increase in separate account assets. Net realized loss on investments was $18.5 million in the first quarter of 2001, compared with a net loss of $2.4 million in the first quarter of 2000. The increase in net realized losses was primarily due to the loss on sale and writedowns of fixed maturity investments. Total benefits and expenses decreased 1% to $66.5 million in the first quarter of 2001, compared with $67.5 million in 2000. The largest component of expenses, interest credited on investment contracts, decreased $6.6 million to $42.5 million in the first quarter of 2001, compared to $49.1 in the first quarter of 2000, reflecting a decrease in fixed annuities in force and lower crediting rates. Amortization of deferred policy acquisition costs increased to $12.2 million, compared to $10.7 million in the first quarter of 2000. This increase was due primarily to increased aggregate amounts in force. Other operating expenses increased 55% to $11.9 million in the first quarter of 2001, compared to $7.7 million in the first quarter of 2000. This increase is mainly due to higher technology costs related to growth initiatives. THREE MONTHS ENDED MARCH 31, 2001 COMPARED TO THREE MONTHS ENDED MARCH, 31 1999 Net income decreased 2% to $6.3 million in the first quarter of 2000, compared to $6.5 million in the first quarter of 1999. Earnings decline resulted primarily from weak equity markets and narrower spreads on the investment portfolio. Total investment contract deposits received decreased to $67 million in the first quarter of 2000, compared with $71 million in the first quarter of 1999. This decrease is primarily due to a decrease in variable annuity deposits in 2000. Total revenues decreased to $77.5 million in the first quarter of 2000, compared with $78.3 million in the first quarter of 1999. The decrease is primarily due to a decrease in net investment income. Net investment income, the largest component of revenues, decreased 4% from the same period of the prior year, reflecting a decrease in investments owned and lower investment yields. Policyholder and contractholder charges increased 25% to $1.5 million in the first quarter of 2000, compared with $1.2 million in the first quarter of 1999, reflecting an increase in annuity surrender charges. American Enterprise Life receives mortality and expense risk fees from the separate accounts. Mortality and expense risk fees increased 60% to $.8 million in the first quarter of 2000, compared with $.5 million in the first quarter of 1999, this reflects the increase in separate account assets. Net realized loss on investments was $2.4 million in the first quarter of 2000, compared with a net loss of $3.8 million in 1999. The net realized loss was primarily due to loss on the sale and writedown of fixed maturity investments. 56 AMERICAN EXPRESS SIGNATURE ONE VARIABLE ANNUITY -- PROSPECTUS Total benefits and expenses decreased 1% to $67.5 million in the first quarter of 2000, compared with $68.3 million in 1999. The largest component of expenses, interest credited on investment contracts, decreased $3.2 million to $49.1 million for the first quarter of 2000, compared to $52.3 million in the first quarter of 1999. This reflects a decrease in fixed annuities in force and lower crediting rates. Amortization of deferred policy acquisition costs increased to $10.7 million, compared to $9.2 million in the first quarter of 1999. This increase was due primarily to increased aggregate amounts in force. Other operating expenses increased 15% to $7.7 million in the first quarter of 2000, compared to $6.7 million in the first quarter of 1999. This increase is mainly due to higher technology costs related to growth initiatives. DEC. 31, 2000 COMPARED TO DEC. 31, 1999: Net income decreased 29% to $24 million in 2000, compared to $34 million in 1999. Income before income taxes totaled $38 million in 2000, compared with $51 million in 1999. The decrease was primarily the result of lower net investment income of $300 million in 2000, compared with $323 million in 1999. Total investment contract deposits received increased to $721 million in 2000, compared with $336 million in 1999. This increase is primarily due to an increase in variable annuity deposits in 2000. Total revenues decreased to $312 million in 2000, compared with $338 million in 1999. The decrease is primarily due to decreases in net investment income and net realized gains on investments. Net investment income, the largest component of revenues, decreased 7% from the prior year, reflecting a decrease in investments owned and lower investment yields. Policyholder and contractholder charges increased 13% to $6.9 million in 2000, compared with $6.1 million in 1999, reflecting an increase in annuity withdrawal charges. American Enterprise Life receives mortality and expense risk fees from the separate accounts. Mortality and expense risk fees increased 135% to $5.4 million in 2000, compared with $2.3 million in 1999, this reflects the increase in separate account assets. Net realized gain on investments was $0.5 million in 2000, compared with $6.6 million in 1999. The decrease in net realized gains was primarily due to the loss on sale and writedowns of fixed maturity investments. Total benefits and expenses decreased 5% to $274 million in 2000, compared with $287 million in 1999. The largest component of expenses, interest credited on investment contracts, decreased to $191 million, reflecting a decrease in fixed annuities in force and lower crediting rates. Amortization of deferred policy acquisition costs increased to $48 million, compared to $43 million in 1999. This increase was due primarily to increased aggregate amounts in force. Other operating expenses remained steady at $35 million in 2000. DEC. 31, 1999 COMPARED TO DEC. 31, 1998: Net income increased 54% to $34 million in 1999, compared to $22 million in 1998. Earnings growth resulted primarily net realized gains of $6.6 million in 1999, compared to net realized losses of $4.8 in 1998. Income before income taxes totaled $51 million in 1999, compared with $36 million in 1998. Total investment contract deposits received decreased to $336 million in 1999, compared with $348 million in 1998. This decrease is primarily due to a decrease in sales of variable annuities in 1999. Total revenues decreased to $338 million in 1999, compared with $343 million in 1998. The decrease is primarily due to decreased net investment income which was partially offset by an increase in realized gain on investments. Net investment income, the largest component of revenues, decreased 5% from the prior year, reflecting decreases in investments owned and investment yields. Contractholder charges decreased 5% to $6.1 million in 1999, compared with $6.4 million in 1998, reflecting a decrease in fixed annuities inforce. American Enterprise Life receives mortality and expense risk fees from the separate accounts. Mortality and expense risk fees increased 77% to $2.3 million in 1999, compared with $1.3 million in 1998, this reflects the increase in separate account assets. Net realized gain on investments was $6.6 million in 1999, compared to a net realized loss on investments of $4.8 million in 1998. The net realized gains were primarily due to the sale of available for sale fixed maturity investments at a gain as well as a decrease in the allowance for mortgage loan losses based on management's regular evaluation of allowance adequacy. Total benefits and expenses decreased slightly to $287 million in 1999. The largest component of expenses, interest credited on investment contracts, decreased to $209 million, reflecting a decrease in fixed annuities in force and lower interest rates. Amortization of deferred policy acquisition costs decreased to $43 million, compared to $54 million in 1998. This decrease was due primarily to decreased aggregate amounts in force, as well as the impact of changing prospective assumptions in 1998 based on actual lapse experience on certain fixed annuities. Other operating expenses increased 46% to $35 million in 1999, compared to $24 million in 1998. This increase primarily reflects technology costs related to growth initiatives. AMERICAN EXPRESS SIGNATURE ONE VARIABLE ANNUITY -- PROSPECTUS 57 RISK MANAGEMENT The sensitivity analysis of the test of market risk discussed below estimates the effects of hypothetical sudden and sustained changes in the applicable market conditions on the ensuing year's earnings based on year-end positions. The market changes, assumed to occur as of year-end, is a 100 basis point increase in market interest rates. Computations of the prospective effects of hypothetical interest rate change based on numerous assumptions, including relative levels of market interest rates as well as the levels of assets and liabilities. The hypothetical changes and assumptions will be different from what actually occurs in the future. Furthermore, the computations do not anticipate actions that may be taken by management if the hypothetical market changes actually occurred over time. As a result, actual earnings effects in the future will differ from those quantified below. American Enterprise Life primarily invests in fixed income securities over a broad range of maturities for the purpose of providing fixed annuity clients with a competitive rate of return on their investments while minimizing risk, and to provide a dependable and targeted spread between the interest rate earned on investments and the interest rate credited to contractholders' accounts. American Enterprise Life does not invest in securities to generate trading profits. American Enterprise Life has an investment committee that holds regularly scheduled meetings and, when necessary, special meetings. At these meetings, the committee reviews models projecting different interest rate scenarios and their impact on profitability. The objective of the committee is to structure the investment security portfolio based upon the type and behavior of products in the liability portfolio so as to achieve targeted levels of profitability. Rates credited to contractholders' accounts are generally reset at shorter intervals than the maturity of underlying investments. Therefore, margins may be negatively impacted by increases in the general level of interest rates. Part of the committee's strategy includes the purchase of some types of derivatives, such as interest rate caps, swaps and floors, for hedging purposes. These derivatives protect margins by increasing investment returns if there is a sudden and severe rise in interest rates, thereby mitigating the impact of an increase in rates credited to contractholders' accounts. The negative effect on American Enterprise Life's pretax earnings of a 100 basis point increase in interest rates, which assumes repricings and customer behavior based on the application of proprietary models to the book of business at Dec. 31, 2000, would be approximately $4.6 million. LIQUIDITY AND CAPITAL RESOURCES The liquidity requirements of American Enterprise Life are met by funds provided by annuity considerations, investment income, proceeds from sales of investments as well as maturities and periodic repayments of investment principal. The primary uses of funds are policy benefits, commissions and operating expenses, policy loans, and investment purchases. American Enterprise Life has an available line of credit with AEFC aggregating $50 million. The line of credit is used strictly as a short-term source of funds. No borrowings were outstanding under the agreement at Dec. 31, 2000. At Dec. 31, 2000, outstanding reverse repurchase agreements totaled $25 million. At Dec. 31, 2000, investments in fixed maturities comprised 80% of American Enterprise Life's total invested assets. Of the fixed maturity portfolio, approximately 30% is invested in GNMA, FNMA and FHLMC mortgage-backed securities which are considered AAA/Aaa quality. At Dec. 31, 2000, approximately 15% of American Enterprise Life's investments in fixed maturities were below investment grade bonds. These investments may be subject to a higher degree of risk than the investment grade issues because of the borrower's generally greater sensitivity to adverse economic conditions, such as recession or increasing interest rates, and in certain instances, the lack of an active secondary market. Expected returns on below investment grade bonds reflect consideration of such factors. American Enterprise Life has identified those fixed maturities for which a decline in fair value is determined to be other than temporary, and has written them down to fair value with a charge to earnings. At Dec. 31, 2000, net unrealized depreciation on fixed maturities held to maturity included $10.7 million of gross unrealized appreciation and $17.8 million of gross unrealized depreciation. Net unrealized depreciation on fixed maturities available for sale included $30.2 million of gross unrealized appreciation and $125.6 million of gross unrealized depreciation. At Dec. 31, 2000, American Enterprise Life had an allowance for losses for mortgage loans totaling $3.3 million. The economy and other factors have caused a number of insurance companies to go under regulatory supervision. This circumstance has resulted in assessments by state guaranty associations to cover losses to policyholders of insolvent or rehabilitated companies. Some assessments can be partially recovered through a reduction in future premium taxes in certain states. American Enterprise Life established an asset for guaranty association assessments paid to those states allowing a reduction in future premium taxes over a reasonable period of time. The asset is being amortized as premium taxes are reduced. American Enterprise Life has also estimated the potential effect of future assessments on American Enterprise Life's financial position and results of operations and has established a reserve for such potential assessments. 58 AMERICAN EXPRESS SIGNATURE ONE VARIABLE ANNUITY -- PROSPECTUS The National Association of Insurance Commissioners has established risk-based capital standards to determine the capital requirements of a life insurance company based upon the risks inherent in its operations. These standards require the computation of a risk-based capital amount which is then compared to a company's actual total adjusted capital. The computation involves applying factors to various statutory financial data to address four primary risks: asset default, adverse insurance experience, interest rate risk and external events. These standards provide for regulatory attention when the percentage of total adjusted capital to authorized control level risk-based capital is below certain levels. As of Dec. 31, 2000, American Enterprise Life's total adjusted capital was well in excess of the levels requiring regulatory attention. RESERVES In accordance with the insurance laws and regulations under which we operate, we are obligated to carry on our books, as liabilities, actuarially determined reserves to meet our obligations on our outstanding annuity contracts. We base our reserves for deferred annuity contracts on accumulation value and for fixed annuity contracts in a benefit status on established industry mortality tables. These reserves are computed amounts that will be sufficient to meet our policy obligations at their maturities. INVESTMENTS Of our total investments of $3,735,994 at Dec. 31, 2000, 27% was invested in mortgage-backed securities, 54% in corporate and other bonds, 19% in primary mortgage loans on real estate and less than 1% in other investments. COMPETITION We are engaged in a business that is highly competitive due to the large number of stock and mutual life insurance companies and other entities marketing insurance products. There are over 1,600 stock, mutual and other types of insurers in the life insurance business. BEST'S INSURANCE REPORTS, Life-Health edition 2000, assigned us one of its highest classifications, A+ (Superior). EMPLOYEES As of Dec. 31, 2000, we had no employees. PROPERTIES We occupy office space in Minneapolis, MN, which is leased by AEFC. We reimburse AEFC for rent based on direct and indirect allocation methods. Facilities occupied by us are believed to be adequate for the purposes for which they are used and well maintained. STATE REGULATION American Enterprise Life is subject to the laws of the State of Indiana governing insurance companies and to the regulations of the Indiana Department of Insurance. An annual statement in the prescribed form is filed with the Indiana Department of Insurance each year covering our operation for the preceding year and its financial condition at the end of such year. Regulation by the Indiana Department of Insurance includes periodic examination to determine American Enterprise's contract liabilities and reserves so that the Indiana Department of Insurance may certify that these items are correct. The Company's books and accounts are subject to review by the Indiana Department of Insurance at all times. Such regulation does not, however, involve any supervision of the account's management or the company's investment practices or policies. In addition, American Enterprise Life is subject to regulation under the insurance laws of other jurisdictions in which it operates. A full examination of American Enterprise Life's operations is conducted periodically by the National Association of Insurance Commissioners. Under insurance guaranty fund laws, in most states, insurers doing business therein can be assessed up to prescribed limits for policyholder losses incurred by insolvent companies. Most of these laws do provide however, that an assessment may be excused or deferred if it would threaten an insurer's own financial strength. AMERICAN EXPRESS SIGNATURE ONE VARIABLE ANNUITY -- PROSPECTUS 59 DIRECTORS AND EXECUTIVE OFFICERS* The directors and principal executive officers of American Enterprise Life and the principal occupation of each during the last five years is as follows: DIRECTORS GUMER C. ALVERO Born in 1967 Director, chairman of the board and executive vice president - Annuities since January 2001; vice president - Variable Annuities, AEFC, since April 1998; executive assistant to president/CEO, AEFC, from April 1996 to April 1998. CAROL A. HOLTON Born in 1952 Director, president and chief executive officer since January 2001; vice president - Third Party Distribution, AEFC, since April 1998; director - Distributor Services, AEFC, from September 1997 to April 1998; director - Business Systems and Operations, F&G Life, from July 1996 to August 1997. PAUL S. MANNWEILER** Born in 1949 Director since 1986; Partner at Locke Reynolds Boyd & Weisell since 1980. TERESA J. RASMUSSEN Born in 1956 Director, vice president, general counsel and secretary since December 2000; vice president and assistant general counsel, AEFC, since August 2000; assistant vice president, AEFC, from October 1995 to August 2000. OFFICERS OTHER THAN DIRECTORS LORRAINE R. HART Born in 1951 Vice president - Investments since 1992; vice president - Insurance Investments, AEFC since 1998; and vice president - Investments, American Express Certificate Company since 1994. STUART A. SEDLACEK Born in 1957 Executive vice president since 1998; executive vice president - Assured Assets, 1994 to 1998; senior vice president and chief financial officer, AEFC, since 1998; vice president, AEFC, from September 1988 to 1998. PHILIP C. WENTZEL Born in 1961 Vice president and controller since 1998; director of financial reporting and analyses, AEFC, from 1992 to 1997. DAVID L. YOWAN Born in 1957 Vice president and treasurer since March 2001; senior vice president and assistant treasurer of American Express Company since January 1999; vice president and corporate treasurer, AEFC, since April 2001; senior portfolio and risk management officer for the North American Consumer Bank of Citigroup from August 1987 to January 1999. * The address for all of the directors and principal officers is: 200 AXP Financial Center, Minneapolis, MN 55474 except for Mr. Mannweiler who is an independent director. ** Mr. Mannweiler's address is: 201 No. Illinois Street, Indianapolis, IN 46204 60 AMERICAN EXPRESS SIGNATURE ONE VARIABLE ANNUITY -- PROSPECTUS EXECUTIVE COMPENSATION Our executive officers also may serve one or more affiliated companies. The following table reflects cash compensation paid to the five most highly compensated executive officers as a group for services rendered in the most recent year to us and our affiliates. The table also shows the total cash compensation paid to all our executive officers, as a group, who were executive officers at any time during the most recent year.
NAME OF INDIVIDUAL OR NUMBER IN GROUP POSITION HELD CASH COMPENSATION Five most highly compensated executive officers as a group: $ 8,138,209 Stephen W. Roszell President and Chief Executive Officer Richard W. Kling Chairman of the Board Lorraine R. Hart Vice President - Investments David M. Kuplic Assistant Vice President - Investments Stuart A. Sedlacek Executive Vice President All executive officers as a group (11) $11,289,475
SECURITY OWNERSHIP OF MANAGEMENT Our directors and officers do not beneficially own any outstanding shares of stock of the company. All of our outstanding shares of stock are beneficially owned by IDS Life. The percentage of shares of IDS Life owned by any director, and by all our directors and officers as a group, does not exceed 1% of the class outstanding. EXPERTS Ernst & Young LLP, independent auditors, have audited the financial statements of American Enterprise Life Insurance Company at Dec. 31, 2000 and 1999, and for each of the three years in the period ended Dec. 31, 2000, and the individual and combined statements of the segregated asset subaccounts of American Enterprise Variable Annuity Account as of Dec. 31, 2000 and for the periods indicated therein, as set forth in their reports. We've included our financial statements in the prospectus and elsewhere in the registration statement in reliance on Ernst & Young LLP's reports, given on their authority as experts in accounting and auditing. AMERICAN EXPRESS SIGNATURE ONE VARIABLE ANNUITY -- PROSPECTUS 61 American Enterprise Life Insurance Company -------------------------------------------------------------------------------- Balance sheet March 31, 2001 (unaudited) ($ thousands, except share amounts) Assets Investments: Fixed maturities: Available for sale, at fair value (amortized cost: $2,938,428) $2,983,792 Mortgage loans on real estate 715,916 Other investments 918 ------------------------------------------------------------------------------- Total investments 3,700,626 Cash and cash equivalents 78,310 Amounts due from brokers 2,244 Accounts receivable 893 Accrued investment income 48,281 Deferred policy acquisition costs 200,740 Deferred income taxes 17,815 Other assets 8,560 Separate account assets 560,199 ------------------------------------------------------------------------------- Total assets $4,617,668 =============================================================================== Liabilities and Stockholder's Equity Liabilities: Future policy benefits: Fixed annuities $3,536,944 Universal life-type insurance 8 Policy claims and other policyholders' funds 5,291 Amounts due to brokers 2,077 Other liabilities 56,813 Separate account liabilities 560,199 ------------------------------------------------------------------------------- Total liabilities 4,161,332 Stockholder's equity: Capital stock, $150 par value per share; 100,000 shares authorized, 20,000 shares issued and outstanding 3,000 Additional paid-in capital 281,872 Accumulated other comprehensive loss: Net unrealized securities losses (8,450) Net unrealized derivative losses (27,987) Retained earnings 207,901 ------------------------------------------------------------------------------- Total stockholder's equity 456,336 ------------------------------------------------------------------------------- Total liabilities and stockholder's equity $4,617,668 =============================================================================== See accompanying notes. 62 AMERICAN EXPRESS SIGNATURE ONE VARIABLE ANNUITY -- PROSPECTUS American Enterprise Life Insurance Company -------------------------------------------------------------------------------- Statements of income Three months ended March 31, (unaudited) ($ thousands) 2001 2000 Revenues: Policyholder and contractholder charges $ 1,746 $ 1,476 Mortality and expense risk fees 2,199 813 Net investment income 69,460 77,586 Net realized loss on investments (18,542) (2,425) -------------------------------------------------------------------------------- Total revenues 54,863 77,450 ------------------------------------------------------------------------------- Benefits and expenses: Interest credited on investment contracts 42,473 49,052 Amortization of deferred policy acquisition costs 12,155 10,745 Other operating expenses 11,859 7,675 ------------------------------------------------------------------------------- Total benefits and expenses 66,487 67,472 ------------------------------------------------------------------------------- (Loss) income before income taxes (11,624) 9,978 Income taxes (3,987) 3,646 ------------------------------------------------------------------------------- Net (loss) income $ (7,637) $ 6,332 =============================================================================== See accompanying notes. AMERICAN EXPRESS SIGNATURE ONE VARIABLE ANNUITY -- PROSPECTUS 63 American Enterprise Life Insurance Company -------------------------------------------------------------------------------- Statements of cash flows Three months ended March 31, (unaudited) ($ thousands) 2001 2000 Cash flows from operating activities: Net (loss) income $(7,637) $ 6,332 Adjustments to reconcile net (loss) income to net cash provided by operating activities: Change in accrued investment income 6,660 2,481 Change in accounts receivable (26) (2) Change in other assets 2,791 (11) Change in deferred policy acquisition costs, net (2,118) 4,306 Change in policy claims and other policyholders' funds (4,004) (4,317) Deferred income tax provision (5,077) (1,883) Change in other liabilities 5,225 12,723 (Accretion of discount) amortization of premium, net (58) 641 Net realized loss on investments 18,542 2,425 Other, net 4,514 (131) ------------------------------------------------------------------------------- Net cash provided by operating activities 18,812 22,564 Cash flows from investing activities: Fixed maturities held to maturity: Maturities, sinking fund payments and calls -- 10,022 Fixed maturities available for sale: Purchases (39,196) (1,496) Maturities, sinking fund payments and calls 49,904 58,318 Sales 76,926 5,495 Other investments, excluding policy loans: Purchases (1,696) (1,388) Sales 9,789 12,779 Change in amounts due from brokers (928) -- Change in amounts due to brokers (22,310) 275 -------------------------------------------------------------------------------- Net cash provided by investing activities 72,489 84,005 Cash flows from financing activities: Activity related to universal life-type insurance and investment contracts: Considerations received 159,985 52,023 Surrenders and death benefits (250,299) (207,644) Interest credited to account balances 42,471 49,052 ------------------------------------------------------------------------------- Net cash used in financing activities (47,843) (106,569) -------------------------------------------------------------------------------- Net increase in cash and cash equivalents 43,458 -- Cash and cash equivalents at beginning of period 34,852 -- ------------------------------------------------------------------------------- Cash and cash equivalents at end of period $78,310 $ -- =============================================================================== See accompanying notes. 64 AMERICAN EXPRESS SIGNATURE ONE VARIABLE ANNUITY -- PROSPECTUS American Enterprise Life Insurance Company Notes to Financial Statements (unaudited) ($ thousands) 1. GENERAL In the opinion of the management of American Enterprise Life Insurance Company (the Company), the accompanying unaudited financial statements contain all adjustments (consisting of normal recurring adjustments) necessary to present fairly its balance sheet as of March 31, 2001 and the related statements of income and cash flows for the three month periods ended March 31, 2001 and 2000. 2. NEW ACCOUNTING PRONOUNCEMENT In June 1998, the Financial Accounting Standards Board (FASB) issued, and subsequently amended, Statement of Financial Accounting Standards (SFAS) No. 133, "Accounting for Derivative Instruments and Hedging Activities," which the Company adopted on January 1, 2001. This Statement establishes accounting and reporting standards for derivative instruments, including some embedded in other contracts, and hedging activities. It requires that an entity recognize all derivatives as either assets or liabilities on the balance sheet and measure those instruments at fair value. Derivatives that are not hedges must be adjusted to fair value through income. Changes in the fair value of a derivative are recorded in income or directly to equity, depending on the instrument's designated use. For those derivative instruments that are designated and qualify as hedging instruments under SFAS 133, a company must designate the hedging instrument, based upon the exposure being hedged, as either a fair value hedge, cash flow hedge or a hedge of a net investment in a foreign operation. For derivative instruments not designated as hedging instruments per SFAS 133, changes in fair value are adjusted immediately through earnings. Currently, the Company does not carry derivatives that are designated or qualify as hedging instruments under SFAS No. 133. Because of changes to the rules for hedging investments, the transition provisions of SFAS 133, as amended, permitted held-to-maturity securities under SFAS No. 115, "Accounting for Certain Investments in Debt and Equity Securities," to be reclassified at the date of adoption to available-for-sale or trading. The Company reclassified all held-to-maturity securities to available-for-sale upon adoption. Prior to adopting SFAS No. 133, the Company's interest rate caps, floors and swaps qualified as cash flow hedges. The derivatives do not qualify for hedge accounting per SFAS No. 133. For "pre-existing" cash flow-type hedges, the transition adjustment upon adoption of SFAS No. 133 was reported in accumulated other comprehensive income (OCI) as a cumulative effect of an accounting change. This resulted in a decrease of $34,727 to other comprehensive income (OCI), net of tax. The Company estimates $7,500 of net derivative losses included in OCI will be reclassified into earnings within the next twelve months. The adoption of SFAS No. 133 did not have a significant impact on the Company's results of operations. 3. COMPREHENSIVE INCOME Total comprehensive income (loss) was $18,022 and ($4,551) for the three months ended March 31, 2001 and 2000, respectively. March 31, 2001 March 31, 2000 Net (Loss) Income $ (7,637) $ 6,332 Other comprehensive loss Unrealized gains on available-for-sale securities, net of tax 53,646 (10,883) Net unrealized loss on derivative instruments, net of tax (27,987) -- -------------------------------------------------------------------------------- Total comprehensive income $ 18,022 $ (4,551) -------------------------------------------------------------------------------- 4. INCOME TAXES The Company's effective income tax rate was 34.3% for the three months ended March 31, 2001 compared to 36.5% for the three months ended March 31, 2000. The net impact of changes in state tax rules for certain states had a favorable impact on the effective tax rate for the Company. AMERICAN EXPRESS SIGNATURE ONE VARIABLE ANNUITY -- PROSPECTUS 65 American Enterprise Life Insurance Company ------------------------------------------------------------------------------- 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, 2000 and 1999, and the related statements of income, stockholder's equity and cash flows for each of the three years in the period ended December 31, 2000. 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, 2000 and 1999, and the results of its operations and its cash flows for each of the three years in the period ended December 31, 2000, in conformity with accounting principles generally accepted in the United States. /S/ Ernst & Young LLP Ernst & Young LLP February 8, 2001 Minneapolis, Minnesota 66 AMERICAN EXPRESS SIGNATURE ONE VARIABLE ANNUITY -- PROSPECTUS American Enterprise Life Insurance Company ------------------------------------------------------------------------------- Balance sheets December 31, ($ thousands, except share amounts) 2000 1999 Assets Investments: Fixed maturities: Held to maturity, at amortized cost (fair value: 2000, $927,031; 1999, $984,103) $ 934,091 $1,006,349 Available for sale, at fair value (amortized cost: 2000, $2,163,906; 1999, $2,411,799) 2,068,487 2,304,487 --------- --------- 3,002,578 3,310,836 Mortgage loans on real estate 724,009 785,253 Other investments 9,407 11,470 ----- ------ Total investments 3,735,994 4,107,559 Cash and cash equivalents 34,852 -- Amounts due from brokers 1,316 -- Accounts receivable 867 316 Accrued investment income 54,941 56,676 Deferred policy acquisition costs 198,622 180,288 Deferred income taxes 26,350 37,501 Other assets 9,969 9 Separate account assets 589,310 220,994 ------- ------- Total assets $4,652,221 $4,603,343 ========== ========== Liabilities and stockholder's equi1ty Liabilities: Future policy benefits for: Fixed annuities $3,584,784 $3,921,513 Universal life-type insurance 10 -- Policy claims and other policyholders' funds 9,295 12,097 Amounts due to brokers 24,387 25,215 Other liabilities 6,326 17,436 Separate account liabilities 589,310 220,994 ------- ------- Total liabilities 4,214,112 4,197,255 Commitments and contingencies 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: Net unrealized securities losses (62,097) (69,753) Retained earnings 215,334 190,969 ------- ------- Total stockholder's equity 438,109 406,088 ------- ------- Total liabilities and stockholder's equity $4,652,221 $4,603,343 ========== ========== See accompanying notes. AMERICAN EXPRESS SIGNATURE ONE VARIABLE ANNUITY -- PROSPECTUS 67 American Enterprise Life Insurance Company ------------------------------------------------------------------------------- Statements of income Years ended December 31, ($ thousands) 2000 1999 1998 Revenues: Net investment income $299,759 $322,746 $340,219 Policyholder and contractholder charges 6,865 6,069 6,387 Mortality and expense risk fees 5,383 2,269 1,275 Net realized gain (loss) on investments 469 6,565 (4,788) --- ----- ------ Total revenues 312,476 337,649 343,093 ------- ------- ------- Benefits and expenses: Interest credited on investment contracts 191,040 208,583 228,533 Amortization of deferred policy acquisition costs 47,676 43,257 53,663 Other operating expenses 35,308 35,147 24,476 ------ ------ ------ Total benefits and expenses 274,024 286,987 306,672 ------- ------- ------- Income before income taxes 38,452 50,662 36,421 Income taxes 14,087 16,675 14,395 ------ ------ ------ Net income $ 24,365 $ 33,987 $ 22,026 ======== ======== ======== See accompanying notes. 68 AMERICAN EXPRESS SIGNATURE ONE VARIABLE ANNUITY -- PROSPECTUS American Enterprise Life Insurance Company -------------------------------------------------------------------------------
Statements of stockholder's equity Accumulated Other Total Additional Comprehensive Stockholder's Capital Paid-In (Loss) Income, Retained Three years ended December 31, ($ thousands) Equity Stock Capital Net of Tax Earnings Balance, January 1, 1998 $ 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 of $2,179 (4,047) -- -- (4,047) -- ------ ----- ----- ------ ----- 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 Comprehensive income: Net income 24,365 -- -- -- 24,365 Unrealized holding gains arising during the year, net of taxes of $(4,812) 8,937 -- -- 8,937 -- Reclassification adjustment for gains included in net income, net of tax of $690 (1,281) -- -- (1,281) -- ------ ----- ----- ------ ----- Other comprehensive income 7,656 -- -- 7,656 -- ----- ----- ----- ----- ----- Comprehensive income 32,021 ------ Balance, December 31, 2000 $ 438,109 $2,000 $282,872 $ (62,097) $215,334 ========= ====== ======== =========== ======== See accompanying notes.
AMERICAN EXPRESS SIGNATURE ONE VARIABLE ANNUITY -- PROSPECTUS 69 American Enterprise Life Insurance Company -------------------------------------------------------------------------------
Statements of cash flows Years ended December 31, ($ thousands) 2000 1999 1998 Cash flows from operating activities: Net income $ 24,365 $ 33,987 $ 22,026 Adjustments to reconcile net income to net cash (used in) provided by operating activities: Change in accrued investment income 1,735 5,064 (2,152) Change in accounts receivable (551) (102) 349 Change in deferred policy acquisition costs, net (18,334) 16,191 28,022 Change in other assets (9,960) 34 74 Change in policy claims and other policyholders' funds (2,802) 4,708 (3,939) Deferred income tax provision (benefit) 7,029 711 (9,591) Change in other liabilities (11,110) (7,064) 7,595 Amortization of premium, net 2,682 2,315 122 Net realized (gain) loss on investments (469) (6,565) 4,788 Other, net (233) (1,562) 2,544 ---- ------ ----- Net cash (used in) provided by operating activities (7,648) 47,717 49,838 Cash flows from investing activities: Fixed maturities held to maturity: Maturities 65,716 65,705 73,601 Sales 5,128 8,466 31,117 Fixed maturities available for sale: Purchases (101,665) (593,888) (298,885) Maturities 171,297 248,317 335,357 Sales 176,296 469,126 48,492 Other investments: Purchases (1,388) (28,520) (161,252) Sales 65,978 57,548 78,681 Change in amounts due from brokers (1,316) -- -- Change in amounts due to brokers (828) (29,132) 19,412 ---- ------- ------ Net cash provided by investing activities 379,218 197,622 126,523 Cash flows from financing activities: Activity related to universal life type insurance and investment contracts: Considerations received 398,462 299,899 302,158 Surrenders and other benefits (926,220) (753,821) (707,052) Interest credited to account balances 191,040 208,583 228,533 ------- ------- ------- Net cash used in financing activities (336,718) (245,339) (176,361) -------- -------- -------- Net increase in cash and cash equivalents 34,852 -- -- Cash and cash equivalents at beginning of year -- -- -- ---- ---- ---- Cash and cash equivalents at end of year $ 34,852 $ -- $ -- ========= ========= ========= See accompanying notes.
70 AMERICAN EXPRESS SIGNATURE ONE VARIABLE ANNUITY -- PROSPECTUS American Enterprise Life Insurance Company ------------------------------------------------------------------------------- Notes to Financial Statements 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 and variable universal life are offered as well. The Company distributes its products through financial institutions and unbranded independent financial advisors. 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 and marketable equity securities 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. 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. Mortgage loans on real estate are carried at amortized cost less a reserve 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. 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 a reserve for mortgage loan losses. The reserve 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 reserve 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 reserve 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. Amounts paid or received under interest rate swap agreements are recognized as an adjustment to investment income. AMERICAN EXPRESS SIGNATURE ONE VARIABLE ANNUITY -- PROSPECTUS 71 American Enterprise Life Insurance Company ------------------------------------------------------------------------------- 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: 2000 1999 1998 Cash paid during the year for: Income taxes $14,861 $22,007 $19,035 Interest on borrowings 1,073 2,187 5,437 Recognition of profits on annuity contracts Profits on fixed and variable deferred annuities are recognized by the Company over the lives of the contracts, using primarily the interest method. Profits on fixed annuities represent the excess of investment income earned from investment of contract considerations over interest credited to contract owners and other expenses. Profits on variable annuities represent the excess of contractholder charges over the costs of benefits provided and other expenses. The retrospective deposit method is used in accounting for fixed and variable universal life-type insurance. Under this method, profits are recognized over the lives of the policies in proportion to the estimated gross profits expected to be realized. Policyholder and contractholder charges include surrender charges and fees collected regarding the issue and administration of annuity contracts. 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 variable 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 2000, unlocking adjustments resulted in a net increase in amortization of $1.5 million. Net unlocking adjustments in 1999 were not significant. During 1998, unlocking adjustments resulted in a net increase in amortization of $11 million. Liabilities for future policy benefits Liabilities for universal-life type insurance and fixed and variable deferred annuities are accumulation values. Liabilities for fixed annuities in a benefit status are based on established industry mortality tables and interest rates ranging from 5% to 9.5%, depending on year of issue. Federal income taxes The Company's taxable income is included in the consolidated federal income tax return of American Express Company. The Company provides for income taxes on a separate return basis, except that, under an agreement between AEFC and American Express Company, tax benefit is recognized for losses to the extent they can be used on the consolidated tax return. It is the policy of AEFC and its subsidiaries that AEFC will reimburse subsidiaries for all tax benefits. Included in other liabilities at December 31, 2000 and 1999 are $9,944 and $2,147, receivable from and payable to, respectively, IDS Life for federal income taxes. Separate account business The separate account assets and liabilities represent funds held for the exclusive benefit of the variable annuity contract owners. The Company receives mortality and expense risk fees from the variable annuity separate accounts. The Company makes contractual mortality assurances to the variable annuity contract owners that the net assets of the separate accounts will not be affected by future variations in the actual life expectancy experience of the annuitants and beneficiaries from the mortality assumptions implicit in the annuity contracts. The Company makes periodic fund transfers to, or withdrawals from, the separate account assets for such actuarial adjustments for variable annuities that are in the benefit payment period. The Company also guarantees that the rates at which administrative fees are deducted from contract funds will not exceed contractual maximums. 72 AMERICAN EXPRESS SIGNATURE ONE VARIABLE ANNUITY -- PROSPECTUS American Enterprise Life Insurance Company ------------------------------------------------------------------------------- Accounting changes In June 1998, the Financial Accounting Standards Board (FASB) issued, and subsequently amended, Statement of Financial Accounting Standards (SFAS) No. 133, "Accounting for Derivative Instruments and Hedging Activities," which the company adopted on January 1, 2001. This Statement establishes accounting and reporting standards for derivative instruments, including some embedded in other contracts, and hedging activities. It requires that an entity recognize all derivatives as either assets or liabilities on the balance sheet and measure those instruments at fair value. Changes in the fair value of a derivative will be recorded in income or directly to equity, depending on the instrument's designated use. A one-time opportunity to reclassify held-to-maturity investments to available-for-sale is allowed without tainting the remaining securities in the held-to-maturity portfolio. The Company has elected to take this opportunity to reclass its held-to-maturity investments to available-for-sale. As of January 1, 2001, the cumulative impact of applying the Statement's accounting requirements will not have a significant impact on the Company's financial position or results of operations. In September 2000, the FASB issued SFAS No. 140, "Accounting for Transfers and Servicing of Financial Assets and Extinguishments of Liabilities," superceding SFAS No. 125. The Statement is effective for transfers and servicing of financial assets and extinguishments of liabilities occurring after March 31, 2001. The Statement is effective for recognition and reclassification of collateral and for disclosures relating to securitization transactions and collateral for fiscal years ending after December 15, 2000. The company does not expect SFAS No. 140 to have a material impact on the company's financial position or results of operations. In July 2000, the FASB's Emerging Issues Task Force (EITF) issued a consensus on Issue 99-20, "Recognition of Interest Income and Impairment on Purchased Beneficial Interests in Securitized Financial Assets." The consensus must be adopted for fiscal quarters beginning after March 15, 2001, with earlier adoption permitted. Issue 99-20 prescribes new procedures for recording interest income and measuring impairment on retained and purchased beneficial interests. Application of the provisions of the consensus will not have a material impact on the Company's financial position or results of operations. Reclassifications Certain 1999 and 1998 amounts have been reclassified to conform to the 2000 presentation. 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, 2000 are as follows: Gross Gross Amortized unrealized unrealized Fair Held to maturity cost gains losses value U.S. Government agency obligations $ 6,949 $ 26 $ 55 $ 6,920 State and municipal obligations 2,101 1 -- 2,102 Corporate bonds and obligations 773,630 9,876 17,470 766,036 Mortgage-backed securities 151,411 801 239 151,973 ------- --- --- ------- $934,091 $10,704 $ 17,764 $ 927,031 ======== ======= ======== ========== Available for sale U.S. Government agency obligations $ 5,154 $ 284 $ -- $ 5,438 State and municipal obligations 2,250 5 -- 2,255 Corporate bonds and obligations 1,319,781 19,103 123,865 1,215,019 Mortgage-backed securities 836,721 10,780 1,726 845,775 ------- ------ ----- ------- $2,163,906 $30,172 $125,591 $2,068,487 ========== ======= ======== ========== AMERICAN EXPRESS SIGNATURE ONE VARIABLE ANNUITY -- PROSPECTUS 73 American Enterprise Life Insurance Company ------------------------------------------------------------------------------- The amortized cost, gross unrealized gains and losses and fair value of investments in fixed maturities at December 31, 1999 are as follows: 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 and fair value of investments in fixed maturities at December 31, 2000 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 from one to five years $405,375 $402,691 Due from five to ten years 321,802 317,320 Due in more than ten years 55,503 55,047 Mortgage-backed securities 151,411 151,973 ------- ------- $934,091 $927,031 ======== ======== Amortized Fair Available for sale cost value Due from one to five years $ 61,851 $ 67,514 Due from five to ten years 965,579 878,853 Due in more than ten years 299,755 276,345 Mortgage-backed securities 836,721 845,775 ------- ------- $2,163,906 $2,068,487 ========== ========== During the years ended December 31, 2000, 1999 and 1998, fixed maturities classified as held to maturity were sold with amortized cost of $5,128, $8,466 and $31,117, 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 2000 with proceeds of $176,296 and gross realized gains and losses of $3,488 and $1,516 respectively. 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. At December 31, 2000, bonds carried at $3,259 were on deposit with various states as required by law. At December 31, 2000, investments in fixed maturities comprised 80 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 $463 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 2000 1999 Aaa/AAA $ 998,333 $1,168,144 Aaa/AA 1,000 -- Aa/AA 34,535 42,859 Aa/A 59,569 52,416 A/A 367,643 422,668 A/BBB 121,028 189,072 Baa/BBB 989,301 995,152 Baa/BB 67,156 64,137 Below investment grade 459,432 483,700 ------- ------- $3,097,997 $3,418,148 ========== ========== 74 AMERICAN EXPRESS SIGNATURE ONE VARIABLE ANNUITY -- PROSPECTUS American Enterprise Life Insurance Company ------------------------------------------------------------------------------- At December 31, 2000, approximately 92 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, 2000, 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: December 31, 2000 December 31, 1999 On balance Commitments On balance Commitments Region sheet to purchase sheet to purchase South Atlantic $172,349 $-- $194,325 $ -- Middle Atlantic 106,376 -- 118,699 -- East North Central 122,354 -- 126,243 -- Mountain 100,208 -- 103,751 -- West North Central 110,669 -- 125,891 513 New England 39,877 -- 43,345 802 Pacific 38,559 -- 41,396 -- West South Central 30,172 -- 31,153 -- East South Central 6,749 -- 7,100 -- ----- ----- ----- ----- 727,313 -- 791,903 1,315 Less allowance for losses 3,304 -- 6,650 -- ----- ----- ----- ----- $724,009 $-- $785,253 $1,315 ======== === ======== ====== December 31, 2000 December 31, 1999 On balance Commitments On balance Commitments Property type sheet to purchase sheet to purchase Department/retail stores $214,927 $-- $232,449 $1,315 Apartments 152,906 -- 181,346 -- Office buildings 191,767 -- 202,132 -- Industrial buildings 80,330 -- 83,186 -- Hotels/Motels 41,977 -- 43,839 -- Medical buildings 29,173 -- 32,284 -- Nursing/retirement homes 6,471 -- 6,608 -- Mixed Use 9,762 -- 10,059 -- ----- ----- ------ ----- 727,313 -- 791,903 1,315 Less allowance for losses 3,304 -- 6,650 -- ----- ----- ----- ----- $724,009 $-- $785,253 $1,315 ======== === ======== ====== 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, 2000 and 1999, the Company's recorded investment in impaired loans was $9,014 and $5,200, respectively, with allowances of $500 and $1,250, respectively. During 2000 and 1999, the average recorded investment in impaired loans was $4,684 and $5,399, respectively. The Company recognized $221, $136 and $251 of interest income related to impaired loans for the years ended December 31, 2000, 1999 and 1998, respectively. AMERICAN EXPRESS SIGNATURE ONE VARIABLE ANNUITY -- PROSPECTUS 75 American Enterprise Life Insurance Company ------------------------------------------------------------------------------- The following table presents changes in the allowance for investment losses related to all loans: 2000 1999 1998 Balance, January 1 $6,650 $8,500 $3,718 (Reduction) provision for investment losses (3,346) (1,850) 4,782 ------ ------ ----- Balance, December 31 $3,304 $6,650 $8,500 ====== ====== ====== At December 31, 2000 the Company had no commitments to purchase investments. Net investment income for the years ended December 31 is summarized as follows: 2000 1999 1998 Interest on fixed maturities $237,201 $265,199 $285,260 Interest on mortgage loans 59,686 63,721 65,351 Interest on cash equivalents 1,136 534 137 Other 5,693 (1,755) (2,493) ----- ------ ------ 303,716 327,699 348,255 Less investment expenses 3,957 4,953 8,036 ----- ----- ----- $299,759 $322,746 $340,219 ======== ======== ======== Net realized gain (loss) on investments for the years ended December 31 is summarized as follows: 2000 1999 1998 Fixed maturities $ (2,877) $ 4,715 $ 28 Mortgage loans 3,346 (1,650) (4,816) ----- ------ ------ $ 469 $ 3,065 $(4,788) ======== ======= ======= Changes in net unrealized appreciation (depreciation) of investments for the years ended December 31 are summarized as follows: 2000 1999 1998 Fixed maturities available for sale $11,894 $(175,458) $(8,032) 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 for the years ended December 31, consists of the following: 2000 1999 1998 Federal income taxes: Current $ 6,170 $15,531 $23,227 Deferred 7,029 711 (9,591) ----- --- ------ 13,199 16,242 13,636 State income taxes-- current 888 433 759 --- --- --- Income tax expense $14,087 $16,675 $14,395 ======= ======= =======
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: 2000 1999 1998 Provision Rate Provision Rate Provision Rate Federal income taxes based on the statutory rate $13,458 35.0% $17,731 35.0% $13,972 35.0% Increases (decreases) are attributable to : Tax-excluded interest (4) -- (14) -- (35) (0.1) State tax, net of federal benefit 578 1.5 281 0.5 493 1.2 Other, net 55 0.1 (1,323) (2.6) (35) -- -- --- ------ ---- --- --- Total income taxes $14,087 36.6% $16,675 32.9% $14,395 36.1% ======= ==== ======= ==== ======= ====
Significant components of the Company's deferred income tax assets and liabilities as of December 31 are as follows: Deferred income tax assets: 2000 1999 Policy reserves $40,242 $46,243 Unrealized losses on investments 31,441 39,678 Other 6,208 1,070 ----- ----- Total deferred income tax assets 77,891 86,991 ------ ------ Deferred income tax liabilities: Deferred policy acquisition costs 51,541 49,490 ------ ------ Total deferred income tax liabilities 51,541 49,490 ------ ------ Net deferred income tax assets $26,350 $37,501 ======= ======= 76 AMERICAN EXPRESS SIGNATURE ONE VARIABLE ANNUITY -- PROSPECTUS American Enterprise Life Insurance Company ------------------------------------------------------------------------------- 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 $31,152 and $58,223 as of December 31, 2000 and 1999, respectively. In addition, dividends in excess of $nil would require approval by the Insurance Department of the state of Indiana. Statutory net (loss) income for the years ended December 31 and statutory capital and surplus as of December 31, are summarized as follows: 2000 1999 1998 Statutory net (loss) income $(11,928) $ 15,241 $ 37,902 Statutory capital and surplus 315,930 343,094 330,588 The National Association of Insurance Commissioners (NAIC) revised the Accounting Practices and Procedures Manual in a process referred to as Codification. The revised manual will be effective January 1, 2001. The state of Indiana has adopted the provisions of the revised manual. The revised manual has changed, to some extent, prescribed statutory accounting practices and will result in changes to the accounting practices that the Company uses to prepare their statutory-basis financial statements. Management believes these changes will not adversely impact the Company's statutory-basis capital and surplus as of January 1, 2001. 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 $6,489 and $8,258 at December 31, 2000 and 1999, 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 $45,191, $38,931 and $28,482 for the years ended December 31, 2000, 1999 and 1998, respectively. Certain of these costs are included in deferred policy acquisition costs. 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, 2000 or 1999. 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. AMERICAN EXPRESS SIGNATURE ONE VARIABLE ANNUITY -- PROSPECTUS 77 American Enterprise Life Insurance Company ------------------------------------------------------------------------------- The Company's holdings of derivative financial instruments are as follows: Notional Carrying Fair Total credit December 31, 2000 amount amount value exposure Assets: Interest rate caps $ 500,000 $2,037 $ 414 $ 414 Interest rate floors 2,000,000 6,489 13,185 13,185 Off balance sheet: Interest rate swaps 2,000,000 -- (51,369) (51,369) --------- ------ ------- ------- $8,526 $(37,770) $(37,770) ====== ======== ======== Notional Carrying Fair Total credit December 31, 1999 amount amount value exposure 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: Interest rate swaps 2,000,000 -- 18,274 18,274 --------- ----- ------ ------ $11,470 $24,962 $24,962 ======= ======= ======= 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 2001 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.
December 31, 2000 December 31, 1999 Carrying Fair Carrying Fair Financial Assets amount value amount value Investments: Fixed maturities (Note 2): Held to maturity $ 934,091 $ 927,031 $1,006,349 $ 984,103 Available for sale 2,068,487 2,068,487 2,304,487 2,304,487 Mortgage loans on real estate (Note 2) 724,009 740,992 785,253 770,095 Derivative financial instruments (Note 7) 8,526 (37,770) 11,470 24,962 Separate account assets (Note 1) 589,310 589,310 220,994 220,994 Cash and cash equivalents 34,852 34,852 -- -- Financial Liabilities Future policy benefits for fixed annuities $3,567,085 $3,480,270 $3,905,849 $3,778,945 Separate account liabilities 589,310 567,989 220,994 209,942 ------- ------- ------- -------
At December 31, 2000 and 1999, the carrying amount and fair value of future policy benefits for fixed annuities exclude life insurance-related contracts carried at $17,699 and $15,633, respectively. The fair value of these benefits is based on the status of the annuities at December 31, 2000 and 1999. 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 2000 and 1999. 9. COMMITMENTS AND CONTINGENCIES In January 2000, AEFC reached an agreement in principle to settle three class-action lawsuits related to the sales of insurance and annuity products, anticipated to provide for approximately $215 million of benefits. The Company had been named as a co-defendant in one of these lawsuits. In September 2000, the court gave preliminary approval to the proposed settlement and AEFC has mailed notices to all of the over two million class members. A fairness hearing is scheduled for March 2001, with final approval anticipated in the second quarter, pending any legal appeals. The anticipated costs of settlement remain unchanged from 1999. The portion of the settlement allocated to the Company did not have a material impact on the Company's financial position or results of operations. The agreement 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 final court approval. 78 AMERICAN EXPRESS SIGNATURE ONE VARIABLE ANNUITY -- PROSPECTUS TABLE OF CONTENTS OF THE STATEMENT OF ADDITIONAL INFORMATION Performance Information ...............................p. 3 Calculating Annuity Payouts ..........................p. 13 Rating Agencies ......................................p. 14 Principal Underwriter ................................p. 15 Independent Auditors .................................p. 15 Financial Statements AMERICAN EXPRESS SIGNATURE ONE VARIABLE ANNUITY -- PROSPECTUS 79 American Enterprise Life Insurance Company (American Express logo) 829 AXP Financial Center Minneapolis, MN 55474 (800)333-3437 240192 E (7/01) [AMERICAN EXPRESS LOGO] WELLS FARGO ADVANTAGE-SM- BUILDER VARIABLE ANNUITY ISSUED BY: AMERICAN ENTERPRISE LIFE INSURANCE COMPANY PROSPECTUS JULY 23, 2001 FOR CONTRACTS PURCHASED IN THE STATE OF OREGON THE NAME OF THE PRODUCT IS CHANGED TO: ADVANTAGE BUILDER VARIABLE ANNUITY. INDIVIDUAL OR GROUP FLEXIBLE PREMIUM DEFERRED COMBINATION FIXED/VARIABLE ANNUITY AMERICAN ENTERPRISE VARIABLE ANNUITY ACCOUNT ISSUED BY: AMERICAN ENTERPRISE LIFE INSURANCE COMPANY (AMERICAN ENTERPRISE LIFE) 829 AXP Financial Center Minneapolis, MN 55474 Telephone: (800) 333-3437 This prospectus contains information that you should know before investing. You also will receive the prospectuses for: - American Express-Registered Trademark- - Goldman Sachs Variable Insurance Variable Portfolio Funds(VIT) Trust - AIM Variable Insurance Funds - MFS-Registered Trademark- Variable Insurance Trust-SM- - The Dreyfus Socially Responsible - Putnam Variable Trust - IB Shares Growth Fund, Inc. - Fidelity Variable Insurance Products - Wells Fargo Variable Trust Funds - Service Class 2 - Franklin-Registered Trademark- Templeton-Registered Trademark- Variable Insurance Products Trust (FTVIPT) - Class 2 Please read the prospectuses carefully and keep them for future reference. The contract provides for purchase payment credits which we may reverse up to the maximum withdrawal charge under certain circumstances. Expense charges from contracts with purchase payment credits may be higher than charges for contracts without such credits. The amount of the credit may be more than offset by additional fees and charges associated with the credit. THE SECURITIES AND EXCHANGE COMMISSION (SEC) HAS NOT APPROVED OR DISAPPROVED THESE SECURITIES OR PASSED UPON THE ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE. AN INVESTMENT IN THIS CONTRACT IS NOT A DEPOSIT OF A BANK OR FINANCIAL INSTITUTION AND IS NOT INSURED OR GUARANTEED BY THE FEDERAL DEPOSIT INSURANCE CORPORATION OR ANY OTHER GOVERNMENT AGENCY. AN INVESTMENT IN THIS CONTRACT INVOLVES INVESTMENT RISK INCLUDING THE POSSIBLE LOSS OF PRINCIPAL. A Statement of Additional Information (SAI), dated the same date as this prospectus, is incorporated by reference into this prospectus. It is filed with the SEC and is available without charge by contacting American Enterprise Life at the telephone number and address listed above. The table of contents of the SAI is on the last page of this prospectus. The SEC maintains an Internet site. This prospectus, the SAI and other information about the product are available on the EDGAR Database on the SEC's Internet site at (http://www.sec.gov). Variable annuities are complex investment vehicles. Before you invest, be sure to ask your sales representative about the variable annuity's features, benefits, risks and fees, and whether the variable annuity is appropriate for you, based upon your financial situation and objectives. American Enterprise Life offers several different annuities which your sales representative may be authorized to offer to you. Each annuity has different features and benefits that may be appropriate for you based on your financial situation and needs, your age and how you intend to use the annuity. The different features and benefits may include the investment and fund manager options, variations in interest rate amount and guarantees, credits, withdrawal charge schedules and access to annuity account values. The fees and charges may also be different between each annuity.
TABLE OF CONTENTS KEY TERMS 3 THE CONTRACT IN BRIEF 4 EXPENSE SUMMARY 6 CONDENSED FINANCIAL INFORMATION (UNAUDITED) 19 FINANCIAL STATEMENTS 24 PERFORMANCE INFORMATION 25 THE VARIABLE ACCOUNT AND THE FUNDS 26 THE FIXED ACCOUNTS 31 BUYING YOUR CONTRACT 34 CHARGES 36 VALUING YOUR INVESTMENT 40 MAKING THE MOST OF YOUR CONTRACT 41 WITHDRAWALS 44 CHANGING OWNERSHIP 44 BENEFITS IN CASE OF DEATH 45 OPTIONAL BENEFITS 46 THE ANNUITY PAYOUT PERIOD 54 TAXES 56 VOTING RIGHTS 57 SUBSTITUTION OF INVESTMENTS 58 ABOUT THE SERVICE PROVIDERS 58 ADDITIONAL INFORMATION ABOUT AMERICAN ENTERPRISE LIFE 59 DIRECTORS AND EXECUTIVE OFFICERS 63 EXPERTS 64 AMERICAN ENTERPRISE LIFE INSURANCE COMPANY FINANCIAL INFORMATION 65 TABLE OF CONTENTS OF THE STATEMENT OF ADDITIONAL INFORMATION 82
-------------------------------------------------------------------------------- 2 WELLS FARGO ADVANTAGE BUILDER VARIABLE ANNUITY -- PROSPECTUS 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. ASSUMED INVESTMENT RATE: The rate of return we assume your investments will earn when we calculate your initial annuity payout amount using the annuity table in your contract. The standard assumed investment rate we use is 5% but you may request we substitute an assumed investment rate of 3.5%. BENEFICIARY: The person you designate to receive benefits in case of the owner's or annuitant's death while the contract is in force and before annuity payouts begin. CLOSE OF BUSINESS: When the New York Stock Exchange (NYSE) closes, normally 4 p.m. Eastern time. CONTRACT: A deferred annuity contract, or a certificate showing your interest under a group annuity contract, that permits you to accumulate money for retirement by making one or more purchase payments. It provides for lifetime or other forms of payouts beginning at a specified time in the future. CONTRACT VALUE: The total value of your contract before we deduct any applicable charges. CONTRACT YEAR: A period of 12 months, starting on the effective date of your contract and on each anniversary of the effective date. FIXED ACCOUNTS: The one-year fixed account is an account to which you may allocate purchase payments. Amounts you allocate to this account earn interest at rates that we declare periodically. Guarantee Period Accounts are fixed accounts to which you may also allocate purchase payments. These accounts have guaranteed interest rates declared for periods ranging from two to ten years. Withdrawals from the Guarantee Period Accounts done more than 30 days before the end of the Guarantee Period will receive a Market Value Adjustment, which may result in a gain or loss of principal. FUNDS: Investment options under your contract. You may allocate your purchase payments into subaccounts investing in shares of any or all of these funds. GUARANTEE PERIOD: The number of years that a guaranteed interest rate is credited. MARKET VALUE ADJUSTMENT (MVA): A positive or negative adjustment assessed if any portion of a Guarantee Period Account is withdrawn or transferred more than 30 days before the end of its Guarantee Period. OWNER (YOU, YOUR): The person who controls the contract (decides on investment allocations, transfers, payout options, etc.). Usually, but not always, the owner is also the annuitant. The owner is responsible for taxes, regardless of whether he or she receives the contract's benefits. PURCHASE PAYMENT CREDITS: An addition we make to your contract value. We base the amount of the credit on total net payments (total payments less total withdrawals). We apply the credit to your contract based on your current payment. QUALIFIED ANNUITY: A contract that you purchase to fund one of the following tax-deferred retirement plans that is subject to applicable federal law and any rules of the plan itself: - Individual Retirement Annuities (IRAs) under Section 408(b) of the Internal Revenue Code of 1986, as amended (the Code) - Roth IRAs under Section 408A of the Code - Simplified Employee Pension (SEP) plans under Section 408(k) of the Code A qualified annuity will not provide any necessary or additional tax deferral if it is used to fund a retirement plan that is already tax deferred. All other contracts are considered NONQUALIFIED ANNUITIES. RETIREMENT DATE: The date when annuity payouts are scheduled to begin. RIDER EFFECTIVE DATE: The date you add a rider to your contract. 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. -------------------------------------------------------------------------------- WELLS FARGO ADVANTAGE BUILDER VARIABLE ANNUITY -- PROSPECTUS 3 THE CONTRACT IN BRIEF PURPOSE: The purpose of the contract is to allow you to accumulate money for retirement. You do this by making one or more purchase payments. You may allocate your purchase payments to the fixed accounts and/or subaccounts under the contract. These accounts, in turn, may earn returns that increase the value of the contract. Beginning at a specified time in the future called the retirement date, the contract provides lifetime or other forms of payouts of your contract value (less any applicable premium tax). As in the case of other annuities, it may not be advantageous for you to purchase this contract as a replacement for, or in addition to, an existing annuity or life insurance contract. Most annuities have a tax-deferred feature. So do many retirement plans under the Internal Revenue Code. As a result, when you use an annuity to fund a retirement plan that is tax deferred, your annuity will not provide any necessary or additional tax deferral for that retirement plan. But annuities do have features other than tax deferral that may help you reach your retirement goals. You should consult your tax advisor prior to making a purchase for an explanation of the tax implications to you. FREE LOOK PERIOD: You may return your contract to your sales representative or to our office within the time stated on the first page of your contract and receive a full refund of the contract value, less any purchase payment credits up to the maximum withdrawal charges. (See "Buying Your Contract -- Purchase Payment Credits.") However, you bear the investment risk from the time of purchase until you return the contract; the refund amount may be more or less than the payment you made. (Exception: If the law requires, we will refund all of your purchase payments.) ACCOUNTS: Currently, you may allocate your purchase payments among any or all of: - the subaccounts, each of which invests in a fund with a particular investment objective. The value of each subaccount varies with the performance of the particular fund in which it invests. We cannot guarantee that the value at the retirement date will equal or exceed the total purchase payments you allocate to the subaccounts. (p. 26) - the fixed accounts, which earn interest at rates that we adjust periodically. Some states restrict the amount you can allocate to these accounts. (p. 31) BUYING YOUR CONTRACT: Your sales representative will help you complete and submit an application. Applications are subject to acceptance at our office. You may buy only a nonqualified annuity (by rollover only) or a qualified annuity from your Wells Fargo sales representative without prior approval. Contracts issued through American Express Financial Advisors Inc. (AEFA) are only available with an eight-year withdrawal charge schedule. You may buy a qualified annuity or a nonqualified annuity through your AEFA sales representative. You can buy another contract with the same underlying funds but with different mortality and expense risk fees and withdrawal charges. For information on this contract, please call us at the telephone number listed on the first page of this prospectus or ask your sales representative. After your initial purchase payment, you have the option of making additional purchase payments in the future. (p. 34) - Minimum purchase payments: for Systematic Investment Plans: $100,000 initial payment for contracts issued through AEFA. $50 initial payment for all other contracts. $50 for additional payments. for all other payment plans: $100,000 initial payment for contracts issued through AEFA. $5,000 initial payment for all other contracts issued in South Carolina, Texas and Washington. $2,000 initial payment for all other contracts issued in all other states. $100 for additional payments. - Maximum total purchase payments (without prior approval) -- $1,000,000. - Purchase payments are limited and may not be made after the first contract anniversary for contracts issued in Oregon. TRANSFERS: Subject to certain restrictions, you currently may redistribute your contract value among the accounts without charge at any time until annuity payouts begin, and once per contract year among the subaccounts after annuity payouts begin. Transfers out of the Guarantee Period Accounts done more than 30 days before the end of the Guarantee Period will be subject to a MVA. You may establish automated transfers among the accounts. Fixed account transfers are subject to special restrictions. (p. 42) WITHDRAWALS: You may withdraw all or part of your contract value at any time before the retirement date. You also may establish automated partial withdrawals. Withdrawals may be subject to charges and tax penalties (including a 10% IRS penalty if you make withdrawals prior to your reaching age 59 1/2) and may have other tax consequences; also, certain restrictions apply. (p. 44) CHANGING OWNERSHIP: You may change ownership of a nonqualified annuity by written instruction, but this may have federal income tax consequences. Restrictions apply to changing ownership of a qualified annuity. (p. 44) -------------------------------------------------------------------------------- 4 WELLS FARGO ADVANTAGE BUILDER VARIABLE ANNUITY -- PROSPECTUS BENEFITS IN CASE OF DEATH: If you or the annuitant die before annuity payouts begin, we will pay the beneficiary an amount at least equal to the contract value. (p. 45) OPTIONAL BENEFITS: This contract offers optional features that are available for additional charges if you meet certain criteria. (p. 46) ANNUITY PAYOUTS: You can apply your contract value to an annuity payout plan that begins on the retirement date. You may choose from a variety of plans to make sure that payouts continue as long as you like. If you purchased a qualified annuity, the payout schedule must meet the requirements of the tax-deferred retirement plan. We can make payouts on a fixed or variable basis, or both. Total monthly payouts may include amounts from each subaccount and the one-year fixed account. During the annuity payout period, your choices for subaccounts may be limited. The Guarantee Period Accounts are not available during the payout period. (p. 54) 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. 56) CHARGES: We assess certain charges in connection with your contract (p. 36): - $30 annual contract administrative charge; - a 0.15% variable account administrative charge (if you allocate money to one or more subaccounts); - a 1.35% mortality and expense risk fee (if you allocate money to one or more subaccounts) with a six-year withdrawal charge schedule(1); - a 1.10% mortality and expense risk fee (if you allocate money to one or more subaccounts) with an eight-year withdrawal charge schedule; - if you select the Benefit Protector-SM- Death Benefit Rider(2) (Benefit Protector), an annual fee of 0.25% of the contract value; - if you select the Benefit Protector-SM- Plus Death Benefit Rider(2) (Benefit Protector Plus), an annual fee of 0.40% of the contract value; - if you select the Enhanced Death Benefit Rider(2) (EDB), an additional 0.20% mortality and expense risk fee (if you allocate money to one or more subaccounts); - if you select the Guaranteed Minimum Income Benefit Rider(3) (GMIB), an annual fee (currently 0.30%) based on the GMIB benefit base; - 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. (1) The six-year withdrawal charge schedule is not available under contracts issued in Oregon and contracts issued through AEFA. (2) You may select one of the following: the EDB, the Benefit Protector or the Benefit Protector Plus. Riders may not be available in all states. The Benefit Protector and the Benefit Protector Plus are only available if you and the annuitant are 75 or younger at contract issue. The EDB is only available if both you and the annuitant are 79 or younger at contract issue. (3) The GMIB is only available at the time you purchase your contract if the annuitant is 75 or younger at contract issue and you also select the EDB. Riders may not be available in all states. -------------------------------------------------------------------------------- WELLS FARGO ADVANTAGE BUILDER VARIABLE ANNUITY -- PROSPECTUS 5 EXPENSE SUMMARY The purpose of the following information is to help you understand the various costs and expenses associated with your contract. You pay no sales charge when you purchase your contract. We show all costs that we deduct directly from your contract or indirectly from the subaccounts and funds below. Some expenses may vary as we explain under "Charges." Please see the funds' prospectuses for more information on the operating expenses for each fund. CONTRACT OWNER EXPENSES WITHDRAWAL CHARGE (contingent deferred sales charge as a percentage of purchase payment withdrawn) You select either a six-year or eight-year withdrawal charge schedule at the time of application.
SIX-YEAR SCHEDULE EIGHT-YEAR SCHEDULE YEARS FROM PURCHASE WITHDRAWAL CHARGE YEARS FROM PURCHASE WITHDRAWAL CHARGE PAYMENT RECEIPT PERCENTAGE PAYMENT RECEIPT PERCENTAGE 1 8% 1 8% 2 8 2 8 3 8 3 8 4 6 4 8 5 4 5 8 6 2 6 6 Thereafter 0 7 4 8 2 Thereafter 0
A withdrawal charge also applies to payouts under certain annuity payout plans (see "Charges -- Withdrawal charge" and "The Annuity Payout Period -- Annuity payout plans"). ANNUAL CONTRACT ADMINISTRATIVE CHARGE: $30* * We will waive this charge when your contract value is $50,000 or more on the current contract anniversary. BENEFIT PROTECTOR-SM- DEATH BENEFIT RIDER (BENEFIT PROTECTOR) FEE: 0.25% (As a percentage of the contract value charged annually at the contract anniversary. This is an optional expense.) BENEFIT PROTECTOR-SM- PLUS DEATH BENEFIT RIDER (BENEFIT PROTECTOR PLUS) FEE: 0.40% (As a percentage of the contract value charged annually at the contract anniversary. This is an optional expense.) GUARANTEED MINIMUM INCOME BENEFIT RIDER (GMIB) FEE: 0.30% (As a percentage of the GMIB benefit base charged annually at the contract anniversary. This is an optional expense.) -------------------------------------------------------------------------------- 6 WELLS FARGO ADVANTAGE BUILDER VARIABLE ANNUITY -- PROSPECTUS ANNUAL VARIABLE ACCOUNT EXPENSES (As a percentage of average subaccount value) You can choose the length of your contract's withdrawal charge schedule and the death benefit guarantee provided. The combination you choose determines the fees you pay. The table below shows the combinations available to you and their cost.
SIX-YEAR WITHDRAWAL EIGHT-YEAR WITHDRAWAL CHARGE SCHEDULE CHARGE SCHEDULE VARIABLE ACCOUNT ADMINISTRATIVE CHARGE: 0.15% 0.15% MORTALITY AND EXPENSE RISK FEE: 1.35 1.10 ENHANCED DEATH BENEFIT RIDER (EDB) FEE: 0.20 0.20 (As part of the mortality and expense risk fee. This is an optional expense.) TOTAL ANNUAL VARIABLE ACCOUNT EXPENSES WITHOUT THE OPTIONAL EDB FEE: 1.50% 1.25% TOTAL ANNUAL VARIABLE ACCOUNT EXPENSES WITH THE OPTIONAL EDB FEE: 1.70% 1.45%
ANNUAL OPERATING EXPENSES OF THE FUNDS (AFTER FEE WAIVERS AND/OR EXPENSE REIMBURSEMENTS, IF APPLICABLE, AS A PERCENTAGE OF AVERAGE DAILY NET ASSETS)
MANAGEMENT 12b-1 OTHER FEES FEES EXPENSES TOTAL AXP-Registered Trademark- Variable Portfolio - Blue Chip Advantage Fund .56% .13% .26% .95%(1) Capital Resource Fund .60 .13 .04 .77(2) Diversified Equity Income Fund .56 .13 .26 .95(1) Extra Income Fund .62 .13 .07 .82(2) Federal Income Fund .61 .13 .13 .87(1) New Dimensions Fund-Registered Trademark- .60 .13 .05 .78(2) Small Cap Advantage Fund .75 .13 .31 1.19(1) AIM V.I. Capital Appreciation Fund .61 -- .21 .82(3) Value Fund .61 -- .23 .84(3) Dreyfus The Dreyfus Socially Responsible Growth Fund, Inc. - Initial Share Class .75 -- .03 .78(4) Fidelity VIP Dynamic Capital Appreciation Portfolio (Service Class 2) .57 .25 .61 1.43(5) High Income Portfolio (Service Class 2) .58 .25 .18 1.01(3) Mid Cap Portfolio (Service Class 2) .57 .25 .17 .99(6) Franklin Templeton VIP Trust Franklin Income Securities Fund - Class 2 .49 .25 .01 .75(7),(8) Franklin Real Estate Fund - Class 2 .58 .25 .02 .85(7),(8) Franklin Small Cap Fund - Class 2 .49 .25 .28 1.02(8),(9),(10) Mutual Shares Securities Fund - Class 2 .60 .25 .20 1.05(8) Goldman Sachs VIT CORE-SM- U.S. Equity Fund .70 -- .20 .90(11) Global Income Fund .90 -- .25 1.15(11) Internet Tollkeeper Fund-SM- 1.00 -- .25 1.25(11) Mid Cap Value Fund .80 -- .25 1.05(11)
-------------------------------------------------------------------------------- WELLS FARGO ADVANTAGE BUILDER VARIABLE ANNUITY -- PROSPECTUS 7 ANNUAL OPERATING EXPENSES OF THE FUNDS (AFTER FEE WAIVERS AND/OR EXPENSE REIMBURSEMENTS, IF APPLICABLE, AS A PERCENTAGE OF AVERAGE DAILY NET ASSETS) (CONTINUED)
MANAGEMENT 12b-1 OTHER FEES FEES EXPENSES TOTAL MFS-Registered Trademark- Investors Trust Series - Initial Class (previously MFS-Registered Trademark- Growth with Income Series) .75% --% .12% .87%(12) Utilities Series - Initial Class .75 -- .16 .91(12) Putnam Variable Trust Putnam VT International Growth Fund - Class IB Shares .76 .25 .18 1.19(13) Putnam VT Vista Fund - Class IB Shares .60 .25 .07 .92(13) Wells Fargo VT Asset Allocation Fund .57 .25 .18 1.00(14) Corporate Bond Fund .25 .25 .40 .90(14) Equity Income Fund .53 .25 .22 1.00(14) Equity Value Fund .15 .25 .60 1.00(14) Growth Fund .47 .25 .28 1.00(14) International Equity Fund .15 .25 .60 1.00(14) Large Company Growth Fund .27 .25 .48 1.00(14) Money Market Fund .50 -- .35 .85(14) Small Cap Growth Fund .15 .25 .80 1.20(14)
(1) The fund's expense figures are based on actual expenses, after fee waivers and expenses reimbursements, for the fiscal year ending Aug. 31, 2000. Without fee waivers and expense reimbursements "Other Expense" and "Total" would be 0.27% and 0.96% for AXP Variable Portfolio - Blue Chip Advantage Fund, 0.80% and 1.49% for AXP Variable Portfolio - Diversified Equity Income Fund, 0.15% and 0.89% for AXP Variable Portfolio - Federal Income Fund, and 0.55% and 1.43% for AXP Variable Portfolio - Small Cap Advantage Fund. (2) The fund's expense figures are based on actual expenses for the fiscal year ended Aug. 31, 2000. (3) Figures in "Management Fees," "12b-1 Fees," "Other Expenses" and "Total" are based on actual expenses for the fiscal year ended Dec. 31, 2000. (4) These expenses are for the Initial Share Class for the fiscal year ended Dec. 31, 2000. Actual expenses in future years may be higher or lower than the expenses shown. (5) The annual class operating expenses provided are based on estimated expenses. (6) There were no reimbursements or expense reductions for the period ended Dec. 31, 2000. Actual annual class operating expenses were lower because a portion of the brokerage commissions that the fund paid was used to reduce the fund's expenses, and/or because through arrangements with the fund's custodian, credits realized as a result of uninvested cash balances were used to reduce a portion of the fund's custodian expenses. See the accompanying fund prospectus for details. (7) The Fund administration fee is paid indirectly through the management fee. (8) The Fund's Class 2 distribution plan or "Rule 12b-1 plan" is described in the Fund's prospectus. (9) Total annual Fund operating expenses differ from the ratio of expenses to average net assets shown in the Financial Highlights table included in the Fund's Annual Report to Shareholders for the fiscal year ended Dec. 31, 2000 because they have been restated due to a new management agreement effective May 1, 2000. (10) The manager has agreed in advance to make an estimated reduction of 0.04% in its fee to reflect reduced services resulting from the Fund's investment in a Franklin Templeton money fund. This reduction is required by the Fund's Board of Trustees and an order of the Securities and Exchange Commission. Absent this reduction, "Management Fees" and "Total" would have been 0.53% and 1.06% for Franklin Small Cap Fund - Class 2. (11) Expense ratios are shown after fee waivers and expense reimbursements by the investment adviser. The expense ratios before the waivers and reimbursements would have been: 0.70%, 0.17%, and 0.87% for CORE-SM- U.S. Equity Fund, and 0.90%, 2.05% and 2.95% for Global Income Fund, 1.00%, 4.62% and 5.62% for Internet Tollkeeper Fund and 0.80%, 0.42% and 1.22% for Mid Cap Value Fund. CORE-SM- and Internet Tollkeeper Fund-SM- are service marks of Goldman, Sachs & Co. (12) 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 Investors Trust Series and 0.90% for Utilities Series. (13) Restated to reflect an increase in 12b-1 fees currently payable to Putnam Investment Management, LLC ("Putnam Management"). The Trustees currently limit payments on class IB shares to 0.25% of average net assets. Actual 12b-1 fees during the most recent fiscal year were 0.15% of average net assets. (14) Amounts represent expenses as of Dec. 31, 2000. Expenses are shown after fee waivers and expense reimbursements. Without fee waivers and expense reimbursements "Management Fees," "Other Expenses" and "Total" would have been 0.70%, 0.18% and 1.13% for Wells Fargo VT Asset Allocation Fund, 0.60%, 0.40% and 1.25% for Wells Fargo VT Corporate Bond Fund, 0.70%, 0.22% and 1.17% for Wells Fargo VT Equity Income Fund, 0.70%, 0.62% and 1.57% for Wells Fargo VT Equity Value Fund, 0.70%, 0.28% and 1.23% for Wells Fargo VT Growth Fund, 0.90%, 1.25% and 2.40% for Wells Fargo VT International Equity Fund, 0.70%, 0.48% and 1.43% for Wells Fargo VT Large Company Growth Fund 0.55%, 0.35% and 0.90% for Wells Fargo VT Money Market Fund, and 0.90%, 1.26% and 2.41% for Wells Fargo VT Small Cap Growth Fund. -------------------------------------------------------------------------------- 8 WELLS FARGO ADVANTAGE BUILDER VARIABLE ANNUITY -- PROSPECTUS EXAMPLES*: In order to provide a more meaningful discussion about the contract and its options, we provide expense examples for each fund showing every available optional contract feature combination. These examples assume that applicable fund fee waivers and/or expense reimbursements will continue for the periods shown. Under each fund you will find an example showing: 1) the base contract with no optional riders, 2) the contract with selection of the optional Benefit Protector-SM- Death Benefit Rider, 3) the contract with selection of the optional Benefit Protector-SM- Plus Death Benefit Rider, 4) the contract with selection of the optional Enhanced Death Benefit Rider, and 5) the contract with selection of the optional Guaranteed Minimum Income Benefit Rider and Enhanced Death Benefit Rider. We first show the expenses for your contract assuming selection of the six-year withdrawal charge schedule followed by the expenses for your contract assuming selection of the eight-year withdrawal charge schedule. You would pay the following expenses on a $1,000 investment if you selected a SIX-YEAR WITHDRAWAL CHARGE SCHEDULE** and assuming a 5% annual return and ...
A TOTAL WITHDRAWAL AT THE NO WITHDRAWAL OR SELECTION OF AN ANNUITY END OF EACH TIME PERIOD PAYOUT PLAN AT THE END OF EACH TIME PERIOD 1 YEAR 3 YEARS 5 YEARS 10 YEARS 1 YEAR 3 YEARS 5 YEARS 10 YEARS AXP-Registered Trademark- VP - Blue Chip Advantage Fund base contract with no optional riders $105.36 $157.97 $173.20 $283.63 $25.36 $77.97 $133.20 $283.63 optional Benefit Protector 107.92 165.63 185.91 308.65 27.92 85.63 145.91 308.65 optional Benefit Protector Plus 109.46 170.20 193.47 323.36 29.46 90.20 153.47 323.36 optional EDB 107.41 164.10 183.38 303.70 27.41 84.10 143.38 303.70 optional GMIB and EDB 110.56 173.76 199.85 338.60 30.56 93.76 159.85 338.60 AXP-Registered Trademark- VP - Capital Resource Fund base contract with no optional riders 103.51 152.43 163.96 265.23 23.51 72.43 123.96 265.23 optional Benefit Protector 106.08 160.11 176.77 290.70 26.08 80.11 136.77 290.70 optional Benefit Protector Plus 107.61 164.71 184.39 305.68 27.61 84.71 144.39 305.68 optional EDB 105.56 158.58 174.22 285.66 25.56 78.58 134.22 285.66 optional GMIB and EDB 108.71 168.26 190.76 320.86 28.71 88.26 150.76 320.86 AXP-Registered Trademark- VP - Diversified Equity Income Fund base contract with no optional riders 105.36 157.97 173.20 283.63 25.36 77.97 133.20 283.63 optional Benefit Protector 107.92 165.63 185.91 308.65 27.92 85.63 145.91 308.65 optional Benefit Protector Plus 109.46 170.20 193.47 323.36 29.46 90.20 153.47 323.36 optional EDB 107.41 164.10 183.38 303.70 27.41 84.10 143.38 303.70 optional GMIB and EDB 110.56 173.76 199.85 338.60 30.56 93.76 159.85 338.60 AXP-Registered Trademark- VP - Extra Income Fund base contract with no optional riders 104.03 153.97 166.53 270.38 24.03 73.97 126.53 270.38 optional Benefit Protector 106.59 161.65 179.31 295.72 26.59 81.65 139.31 295.72 optional Benefit Protector Plus 108.13 166.24 186.92 310.62 28.13 86.24 146.92 310.62 optional EDB 106.08 160.11 176.77 290.70 26.08 80.11 136.77 290.70 optional GMIB and EDB 109.23 169.79 193.29 325.82 29.23 89.79 153.29 325.82 AXP-Registered Trademark- VP - Federal Income Fund base contract with no optional riders 104.54 155.51 169.10 275.50 24.54 75.51 129.10 275.50 optional Benefit Protector 107.10 163.18 181.85 300.71 27.10 83.18 141.85 300.71 optional Benefit Protector Plus 108.64 167.76 189.44 315.54 28.64 87.76 149.44 315.54 optional EDB 106.59 161.65 179.31 295.72 26.59 81.65 139.31 295.72 optional GMIB and EDB 109.74 171.32 195.82 330.75 29.74 91.32 155.82 330.75 AXP VP - New Dimensions Fund-Registered Trademark- base contract with no optional riders 103.62 152.73 164.48 266.27 23.62 72.73 124.48 266.27 optional Benefit Protector 106.18 160.42 177.28 291.71 26.18 80.42 137.28 291.71 optional Benefit Protector Plus 107.72 165.01 184.90 306.67 27.72 85.01 144.90 306.67 optional EDB 105.67 158.89 174.73 286.67 25.67 78.89 134.73 286.67 optional GMIB and EDB 108.82 168.57 191.26 321.85 28.82 88.57 151.26 321.85
-------------------------------------------------------------------------------- WELLS FARGO ADVANTAGE BUILDER VARIABLE ANNUITY -- PROSPECTUS 9 You would pay the following expenses on a $1,000 investment if you selected a SIX-YEAR WITHDRAWAL CHARGE SCHEDULE** and assuming a 5% annual return and ... (continued)
A TOTAL WITHDRAWAL AT THE NO WITHDRAWAL OR SELECTION OF AN ANNUITY END OF EACH TIME PERIOD PAYOUT PLAN AT THE END OF EACH TIME PERIOD 1 YEAR 3 YEARS 5 YEARS 10 YEARS 1 YEAR 3 YEARS 5 YEARS 10 YEARS AXP-Registered Trademark- VP - Small Cap Advantage Fund base contract with no optional riders $107.82 $165.32 $185.40 $307.66 $27.82 $ 85.32 $145.40 $307.66 optional Benefit Protector 110.38 172.94 197.98 332.08 30.38 92.94 157.98 332.08 optional Benefit Protector Plus 111.92 177.50 205.47 346.45 31.92 97.50 165.47 346.45 optional EDB 109.87 171.42 195.48 327.25 29.87 91.42 155.48 327.25 optional GMIB and EDB 113.02 181.06 211.87 361.76 33.02 101.06 171.87 361.76 AIM V.I. Capital Appreciation Fund base contract with no optional riders 104.03 153.97 166.53 270.38 24.03 73.97 126.53 270.38 optional Benefit Protector 106.59 161.65 179.31 295.72 26.59 81.65 139.31 295.72 optional Benefit Protector Plus 108.13 166.24 186.92 310.62 28.13 86.24 146.92 310.62 optional EDB 106.08 160.11 176.77 290.70 26.08 80.11 136.77 290.70 optional GMIB and EDB 112.38 179.72 200.77 355.51 32.38 89.79 153.29 325.82 AIM V.I. Value Fund base contract with no optional riders 104.23 154.58 167.56 272.43 24.23 74.58 127.56 272.43 optional Benefit Protector 106.79 162.26 180.33 297.72 26.79 82.26 140.33 297.72 optional Benefit Protector Plus 108.33 166.85 187.93 312.59 28.33 86.85 147.93 312.59 optional EDB 106.28 160.73 177.79 292.71 26.28 80.73 137.79 292.71 optional GMIB and EDB 109.43 170.40 194.30 327.80 29.43 90.40 154.30 327.80 The Dreyfus Socially Responsible Growth Fund, Inc. - Initial Share Class base contract with no optional riders 103.62 152.73 164.48 266.27 23.62 72.73 124.48 266.27 optional Benefit Protector 106.18 160.42 177.28 291.71 26.18 80.42 137.28 291.71 optional Benefit Protector Plus 107.72 165.01 184.90 306.67 27.72 85.01 144.90 306.67 optional EDB 105.67 158.89 174.73 286.67 25.67 78.89 134.73 286.67 optional GMIB and EDB 108.82 168.57 191.26 321.85 28.82 88.57 151.26 321.85 Fidelity VIP Dynamic Capital Appreciation Portfolio (Service Class 2) base contract with no optional riders 110.28 172.64 197.48 331.12 30.28 92.64 157.48 331.12 optional Benefit Protector 112.84 180.22 209.94 354.96 32.84 100.22 169.94 354.96 optional Benefit Protector Plus 114.38 184.76 217.35 368.99 34.38 104.76 177.35 368.99 optional EDB 112.33 178.71 207.46 350.24 32.33 98.71 167.46 350.24 optional GMIB and EDB 115.48 188.33 223.77 384.37 35.48 108.33 183.77 384.37 Fidelity VIP High Income Portfolio (Service Class 2) base contract with no optional riders 105.97 159.81 176.26 289.69 25.97 79.81 136.26 289.69 optional Benefit Protector 108.54 167.46 188.94 314.56 28.54 87.46 148.94 314.56 optional Benefit Protector Plus 110.07 172.03 196.48 329.19 30.07 92.03 156.48 329.19 optional EDB 108.02 165.93 186.41 309.64 28.02 85.93 146.41 309.64 optional GMIB and EDB 111.17 175.59 202.87 344.44 31.17 95.59 162.87 344.44 Fidelity VIP Mid Cap Portfolio (Service Class 2) base contract with no optional riders 105.77 159.19 175.24 287.68 25.77 79.19 135.24 287.68 optional Benefit Protector 108.33 166.85 187.93 312.59 28.33 86.85 147.93 312.59 optional Benefit Protector Plus 109.87 171.42 195.48 327.25 29.87 91.42 155.48 327.25 optional EDB 107.82 165.32 185.40 307.66 27.82 85.32 145.40 307.66 optional GMIB and EDB 110.97 174.98 201.87 342.50 30.97 94.98 161.87 342.50
-------------------------------------------------------------------------------- 10 WELLS FARGO ADVANTAGE BUILDER VARIABLE ANNUITY -- PROSPECTUS You would pay the following expenses on a $1,000 investment if you selected a SIX-YEAR WITHDRAWAL CHARGE SCHEDULE** and assuming a 5% annual return and ... (continued)
A TOTAL WITHDRAWAL AT THE NO WITHDRAWAL OR SELECTION OF AN ANNUITY END OF EACH TIME PERIOD PAYOUT PLAN AT THE END OF EACH TIME PERIOD 1 YEAR 3 YEARS 5 YEARS 10 YEARS 1 YEAR 3 YEARS 5 YEARS 10 YEARS FTVIPT Franklin Income Securities Fund - Class 2 base contract with no optional riders $103.31 $151.81 $162.93 $263.17 $23.31 $ 71.81 $122.93 $263.17 optional Benefit Protector 105.87 159.50 175.75 288.69 25.87 79.50 135.75 288.69 optional Benefit Protector Plus 107.41 164.10 183.38 303.70 27.41 84.10 143.38 303.70 optional EDB 105.36 157.97 173.20 283.63 25.36 77.97 133.20 283.63 optional GMIB and EDB 108.51 167.65 189.74 318.87 28.51 87.65 149.74 318.87 FTVIPT Franklin Real Estate Fund - Class 2 base contract with no optional riders 104.33 154.89 168.08 273.45 24.33 74.89 128.08 273.45 optional Benefit Protector 106.90 162.57 180.84 298.72 26.90 82.57 140.84 298.72 optional Benefit Protector Plus 108.43 167.15 188.43 313.58 28.43 87.15 148.43 313.58 optional EDB 106.38 161.03 178.30 293.71 26.38 81.03 138.30 293.71 optional GMIB and EDB 109.53 170.71 194.81 328.78 29.53 90.71 154.81 328.78 FTVIPT Franklin Small Cap Fund - Class 2 base contract with no optional riders 106.08 160.11 176.77 290.70 26.08 80.11 136.77 290.70 optional Benefit Protector 108.64 167.76 189.44 315.54 28.64 87.76 149.44 315.54 optional Benefit Protector Plus 110.18 172.33 196.98 330.15 30.18 92.33 156.98 330.15 optional EDB 108.13 166.24 186.92 310.62 28.13 86.24 146.92 310.62 optional GMIB and EDB 111.28 175.90 203.37 345.41 31.28 95.90 163.37 345.41 FTVIPT Mutual Shares Securities Fund - Class 2 base contract with no optional riders 106.38 161.03 178.30 293.71 26.38 81.03 138.30 293.71 optional Benefit Protector 108.95 168.68 190.95 318.48 28.95 88.68 150.95 318.48 optional Benefit Protector Plus 110.48 173.25 198.48 333.05 30.48 93.25 158.48 333.05 optional EDB 108.43 167.15 188.43 313.58 28.43 87.15 148.43 313.58 optional GMIB and EDB 111.58 176.81 204.88 348.32 31.58 96.81 164.88 348.32 Goldman Sachs VIT CORE-SM- U.S. Equity Fund base contract with no optional riders 104.85 156.43 170.64 278.56 24.85 76.43 130.64 278.56 optional Benefit Protector 107.41 164.10 183.38 303.70 27.41 84.10 143.38 303.70 optional Benefit Protector Plus 108.95 168.68 190.95 318.48 28.95 88.68 150.95 318.48 optional EDB 106.90 162.57 180.84 298.72 26.90 82.57 140.84 298.72 optional GMIB and EDB 110.05 172.24 197.33 333.70 30.05 92.24 157.33 333.70 Goldman Sachs VIT Global Income Fund base contract with no optional riders 107.41 164.10 183.38 303.70 27.41 84.10 143.38 303.70 optional Benefit Protector 109.97 171.73 195.98 328.22 29.97 91.73 155.98 328.22 optional Benefit Protector Plus 111.51 176.28 203.48 342.64 31.51 96.28 163.48 342.64 optional EDB 109.46 170.20 193.47 323.36 29.46 90.20 153.47 323.36 optional GMIB and EDB 112.61 179.85 209.88 357.94 32.61 99.85 169.88 357.94 Goldman Sachs VIT Internet Tollkeeper Fund-SM- base contract with no optional riders 108.43 167.15 188.43 313.58 28.43 87.15 148.43 313.58 optional Benefit Protector 111.00 174.77 200.98 337.86 31.00 94.77 160.98 337.86 optional Benefit Protector Plus 112.53 179.32 208.45 352.13 32.53 99.32 168.45 352.13 optional EDB 110.48 173.25 198.48 333.05 30.48 93.25 158.48 333.05 optional GMIB and EDB 113.63 182.88 214.86 367.46 33.63 102.88 174.86 367.46
-------------------------------------------------------------------------------- WELLS FARGO ADVANTAGE BUILDER VARIABLE ANNUITY -- PROSPECTUS 11 You would pay the following expenses on a $1,000 investment if you selected a SIX-YEAR WITHDRAWAL CHARGE SCHEDULE** and assuming a 5% annual return and ... (continued)
A TOTAL WITHDRAWAL AT THE NO WITHDRAWAL OR SELECTION OF AN ANNUITY END OF EACH TIME PERIOD PAYOUT PLAN AT THE END OF EACH TIME PERIOD 1 YEAR 3 YEARS 5 YEARS 10 YEARS 1 YEAR 3 YEARS 5 YEARS 10 YEARS Goldman Sachs VIT Mid Cap Value Fund base contract with no optional riders $106.38 $161.03 $178.30 $293.71 $26.38 $ 81.03 $138.30 $293.71 optional Benefit Protector 108.95 168.68 190.95 318.48 28.95 88.68 150.95 318.48 optional Benefit Protector Plus 110.48 173.25 198.48 333.05 30.48 93.25 158.48 333.05 optional EDB 108.43 167.15 188.43 313.58 28.43 87.15 148.43 313.58 optional GMIB and EDB 111.58 176.81 204.88 348.32 31.58 96.81 164.88 348.32 MFS-Registered Trademark- Investors Trust Series - Initial Class (previously MFS-Registered Trademark- Growth with Income Series) base contract with no optional riders 104.54 155.51 169.10 275.50 24.54 75.51 129.10 275.50 optional Benefit Protector 107.10 163.18 181.85 300.71 27.10 83.18 141.85 300.71 optional Benefit Protector Plus 108.64 167.76 189.44 315.54 28.64 87.76 149.44 315.54 optional EDB 106.59 161.65 179.31 295.72 26.59 81.65 139.31 295.72 optional GMIB and EDB 109.74 171.32 195.82 330.75 29.74 91.32 155.82 330.75 MFS-Registered Trademark- Utilities Series - Initial Class base contract with no optional riders 104.95 156.74 171.15 279.57 24.95 76.74 131.15 279.57 optional Benefit Protector 107.51 164.40 183.88 304.69 27.51 84.40 143.88 304.69 optional Benefit Protector Plus 109.05 168.98 191.46 319.46 29.05 88.98 151.46 319.46 optional EDB 107.00 162.87 181.35 299.72 27.00 82.87 141.35 299.72 optional GMIB and EDB 110.15 172.54 197.84 334.68 30.15 92.54 157.84 334.68 Putnam VT International Growth Fund - Class IB Shares base contract with no optional riders 107.82 165.32 185.40 307.66 27.82 85.32 145.40 307.66 optional Benefit Protector 110.38 172.94 197.98 332.08 30.38 92.94 157.98 332.08 optional Benefit Protector Plus 111.92 177.50 205.47 346.45 31.92 97.50 165.47 346.45 optional EDB 109.87 171.42 195.48 327.25 29.87 91.42 155.48 327.25 optional GMIB and EDB 113.02 181.06 211.87 361.76 33.02 101.06 171.87 361.76 Putnam VT Vista Fund - Class IB Shares base contract with no optional riders 105.05 157.04 171.66 280.59 25.05 77.04 131.66 280.59 optional Benefit Protector 107.61 164.71 184.39 305.68 27.61 84.71 144.39 305.68 optional Benefit Protector Plus 109.15 169.29 191.96 320.44 29.15 89.29 151.96 320.44 optional EDB 107.10 163.18 181.85 300.71 27.10 83.18 141.85 300.71 optional GMIB and EDB 110.25 172.85 198.34 335.66 30.25 92.85 158.34 335.66 Wells Fargo VT Asset Allocation Fund base contract with no optional riders 105.87 159.50 175.75 288.69 25.87 79.50 135.75 288.69 optional Benefit Protector 108.43 167.15 188.43 313.58 28.43 87.15 148.43 313.58 optional Benefit Protector Plus 109.97 171.73 195.98 328.22 29.97 91.73 155.98 328.22 optional EDB 107.92 165.63 185.91 308.65 27.92 85.63 145.91 308.65 optional GMIB and EDB 111.07 175.29 202.37 343.47 31.07 95.29 162.37 343.47 Wells Fargo VT Corporate Bond Fund base contract with no optional riders 104.85 156.43 170.64 278.56 24.85 76.43 130.64 278.56 optional Benefit Protector 107.41 164.10 183.38 303.70 27.41 84.10 143.38 303.70 optional Benefit Protector Plus 108.95 168.68 190.95 318.48 28.95 88.68 150.95 318.48 optional EDB 106.90 162.57 180.84 298.72 26.90 82.57 140.84 298.72 optional GMIB and EDB 110.05 172.24 197.33 333.70 30.05 92.24 157.33 333.70
-------------------------------------------------------------------------------- 12 WELLS FARGO ADVANTAGE BUILDER VARIABLE ANNUITY -- PROSPECTUS You would pay the following expenses on a $1,000 investment if you selected a SIX-YEAR WITHDRAWAL CHARGE SCHEDULE** and assuming a 5% annual return and ... (continued)
A TOTAL WITHDRAWAL AT THE NO WITHDRAWAL OR SELECTION OF AN ANNUITY END OF EACH TIME PERIOD PAYOUT PLAN AT THE END OF EACH TIME PERIOD 1 YEAR 3 YEARS 5 YEARS 10 YEARS 1 YEAR 3 YEARS 5 YEARS 10 YEARS Wells Fargo VT Equity Income Fund base contract with no optional riders $105.87 $159.50 $175.75 $288.69 $25.87 $ 79.50 $135.75 $288.69 optional Benefit Protector 108.43 167.15 188.43 313.58 28.43 87.15 148.43 313.58 optional Benefit Protector Plus 109.97 171.73 195.98 328.22 29.97 91.73 155.98 328.22 optional EDB 107.92 165.63 185.91 308.65 27.92 85.63 145.91 308.65 optional GMIB and EDB 111.07 175.29 202.37 343.47 31.07 95.29 162.37 343.47 Wells Fargo VT Equity Value Fund base contract with no optional riders 105.87 159.50 175.75 288.69 25.87 79.50 135.75 288.69 optional Benefit Protector 108.43 167.15 188.43 313.58 28.43 87.15 148.43 313.58 optional Benefit Protector Plus 109.97 171.73 195.98 328.22 29.97 91.73 155.98 328.22 optional EDB 107.92 165.63 185.91 308.65 27.92 85.63 145.91 308.65 optional GMIB and EDB 111.07 175.29 202.37 343.47 31.07 95.29 162.37 343.47 Wells Fargo VT Growth Fund base contract with no optional riders 105.87 159.50 175.75 288.69 25.87 79.50 135.75 288.69 optional Benefit Protector 108.43 167.15 188.43 313.58 28.43 87.15 148.43 313.58 optional Benefit Protector Plus 109.97 171.73 195.98 328.22 29.97 91.73 155.98 328.22 optional EDB 107.92 165.63 185.91 308.65 27.92 85.63 145.91 308.65 optional GMIB and EDB 111.07 175.29 202.37 343.47 31.07 95.29 162.37 343.47 Wells Fargo VT International Equity Fund base contract with no optional riders 105.87 159.50 175.75 288.69 25.87 79.50 135.75 288.69 optional Benefit Protector 108.43 167.15 188.43 313.58 28.43 87.15 148.43 313.58 optional Benefit Protector Plus 109.97 171.73 195.98 328.22 29.97 91.73 155.98 328.22 optional EDB 107.92 165.63 185.91 308.65 27.92 85.63 145.91 308.65 optional GMIB and EDB 111.07 175.29 202.37 343.47 31.07 95.29 162.37 343.47 Wells Fargo VT Large Company Growth Fund base contract with no optional riders 105.87 159.50 175.75 288.69 25.87 79.50 135.75 288.69 optional Benefit Protector 108.43 167.15 188.43 313.58 28.43 87.15 148.43 313.58 optional Benefit Protector Plus 109.97 171.73 195.98 328.22 29.97 91.73 155.98 328.22 optional EDB 107.92 165.63 185.91 308.65 27.92 85.63 145.91 308.65 optional GMIB and EDB 111.07 175.29 202.37 343.47 31.07 95.29 162.37 343.47 Wells Fargo VT Money Market Fund base contract with no optional riders 104.33 154.89 168.08 273.45 24.33 74.89 128.08 273.45 optional Benefit Protector 106.90 162.57 180.84 298.72 26.90 82.57 140.84 298.72 optional Benefit Protector Plus 108.43 167.15 188.43 313.58 28.43 87.15 148.43 313.58 optional EDB 106.38 161.03 178.30 293.71 26.38 81.03 138.30 293.71 optional GMIB and EDB 109.53 170.71 194.81 328.78 29.53 90.71 154.81 328.78 Wells Fargo VT Small Cap Growth Fund base contract with no optional riders 107.92 165.63 185.91 308.65 27.92 85.63 145.91 308.65 optional Benefit Protector 110.48 173.25 198.48 333.05 30.48 93.25 158.48 333.05 optional Benefit Protector Plus 112.02 177.80 205.97 347.40 32.02 97.80 165.97 347.40 optional EDB 109.97 171.73 195.98 328.22 29.97 91.73 155.98 328.22 optional GMIB and EDB 113.12 181.37 212.37 362.71 33.12 101.37 172.37 362.71
-------------------------------------------------------------------------------- WELLS FARGO ADVANTAGE BUILDER VARIABLE ANNUITY -- PROSPECTUS 13 You would pay the following expenses on a $1,000 investment if you selected an EIGHT-YEAR WITHDRAWAL CHARGE SCHEDULE and assuming a 5% annual return and ...
A TOTAL WITHDRAWAL AT THE NO WITHDRAWAL OR SELECTION OF AN ANNUITY END OF EACH TIME PERIOD PAYOUT PLAN AT THE END OF EACH TIME PERIOD 1 YEAR 3 YEARS 5 YEARS 10 YEARS 1 YEAR 3 YEARS 5 YEARS 10 YEARS AXP-Registered Trademark- VP - Blue Chip Advantage Fund base contract with no optional riders $102.80 $150.27 $200.35 $257.99 $22.80 $70.27 $120.35 $257.99 optional Benefit Protector 105.36 157.97 213.20 283.63 25.36 77.97 133.20 283.63 optional Benefit Protector Plus 106.90 162.57 220.84 298.72 26.90 82.57 140.84 298.72 optional EDB 104.85 156.43 210.64 278.56 24.85 76.43 130.64 278.56 optional GMIB and EDB 108.00 166.12 227.20 313.87 28.00 86.12 147.20 313.87 AXP-Registered Trademark- VP - Capital Resource Fund base contract with no optional riders 100.95 144.70 191.02 239.13 20.95 64.70 111.02 239.13 optional Benefit Protector 103.51 152.43 203.96 265.23 23.51 72.43 123.96 265.23 optional Benefit Protector Plus 105.05 157.04 211.66 280.59 25.05 77.04 131.66 280.59 optional EDB 103.00 150.88 201.38 260.07 23.00 70.88 121.38 260.07 optional GMIB and EDB 106.15 160.59 218.01 295.68 26.15 80.59 138.01 295.68 AXP-Registered Trademark- VP - Diversified Equity Income Fund base contract with no optional riders 102.80 150.27 200.35 257.99 22.80 70.27 120.35 257.99 optional Benefit Protector 105.36 157.97 213.20 283.63 25.36 77.97 133.20 283.63 optional Benefit Protector Plus 106.90 162.57 220.84 298.72 26.90 82.57 140.84 298.72 optional EDB 104.85 156.43 210.64 278.56 24.85 76.43 130.64 278.56 optional GMIB and EDB 108.00 166.12 227.20 313.87 28.00 86.12 147.20 313.87 AXP-Registered Trademark- VP - Extra Income Fund base contract with no optional riders 101.46 146.25 193.62 244.40 21.46 66.25 113.62 244.40 optional Benefit Protector 104.03 153.97 206.53 270.38 24.03 73.97 126.53 270.38 optional Benefit Protector Plus 105.56 158.58 214.22 285.66 25.56 78.58 134.22 285.66 optional EDB 103.51 152.43 203.96 265.23 23.51 72.43 123.96 265.23 optional GMIB and EDB 106.66 162.13 220.57 300.77 26.66 82.13 140.57 300.77 AXP-Registered Trademark- VP - Federal Income Fund base contract with no optional riders 101.98 147.79 196.21 249.65 21.98 67.79 116.21 249.65 optional Benefit Protector 104.54 155.51 209.10 275.50 24.54 75.51 129.10 275.50 optional Benefit Protector Plus 106.08 160.11 216.77 290.70 26.08 80.11 136.77 290.70 optional EDB 104.03 153.97 206.53 270.38 24.03 73.97 126.53 270.38 optional GMIB and EDB 107.18 163.66 223.12 305.83 27.18 83.66 143.12 305.83 AXP VP - New Dimensions Fund-Registered Trademark- base contract with no optional riders 101.05 145.01 191.54 240.19 21.05 65.01 111.54 240.19 optional Benefit Protector 103.62 152.73 204.48 266.27 23.62 72.73 124.48 266.27 optional Benefit Protector Plus 105.15 157.35 212.17 281.61 25.15 77.35 132.17 281.61 optional EDB 103.10 151.19 201.90 261.10 23.10 71.19 121.90 261.10 optional GMIB and EDB 106.25 160.90 218.52 296.70 26.25 80.90 138.52 296.70 AXP-Registered Trademark- VP - Small Cap Advantage Fund base contract with no optional riders 105.26 157.66 212.69 282.62 25.26 77.66 132.69 282.62 optional Benefit Protector 107.82 165.32 225.40 307.66 27.82 85.32 145.40 307.66 optional Benefit Protector Plus 109.36 169.90 232.97 322.39 29.36 89.90 152.97 322.39 optional EDB 107.31 163.79 222.87 302.70 27.31 83.79 142.87 302.70 optional GMIB and EDB 110.46 173.46 239.35 337.62 30.46 93.46 159.35 337.62
-------------------------------------------------------------------------------- 14 WELLS FARGO ADVANTAGE BUILDER VARIABLE ANNUITY -- PROSPECTUS You would pay the following expenses on a $1,000 investment if you selected an EIGHT-YEAR WITHDRAWAL CHARGE SCHEDULE and assuming a 5% annual return and ... (continued)
A TOTAL WITHDRAWAL AT THE NO WITHDRAWAL OR SELECTION OF AN ANNUITY END OF EACH TIME PERIOD PAYOUT PLAN AT THE END OF EACH TIME PERIOD 1 YEAR 3 YEARS 5 YEARS 10 YEARS 1 YEAR 3 YEARS 5 YEARS 10 YEARS AIM V.I. Capital Appreciation Fund base contract with no optional riders $101.46 $146.25 $193.62 $244.40 $21.46 $ 66.25 $113.62 $244.40 optional Benefit Protector 104.03 153.97 206.53 270.38 24.03 73.97 126.53 270.38 optional Benefit Protector Plus 105.56 158.58 214.22 285.66 25.56 78.58 134.22 285.66 optional EDB 103.51 152.43 203.96 265.23 23.51 72.43 123.96 265.23 optional GMIB and EDB 106.66 162.13 220.57 300.77 26.66 82.13 140.57 300.77 AIM V.I. Value Fund base contract with no optional riders 101.67 146.86 194.66 246.50 21.67 66.86 114.66 246.50 optional Benefit Protector 104.23 154.58 207.56 272.43 24.23 74.58 127.56 272.43 optional Benefit Protector Plus 105.77 159.19 215.24 287.68 25.77 79.19 135.24 287.68 optional EDB 103.72 153.04 204.99 267.30 23.72 73.04 124.99 267.30 optional GMIB and EDB 106.87 162.74 221.59 302.79 26.87 82.74 141.59 302.79 The Dreyfus Socially Responsible Growth Fund, Inc. - Initial Share Class base contract with no optional riders 101.05 145.01 191.54 240.19 21.05 65.01 111.54 240.19 optional Benefit Protector 103.62 152.73 204.48 266.27 23.62 72.73 124.48 266.27 optional Benefit Protector Plus 105.15 157.35 212.17 281.61 25.15 77.35 132.17 281.61 optional EDB 103.10 151.19 201.90 261.10 23.10 71.19 121.90 261.10 optional GMIB and EDB 106.25 160.90 218.52 296.70 26.25 80.90 138.52 296.70 Fidelity VIP Dynamic Capital Appreciation Portfolio (Service Class 2) base contract with no optional riders 107.72 165.01 224.90 306.67 27.72 85.01 144.90 306.67 optional Benefit Protector 110.28 172.64 237.48 331.12 30.28 92.64 157.48 331.12 optional Benefit Protector Plus 111.82 177.19 244.97 345.50 31.82 97.19 164.97 345.50 optional EDB 109.77 171.12 234.98 326.28 29.77 91.12 154.98 326.28 optional GMIB and EDB 112.92 180.76 251.38 360.81 32.92 100.76 171.38 360.81 Fidelity VIP High Income Portfolio (Service Class 2) base contract with no optional riders 103.41 152.12 203.45 264.20 23.41 72.12 123.45 264.20 optional Benefit Protector 105.97 159.81 216.26 289.69 25.97 79.81 136.26 289.69 optional Benefit Protector Plus 107.51 164.40 223.88 304.69 27.51 84.40 143.88 304.69 optional EDB 105.46 158.27 213.71 284.65 25.46 78.27 133.71 284.65 optional GMIB and EDB 108.61 167.96 230.25 319.86 28.61 87.96 150.25 319.86 Fidelity VIP Mid Cap Portfolio (Service Class 2) base contract with no optional riders 103.21 151.50 202.42 262.14 23.21 71.50 122.42 262.14 optional Benefit Protector 105.77 159.19 215.24 287.68 25.77 79.19 135.24 287.68 optional Benefit Protector Plus 107.31 163.79 222.87 302.70 27.31 83.79 142.87 302.70 optional EDB 105.26 157.66 212.69 282.62 25.26 77.66 132.69 282.62 optional GMIB and EDB 108.41 167.34 229.23 317.87 28.41 87.34 149.23 317.87 FTVIPT Franklin Income Securities Fund - Class 2 base contract with no optional riders 100.75 144.08 189.98 237.01 20.75 64.08 109.98 237.01 optional Benefit Protector 103.31 151.81 202.93 263.17 23.31 71.81 122.93 263.17 optional Benefit Protector Plus 104.85 156.43 210.64 278.56 24.85 76.43 130.64 278.56 optional EDB 102.80 150.27 200.35 257.99 22.80 70.27 120.35 257.99 optional GMIB and EDB 105.95 159.97 216.98 293.64 25.95 79.97 136.98 293.64
-------------------------------------------------------------------------------- WELLS FARGO ADVANTAGE BUILDER VARIABLE ANNUITY -- PROSPECTUS 15 You would pay the following expenses on a $1,000 investment if you selected an EIGHT-YEAR WITHDRAWAL CHARGE SCHEDULE and assuming a 5% annual return and ... (continued)
A TOTAL WITHDRAWAL AT THE NO WITHDRAWAL OR SELECTION OF AN ANNUITY END OF EACH TIME PERIOD PAYOUT PLAN AT THE END OF EACH TIME PERIOD 1 YEAR 3 YEARS 5 YEARS 10 YEARS 1 YEAR 3 YEARS 5 YEARS 10 YEARS FTVIPT Franklin Real Estate Fund - Class 2 base contract with no optional riders $101.77 $147.17 $195.18 $247.55 $21.77 $67.17 $115.18 $247.55 optional Benefit Protector 104.33 154.89 208.08 273.45 24.33 74.89 128.08 273.45 optional Benefit Protector Plus 105.87 159.50 215.75 288.69 25.87 79.50 135.75 288.69 optional EDB 103.82 153.35 205.51 268.32 23.82 73.35 125.51 268.32 optional GMIB and EDB 106.97 163.05 222.10 303.81 26.97 83.05 142.10 303.81 FTVIPT Franklin Small Cap Fund - Class 2 base contract with no optional riders 103.51 152.43 203.96 265.23 23.51 72.43 123.96 265.23 optional Benefit Protector 106.08 160.11 216.77 290.70 26.08 80.11 136.77 290.70 optional Benefit Protector Plus 107.61 164.71 224.39 305.68 27.61 84.71 144.39 305.68 optional EDB 105.56 158.58 214.22 285.66 25.56 78.58 134.22 285.66 optional GMIB and EDB 108.71 168.26 230.76 320.86 28.71 88.26 150.76 320.86 FTVIPT Mutual Shares Securities Fund - Class 2 base contract with no optional riders 103.82 153.35 205.51 268.32 23.82 73.35 125.51 268.32 optional Benefit Protector 106.38 161.03 218.30 293.71 26.38 81.03 138.30 293.71 optional Benefit Protector Plus 107.92 165.63 225.91 308.65 27.92 85.63 145.91 308.65 optional EDB 105.87 159.50 215.75 288.69 25.87 79.50 135.75 288.69 optional GMIB and EDB 109.02 169.18 232.28 323.84 29.02 89.18 152.28 323.84 Goldman Sachs VIT CORE-SM- U.S. Equity Fund base contract with no optional riders 102.28 148.72 197.77 252.79 22.28 68.72 117.77 252.79 optional Benefit Protector 104.85 156.43 210.64 278.56 24.85 76.43 130.64 278.56 optional Benefit Protector Plus 106.38 161.03 218.30 293.71 26.38 81.03 138.30 293.71 optional EDB 104.33 154.89 208.08 273.45 24.33 74.89 128.08 273.45 optional GMIB and EDB 107.48 164.58 224.65 308.85 27.48 84.58 144.65 308.85 Goldman Sachs VIT Global Income Fund base contract with no optional riders 104.85 156.43 210.64 278.56 24.85 76.43 130.64 278.56 optional Benefit Protector 107.41 164.10 223.38 303.70 27.41 84.10 143.38 303.70 optional Benefit Protector Plus 108.95 168.68 230.95 318.48 28.95 88.68 150.95 318.48 optional EDB 106.90 162.57 220.84 298.72 26.90 82.57 140.84 298.72 optional GMIB and EDB 110.05 172.24 237.33 333.70 30.05 92.24 157.33 333.70 Goldman Sachs VIT Internet Tollkeeper Fund-SM- base contract with no optional riders 105.87 159.50 215.75 288.69 25.87 79.50 135.75 288.69 optional Benefit Protector 108.43 167.15 228.43 313.58 28.43 87.15 148.43 313.58 optional Benefit Protector Plus 109.97 171.73 235.98 328.22 29.97 91.73 155.98 328.22 optional EDB 107.92 165.63 225.91 308.65 27.92 85.63 145.91 308.65 optional GMIB and EDB 111.07 175.29 242.37 343.47 31.07 95.29 162.37 343.47 Goldman Sachs VIT Mid Cap Value Fund base contract with no optional riders 103.82 153.35 205.51 268.32 23.82 73.35 125.51 268.32 optional Benefit Protector 106.38 161.03 218.30 293.71 26.38 81.03 138.30 293.71 optional Benefit Protector Plus 107.92 165.63 225.91 308.65 27.92 85.63 145.91 308.65 optional EDB 105.87 159.50 215.75 288.69 25.87 79.50 135.75 288.69 optional GMIB and EDB 109.02 169.18 232.28 323.84 29.02 89.18 152.28 323.84
-------------------------------------------------------------------------------- 16 WELLS FARGO ADVANTAGE BUILDER VARIABLE ANNUITY -- PROSPECTUS You would pay the following expenses on a $1,000 investment if you selected an EIGHT-YEAR WITHDRAWAL CHARGE SCHEDULE and assuming a 5% annual return and ... (continued)
A TOTAL WITHDRAWAL AT THE NO WITHDRAWAL OR SELECTION OF AN ANNUITY END OF EACH TIME PERIOD PAYOUT PLAN AT THE END OF EACH TIME PERIOD 1 YEAR 3 YEARS 5 YEARS 10 YEARS 1 YEAR 3 YEARS 5 YEARS 10 YEARS MFS-Registered Trademark- Investors Trust Series - Initial Class (previously MFS-Registered Trademark- Growth with Income Series) base contract with no optional riders $101.98 $147.79 $196.21 $249.65 $21.98 $67.79 $116.21 $249.65 optional Benefit Protector 104.54 155.51 209.10 275.50 24.54 75.51 129.10 275.50 optional Benefit Protector Plus 106.08 160.11 216.77 290.70 26.08 80.11 136.77 290.70 optional EDB 104.03 153.97 206.53 270.38 24.03 73.97 126.53 270.38 optional GMIB and EDB 107.18 163.66 223.12 305.83 27.18 83.66 143.12 305.83 MFS-Registered Trademark- Utilities Series - Initial Class base contract with no optional riders 102.39 149.03 198.28 253.83 22.39 69.03 118.28 253.83 optional Benefit Protector 104.95 156.74 211.15 279.57 24.95 76.74 131.15 279.57 optional Benefit Protector Plus 106.49 161.34 218.81 294.72 26.49 81.34 138.81 294.72 optional EDB 104.44 155.20 208.59 274.48 24.44 75.20 128.59 274.48 optional GMIB and EDB 107.59 164.89 225.16 309.86 27.59 84.89 145.16 309.86 Putnam VT International Growth Fund - Class IB Shares base contract with no optional riders 105.26 157.66 212.69 282.62 25.26 77.66 132.69 282.62 optional Benefit Protector 107.82 165.32 225.40 307.66 27.82 85.32 145.40 307.66 optional Benefit Protector Plus 109.36 169.90 232.97 322.39 29.36 89.90 152.97 322.39 optional EDB 107.31 163.79 222.87 302.70 27.31 83.79 142.87 302.70 optional GMIB and EDB 110.46 173.46 239.35 337.62 30.46 93.46 159.35 337.62 Putnam VT Vista Fund - Class IB Shares base contract with no optional riders 102.49 149.34 198.80 254.87 22.49 69.34 118.80 254.87 optional Benefit Protector 105.05 157.04 211.66 280.59 25.05 77.04 131.66 280.59 optional Benefit Protector Plus 106.59 161.65 219.31 295.72 26.59 81.65 139.31 295.72 optional EDB 104.54 155.51 209.10 275.50 24.54 75.51 129.10 275.50 optional GMIB and EDB 107.69 165.20 225.67 310.86 27.69 85.20 145.67 310.86 Wells Fargo VT Asset Allocation Fund base contract with no optional riders 103.31 151.81 202.93 263.17 23.31 71.81 122.93 263.17 optional Benefit Protector 105.87 159.50 215.75 288.69 25.87 79.50 135.75 288.69 optional Benefit Protector Plus 107.41 164.10 223.38 303.70 27.41 84.10 143.38 303.70 optional EDB 105.36 157.97 213.20 283.63 25.36 77.97 133.20 283.63 optional GMIB and EDB 108.51 167.65 229.74 318.87 28.51 87.65 149.74 318.87 Wells Fargo VT Corporate Bond Fund base contract with no optional riders 102.28 148.72 197.77 252.79 22.28 68.72 117.77 252.79 optional Benefit Protector 104.85 156.43 210.64 278.56 24.85 76.43 130.64 278.56 optional Benefit Protector Plus 106.38 161.03 218.30 293.71 26.38 81.03 138.30 293.71 optional EDB 104.33 154.89 208.08 273.45 24.33 74.89 128.08 273.45 optional GMIB and EDB 107.48 164.58 224.65 308.85 27.48 84.58 144.65 308.85 Wells Fargo VT Equity Income Fund base contract with no optional riders 103.31 151.81 202.93 263.17 23.31 71.81 122.93 263.17 optional Benefit Protector 105.87 159.50 215.75 288.69 25.87 79.50 135.75 288.69 optional Benefit Protector Plus 107.41 164.10 223.38 303.70 27.41 84.10 143.38 303.70 optional EDB 105.36 157.97 213.20 283.63 25.36 77.97 133.20 283.63 optional GMIB and EDB 108.51 167.65 229.74 318.87 28.51 87.65 149.74 318.87
-------------------------------------------------------------------------------- WELLS FARGO ADVANTAGE BUILDER VARIABLE ANNUITY -- PROSPECTUS 17 You would pay the following expenses on a $1,000 investment if you selected an EIGHT-YEAR WITHDRAWAL CHARGE SCHEDULE and assuming a 5% annual return and ... (continued)
A TOTAL WITHDRAWAL AT THE NO WITHDRAWAL OR SELECTION OF AN ANNUITY END OF EACH TIME PERIOD PAYOUT PLAN AT THE END OF EACH TIME PERIOD 1 YEAR 3 YEARS 5 YEARS 10 YEARS 1 YEAR 3 YEARS 5 YEARS 10 YEARS Wells Fargo VT Equity Value Fund base contract with no optional riders $103.31 $151.81 $202.93 $263.17 $23.31 $71.81 $122.93 $263.17 optional Benefit Protector 105.87 159.50 215.75 288.69 25.87 79.50 135.75 288.69 optional Benefit Protector Plus 107.41 164.10 223.38 303.70 27.41 84.10 143.38 303.70 optional EDB 105.36 157.97 213.20 283.63 25.36 77.97 133.20 283.63 optional GMIB and EDB 108.51 167.65 229.74 318.87 28.51 87.65 149.74 318.87 Wells Fargo VT Growth Fund base contract with no optional riders 103.31 151.81 202.93 263.17 23.31 71.81 122.93 263.17 optional Benefit Protector 105.87 159.50 215.75 288.69 25.87 79.50 135.75 288.69 optional Benefit Protector Plus 107.41 164.10 223.38 303.70 27.41 84.10 143.38 303.70 optional EDB 105.36 157.97 213.20 283.63 25.36 77.97 133.20 283.63 optional GMIB and EDB 108.51 167.65 229.74 318.87 28.51 87.65 149.74 318.87 Wells Fargo VT International Equity Fund base contract with no optional riders 103.31 151.81 202.93 263.17 23.31 71.81 122.93 263.17 optional Benefit Protector 105.87 159.50 215.75 288.69 25.87 79.50 135.75 288.69 optional Benefit Protector Plus 107.41 164.10 223.38 303.70 27.41 84.10 143.38 303.70 optional EDB 105.36 157.97 213.20 283.63 25.36 77.97 133.20 283.63 optional GMIB and EDB 108.51 167.65 229.74 318.87 28.51 87.65 149.74 318.87 Wells Fargo VT Large Company Growth Fund base contract with no optional riders 103.31 151.81 202.93 263.17 23.31 71.81 122.93 263.17 optional Benefit Protector 105.87 159.50 215.75 288.69 25.87 79.50 135.75 288.69 optional Benefit Protector Plus 107.41 164.10 223.38 303.70 27.41 84.10 143.38 303.70 optional EDB 105.36 157.97 213.20 283.63 25.36 77.97 133.20 283.63 optional GMIB and EDB 108.51 167.65 229.74 318.87 28.51 87.65 149.74 318.87 Wells Fargo VT Money Market Fund base contract with no optional riders 101.77 147.17 195.18 247.55 21.77 67.17 115.18 247.55 optional Benefit Protector 104.33 154.89 208.08 273.45 24.33 74.89 128.08 273.45 optional Benefit Protector Plus 105.87 159.50 215.75 288.69 25.87 79.50 135.75 288.69 optional EDB 103.82 153.35 205.51 268.32 23.82 73.35 125.51 268.32 optional GMIB and EDB 106.97 163.05 222.10 303.81 26.97 83.05 142.10 303.81 Wells Fargo VT Small Cap Growth Fund base contract with no optional riders 105.36 157.97 213.20 283.63 25.36 77.97 133.20 283.63 optional Benefit Protector 107.92 165.63 225.91 308.65 27.92 85.63 145.91 308.65 optional Benefit Protector Plus 109.46 170.20 233.47 323.36 29.46 90.20 153.47 323.36 optional EDB 107.41 164.10 223.38 303.70 27.41 84.10 143.38 303.70 optional GMIB and EDB 110.56 173.76 239.85 338.60 30.56 93.76 159.85 338.60
* In these examples, the $30 contract administrative charge is approximated as a 0.024% charge based on our estimated average contract size. Premium taxes imposed by some state and local governments are not reflected in these tables. 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. ** The six-year withdrawal charge schedule is not available under contracts issued in Oregon and contracts issued through AEFA. YOU SHOULD NOT CONSIDER THESE EXAMPLES AS REPRESENTATIONS OF PAST OR FUTURE EXPENSES. ACTUAL EXPENSES MAY BE MORE OR LESS THAN THOSE SHOWN. -------------------------------------------------------------------------------- 18 WELLS FARGO ADVANTAGE BUILDER VARIABLE ANNUITY -- PROSPECTUS CONDENSED FINANCIAL INFORMATION (UNAUDITED) The following tables give per-unit information about the financial history of the subaccounts representing the highest (1.70%) and lowest (1.25%) total annual variable account expense combinations. The SAI contains tables that give per-unit information about the financial history of each subaccount. We have not provided this information for some subaccounts because they are new and do not have any history. You may obtain a copy of the SAI without charge by contacting us at the telephone number or address listed on the first page of this prospectus.
YEAR ENDED DEC. 31, 2000 1999 ------------------------------------------------------------------------------------------------------------------------------------ SUBACCOUNT PBCA1(1) (INVESTING IN SHARES OF AXP-Registered Trademark- VARIABLE PORTFOLIO - BLUE CHIP ADVANTAGE FUND) Accumulation unit value at beginning of period $1.09 $1.00 Accumulation unit value at end of period $0.96 $1.09 Number of accumulation units outstanding at end of period (000 omitted) 200 -- Ratio of operating expense to average net assets 1.25% 1.25% ------------------------------------------------------------------------------------------------------------------------------------ SUBACCOUNT WBCA1(2) (INVESTING IN SHARES OF AXP-Registered Trademark- VARIABLE PORTFOLIO - BLUE CHIP ADVANTAGE FUND) Accumulation unit value at beginning of period $1.00 -- Accumulation unit value at end of period $0.91 -- Number of accumulation units outstanding at end of period (000 omitted) 81 -- Ratio of operating expense to average net assets 1.70% -- ------------------------------------------------------------------------------------------------------------------------------------ SUBACCOUNT WCAR1(2) (INVESTING IN SHARES OF AXP-Registered Trademark- VARIABLE PORTFOLIO - CAPITAL RESOURCE FUND) Accumulation unit value at beginning of period $1.00 -- Accumulation unit value at end of period $0.83 -- Number of accumulation units outstanding at end of period (000 omitted) -- -- Ratio of operating expense to average net assets 1.70% -- ------------------------------------------------------------------------------------------------------------------------------------ SUBACCOUNT WCAR6(2) (INVESTING IN SHARES OF AXP-Registered Trademark- VARIABLE PORTFOLIO - CAPITAL RESOURCE FUND) Accumulation unit value at beginning of period $1.00 -- Accumulation unit value at end of period $0.83 -- Number of accumulation units outstanding at end of period (000 omitted) 104 -- Ratio of operating expense to average net assets 1.25% -- ------------------------------------------------------------------------------------------------------------------------------------ SUBACCOUNT PDEI1(1) (INVESTING IN SHARES OF AXP-Registered Trademark- VARIABLE PORTFOLIO - DIVERSIFIED EQUITY INCOME FUND) Accumulation unit value at beginning of period $1.02 $1.00 Accumulation unit value at end of period $1.00 $1.02 Number of accumulation units outstanding at end of period (000 omitted) 244 -- Ratio of operating expense to average net assets 1.25% 1.25% ------------------------------------------------------------------------------------------------------------------------------------ SUBACCOUNT WDEI1(2) (INVESTING IN SHARES OF AXP-Registered Trademark- VARIABLE PORTFOLIO - DIVERSIFIED EQUITY INCOME 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 (000 omitted) 40 -- Ratio of operating expense to average net assets 1.70% -- ------------------------------------------------------------------------------------------------------------------------------------ SUBACCOUNT PEXI1(1) (INVESTING IN SHARES OF AXP-Registered Trademark- VARIABLE PORTFOLIO - EXTRA INCOME FUND) Accumulation unit value at beginning of period $1.03 $1.00 Accumulation unit value at end of period $0.92 $1.03 Number of accumulation units outstanding at end of period (000 omitted) 278 -- Ratio of operating expense to average net assets 1.25% 1.25% ------------------------------------------------------------------------------------------------------------------------------------ SUBACCOUNT WEXI1(2) (INVESTING IN SHARES OF AXP-Registered Trademark- VARIABLE PORTFOLIO - EXTRA INCOME FUND) Accumulation unit value at beginning of period $1.00 -- Accumulation unit value at end of period $0.87 -- Number of accumulation units outstanding at end of period (000 omitted) 8 -- Ratio of operating expense to average net assets 1.70% -- ------------------------------------------------------------------------------------------------------------------------------------ SUBACCOUNT WFDI1(2) (INVESTING IN SHARES OF AXP-Registered Trademark- VARIABLE PORTFOLIO - FEDERAL INCOME FUND) Accumulation unit value at beginning of period $1.00 -- Accumulation unit value at end of period $1.05 -- Number of accumulation units outstanding at end of period (000 omitted) 65 -- Ratio of operating expense to average net assets 1.70% -- ------------------------------------------------------------------------------------------------------------------------------------
-------------------------------------------------------------------------------- WELLS FARGO ADVANTAGE BUILDER VARIABLE ANNUITY -- PROSPECTUS 19
YEAR ENDED DEC. 31, 2000 1999 ------------------------------------------------------------------------------------------------------------------------------------ SUBACCOUNT WFDI6(2) (INVESTING IN SHARES OF AXP-Registered Trademark- VARIABLE PORTFOLIO - FEDERAL INCOME FUND) Accumulation unit value at beginning of period $1.00 -- Accumulation unit value at end of period $1.06 -- Number of accumulation units outstanding at end of period (000 omitted) 183 -- Ratio of operating expense to average net assets 1.25% -- ------------------------------------------------------------------------------------------------------------------------------------ SUBACCOUNT PNDM1(1) (INVESTING IN SHARES OF AXP-Registered Trademark- VARIABLE PORTFOLIO - NEW DIMENSIONS FUND-REGISTERED TRADEMARK-) Accumulation unit value at beginning of period $1.15 $1.00 Accumulation unit value at end of period $1.03 $1.15 Number of accumulation units outstanding at end of period (000 omitted) 1,937 -- Ratio of operating expense to average net assets 1.25% 1.25% ------------------------------------------------------------------------------------------------------------------------------------ SUBACCOUNT WNDM1(2) (INVESTING IN SHARES OF AXP-Registered Trademark- VARIABLE PORTFOLIO - NEW DIMENSIONS FUND-REGISTERED TRADEMARK-) Accumulation unit value at beginning of period $1.00 -- Accumulation unit value at end of period $0.86 -- Number of accumulation units outstanding at end of period (000 omitted) 198 -- Ratio of operating expense to average net assets 1.70% -- ------------------------------------------------------------------------------------------------------------------------------------ SUBACCOUNT PSCA1(1) (INVESTING IN SHARES OF AXP-Registered Trademark- VARIABLE PORTFOLIO - SMALL CAP ADVANTAGE FUND) Accumulation unit value at beginning of period $1.11 $1.00 Accumulation unit value at end of period $1.14 $1.11 Number of accumulation units outstanding at end of period (000 omitted) 85 -- Ratio of operating expense to average net assets 1.25% 1.25% ------------------------------------------------------------------------------------------------------------------------------------ SUBACCOUNT WSCA1(2) (INVESTING IN SHARES OF AXP-Registered Trademark- VARIABLE PORTFOLIO - SMALL CAP ADVANTAGE FUND) Accumulation unit value at beginning of period $1.00 -- Accumulation unit value at end of period $0.89 -- Number of accumulation units outstanding at end of period (000 omitted) 39 -- Ratio of operating expense to average net assets 1.70% -- ------------------------------------------------------------------------------------------------------------------------------------ SUBACCOUNT PCAP1(1) (INVESTING IN SHARES OF AIM V.I. CAPITAL APPRECIATION FUND) Accumulation unit value at beginning of period $1.26 $1.00 Accumulation unit value at end of period $1.11 $1.26 Number of accumulation units outstanding at end of period (000 omitted) 1,103 -- Ratio of operating expense to average net assets 1.25% 1.25% ------------------------------------------------------------------------------------------------------------------------------------ SUBACCOUNT WCAP1(2) (INVESTING IN SHARES OF AIM V.I. CAPITAL APPRECIATION FUND) Accumulation unit value at beginning of period $1.00 -- Accumulation unit value at end of period $0.75 -- Number of accumulation units outstanding at end of period (000 omitted) 208 -- Ratio of operating expense to average net assets 1.70% -- ------------------------------------------------------------------------------------------------------------------------------------ SUBACCOUNT PVAL1(1) (INVESTING IN SHARES OF AIM V.I. VALUE FUND) Accumulation unit value at beginning of period $1.11 $1.00 Accumulation unit value at end of period $0.94 $1.11 Number of accumulation units outstanding at end of period (000 omitted) 4,769 -- Ratio of operating expense to average net assets 1.25% 1.25% ------------------------------------------------------------------------------------------------------------------------------------ SUBACCOUNT WVAL1(2) (INVESTING IN SHARES OF AIM V.I. VALUE FUND) Accumulation unit value at beginning of period $1.00 -- Accumulation unit value at end of period $0.81 -- Number of accumulation units outstanding at end of period (000 omitted) 1,087 -- Ratio of operating expense to average net assets 1.70% -- ------------------------------------------------------------------------------------------------------------------------------------ SUBACCOUNT WSRG1(2) (INVESTING IN SHARES OF THE DREYFUS SOCIALLY RESPONSIBLE GROWTH FUND, INC. - INITIAL SHARE CLASS) Accumulation unit value at beginning of period $1.00 -- Accumulation unit value at end of period $0.90 -- Number of accumulation units outstanding at end of period (000 omitted) 364 -- Ratio of operating expense to average net assets 1.70% -- ------------------------------------------------------------------------------------------------------------------------------------ SUBACCOUNT WSRG6(2) (INVESTING IN SHARES OF THE DREYFUS SOCIALLY RESPONSIBLE GROWTH FUND, INC. - INITIAL SHARE CLASS) Accumulation unit value at beginning of period $1.00 -- Accumulation unit value at end of period $0.90 -- Number of accumulation units outstanding at end of period (000 omitted) 471 -- Ratio of operating expense to average net assets 1.25% -- ------------------------------------------------------------------------------------------------------------------------------------
-------------------------------------------------------------------------------- 20 WELLS FARGO ADVANTAGE BUILDER VARIABLE ANNUITY -- PROSPECTUS
YEAR ENDED DEC. 31, 2000 1999 ------------------------------------------------------------------------------------------------------------------------------------ SUBACCOUNT WISE1(2) (INVESTING IN SHARES OF FTVIPT FRANKLIN INCOME SECURITIES FUND - CLASS 2) 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 (000 omitted) 157 -- Ratio of operating expense to average net assets 1.70% -- ------------------------------------------------------------------------------------------------------------------------------------ SUBACCOUNT WISE6(2) (INVESTING IN SHARES OF FTVIPT FRANKLIN INCOME SECURITIES FUND - CLASS 2) Accumulation unit value at beginning of period $1.00 -- Accumulation unit value at end of period $1.16 -- Number of accumulation units outstanding at end of period (000 omitted) 153 -- Ratio of operating expense to average net assets 1.25% -- ------------------------------------------------------------------------------------------------------------------------------------ SUBACCOUNT WRES1(2) (INVESTING IN SHARES OF FTVIPT FRANKLIN REAL ESTATE FUND - CLASS 2) Accumulation unit value at beginning of period $1.00 -- Accumulation unit value at end of period $1.18 -- Number of accumulation units outstanding at end of period (000 omitted) 6 -- Ratio of operating expense to average net assets 1.70% -- ------------------------------------------------------------------------------------------------------------------------------------ SUBACCOUNT WRES6(2) (INVESTING IN SHARES OF FTVIPT FRANKLIN REAL ESTATE FUND - CLASS 2) Accumulation unit value at beginning of period $1.00 -- Accumulation unit value at end of period $1.34 -- Number of accumulation units outstanding at end of period (000 omitted) 144 -- Ratio of operating expense to average net assets 1.25% -- ------------------------------------------------------------------------------------------------------------------------------------ SUBACCOUNT PSMC1(1) (INVESTING IN SHARES OF FTVIPT FRANKLIN SMALL CAP FUND - CLASS 2) Accumulation unit value at beginning of period $1.43 $1.00 Accumulation unit value at end of period $1.21 $1.43 Number of accumulation units outstanding at end of period (000 omitted) 855 -- Ratio of operating expense to average net assets 1.25% 1.25% ------------------------------------------------------------------------------------------------------------------------------------ SUBACCOUNT WSMC1(2) (INVESTING IN SHARES OF FTVIPT FRANKLIN SMALL CAP FUND - CLASS 2) Accumulation unit value at beginning of period $1.00 -- Accumulation unit value at end of period $0.60 -- Number of accumulation units outstanding at end of period (000 omitted) 120 -- Ratio of operating expense to average net assets 1.70% -- ------------------------------------------------------------------------------------------------------------------------------------ SUBACCOUNT WMSS1(2) (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 $1.11 -- Number of accumulation units outstanding at end of period (000 omitted) 6 -- Ratio of operating expense to average net assets 1.70% -- ------------------------------------------------------------------------------------------------------------------------------------ SUBACCOUNT WMSS6(2) (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 $1.18 -- Number of accumulation units outstanding at end of period (000 omitted) 36 -- Ratio of operating expense to average net assets 1.25% -- ------------------------------------------------------------------------------------------------------------------------------------ SUBACCOUNT WUSE1(2) (INVESTING IN SHARES OF GOLDMAN SACHS VIT CORE-SM- U.S. EQUITY FUND) Accumulation unit value at beginning of period $1.00 -- Accumulation unit value at end of period $0.91 -- Number of accumulation units outstanding at end of period (000 omitted) 102 -- Ratio of operating expense to average net assets 1.70% -- ------------------------------------------------------------------------------------------------------------------------------------ SUBACCOUNT WUSE6(2) (INVESTING IN SHARES OF GOLDMAN SACHS VIT CORE-SM- U.S. EQUITY FUND) Accumulation unit value at beginning of period $1.00 -- Accumulation unit value at end of period $0.92 -- Number of accumulation units outstanding at end of period (000 omitted) 1,204 -- Ratio of operating expense to average net assets 1.25% -- ------------------------------------------------------------------------------------------------------------------------------------ SUBACCOUNT WGLI1(2) (INVESTING IN SHARES OF GOLDMAN SACHS VIT GLOBAL INCOME FUND) Accumulation unit value at beginning of period $1.00 -- Accumulation unit value at end of period $1.06 -- Number of accumulation units outstanding at end of period (000 omitted) 63 -- Ratio of operating expense to average net assets 1.70% -- ------------------------------------------------------------------------------------------------------------------------------------
-------------------------------------------------------------------------------- WELLS FARGO ADVANTAGE BUILDER VARIABLE ANNUITY -- PROSPECTUS 21
YEAR ENDED DEC. 31, 2000 1999 ------------------------------------------------------------------------------------------------------------------------------------ SUBACCOUNT WGLI6(2) (INVESTING IN SHARES OF GOLDMAN SACHS VIT GLOBAL INCOME FUND) Accumulation unit value at beginning of period $1.00 -- Accumulation unit value at end of period $1.07 -- Number of accumulation units outstanding at end of period (000 omitted) 187 -- Ratio of operating expense to average net assets 1.25% -- ------------------------------------------------------------------------------------------------------------------------------------ SUBACCOUNT WITO1(3) (INVESTING IN SHARES OF GOLDMAN SACHS VIT INTERNET TOLLKEEPER FUND-SM-) Accumulation unit value at beginning of period $1.00 -- Accumulation unit value at end of period $0.67 -- Number of accumulation units outstanding at end of period (000 omitted) 31 -- Ratio of operating expense to average net assets 1.70% -- ------------------------------------------------------------------------------------------------------------------------------------ SUBACCOUNT WITO6(3) (INVESTING IN SHARES OF GOLDMAN SACHS VIT INTERNET TOLLKEEPER FUND-SM-) Accumulation unit value at beginning of period $1.00 -- Accumulation unit value at end of period $0.67 -- Number of accumulation units outstanding at end of period (000 omitted) 110 -- Ratio of operating expense to average net assets 1.25% -- ------------------------------------------------------------------------------------------------------------------------------------ SUBACCOUNT WMCV1(2) (INVESTING IN SHARES OF GOLDMAN SACHS VIT MID CAP VALUE FUND) Accumulation unit value at beginning of period $1.00 -- Accumulation unit value at end of period $1.41 -- Number of accumulation units outstanding at end of period (000 omitted) 60 -- Ratio of operating expense to average net assets 1.70% -- ------------------------------------------------------------------------------------------------------------------------------------ SUBACCOUNT WMCV6(2) (INVESTING IN SHARES OF GOLDMAN SACHS VIT MID CAP VALUE FUND) Accumulation unit value at beginning of period $1.00 -- Accumulation unit value at end of period $1.42 -- Number of accumulation units outstanding at end of period (000 omitted) 414 -- Ratio of operating expense to average net assets 1.25% -- ------------------------------------------------------------------------------------------------------------------------------------ SUBACCOUNT PGIS1(1) (INVESTING IN SHARES OF MFS-Registered Trademark- INVESTORS TRUST SERIES - INITIAL CLASS(4)) Accumulation unit value at beginning of period $1.05 $1.00 Accumulation unit value at end of period $1.04 $1.05 Number of accumulation units outstanding at end of period (000 omitted) 295 -- Ratio of operating expense to average net assets 1.25% 1.25% ------------------------------------------------------------------------------------------------------------------------------------ SUBACCOUNT WGIS1(2) (INVESTING IN SHARES OF MFS-Registered Trademark- INVESTORS TRUST SERIES - INITIAL CLASS(4)) Accumulation unit value at beginning of period $1.00 -- Accumulation unit value at end of period $1.02 -- Number of accumulation units outstanding at end of period (000 omitted) 15 -- Ratio of operating expense to average net assets 1.70% -- ------------------------------------------------------------------------------------------------------------------------------------ SUBACCOUNT PUTS1(1) (INVESTING IN SHARES OF MFS-Registered Trademark- UTILITIES SERIES - INITIAL CLASS) Accumulation unit value at beginning of period $1.14 $1.00 Accumulation unit value at end of period $1.20 $1.14 Number of accumulation units outstanding at end of period (000 omitted) 1,109 -- Ratio of operating expense to average net assets 1.25% 1.25% ------------------------------------------------------------------------------------------------------------------------------------ SUBACCOUNT WUTS1(2) (INVESTING IN SHARES OF MFS-Registered Trademark- UTILITIES SERIES - INITIAL CLASS) Accumulation unit value at beginning of period $1.00 -- Accumulation unit value at end of period $0.85 -- Number of accumulation units outstanding at end of period (000 omitted) 171 -- Ratio of operating expense to average net assets 1.70% -- ------------------------------------------------------------------------------------------------------------------------------------ SUBACCOUNT PIGR1(1) (INVESTING IN SHARES OF PUTNAM VT INTERNATIONAL GROWTH FUND - CLASS IB SHARES) Accumulation unit value at beginning of period $1.29 $1.00 Accumulation unit value at end of period $1.15 $1.29 Number of accumulation units outstanding at end of period (000 omitted) 2,474 -- Ratio of operating expense to average net assets 1.25% 1.25% ------------------------------------------------------------------------------------------------------------------------------------ SUBACCOUNT WIGR1(2) (INVESTING IN SHARES OF PUTNAM VT INTERNATIONAL GROWTH FUND - CLASS IB SHARES) Accumulation unit value at beginning of period $1.00 -- Accumulation unit value at end of period $0.75 -- Number of accumulation units outstanding at end of period (000 omitted) 708 -- Ratio of operating expense to average net assets 1.70% -- ------------------------------------------------------------------------------------------------------------------------------------
-------------------------------------------------------------------------------- 22 WELLS FARGO ADVANTAGE BUILDER VARIABLE ANNUITY -- PROSPECTUS
YEAR ENDED DEC. 31, 2000 1999 ------------------------------------------------------------------------------------------------------------------------------------ SUBACCOUNT PVIS1(1) (INVESTING IN SHARES OF PUTNAM VT VISTA FUND - CLASS IB SHARES) Accumulation unit value at beginning of period $1.30 $1.00 Accumulation unit value at end of period $1.23 $1.30 Number of accumulation units outstanding at end of period (000 omitted) 1,798 -- Ratio of operating expense to average net assets 1.25% 1.25% ------------------------------------------------------------------------------------------------------------------------------------ SUBACCOUNT WVIS1(2) (INVESTING IN SHARES OF PUTNAM VT VISTA FUND - CLASS IB SHARES) Accumulation unit value at beginning of period $1.00 -- Accumulation unit value at end of period $0.73 -- Number of accumulation units outstanding at end of period (000 omitted) 814 -- Ratio of operating expense to average net assets 1.70% -- ------------------------------------------------------------------------------------------------------------------------------------ SUBACCOUNT WAAL1(2) (INVESTING IN SHARES OF WELLS FARGO VT ASSET ALLOCATION FUND) Accumulation unit value at beginning of period $1.00 -- Accumulation unit value at end of period $0.98 -- Number of accumulation units outstanding at end of period (000 omitted) 480 -- Ratio of operating expense to average net assets 1.70% -- ------------------------------------------------------------------------------------------------------------------------------------ SUBACCOUNT WAAL6(2) (INVESTING IN SHARES OF WELLS FARGO VT ASSET ALLOCATION FUND) 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 (000 omitted) 3,351 -- Ratio of operating expense to average net assets 1.25% -- ------------------------------------------------------------------------------------------------------------------------------------ SUBACCOUNT WCBD1(2) (INVESTING IN SHARES OF WELLS FARGO VT CORPORATE BOND FUND) Accumulation unit value at beginning of period $1.00 -- Accumulation unit value at end of period $1.06 -- Number of accumulation units outstanding at end of period (000 omitted) 68 -- Ratio of operating expense to average net assets 1.70% -- ------------------------------------------------------------------------------------------------------------------------------------ SUBACCOUNT WCBD6(2) (INVESTING IN SHARES OF WELLS FARGO VT CORPORATE BOND 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 (000 omitted) 660 -- Ratio of operating expense to average net assets 1.25% -- ------------------------------------------------------------------------------------------------------------------------------------ SUBACCOUNT WEQI1(2) (INVESTING IN SHARES OF WELLS FARGO VT EQUITY INCOME FUND) Accumulation unit value at beginning of period $1.00 -- Accumulation unit value at end of period $1.12 -- Number of accumulation units outstanding at end of period (000 omitted) 104 -- Ratio of operating expense to average net assets 1.70% -- ------------------------------------------------------------------------------------------------------------------------------------ SUBACCOUNT WEQI6(2) (INVESTING IN SHARES OF WELLS FARGO VT EQUITY INCOME FUND) 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 (000 omitted) 765 -- Ratio of operating expense to average net assets 1.25% -- ------------------------------------------------------------------------------------------------------------------------------------ SUBACCOUNT WEQV1(2) (INVESTING IN SHARES OF WELLS FARGO VT EQUITY VALUE 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 (000 omitted) 136 -- Ratio of operating expense to average net assets 1.70% -- ------------------------------------------------------------------------------------------------------------------------------------ SUBACCOUNT WEQV6(2) (INVESTING IN SHARES OF WELLS FARGO VT EQUITY VALUE 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 (000 omitted) 36 -- Ratio of operating expense to average net assets 1.25% -- ------------------------------------------------------------------------------------------------------------------------------------ SUBACCOUNT WGRO1(2) (INVESTING IN SHARES OF WELLS FARGO VT GROWTH FUND) Accumulation unit value at beginning of period $1.00 -- Accumulation unit value at end of period $0.87 -- Number of accumulation units outstanding at end of period (000 omitted) 42 -- Ratio of operating expense to average net assets 1.70% -- ------------------------------------------------------------------------------------------------------------------------------------
-------------------------------------------------------------------------------- WELLS FARGO ADVANTAGE BUILDER VARIABLE ANNUITY -- PROSPECTUS 23
YEAR ENDED DEC. 31, 2000 1999 ------------------------------------------------------------------------------------------------------------------------------------ SUBACCOUNT WGRO6(2) (INVESTING IN SHARES OF WELLS FARGO VT GROWTH FUND) Accumulation unit value at beginning of period $1.00 -- Accumulation unit value at end of period $0.87 -- Number of accumulation units outstanding at end of period (000 omitted) 340 -- Ratio of operating expense to average net assets 1.25% -- ------------------------------------------------------------------------------------------------------------------------------------ SUBACCOUNT WIEQ1(5) (INVESTING IN SHARES OF WELLS FARGO VT INTERNATIONAL EQUITY FUND) Accumulation unit value at beginning of period $1.00 -- Accumulation unit value at end of period $0.89 -- Number of accumulation units outstanding at end of period (000 omitted) 6 -- Ratio of operating expense to average net assets 1.70% -- ------------------------------------------------------------------------------------------------------------------------------------ SUBACCOUNT WIEQ6(5) (INVESTING IN SHARES OF WELLS FARGO VT INTERNATIONAL EQUITY FUND) Accumulation unit value at beginning of period $1.00 -- Accumulation unit value at end of period $0.89 -- Number of accumulation units outstanding at end of period (000 omitted) 88 -- Ratio of operating expense to average net assets 1.25% -- ------------------------------------------------------------------------------------------------------------------------------------ SUBACCOUNT WLCG1(2) (INVESTING IN SHARES OF WELLS FARGO VT LARGE COMPANY GROWTH FUND) Accumulation unit value at beginning of period $1.00 -- Accumulation unit value at end of period $0.95 -- Number of accumulation units outstanding at end of period (000 omitted) 1,011 -- Ratio of operating expense to average net assets 1.70% -- ------------------------------------------------------------------------------------------------------------------------------------ SUBACCOUNT WLCG6(2) (INVESTING IN SHARES OF WELLS FARGO VT LARGE COMPANY GROWTH FUND) Accumulation unit value at beginning of period $1.00 -- Accumulation unit value at end of period $0.95 -- Number of accumulation units outstanding at end of period (000 omitted) 5,711 -- Ratio of operating expense to average net assets 1.25% -- ------------------------------------------------------------------------------------------------------------------------------------ SUBACCOUNT WMMK1(2) (INVESTING IN SHARES OF WELLS FARGO VT MONEY MARKET 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 (000 omitted) 404 -- Ratio of operating expense to average net assets 1.70% -- ------------------------------------------------------------------------------------------------------------------------------------ SUBACCOUNT WMMK6(2) (INVESTING IN SHARES OF WELLS FARGO VT MONEY MARKET FUND) 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 (000 omitted) 1,717 -- Ratio of operating expense to average net assets 1.25% -- ------------------------------------------------------------------------------------------------------------------------------------ SUBACCOUNT WSCG1(2) (INVESTING IN SHARES OF WELLS FARGO VT SMALL CAP GROWTH FUND) Accumulation unit value at beginning of period $1.00 -- Accumulation unit value at end of period $0.56 -- Number of accumulation units outstanding at end of period (000 omitted) 445 -- Ratio of operating expense to average net assets 1.70% -- ------------------------------------------------------------------------------------------------------------------------------------ SUBACCOUNT WSCG6(2) (INVESTING IN SHARES OF WELLS FARGO VT SMALL CAP GROWTH FUND) Accumulation unit value at beginning of period $1.00 -- Accumulation unit value at end of period $0.56 -- Number of accumulation units outstanding at end of period (000 omitted) 2,024 -- Ratio of operating expense to average net assets 1.25% -- ------------------------------------------------------------------------------------------------------------------------------------
(1) Operations commenced on Nov. 9, 1999. (2) Operations commenced on March 3, 2000. (3) Operations commenced on May 1, 2000. (4) Previously named MFS-Registered Trademark- Growth with Income Series. (5) Operations commenced on July 3, 2000. FINANCIAL STATEMENTS You can find the audited financial statements of the subaccounts with financial history in the SAI. The SAI does not include the audited financial statements for some of the subaccounts because they are new and have not had any activity to date. You can find our audited financial statements later in this prospectus. -------------------------------------------------------------------------------- 24 WELLS FARGO ADVANTAGE BUILDER VARIABLE ANNUITY -- PROSPECTUS PERFORMANCE INFORMATION Performance information for the subaccounts may appear from time to time in advertisements or sales literature. This information reflects the performance of a hypothetical investment in a particular subaccount during a specified time period. We show actual performance from the date the subaccounts began investing in funds. Currently we do not provide performance information for some of the subaccounts because they are new and have not had any activity to date. However, we show performance from the commencement date of the funds as if the contract existed at that time, which it did not. Although we base performance figures on historical earnings, past performance does not guarantee future results. We include non-recurring charges (such as withdrawal charges) in total return figures, but not in yield quotations. Excluding non-recurring charges in yield calculations increases the reported value. Total return figures do not reflect any purchase payment credits. We may show total return quotations by means of schedules, charts or graphs. Total return figures reflect deduction of the following charges: - contract administrative charge, - variable account administrative charge, - Enhanced Death Benefit Rider fee, - Guaranteed Minimum Income Benefit Rider fee, - applicable mortality and expense risk fee, and - withdrawal charge (assuming a withdrawal at the end of the illustrated period). We may also show optional total return quotations that reflect deduction of the Benefit Protector(SM) Death Benefit Rider fee or the Benefit Protector(SM) Plus Death Benefit Rider fee. We also show optional total return quotations that do not reflect deduction of the withdrawal charge (assuming no withdrawal), or fees for any of the optional features. 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. -------------------------------------------------------------------------------- WELLS FARGO ADVANTAGE BUILDER VARIABLE ANNUITY -- PROSPECTUS 25 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:
---------------- ------------------------------ ------------------------------------------- ----------------------------- SUBACCOUNT INVESTING IN INVESTMENT OBJECTIVES AND POLICIES INVESTMENT ADVISOR OR MANAGER ---------------- ------------------------------ ------------------------------------------- ----------------------------- PBCA1 AXP-Registered Trademark- Objective: long-term total return IDS Life Insurance Company WBCA1 Variable Portfolio - Blue exceeding that of the U.S. stock market. (IDS Life), investment manager; WBCA3 Chip Advantage Fund Invests primarily in common stocks of American Express Financial WBCA4 companies included in the unmanaged S&P Corporation (AEFC), investment 500 Index. advisor. ---------------- ------------------------------ ------------------------------------------- ----------------------------- WCAR1 AXP-Registered Trademark- Objective: capital appreciation. Invests IDS Life, investment WCAR3 Variable Portfolio - Capital primarily in U.S. common stocks and other manager; AEFC, investment WCAR4 Resource Fund securities convertible into common stocks. advisor. WCAR6 ---------------- ------------------------------ ------------------------------------------- ----------------------------- PDEI1 AXP-Registered Trademark- Objective: a high level of current income IDS Life, investment WDEI1 Variable Portfolio - and, as a secondary goal, steady growth manager; AEFC, investment WDEI3 Diversified Equity Income of capital. Invests primarily in advisor. WDEI4 Fund dividend-paying common and preferred stocks. ---------------- ------------------------------ ------------------------------------------- ----------------------------- PEXI1 AXP-Registered Trademark- Objective: high current income, with IDS Life, investment WEXI1 Variable Portfolio - Extra capital growth as a secondary objective. manager; AEFC, investment WEXI3 Income Fund Invests primarily in high-yielding, advisor. WEXI4 high-risk corporate bonds issued by U.S. and foreign companies and governments. ---------------- ------------------------------ ------------------------------------------- ----------------------------- WFDI1 AXP-Registered Trademark- Objective: a high level of current income IDS Life, investment WFDI3 Variable Portfolio - Federal and safety of principal consistent with manager; AEFC, investment WFDI4 Income Fund an investment in U.S. government and advisor. WFDI6 government agency securities. Invests primarily in debt obligations issued or guaranteed as to principal and interest by the U.S. government, its agencies or instrumentalities. ---------------- ------------------------------ ------------------------------------------- ----------------------------- PNDM1 AXP-Registered Trademark- Objective: long-term growth of capital. IDS Life, investment WNDM1 Variable Portfolio - New Invests primarily in common stocks of manager; AEFC, investment WNDM3 Dimensions Fund-Registered U.S. and foreign companies showing advisor. WNDM4 Trademark- potential for significant growth. ---------------- ------------------------------ ------------------------------------------- ----------------------------- PSCA1 AXP-Registered Trademark- Objective: long-term capital growth. IDS Life, investment WSCA1 Variable Portfolio - Small Invests primarily in equity stocks of manager; AEFC, investment WSCA3 Cap Advantage Fund small companies that are often included advisor; Kenwood Capital WSCA4 in the S&P SmallCap 600 Index or the Management LLC, Russell 2000 Index. sub-investment advisor. ---------------- ------------------------------ ------------------------------------------- ----------------------------- PCAP1 AIM V.I. Capital Objective: growth of capital. Invests A I M Advisors, Inc. WCAP1 Appreciation Fund mainly in common stocks of companies WCAP3 likely to benefit from new or WCAP4 innovative products, services or processes as well as those with above-average growth and excellent prospects for future growth. ---------------- ------------------------------ ------------------------------------------- -----------------------------
-------------------------------------------------------------------------------- 26 WELLS FARGO ADVANTAGE BUILDER VARIABLE ANNUITY -- PROSPECTUS
---------------- ------------------------------ ------------------------------------------- ----------------------------- SUBACCOUNT INVESTING IN INVESTMENT OBJECTIVES AND POLICIES INVESTMENT ADVISOR OR MANAGER ---------------- ------------------------------ ------------------------------------------- ----------------------------- PVAL1 AIM V.I. Value Fund Objective: long-term growth of capital A I M Advisors, Inc. WVAL1 with income as a secondary objective. WVAL3 Invests primarily in equity WVAL4 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. ---------------- ------------------------------ ------------------------------------------- ----------------------------- WSRG1 The Dreyfus Socially Objective: capital growth, with current The Dreyfus Corporation, WSRG3 Responsible Growth Fund, income as a secondary objective. Invests investment advisor; NCM WSRG4 Inc. - Initial Share Class primarily in the common stock of Capital Management Group, WSRG6 companies that, in the opinion of the Inc., sub-investment fund's management, meet traditional advisor. investment standards and conduct their business in a manner that contributes to the enhancement of the quality of life in America. ---------------- ------------------------------ ------------------------------------------- ----------------------------- WDYC1 Fidelity VIP Dynamic Capital Objective: capital appreciation. Invests Fidelity Management & WDYC3 Appreciation Portfolio primarily in growth or value common Research Company (FMR), WDYC4 (Service Class 2) stocks of domestic and foreign issuers. investment manager; FMR WDYC6 U.K., FMR Far East, Fidelity Investments Japan Limited (FIJ) and FMR Co. Inc. (FMRC), sub-investment advisors ---------------- ------------------------------ ------------------------------------------- ----------------------------- WHIP1 Fidelity VIP High Income Objective: high level of current income FMR, investment manager; WHIP3 Portfolio (Service Class 2) while also considering growth of capital. FMR U.K., FMR Far East, FIJ WHIP4 Invests primarily in foreign and and FMRC, sub-investment WHIP6 domestic issued income-producing debt advisors. securities, preferred stocks and convertible securities, with an emphasis on lower-quality debt securities. Invests in companies in troubled or uncertain financial condition. ---------------- ------------------------------ ------------------------------------------- ----------------------------- WMDC1 Fidelity VIP Mid Cap Objective: long-term growth of capital. FMR, investment manager; WMDC3 Portfolio (Service Class 2) Invests primarily in medium market FMR U.K., FMR Far East, FIJ WMDC4 capitalization common stocks. and FMRC, sub-investment WMDC6 advisors. ---------------- ------------------------------ ------------------------------------------- ----------------------------- WISE1 FTVIPT Franklin Income Objective: maximize income while Franklin Advisers, Inc. WISE3 Securities Fund - Class 2 maintaining prospects for capital WISE4 appreciation. Invests primarily WISE6 in a diversified portfolio of debt and equity securities, including high yield, lower-rated "junk bonds." ---------------- ------------------------------ ------------------------------------------- ----------------------------- WRES1 FTVIPT Franklin Real Estate Objective: capital appreciation with a Franklin Advisers, Inc. WRES3 Fund - Class 2 secondary goal to earn current income. WRES4 Invests primarily in equity WRES6 securities of companies operating in the real estate industry, primarily equity real estate investment trusts (REITS). ---------------- ------------------------------ ------------------------------------------- -----------------------------
-------------------------------------------------------------------------------- WELLS FARGO ADVANTAGE BUILDER VARIABLE ANNUITY -- PROSPECTUS 27
---------------- ------------------------------ ------------------------------------------- ----------------------------- SUBACCOUNT INVESTING IN INVESTMENT OBJECTIVES AND POLICIES INVESTMENT ADVISOR OR MANAGER ---------------- ------------------------------ ------------------------------------------- ----------------------------- PSMC1 FTVIPT Franklin Small Cap Objective: long-term capital growth. Franklin Advisers, Inc. WSMC1 Fund - Class 2 Invests primarily in equity securities of WSMC3 U.S. small capitalization (small cap) WSMC4 companies with market cap values not exceeding (i) $1.5 billion, or (ii) the highest market cap value in the Russell 2000-Registered Trademark- Index, whichever is greater, at the time of purchase. ---------------- ------------------------------ ------------------------------------------- ----------------------------- WMSS1 FTVIPT Mutual Shares Objective: capital appreciation, with Franklin Mutual Advisers, WMSS3 Securities Fund - Class 2 income as a secondary goal. Invests LLC WMSS4 primarily in equity securities WMSS6 of companies that the manager believes are available at market prices less than their value based on certain recognized or objective criteria (intrinsic value). ---------------- ------------------------------ ------------------------------------------- ----------------------------- WUSE1 Goldman Sachs VIT CORE-SM- Objective: seeks long-term growth of Goldman Sachs Asset WUSE3 U.S. Equity Fund capital and dividend income. Invests Management WUSE4 primarily in a broadly diversified WUSE6 portfolio of large-cap and blue chip equity securities representing all major sectors of the U.S. economy. ---------------- ------------------------------ ------------------------------------------- ----------------------------- WGLI1 Goldman Sachs VIT Global Objective: seeks high total return, Goldman Sachs Asset WGLI3 Income Fund emphasizing current income, and, to a Management International WGLI4 lesser extent, providing opportunities WGLI6 for capital appreciation. Invests primarily in a portfolio of high quality fixed-income securities of U.S. and foreign issuers and enters into transactions in foreign currencies. ---------------- ------------------------------ ------------------------------------------- ----------------------------- SITO2 Goldman Sachs VIT Internet Objective: seeks long-term growth of Goldman Sachs Asset WITO1 Tollkeeper Fund-SM- capital. Invests primarily in equity Management WITO4 securities of companies the WITO6 investment adviser believes will benefit from the growth of the Internet by providing access, infrastructure, content and services to Internet companies and customers. ---------------- ------------------------------ ------------------------------------------- ----------------------------- WMCV1 Goldman Sachs VIT Mid Cap Objective: seeks long-term capital Goldman Sachs Asset WMCV3 Value Fund appreciation. Invests primarily in Management WMCV4 mid-capitalization companies WMCV6 within the range of the market capitalization of companies constituting the Russell Midcap Value index at the time of investment. ---------------- ------------------------------ ------------------------------------------- ----------------------------- PGIS1 MFS-Registered Trademark- Objective: long-term growth of capital MFS Investment WGIS1 Investors Trust Series - with a secondary objective to seek Management-Registered WGIS3 Initial Class (previously reasonable current income. Invests Trademark- WGIS4 MFS-Registered Trademark- primarily in common stocks and related Growth with Income Series) securities, such as preferred stocks, convertible securities and depositary receipts for those securities. ---------------- ------------------------------ ------------------------------------------- ----------------------------- PUTS1 MFS-Registered Trademark- Objective: capital growth and current MFS Investment WUTS1 Utilities Series - Initial income. Invests primarily in equity and Management-Registered WUTS3 Class debt securities of domestic and foreign Trademark- WUTS4 companies in the utilities industry. ---------------- ------------------------------ ------------------------------------------- -----------------------------
-------------------------------------------------------------------------------- 28 WELLS FARGO ADVANTAGE BUILDER VARIABLE ANNUITY -- PROSPECTUS
---------------- ------------------------------ ------------------------------------------- ----------------------------- SUBACCOUNT INVESTING IN INVESTMENT OBJECTIVES AND POLICIES INVESTMENT ADVISOR OR MANAGER ---------------- ------------------------------ ------------------------------------------- ----------------------------- PIGR1 Putnam VT International Objective: capital appreciation. Invests Putnam Investment WIGR1 Growth Fund - Class IB Shares mainly in growth stocks outside the Management, LLC WIGR3 United States that reflect a WIGR4 value lower than that which Putnam Management places on the company or whose earnings we believe are likely to grow over time. ---------------- ------------------------------ ------------------------------------------- ----------------------------- PVIS1 Putnam VT Vista Fund - Objective: capital appreciation. Invests Putnam Investment WVIS1 Class IB Shares mainly in common stocks of mid-sized U.S. Management, LLC WVIS3 companies with a focus on growth stocks. WVIS4 ---------------- ------------------------------ ------------------------------------------- ----------------------------- WAAL1 Wells Fargo VT Asset Objective: long-term total return, Wells Fargo Funds WAAL3 Allocation Fund consistent with reasonable risk. Invests Management, LLC, advisor; WAAL4 primarily in the securities of various Barclays Global Fund WAAL6 indexes to replicate the total return of Advisors, sub-advisor. the index. We use an asset allocation model to allocate and reallocate assets among common stocks (S&P 500 Index), U.S. Treasury bonds (Lehman Brothers 20+ Bond Index) and money market instruments, operating from a target allocation of 60% stocks and 40% bonds. ---------------- ------------------------------ ------------------------------------------- ----------------------------- WCBD1 Wells Fargo VT Corporate Objective: high level of current income Wells Fargo Funds WCBD3 Bond Fund consistent with reasonable risk. Invests Management, LLC, advisor; WCBD4 primarily in corporate debt securities of Wells Capital Management WCBD6 any maturity. Incorporated, sub-advisor. ---------------- ------------------------------ ------------------------------------------- ----------------------------- WEQI1 Wells Fargo VT Equity Objective: long-term capital appreciation Wells Fargo Funds WEQI3 Income Fund and above-average dividend income. Management, LLC, advisor; WEQI4 Invests primarily in common stocks of Wells Capital Management WEQI6 large, high-quality domestic companies Incorporated, sub-advisor. with above-average return potential and above-average dividend income. ---------------- ------------------------------ ------------------------------------------- ----------------------------- WEQV1 Wells Fargo VT Equity Value Objective: long-term capital Wells Fargo Funds WEQV3 Fund appreciation. Invests primarily in equity Management, LLC, advisor; WEQV4 securities that we believe are Wells Capital Management WEQV6 undervalued in relation to the overall Incorporated, sub-advisor. stock markets. ---------------- ------------------------------ ------------------------------------------- ----------------------------- WGRO1 Wells Fargo VT Growth Fund Objective: long-term capital Wells Fargo Funds WGRO3 appreciation. Invests primarily in common Management, LLC, advisor; WGRO4 stocks and other equity securities. We Wells Capital Management WGRO6 look for companies that have a strong Incorporated, sub-advisor. earnings growth trend that we believe have above-average prospects for future growth. ---------------- ------------------------------ ------------------------------------------- ----------------------------- WIEQ1 Wells Fargo VT International Objective: total return with an emphasis Wells Fargo Funds WIEQ3 Equity Fund on capital appreciation over the Management, LLC, advisor; WIEQ4 long-term. Invests primarily in equity Wells Capital Management WIEQ6 securities of non-U.S. companies. Incorporated, sub-advisor. ---------------- ------------------------------ ------------------------------------------- ----------------------------- WLCG1 Wells Fargo VT Large Company Objective: long-term capital Wells Fargo Funds WLCG3 Growth Fund appreciation. Invests primarily in common Management, LLC, advisor; WLCG4 stock of large, high-quality domestic Peregrine Capital WLCG6 companies that have superior growth Management, Inc., potential. sub-advisor. ---------------- ------------------------------ ------------------------------------------- -----------------------------
-------------------------------------------------------------------------------- WELLS FARGO ADVANTAGE BUILDER VARIABLE ANNUITY -- PROSPECTUS 29
---------------- ------------------------------ ------------------------------------------- ----------------------------- SUBACCOUNT INVESTING IN INVESTMENT OBJECTIVES AND POLICIES INVESTMENT ADVISOR OR MANAGER ---------------- ------------------------------ ------------------------------------------- ----------------------------- WMMK1 Wells Fargo VT Money Market Objective: current income, while Wells Fargo Funds WMMK3 Fund preserving capital and liquidity. Invests Management, LLC, advisor; WMMK4 primarily in high-quality, U.S. Wells Capital Management WMMK6 dollar-denominated money market Incorporated, sub-advisor. instruments, including debt obligations. ---------------- ------------------------------ ------------------------------------------- ----------------------------- WSCG1 Wells Fargo VT Small Cap Objective: long-term capital Wells Fargo Funds WSCG3 Growth Fund appreciation. Invests primarily in common Management, LLC, advisor; WSCG4 stocks issued by companies whose market Wells Capital Management WSCG6 capitalization falls within the range of Incorporated, sub-advisor. the Russell 2000 Index, which is considered a small capitalization index. ---------------- ------------------------------ ------------------------------------------- -----------------------------
A fund underlying your contract in which a subaccount invests may have a name, portfolio manager, objectives, strategies and characteristics that are the same or substantially similar to those of a publicly-traded retail mutual fund. Despite these similarities, an underlying fund is not the same as any publicly-traded retail mutual fund. Each underlying fund will have its own unique portfolio holdings, fees, operating expenses and operating results. The results of each underlying fund may differ significantly from any publicly-traded retail mutual fund. The investment managers and advisors cannot guarantee that the funds will meet their investment objectives. Please read the funds' prospectuses for facts you should know before investing. These prospectuses are also available by contacting us at the address or telephone number on the first page of this prospectus. All funds are available to serve as the underlying investments for variable annuities. Some funds also are available to serve as investment options for variable life insurance policies and tax-deferred retirement plans. It is possible that in the future, it may be disadvantageous for variable annuity accounts and variable life insurance accounts and/or tax-deferred retirement plans to invest in the available funds simultaneously. Although the insurance company and the funds do not currently foresee any such disadvantages, the boards of directors or trustees of the appropriate funds will monitor events in order to identify any material conflicts between annuity owners, policy owners and tax-deferred retirement plans and to determine what action, if any, should be taken in response to a conflict. If a board were to conclude that it should establish separate funds for the variable annuity, variable life insurance and tax-deferred retirement plan accounts, you would not bear any expenses associated with establishing separate funds. Please refer to the funds' prospectuses for risk disclosure regarding simultaneous investments by variable annuity, variable life insurance and tax-deferred retirement plan accounts. The Internal Revenue Service (IRS) issued final regulations relating to the diversification requirements under Section 817(h) of the Code. Each fund intends to comply with these requirements. The variable account was established under Indiana law on July 15, 1987, and the subaccounts are registered together as a single unit investment trust under the Investment Company Act of 1940 (the 1940 Act). This registration does not involve any supervision of our management or investment practices and policies by the SEC. All obligations arising under the contracts are general obligations of American Enterprise Life. The variable account meets the definition of a separate account under federal securities laws. We credit or charge income, capital gains and capital losses of each subaccount only to that subaccount. State insurance law prohibits us from charging a subaccount with liabilities of any other subaccount or of our general business. The variable account includes other subaccounts that are available under contracts that are not described in this prospectus. The U.S. Treasury and the IRS indicated that they may provide additional guidance on investment control. This concerns how many variable subaccounts an insurance company may offer and how many exchanges among subaccounts it may allow before the contract owner would be currently taxed on income earned within subaccount assets. At this time, we do not know what the additional guidance will be or when action will be taken. We reserve the right to modify the contract, as necessary, so that the owner will not be subject to current taxation as the owner of the subaccount assets. We intend to comply with all federal tax laws so that the contract continues to qualify as an annuity for federal income tax purposes. We reserve the right to modify the contract as necessary to comply with any new tax laws. -------------------------------------------------------------------------------- 30 WELLS FARGO ADVANTAGE BUILDER VARIABLE ANNUITY -- PROSPECTUS THE FIXED ACCOUNTS GUARANTEE PERIOD ACCOUNTS (GPAS) You may allocate purchase payments to one or more of the GPAs with Guarantee Periods ranging from two to ten years. These accounts are not available in all states and are not offered after annuity payouts begin. Some states also restrict the amount you can allocate to these accounts. Each GPA pays an interest rate that is declared when you allocate money to that account. That interest rate is then fixed for the Guarantee Period that you chose. We will periodically change the declared interest rate for any future allocations to these accounts, but we will not change the rate paid on money currently in a GPA. The minimum guaranteed interest rate on the GPAs is 3%. The interest rates that we will declare as guaranteed rates in the future are determined by us at our discretion. We will determine these rates based on various factors including, but not limited to, the interest rate environment, returns earned on investments backing these annuities, the rates currently in effect for new and existing American Enterprise Life annuities, product design, competition and American Enterprise Life's revenues and other expenses. WE CANNOT PREDICT NOR CAN WE GUARANTEE FUTURE GUARANTEED INTEREST RATES ABOVE THE 3% RATE. You may transfer or withdraw contract value out of the GPAs within 30 days before the end of the Guarantee Period without receiving a MVA (see "Market Value Adjustment (MVA)" below.) At that time you may choose to start a new Guarantee Period of the same length, transfer the contract value to another GPA, transfer the contract value to any of the subaccounts, or withdraw the contract value from the contract (subject to applicable withdrawal provisions). If we do not receive any instructions at the end of your Guarantee Period, we will automatically transfer the contract value into the one-year fixed account. We hold amounts you allocate to the GPAs in a "nonunitized" separate account we have established under the Indiana Insurance Code. This separate account provides an additional measure of assurance that we will make full payment of amounts due under the GPAs. State insurance law prohibits us from charging this separate account with liabilities of any other separate account or of our general business. We own the assets of this separate account as well as any favorable investment performance of those assets. You do not participate in the performance of the assets held in this separate account. We guarantee all benefits relating to your value in the GPAs. This guarantee is based on the continued claims-paying ability of the company. We intend to construct and manage the investment portfolio relating to the separate account using a strategy known as "immunization." Immunization seeks to lock in a defined return on the pool of assets versus the pool of liabilities over a specified time horizon. Since the return on the assets versus the liabilities is locked in, it is "immune" to any potential fluctuations in interest rates during the given time. We achieve immunization by constructing a portfolio of assets with a price sensitivity to interest rate changes (i.e., price duration) that is essentially equal to the price duration of the corresponding portfolio of liabilities. Portfolio immunization provides us with flexibility and efficiency in creating and managing the asset portfolio, while still assuring safety and soundness for funding liability obligations. We must invest this portfolio of assets in accordance with requirements established by applicable state laws regarding the nature and quality of investments that life insurance companies may make and the percentage of their assets that they may commit to any particular type of investment. Our investment strategy will incorporate the use of a variety of debt instruments having price durations tending to match the applicable Guarantee Periods. These instruments include, but are not necessarily limited to, the following: - Securities issued by the U.S. government or its agencies or instrumentalities, which issues may or may not be guaranteed by the U.S. government; - Debt securities that have an investment grade, at the time of purchase, within the four highest grades assigned by any of three nationally recognized rating agencies -- Standard & Poor's, Moody's Investors Service or Fitch (formerly Duff & Phelp's) -- or are rated in the two highest grades by the National Association of Insurance Commissioners; - Other debt instruments which are unrated or rated below investment grade, limited to 10% of assets at the time of purchase; and - Real estate mortgages, limited to 45% of portfolio assets at the time of acquisition. In addition, options and futures contracts on fixed income securities will be used from time to time to achieve and maintain appropriate investment and liquidity characteristics on the overall asset portfolio. While this information generally describes our investment strategy, we are not obligated to follow any particular strategy except as may be required by federal law and Indiana and other state insurance laws. -------------------------------------------------------------------------------- WELLS FARGO ADVANTAGE BUILDER VARIABLE ANNUITY -- PROSPECTUS 31 MARKET VALUE ADJUSTMENT (MVA) We guarantee the contract value allocated to your GPA, including the interest credited, if you do not make any transfers or withdrawals from that GPA prior to 30 days before the end of the Guarantee Period. However, we will apply an MVA if a transfer or withdrawal occurs prior to this time. The MVA also affects amounts withdrawn from a GPA prior to 30 days before the end of the Guarantee Period that are used to purchase payouts under an annuity payout plan. We will refer to all of these transactions as "early withdrawals" in the discussion below. When you request an early withdrawal, we adjust the early withdrawal amount by an MVA formula. The early withdrawal amount reflects the relationship between the guaranteed interest rate you are earning in your current GPA and the interest rate we are crediting on new GPAs that end at the same time as your current GPA. The MVA is sensitive to changes in current interest rates. The magnitude of any applicable MVA will depend on our current schedule of guaranteed interest rates at the time of the withdrawal, the time remaining in your Guarantee Period and your guaranteed interest rate. The MVA is negative, zero or positive depending on how the guaranteed interest rate on your GPA compares to the interest rate of a new GPA for the same number of years as the Guarantee Period remaining on your GPA. Before we look at the MVA formula, it may help to look in a general way at how comparing your GPA's guaranteed rate and the rate for a new GPA affects the MVA. Relationship between your GPA's guaranteed rate and the new GPA for the same time as the Guarantee Period remaining on your GPA: IF YOUR GPA RATE IS: THE MVA IS: Less than the new GPA rate + 0.10% Negative Equal to the new GPA rate + 0.10% Zero Greater than the new GPA rate + 0.10% Positive GENERAL EXAMPLES Assume: - You purchase a contract and allocate part of your purchase payment to the ten-year GPA. - We guarantee an interest rate of 4.5% annually for your ten-year Guarantee Period. - After three years, you decide to make a withdrawal from your GPA. In other words, there are seven years left in your Guarantee Period. Remember that the MVA depends partly on the interest rate of a new GPA for the same number of years as the Guarantee Period remaining on your GPA. In this case, that is seven years. EXAMPLE 1: Remember that your GPA is earning 4.5%. Assume at the time of your withdrawal new GPAs that we offer with a seven-year Guarantee Period are earning 5.0%. We add 0.10% to the 5.0% rate to get 5.10%. Your GPA's 4.5% rate is less than the 5.10% rate and, as reflected in the table above, the MVA will be negative. EXAMPLE 2: Remember again that your GPA is earning 4.5%, and assume that new GPAs that we offer with a seven-year Guarantee Period are earning 4.0%. We add 0.10% to the 4.0% rate to get 4.10%. In this example, since your GPA's 4.5% rate is greater than the 4.10% rate, the MVA will be positive. To determine that adjustment precisely, you will have to use the formula described below. SAMPLE MVA CALCULATIONS: The precise MVA formula we apply is as follows: to the power of n/12 l + i EARLY WITHDRAWAL AMOUNT x [(-------------)- 1] = MVA 1 + j + .001 Where i = rate earned in the GPA from which amounts are being transferred or withdrawn. j = current rate for a new Guaranteed Period equal to the remaining term in the current Guarantee Period. n = number of months remaining in the current Guarantee Period (rounded up). EXAMPLES Using assumptions similar to those we used in the examples above: - You purchase a contract and allocate part of your purchase payment to the ten-year GPA. - We guarantee an interest rate of 4.5% annually for your ten-year Guarantee Period. - After three years, you decide to make a $1,000 withdrawal from your GPA. In other words, there are seven years left in your Guarantee Period. -------------------------------------------------------------------------------- 32 WELLS FARGO ADVANTAGE BUILDER VARIABLE ANNUITY -- PROSPECTUS EXAMPLE 1: You request an early withdrawal of $1,000 from your ten-year GPA earning a guaranteed interest rate of 4.5%. Assume at the time of your withdrawal new GPAs that we offer with a seven-year Guarantee Period are earning 5.0%. Using the formula above, we determine the MVA as follows: to the power of 84/12 1.045 $1,000 x [(--------------)- 1] = - $39.28 1 + .05 + .001 In this example, the MVA is a negative $39.28. EXAMPLE 2: You request an early withdrawal of $1,000 from your ten-year GPA earning a guaranteed interest rate of 4.5%. Assume at the time of your withdrawal new GPAs that we offer with a seven-year Guarantee Period are earning 4.0%. Using the formula above, we determine the MVA as follows: to the power of 84/12 1.045 $1,000 x [(--------------)- 1] = $27.21 1 + .04 + .001 In this example, the MVA is a positive $27.21. Please note that when you allocate your purchase payment to the ten-year GPA and you have begun your fourth contract year at the beginning of the Guarantee Period, your withdrawal charge percentage is 4% if you chose the six-year schedule and 6% if you chose the eight-year schedule. (See "Charges -- Withdrawal Charge.") We do not apply MVAs to the amounts we deduct for withdrawal charges, so we would deduct the withdrawal charge from your early withdrawal after we applied the MVA. Also note that when you request an early withdrawal, we withdraw an amount from your GPA that will give you the net amount you requested after we apply the MVA and any applicable withdrawal charge, unless you request otherwise. The current interest rate we offer on the GPA will change periodically at our discretion. It is the rate we are then paying on purchase payments, renewals and transfers paid under this class of contracts for Guarantee Period durations equaling the remaining Guarantee Period of the GPA to which the formula is being applied. We will not apply MVAs to amounts withdrawn for the annual contract administrative charge, to amounts we pay as death claims or to automatic transfers from the two-year Guarantee Period Account. In some states, the MVA is limited. THE ONE-YEAR FIXED ACCOUNT You may also allocate purchase payments or transfer accumulated value to the one-year fixed account. Some states may restrict the amount you can allocate to this account. We back the principal and interest guarantees relating to the one-year fixed account. These guarantees are based on the continued claims-paying ability of the company. The value of the one-year fixed account increases as we credit interest to the account. Purchase payments and transfers to the one-year fixed account become part of our general account. We credit and compound interest daily to produce the annual effective rate which we declare. The interest rate we apply to each purchase payment or transfer to the one-year fixed account is guaranteed for one year. Thereafter we will change the 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 American Enterprise Life annuities, product design, competition, and American Enterprise Life's revenues and expenses. Interest in the one-year fixed account is not required to be registered with the SEC. However, the Market Value Adjustment interests under the contracts are registered with the SEC. The SEC staff does not review the disclosures in this prospectus on the one-year fixed account (but the SEC does review the disclosures in this prospectus on the Market Value Adjustment interests). Disclosures regarding the one-year fixed account, however, may be subject to certain generally applicable provisions of the federal securities laws relating to the accuracy and completeness of statements made in prospectuses. (See "Making the Most of Your Contract -- Transfer policies" for restrictions on transfers involving the one-year fixed account.) -------------------------------------------------------------------------------- WELLS FARGO ADVANTAGE BUILDER VARIABLE ANNUITY -- PROSPECTUS 33 BUYING YOUR CONTRACT Your sales representative will help you complete and submit an application and send it along with your initial purchase payment to our office. As the owner, you have all rights and may receive all benefits under the contract. You may buy only a nonqualified annuity (by rollover only) or a qualified annuity from your Wells Fargo sales representative without prior approval. You may buy a qualified annuity or a nonqualified annuity through your AEFA sales representative. You can buy another contract with the same underlying funds but with different mortality and expense risk fees and withdrawal charges. For information on this contract please call us at the telephone number listed on the first page of this prospectus or ask your sales representative. You can own a nonqualified annuity in joint tenancy with rights of survivorship only in spousal situations. You cannot own a qualified annuity in joint tenancy. You can buy a contract or become an annuitant if you are 85 or younger. (The age limit may be younger for qualified annuities in some states.) When you apply, you may select: - the length of the withdrawal charge period (six or eight years)(1); - the optional Benefit Protector-SM- Death Benefit Rider(2); - the optional Benefit Protector-SM- Plus Death Benefit Rider(2); - the optional Enhanced Death Benefit Rider(2); - the optional Guaranteed Minimum Income Benefit Rider(3); - the one-year fixed account, Guarantee Period Accounts and/or subaccounts in which you want to invest(4); - how you want to make purchase payments; and - a beneficiary. (1) The six-year withdrawal charge schedule is not available under contracts issued in Oregon and contracts issued through AEFA. (2) You may select one of the following: the EDB, the Benefit Protector or the Benefit Protector Plus. Riders may not be available in all states. The Benefit Protector and the Benefit Protector Plus are only available if you and the annuitant are 75 or younger at contract issue. The EDB is only available if both you and the annuitant are 79 or younger at contract issue. (3) The GMIB is only available at the time you purchase your contract if the annuitant is 75 or younger at contract issue and you also select the EDB. Riders may not be available in all states. (4) Some states restrict the amount you can allocate to the fixed accounts. The contract provides for allocation of purchase payments to the subaccounts of the variable account and/or to the fixed accounts in even 1% increments. If your application is complete, we will process it and apply your purchase payment to the fixed accounts and subaccounts you selected within two business days after we receive it at our office. If we accept your application, we will send you a contract. If we cannot accept your application within five business days, we will decline it and return your payment. We will credit additional purchase payments you make to your accounts on the valuation date we receive them. We will value the additional payments at the next accumulation unit value calculated after we receive your payments at our office. You may make monthly payments to your contract under a Systematic Investment Plan (SIP). To begin the SIP, you will complete and send a form and your first SIP payment along with your application. There is no charge for SIP. You can stop your SIP payments at any time. In most states, you may make additional purchase payments to nonqualified and qualified annuities until the retirement date. For contracts issued in Oregon, purchase payments may not be made after the first contract anniversary. THE RETIREMENT DATE Annuity payouts are scheduled to begin on the retirement date. When we process your application, we will establish the retirement date to the maximum age or date described below. You can also select a date within the maximum limits. You can align this date with your actual retirement from a job, or it can be a different future date, depending on your needs and goals and on certain restrictions. You also can change the date, provided you send us written instructions at least 30 days before annuity payouts begin. FOR NONQUALIFIED ANNUITIES AND ROTH IRAS, the retirement date must be: - no earlier than the 30th day after the contract's effective date; and - no later than the annuitant's 85th birthday or the tenth contract anniversary, if purchased after age 75. FOR QUALIFIED ANNUITIES (EXCEPT ROTH IRAS), to avoid IRS penalty taxes, the retirement date generally must be: - on or after the date the annuitant reaches age 59 1/2; and - for IRAs and SEPs, by April 1 of the year following the calendar year when the annuitant reaches age 70 1/2. If you take the minimum IRA distribution as required by the Code from another tax-qualified investment, or in the form of partial withdrawals from this contract, annuity payouts can start as late as the annuitant's 85th birthday or the tenth contract anniversary, if later. -------------------------------------------------------------------------------- 34 WELLS FARGO ADVANTAGE BUILDER VARIABLE ANNUITY -- PROSPECTUS BENEFICIARY We will pay your named beneficiary the death benefit if it becomes payable before the retirement date while the contract is in force and before annuity payouts begin. If there is no named beneficiary, then you or your estate will be the beneficiary. (See "Benefits in Case of Death" for more about beneficiaries.) PURCHASE PAYMENTS Purchase payments are limited and may not be made after the first contract anniversary for contracts issued in Oregon.
MINIMUM PURCHASE PAYMENTS: If paying by SIP(1): $100,000 initial payment for contracts issued through AEFA. $50 initial payment for all other contracts. $50 for additional payments. If paying by any other method: $100,000 initial payment for contracts issued through AEFA. $5,000 initial payment for all other contracts issued in South Carolina, Texas and Washington. $2,000 initial payment for all other contracts issued in all other states. $100 for additional payments.
(1) Payments made using SIP must total $2,000 before you can make partial withdrawals. MAXIMUM TOTAL ALLOWABLE PURCHASE PAYMENTS(2) (WITHOUT PRIOR APPROVAL): $1,000,000 (2) This limit applies in total to all American Enterprise Life annuities you own. We reserve the right to increase the maximum limit. For qualified annuities, the tax-deferred retirement plan's or the Code's limits on annual contributions also apply. HOW TO MAKE PURCHASE PAYMENTS 1 BY LETTER: Send your check along with your name and contract number to: AMERICAN ENTERPRISE LIFE INSURANCE COMPANY 829 AXP FINANCIAL CENTER MINNEAPOLIS, MN 55474 2 BY SIP: Contact your sales representative to complete the necessary SIP paperwork. PURCHASE PAYMENT CREDITS You will generally receive a purchase payment credit with every payment you make to your contract. We apply this credit immediately. We allocate the credit to the fixed accounts and subaccounts in the same proportions as your purchase payment. We apply the credit as a percentage of your net current payment based on the following schedule:
IF TOTAL NET PAYMENTS* MADE DURING THEN THE PURCHASE PAYMENT THE LIFE OF THE CONTRACT EQUALS... CREDIT PERCENTAGE EQUALS... Less than $10,000 1% $10,000 to less than 1 million 2 $1 million to less than 5 million 3 $5 million and over 4
* Net payments equal total payments less total withdrawals. If you make any additional payments that cause the contract to become eligible for a higher percentage credit, we will add credits to your prior payments (less total withdrawals). We allocate credits according to the purchase payment allocation on the date we add the credits to the contract. We fund the credit from our general account. We do not consider credits to be "investments" for income tax purposes. (See "Taxes.") We will reverse credits from the contract value for any purchase payment that is not honored (if, for example your purchase payment check is returned for insufficient funds). -------------------------------------------------------------------------------- WELLS FARGO ADVANTAGE BUILDER VARIABLE ANNUITY -- PROSPECTUS 35 To the extent a death benefit or withdrawal payment includes purchase payment credits applied within twelve months preceding: (1) the date of death that results in a lump sum death benefit under this contract; or (2) a request for withdrawal charge waiver due to "Contingent events" (see "Charges -- Contingent events"), we will assess a charge, similar to a withdrawal charge, equal to the amount of the purchase payment credits. The amount we pay to you under these circumstances will always equal or exceed your withdrawal value. The amount returned to you under the free look provision also will not include any credits applied to your contract. CHARGES CONTRACT ADMINISTRATIVE CHARGE We charge this fee for establishing and maintaining your records. We deduct $30 from the contract value on your contract anniversary at the end of each contract year. We prorate this charge among the subaccounts and the fixed accounts in the same proportion your interest in each account bears to your total contract value. We will waive this charge when your contract value is $50,000 or more on the current contract anniversary. If you take a full withdrawal from your contract, we will deduct this charge at the time of withdrawal regardless of the contract value. We cannot increase the annual contract administrative charge and it does not apply after annuity payouts begin or when we pay death benefits. VARIABLE ACCOUNT ADMINISTRATIVE CHARGE We apply this charge daily to the subaccounts. It is reflected in the unit values of your subaccounts and it totals 0.15% of their average daily net assets on an annual basis. It covers certain administrative and operating expenses of the subaccounts such as accounting, legal and data processing fees and expenses involved in the preparation and distribution of reports and prospectuses. We cannot increase the variable account administrative charge. MORTALITY AND EXPENSE RISK FEE We charge this fee daily to the subaccounts. The unit values of your subaccounts reflect this fee. For contracts with a six-year withdrawal charge schedule, this fee totals 1.35% of their average daily net assets on an annual basis. For contracts with an eight-year withdrawal charge schedule, this fee totals 1.10% of their average daily net assets on an annual basis. This fee covers the mortality and expense risk that we assume. Approximately two-thirds of this amount is for our assumption of mortality risk, and one-third is for our assumption of expense risk. If you choose the optional Enhanced Death Benefit Rider, we will charge an additional 0.20% of the average daily net assets on annual basis (see "Enhanced Death Benefit Rider fee" below). These fees do not apply to the fixed accounts. We cannot increase these fees. Mortality risk arises because of our guarantee to pay a death benefit and our guarantee to make annuity payouts according to the terms of the contract, no matter how long a specific annuitant lives and no matter how long our entire group of annuitants live. If, as a group, annuitants outlive the life expectancy we assumed in our actuarial tables, then we must take money from our general assets to meet our obligations. If, as a group, annuitants do not live as long as expected, we could profit from the mortality risk fee. Expense risk arises because we cannot increase the contract administrative charge or the variable account administrative charge and these charges may not cover our expenses. We would have to make up any deficit from our general assets. We could profit from the expense risk fee if future expenses are less than expected. The subaccounts pay us the mortality and expense risk fee they accrued as follows: - first, to the extent possible, the subaccounts pay this fee from any dividends distributed from the funds in which they invest; - then, if necessary, the funds redeem shares to cover any remaining fees payable. We may use any profits we realize from the subaccounts' payment to us of the mortality and expense risk fee for any proper corporate purpose, including, among others, payment of distribution (selling) expenses. We do not expect that the withdrawal charge, discussed in the following paragraphs, will cover sales and distribution expenses. BENEFIT PROTECTOR-SM- DEATH BENEFIT RIDER FEE We charge a fee for the optional feature only if you select it(1). If selected, we deduct 0.25% of your contract value on your contract anniversary at the end of each contract year. We prorate this fee among the subaccounts and fixed accounts in the same proportion your interest in each account bears to your total contract value. When annuity payouts begin, or if you terminate the contract for any reason other than death, we will deduct this fee, adjusted for the number of calendar days coverage was in place. We cannot increase this annual fee after the rider effective date and it does not apply after annuity payouts begin or when we pay death benefits. We can increase this fee on new contracts up to a maximum of 0.75%. -------------------------------------------------------------------------------- 36 WELLS FARGO ADVANTAGE BUILDER VARIABLE ANNUITY -- PROSPECTUS BENEFIT PROTECTOR-SM- PLUS DEATH BENEFIT RIDER FEE We charge a fee for the optional feature only if you select it(1). If selected, we deduct 0.40% of your contract value on your contract anniversary at the end of each contract year. We prorate this fee among the subaccounts and fixed accounts in the same proportion your interest in each account bears to your total contract value. When annuity payouts begin, or if you terminate the contract for any reason other than death, we will deduct this fee, adjusted for the number of calendar days coverage was in place. We cannot increase this annual fee after the rider effective date and it does not apply after annuity payouts begin or when we pay death benefits. We can increase this fee on new contracts up to a maximum of 1.25%. ENHANCED DEATH BENEFIT RIDER FEE We charge a fee for this optional feature only if you select it(1). If selected, we apply this fee daily to the subaccounts as part of the mortality and expense risk fee. It is reflected in the unit values of the subaccounts and it totals 0.20% of their average daily net assets on an annual basis. We cannot increase the fee. (1) You may select one of the following: the EDB, the Benefit Protector or the Benefit Protector Plus. Riders may not be available in all states. The Benefit Protector and the Benefit Protector Plus are only available if you and the annuitant are 75 or younger at contract issue. The EDB is only available if both you and the annuitant are 79 or younger at contract issue. GUARANTEED MINIMUM INCOME BENEFIT RIDER (GMIB) FEE We charge a fee (currently 0.30%) based on the GMIB benefit base for this optional feature only if you select it(2). If selected, we deduct the fee from the contract value on your contract anniversary at the end of each contract year. We prorate this fee among the subaccounts and fixed accounts in the same proportion your interest in each account bears to your total contract value. If the contract is terminated or if annuity payouts begin, we will deduct the fee at that time adjusted for the number of calendar days coverage was in place. We cannot increase the GMIB fee after the rider effective date and it does not apply after annuity payouts begin. We can increase the GMIB fee on new contracts up to a maximum of 0.75%. For details on how we calculate the fee, see "Optional Benefits -- Guaranteed Minimum Income Benefit Rider." (2) The GMIB is only available at the time you purchase your contract if the annuitant is 75 or younger at contract issue and you also select the EDB. Riders may not be available in all states. WITHDRAWAL CHARGE If you withdraw all or part of your contract, you may be subject to a withdrawal charge. A withdrawal charge applies if all or part of the withdrawal amount is from purchase payments we received within six or eight years before withdrawal. You select the withdrawal charge period at the time of your application for the contract*. The withdrawal charge percentages that apply to you are shown in your contract. In addition, amounts withdrawn from a Guarantee Period Account more than 30 days before the end of the applicable Guarantee Period will be subject to a MVA. (See "The Fixed Accounts -- Market Value Adjustments (MVA).") For purposes of calculating any withdrawal charge, we treat amounts withdrawn from your contract value in the following order: 1. First, in each contract year, we withdraw amounts totaling up to 10% of your prior anniversary's contract value. (We consider your initial purchase payment to be the prior anniversary's contract value during the first contract year.) We do not assess a withdrawal charge on this amount. 2. Next, we withdraw contract earnings, if any, that are greater than the annual 10% free withdrawal amount described in number one above. Contract earnings equal contract value less purchase payments received and not previously withdrawn. We do not assess a withdrawal charge on contract earnings. NOTE: We determine contract earnings by looking at the entire contract value, not the earnings of any particular subaccount or the fixed accounts. 3. Next we withdraw purchase payments received prior to the withdrawal charge period you selected and shown in your contract. We do not assess a withdrawal charge on these purchase payments. 4. Finally, if necessary, we withdraw purchase payments received that are still within the withdrawal charge period you selected and shown in your contract. We withdraw these payments on a "first-in, first-out" (FIFO) basis. We do assess a withdrawal charge on these payments. We determine your withdrawal charge by multiplying each of your payments withdrawn by the applicable withdrawal charge percentage, and then adding the total withdrawal charges. -------------------------------------------------------------------------------- WELLS FARGO ADVANTAGE BUILDER VARIABLE ANNUITY -- PROSPECTUS 37 The withdrawal charge percentage depends on the number of years since you made the payments that are withdrawn, depending on the schedule you selected*:
SIX-YEAR SCHEDULE EIGHT-YEAR SCHEDULE YEARS FROM PURCHASE WITHDRAWAL CHARGE YEARS FROM PURCHASE WITHDRAWAL CHARGE PAYMENT RECEIPT PERCENTAGE PAYMENT RECEIPT PERCENTAGE 1 8% 1 8% 2 8 2 8 3 8 3 8 4 6 4 8 5 4 5 8 6 2 6 6 Thereafter 0 7 4 8 2 Thereafter 0
* The six-year withdrawal charge schedule is not available under contracts issued in Oregon and contracts issued through AEFA. For a partial withdrawal that is subject to a withdrawal charge, the amount we actually deduct from your contract value will be the amount you request plus any applicable withdrawal charge. The withdrawal charge percentage is applied to this total amount. We pay you the amount you requested. EXAMPLE: Assume you requested a withdrawal of $1,000 and there is a withdrawal charge of 7%. The total amount we actually deduct from your contract is $1,075.26. We determine this amount as follows: AMOUNT REQUESTED $1,000 -------------------------- OR ------ = $1,075.26 1.00 - WITHDRAWAL CHARGE .93 By applying the 7% withdrawal charge to $1,075.26, the withdrawal charge is $75.26. We pay you the $1,000 you requested. If you make a full withdrawal of your contract, we also will deduct the applicable contract administrative charge. WITHDRAWAL CHARGE UNDER ANNUITY PAYOUT PLAN E -- PAYOUTS FOR A SPECIFIED PERIOD: Under this payout plan, you can choose to take a withdrawal. The amount that you can withdraw is the present value of any remaining variable payouts. If the original contract had a six-year withdrawal charge schedule, the discount rate we use in the calculation will be 5.32% if the assumed investment rate is 3.5% and 6.82% if the assumed investment rate is 5%. If the original contract had an eight-year withdrawal charge schedule, the discount rate we use in the calculation will be 5.07% if the assumed investment rate is 3.5% and 6.57% if the assumed investment rate is 5%. The withdrawal charge equals the present value of the remaining payouts using the assumed investment rate minus the present value of the remaining payouts using the discount rate. In no event would your withdrawal charge exceed 9% of the amount available for payouts under the plan. WITHDRAWAL CHARGE CALCULATION EXAMPLE The following is an example of the calculation we would make to determine the withdrawal charge on a contract with an eight-year withdrawal charge schedule with this history: - The contract date is Nov. 1, 2001 with a contract year of Nov. 1 through Oct. 30 and with an anniversary date of Nov. 1 each year; and - We received these payments -- $10,000 Nov. 1, 2001; -- $8,000 Dec. 31, 2007; and -- $6,000 Feb. 20, 2009; and - You withdraw the contract for its total withdrawal value of $38,101 on Aug. 5, 2011 and made no other withdrawals during that contract year; and - The prior anniversary Nov. 1, 2010 contract value was $38,488.
WITHDRAWAL CHARGE EXPLANATION $ 0 $3,848.80 is 10% of the prior anniversary's contract value withdrawn without withdrawal charge; and 0 $10,252.20 is contract earnings in excess of the 10% free withdrawal amount withdrawn without withdrawal charge; and 0 $10,000 Nov. 1, 2001 payment was received nine or more years before withdrawal and is withdrawn without withdrawal charge; and 640 $8,000 Dec. 31, 2007 payment is in its fourth year from receipt, withdrawn with an 8% withdrawal charge; and 480 $6,000 Feb. 20, 2009 payment is in its third year from receipt withdrawn with an 8% withdrawal charge. --------- $1,120
-------------------------------------------------------------------------------- 38 WELLS FARGO ADVANTAGE BUILDER VARIABLE ANNUITY -- PROSPECTUS WAIVER OF WITHDRAWAL CHARGES We do not assess withdrawal charges for: - withdrawals of any contract earnings; - withdrawals of amounts totaling up to 10% of your prior contract anniversary's contract value to the extent it exceeds contract earnings; - required minimum distributions from a qualified annuity (for those amounts required to be distributed from the contract described in this prospectus); - contracts settled using an annuity payout plan; - withdrawals made as a result of one of the "Contingent events"* described below to the extent permitted by state law (see your contract for additional conditions and restrictions); - amounts we refund to you during the free look period;* and - death benefits.* * However, we will reverse certain purchase payment credits up to the maximum withdrawal charge. (See "Buying Your Contract -- Purchase Payment Credits.") CONTINGENT EVENTS - Withdrawals you make if you or the annuitant are confined to a hospital or nursing home and have been for the prior 60 days. Your contract will include this provision when you and the annuitant are under age 76 at contract issue. You must provide proof satisfactory to us of the confinement as of the date you request the withdrawal. - To the extent permitted by state law, withdrawals you make if you or the annuitant are diagnosed in the second or later contract years as disabled with a medical condition that with reasonable medical certainty will result in death within 12 months or less from the date of the licensed physician's statement. You must provide us with a licensed physician's statement containing the terminal illness diagnosis and the date the terminal illness was initially diagnosed. - Withdrawals you make if you or the annuitant become disabled within the meaning of the Code Section 72(m)(7) after contract issue. The disabled person must also be receiving Social Security disability or state long term disability benefits. The disabled person must be age 70 or younger at the time of withdrawal. You must provide us with a signed letter from the disabled person stating that he or she meets the above criteria, a legible photocopy of Social Security disability or state long term disability benefit payments and the application for such payments. - Withdrawals you make once a year if you or the annuitant become unemployed at least one year after contract issue, up to the following amounts each year: (a) 25% of your prior anniversary's contract value (or $10,000 if greater) if the unemployment condition is met for at least 30 straight days; or (b) 50% of your prior anniversary's contract value (or $10,000 if greater) if the unemployment condition is met for at least 180 straight days. The unemployment condition is met if the unemployed person is currently receiving unemployment compensation from a government unit of the United States, whether federal or state. You must provide us with a signed letter from the unemployed person stating that he or she meets the above criteria with a legible photocopy of the unemployment benefit payments meeting the above criteria with regard to dates. 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 issued. 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. -------------------------------------------------------------------------------- WELLS FARGO ADVANTAGE BUILDER VARIABLE ANNUITY -- PROSPECTUS 39 VALUING YOUR INVESTMENT We value your accounts as follows: FIXED ACCOUNTS We value the amounts you allocated to the fixed accounts directly in dollars. The value of a fixed account equals: - the sum of your purchase payments and transfer amounts allocated to the one-year fixed account and the Guarantee Period Accounts; - plus any purchase payment credits allocated to the fixed accounts; - plus interest credited; - minus the sum of amounts withdrawn after the MVA (including any applicable withdrawal charges) and amounts transferred out; - minus any prorated contract administrative charge; - minus any prorated portion of the Benefit Protector-SM- Death Benefit Rider fee (if applicable); - minus any prorated portion of the Benefit Protector-SM- Plus Death Benefit Rider fee (if applicable); and - minus any prorated portion of the Guaranteed Minimum Income Benefit Rider fee (if applicable). SUBACCOUNTS We convert amounts you allocated to the subaccounts into accumulation units. Each time you make a purchase payment or transfer amounts into one of the subaccounts or we apply any purchase payment credits, we credit a certain number of accumulation units to your contract for that subaccount. Conversely, each time you take a partial withdrawal, transfer amounts out of a subaccount, or we assess a contract administrative charge, or the Benefit Protector fee, or the Benefit Protector Plus fee, or the Guaranteed Minimum Income Benefit Rider fee, we subtract a certain number of accumulation units from your contract. The accumulation units are the true measure of investment value in each subaccount during the accumulation period. They are related to, but not the same as, the net asset value of the fund in which the subaccount invests. The dollar value of each accumulation unit can rise or fall daily depending on the variable account expenses, performance of the fund and on certain fund expenses. Here is how we calculate accumulation unit values: NUMBER OF UNITS: to calculate the number of accumulation units for a particular subaccount we divide your investment by the current accumulation unit value. ACCUMULATION UNIT VALUE: the current accumulation unit value for each subaccount equals the last value times the subaccount's current net investment factor. WE DETERMINE THE NET INVESTMENT FACTOR BY: - adding the fund's current net asset value per share, plus the per share amount of any accrued income or capital gain dividends to obtain a current adjusted net asset value per share; then - dividing that sum by the previous adjusted net asset value per share; and - subtracting the percentage factor representing the mortality and expense risk fee, the variable account administrative charge and the Enhanced Death Benefit Rider fee (if applicable) from the result. Because the net asset value of the fund may fluctuate, the accumulation unit value may increase or decrease. You bear all the investment risk in a subaccount. FACTORS THAT AFFECT SUBACCOUNT ACCUMULATION UNITS: accumulation units may change in two ways-- in number and in value. The number of accumulation units you own may fluctuate due to: - additional purchase payments you allocate to the subaccounts; - any purchase payment credits allocated to the subaccounts; - transfers into or out of the subaccounts; - partial withdrawals; - withdrawal charges; - prorated portions of the contract administrative charge; - prorated portions of the Benefit Protector-SM- Death Benefit Rider fee (if applicable); - prorated portions of the Benefit Protector-SM- Plus Death Benefit Rider fee (if applicable); and/or - prorated portions of the Guaranteed Minimum Income Benefit Rider fee (if applicable). -------------------------------------------------------------------------------- 40 WELLS FARGO ADVANTAGE BUILDER VARIABLE ANNUITY -- PROSPECTUS Accumulation unit values will fluctuate due to: - changes in funds' net asset value; - dividends distributed to the subaccounts; - capital gains or losses of funds; - fund operating expenses; and/or - mortality and expense risk fee, the variable account administrative charge and the Enhanced Death Benefit Rider fee (if applicable). MAKING THE MOST OF YOUR CONTRACT AUTOMATED DOLLAR-COST AVERAGING Currently, you can use automated transfers to take advantage of dollar-cost averaging (investing a fixed amount at regular intervals). For example, you might transfer a set amount monthly from a relatively conservative subaccount to a more aggressive one, or to several others, or from the one-year fixed account or the two-year Guarantee Period Account to one or more subaccounts. The three to ten year Guarantee Period Accounts (without a MVA) are not available for automated transfers. You can also obtain the benefits of dollar-cost averaging by setting up regular automatic SIP payments. There is no charge for dollar-cost averaging. This systematic approach can help you benefit from fluctuations in accumulation unit values caused by fluctuations in the market values of the funds. Since you invest the same amount each period, you automatically acquire more units when the market value falls and fewer units when it rises. The potential effect is to lower your average cost per unit.
HOW DOLLAR-COST AVERAGING WORKS By investing an equal number NUMBER of dollars each month... AMOUNT ACCUMULATION OF UNITS MONTH INVESTED UNIT VALUE PURCHASED Jan $100 $20 5.00 Feb 100 18 5.56 you automatically buy Mar 100 17 5.88 more units when the per unit market price is low... --> Apr 100 15 6.67 May 100 16 6.25 Jun 100 18 5.56 Jul 100 17 5.88 and fewer units Aug 100 19 5.26 when the per unit market price is high. --> Sept 100 21 4.76 Oct 100 20 5.00
You paid an average price of only $17.91 per unit over the 10 months, while the average market price actually was $18.10. Dollar-cost averaging does not guarantee that any subaccount will gain in value nor will it protect against a decline in value if market prices fall. Because dollar-cost averaging involves continuous investing, your success will depend upon your willingness to continue to invest regularly through periods of low price levels. Dollar-cost averaging can be an effective way to help meet your long-term goals. For specific features contact your sales representative. TIERED DOLLAR-COST AVERAGING (TIERED DCA) PROGRAM If your net contract value(1) is at least $10,000, you can choose to participate in the Tiered DCA program. There is no charge for the Tiered DCA program. Under the Tiered DCA program, you can allocate a new purchase payment and any applicable purchase payment credits to one of two special Tiered DCA accounts. We determine which Tiered DCA account you are eligible for as follows:
WE ALLOCATE YOUR NEW PURCHASE PAYMENT IF YOUR NET CONTRACT VALUE(1) IS ... AND ANY APPLICABLE PURCHASE PAYMENT CREDIT TO: $10,000 - $49,999 Tier 1 DCA account $50,000 or more Tier 2 DCA account(2)
(1) "Net contract value" equals your current contract value plus any new purchase payment and purchase payment credit. If this is a new contract funded by purchase payments from multiple sources, we determine your net contract value based on the purchase payments, purchase payment credits, withdrawal requests and exchange requests submitted with your application. (2) You cannot allocate your new purchase payments and purchase payment credits to a Tier 1 DCA account if you are eligible to participate in a Tier 2 DCA account. -------------------------------------------------------------------------------- WELLS FARGO ADVANTAGE BUILDER VARIABLE ANNUITY -- PROSPECTUS 41 You may only allocate a new purchase payment of at least $1,000 to the Tiered DCA account for which you are eligible. You cannot transfer existing contract values into the Tiered DCA account. Each Tiered DCA account lasts for only six months from the time we receive your first purchase payment. We make monthly transfers of your total Tiered DCA account value into the other accounts you selected over the six-month period. We credit interest to each Tiered DCA account at rates that generally are higher than those we credit to the one-year fixed account and the two-year Guarantee Period Account. We credit higher rates on the Tier 2 DCA account than on the Tier 1 DCA account. We will change the interest rate on each Tiered DCA account from time to time at our discretion. We base these rates on competition and on the interest rate we are crediting to the one-year fixed account at the time of the change. Once we credit interest to a particular purchase payment and purchase payment credit, that rate does not change even if we change the rate we credit on new purchase payments or if your net contract value changes. We credit each Tiered DCA account with current guaranteed annual rate that is in effect on the date we receive your purchase payment. However, we credit this annual rate over the six-month period on the balance remaining in your Tiered DCA account. Therefore, the net effective interest rate you receive is less than the stated annual rate. We do not credit this interest after we transfer the value out of the Tiered DCA account into the accounts you selected. Once you establish a Tiered DCA account you cannot allocate additional purchase payments to a it. However, you may establish another new Tiered DCA account and allocate new purchase payments to it when we change the interest rates we offer on these accounts. If you are funding a Tiered DCA account from multiple sources, we apply each purchase payment and purchase payment credit to the account and credit interest on that purchase payment and purchase payment credit on the date we receive it. This means that all purchase payments and purchase payment credits may not be in the Tiered DCA account at the beginning of the six-month period. Therefore, you may receive less total interest than you would have if all your purchase payments and purchase payment credits were in the Tiered DCA account from the beginning. If we receive any of your multiple payments after the six-month period ends, you can either allocate those payments to a new Tiered DCA account (if available) or to any other accounts available under your contract. You cannot participate in the Tiered DCA program if you are making payments under a Systematic Investment Plan. You may simultaneously participate in the Tiered DCA program and the asset-rebalancing program as long as your subaccount allocation is the same under both programs. If you elect to change your subaccount allocation under one program, we automatically will change it under the other program so they match. If you participate in more than one Tiered DCA account, the asset allocation for each account may be different as long as you are not also participating in the asset-rebalancing program. You may terminate your participation in the Tiered DCA program at any time. If you do, we will not credit the current guaranteed annual interest rate on any remaining Tiered DCA account balance. We will transfer the remaining balance from your Tiered DCA account to the other accounts you selected for your DCA transfers or we will allocate it in any manner you specify. Similarly, if we cannot accept any additional purchase payments into the Tiered DCA program, we will allocate the purchase payments to the other accounts you selected for your DCA transfers or in any other manner you specify. We can modify the terms or discontinue the Tiered DCA program at any time. Any modifications will not affect any purchase payments and purchase payment credits that are already in a Tiered DCA account. For more information on the Tiered DCA program, contact your sales representative. ASSET REBALANCING You can ask us in writing to automatically rebalance the subaccount portion of your contract value either quarterly, semi-annually, or annually. The period you select will start to run on the date we record your request. On the first valuation date of each of these periods, we automatically will rebalance your contract value so that the value in each subaccount matches your current subaccount percentage allocations. These percentage allocations must be in whole numbers. Asset rebalancing does not apply to the fixed accounts. There is no charge for asset rebalancing. The contract value must be at least $2,000. You can change your percentage allocations or your rebalancing period at any time by contacting us in writing. If you are also participating in the Tiered DCA program and you change your subaccount asset allocation for the asset-rebalancing program, we will change your subaccount asset allocation under the Tiered DCA program to match. 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 BETWEEN ACCOUNTS You may transfer contract value from any one subaccount, or the fixed accounts, to another subaccount before annuity payouts begin. (Certain restrictions apply to transfers involving the fixed accounts.) We will process your transfer on the valuation date we receive your request. We will value your transfer at the next accumulation unit value calculated after we receive your request. There is no charge for transfers. Before making a transfer, you should consider the risks involved in changing investments. Transfers out of the Guarantee Period Accounts will be subject to a MVA if done more than 30 days before the end of the Guarantee Period. -------------------------------------------------------------------------------- 42 WELLS FARGO ADVANTAGE BUILDER VARIABLE ANNUITY -- PROSPECTUS 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 accounts at any time. However, if you made a transfer from the one-year fixed account to the subaccounts, you may not make a transfer from any subaccount back to the one-year fixed account for six months following that transfer. - You may transfer contract values from the one-year fixed account to the subaccounts or the Guarantee Period Accounts once a year on or within 30 days before or after the contract anniversary (except for automated transfers, which can be set up at any time for certain transfer periods subject to certain minimums). Transfers from the one-year fixed account are not subject to a MVA. - You may transfer contract values from a Guarantee Period Account any time after 60 days of transfer or payment allocation to the account. Transfers made more than 30 days before the end of the Guarantee Period will receive a MVA, which may result in a gain or loss of contract value. - If we receive your request on or within 30 days before or after the contract anniversary date, the transfer from the one-year fixed account to the subaccounts or the Guarantee Period Accounts will be effective on the valuation date we receive it. - We will not accept requests for transfers from the one-year fixed account at any other time. - Once annuity payouts begin, you may not make transfers to or from the one-year fixed account, but you may make transfers once per contract year among the subaccounts. During the annuity payout period, we reserve the right to limit the number of subaccounts in which you may invest. - Once annuity payouts begin, you may not make any transfers to the Guarantee Period Accounts. HOW TO REQUEST A TRANSFER OR WITHDRAWAL 1 BY LETTER: Send your name, contract number, Social Security Number or Taxpayer Identification Number and signed request for a transfer or withdrawal to: AMERICAN ENTERPRISE LIFE INSURANCE COMPANY 829 AXP FINANCIAL CENTER MINNEAPOLIS, MN 55474 MINIMUM AMOUNT Transfers or withdrawals: $500 or entire account balance MAXIMUM AMOUNT Transfers or withdrawals: Contract value or entire account balance 2 BY AUTOMATED TRANSFERS AND AUTOMATED PARTIAL WITHDRAWALS: Your sales representative can help you set up automated transfers or partial withdrawals among your subaccounts or fixed accounts. You can start or stop this service by written request or other method acceptable to us. You must allow 30 days for us to change any instructions that are currently in place. - Automated transfers from the one-year fixed account to any one of the subaccounts may not exceed an amount that, if continued, would deplete the one-year fixed account within 12 months. - Automated withdrawals may be restricted by applicable law under some contracts. - You may not make additional purchase payments if automated partial withdrawals are in effect. - Automated partial withdrawals may result in IRS taxes and penalties on all or part of the amount withdrawn. MINIMUM AMOUNT Transfers or withdrawals: $100 monthly $250 quarterly, semiannually or annually -------------------------------------------------------------------------------- WELLS FARGO ADVANTAGE BUILDER VARIABLE ANNUITY -- PROSPECTUS 43 3 BY PHONE: Call between 8 a.m. and 7 p.m. Central time: (800) 333-3437 MINIMUM AMOUNT Transfers or withdrawals: $500 or entire account balance MAXIMUM AMOUNT Transfers: Contract value or entire account balance Withdrawals: $25,000 We answer telephone requests promptly, but you may experience delays when the call volume is unusually high. If you are unable to get through, use the mail procedure as an alternative. We will honor any telephone transfer or withdrawal requests that we believe are authentic and we will use reasonable procedures to confirm that they are. This includes asking identifying questions and tape recording calls. We will not allow a telephone withdrawal within 30 days of a phoned-in address change. As long as we follow the procedures, we (and our affiliates) will not be liable for any loss resulting from fraudulent requests. Telephone transfers and withdrawals are automatically available. You may request that telephone transfers and withdrawals not be authorized from your account by writing to us. 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 full withdrawals, we will compute the value of your contract at the next accumulation unit value calculated after we receive your request. We may ask you to return the contract. You may have to pay charges (see "Charges -- Withdrawal Charge") and IRS taxes and penalties (see "Taxes"). You cannot make withdrawals after annuity payouts begin except under Plan E (see "The Annuity Payout Period -- Annuity Payout Plans"). WITHDRAWAL POLICIES If you have a balance in more than one account and you request a partial withdrawal, we will withdraw money from all your subaccounts and/or the fixed accounts in the same proportion as your value in each account correlates to your total contract value, unless you request otherwise. RECEIVING PAYMENT By regular or express mail: - payable to owner; - mailed to address of record. NOTE: We will charge you a fee if you request express mail delivery. Normally, we will send the payment within seven days after receiving your request. However, we may postpone the payment if: -- the withdrawal amount includes a purchase payment check that has not cleared; -- the NYSE is closed, except for normal holiday and weekend closings; -- trading on the NYSE is restricted, according to SEC rules; -- an emergency, as defined by SEC rules, makes it impractical to sell securities or value the net assets of the accounts; or -- the SEC permits us to delay payment for the protection of security holders. CHANGING OWNERSHIP You may change ownership of your nonqualified annuity at any time by completing a change of ownership form we approve and sending it to our office. The change will become binding upon us when we receive and record it. We will honor any change of ownership request that we believe is authentic and we will use reasonable procedures to confirm authenticity. If we follow these procedures, we will not take any responsibility for the validity of the change. If you have a nonqualified annuity, you may incur income tax liability by transferring, assigning or pledging any part of it. (See "Taxes.") If you have a qualified annuity, you may not sell, assign, transfer, discount or pledge your contract as collateral for a loan, or as security for the performance of an obligation or for any other purpose except as required or permitted by the Code. However, if the owner is a trust or custodian, or an employer acting in a similar capacity, ownership of the contract may be transferred to the annuitant. -------------------------------------------------------------------------------- 44 WELLS FARGO ADVANTAGE BUILDER VARIABLE ANNUITY -- PROSPECTUS BENEFITS IN CASE OF DEATH We will pay the death benefit to your beneficiary upon the earlier of your death or the annuitant's death. We will base the benefit paid on the death benefit coverage you select when you purchase the contract. If a contract has more than one person as the owner, we will pay benefits upon the first to die of any owner or the annuitant. STANDARD DEATH BENEFIT: If you or the annuitant die before annuity payouts begin while this contract is in force, we will pay the beneficiary the greatest of the following less any purchase payment credits added to the contract in the last 12 months: 1. total purchase payments plus purchase payment credits minus adjusted partial withdrawals; 2. contract value; or 3. the maximum anniversary value immediately preceding the date of death plus any payments and purchase payment credits since that anniversary minus adjusted partial withdrawals since that anniversary. (PW X DB) STANDARD DEATH BENEFIT ADJUSTED PARTIAL WITHDRAWALS = ----------- CV PW = the partial withdrawal including any applicable withdrawal charge or MVA. DB = the death benefit on the date of (but prior to) the partial withdrawal. CV = contract value on the date of (but prior to) the partial withdrawal. MAXIMUM ANNIVERSARY VALUE (MAV): This is the greatest of your contract values on any contract anniversary plus subsequent purchase payments and purchase payment credits minus adjusted partial withdrawals. We calculate the MAV on each contract anniversary through age 80. There is no MAV prior to the first contract anniversary. On the first contract anniversary we set the MAV equal to the highest of your (a) current contract value, or (b) total purchase payments and purchase payment credits minus adjusted partial withdrawals. Every contract anniversary after that, through age 80, we compare the previous anniversary's MAV to the current contract value and we reset the MAV if the current contract value is higher. We stop resetting the MAV after you or the annuitant reach age 81. However, we continue to add subsequent purchase payments and purchase payment credits and subtract adjusted partial withdrawals from the MAV. EXAMPLE: - You purchase the contract with a payment of $20,000 on Jan. 1, 2001. We add a purchase payment credit of $400 to your contract. - On Jan. 1, 2002 (the first contract anniversary) the contract value grows to $24,000. - On March 1, 2002 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 standard death benefit on March 1, 2002 as follows: Purchase payments and purchase payment credits minus adjusted partial withdrawals: Total purchase payments and purchase payment credits: $20,400.00 minus the standard death benefit adjusted partial withdrawals, calculated as: $1,500 x $20,400 ------------------ = -1,390.91 $22,000 ---------- for a death benefit of: $19,009.09 ========== Contract value at death: $20,500.00 ========== The MAV immediately preceding the date of death plus any payments made since that anniversary minus adjusted partial withdrawals: Greatest of your contract anniversary contract values: $24,000.00 plus purchase payments and purchase payment credits since that anniversary: +0.00 minus the standard death benefit adjusted partial withdrawals, calculated as: $1,500 x $24,000 ------------------ = -1,636.36 $22,000 -------- for a death benefit of: $22,363.64 ========== The standard death benefit, calculated as the greatest of these three values is the MAV: $22,363.64 -------------------------------------------------------------------------------- WELLS FARGO ADVANTAGE BUILDER VARIABLE ANNUITY -- PROSPECTUS 45 IF YOU DIE BEFORE YOUR RETIREMENT DATE: 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, at a rate no less than required by law. We will mail payment to the beneficiary within seven days after or death claim requirements are fulfilled. NONQUALIFIED ANNUITIES: If your spouse is sole beneficiary and you die before the retirement date, your spouse may keep the contract as owner with the contract value equal to the death benefit that would otherwise have been paid. To do this your spouse must, within 60 days after we receive proof of death, give us written instructions to keep the contract in force. There will be no withdrawal charges on the contract from that point forward unless additional purchase payments are made. The Guaranteed Minimum Income Benefit Rider (see "Optional Benefits"), if selected, will terminate. If your beneficiary is not your spouse, 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. QUALIFIED ANNUITIES: The IRS has issued proposed regulations which will affect distributions from your qualified annuity. These are proposed regulations that may take effect Jan. 1, 2002. The information below is an explanation based on existing law. Contract your tax advisor if you have any questions as to the impact of the new proposed rules on your situation. If your spouse is the sole beneficiary, your spouse may keep the contract as owner until the date on which the annuitant would have reached age 70 1/2, or any other date permitted by the Code. The contract value will be equal to the death benefit that would otherwise have been paid. There will be no withdrawal charges on the contract from that point forward unless additional purchase payments are made. The Guaranteed Minimum Income Benefit Rider (see "Optional Benefits"), if selected, will terminate. If your beneficiary is not your spouse, 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 following the year of your death; and - the payout period does not extend beyond the beneficiary's life or life expectancy. OPTIONAL BENEFITS BENEFIT PROTECTOR-SM- DEATH BENEFIT RIDER (BENEFIT PROTECTOR) The Benefit Protector is not available under contracts issued through AEFA. The Benefit Protector is intended to provide an additional benefit to your beneficiary to help offset expenses after your death such as funeral expenses or federal and state taxes. This is an optional benefit that you may select for an additional annual charge (see "Charges"). The Benefit Protector provides reduced benefits if you or the annuitant are 70 or older at the rider effective date and it does not provide any additional benefit before the first rider anniversary. Be sure to discuss with your sales representative whether or not the Benefit Protector is appropriate for your situation. If this rider is available in your state and both you and the annuitant are 75 or younger at contract issue, you may choose to add the Benefit Protector to your contract. Generally, you must elect the Benefit Protector at the time you purchase your contract and your rider effective date will be the contract issue date. This rider is only available under a nonqualified annuity contract. You may not select this rider if you select the Benefit Protector Plus or the Enhanced Death Benefit Riders. We reserve the right to discontinue offering the Benefit Protector for new contracts. In some instances the rider effective date for the Benefit Protector may be after we issue the contract according to terms determined by us and at our sole discretion. The Benefit Protector provides that if you or the annuitant die after the first contract anniversary, but before annuity payouts begin, and while this contract is in force, we will pay the beneficiary the following less any purchase payment credits added to the contract in the last 12 months: - the standard death benefit (see "Benefits in Case of Death"), PLUS - 40% of your earnings at death if you and the annuitant were under age 70 on the rider effective date, up to a maximum of 100% of purchase payments not previously withdrawn that are one or more years old; or - 15% of your earnings at death if you or the annuitant were 70 or older on the rider effective date, up to a maximum of 37.5% of purchase payments not previously withdrawn that are one or more years old. -------------------------------------------------------------------------------- 46 WELLS FARGO ADVANTAGE BUILDER VARIABLE ANNUITY -- PROSPECTUS EARNINGS AT DEATH: for purposes of the Benefit Protector and Benefit Protector Plus riders, this is an amount equal to the standard death benefit minus purchase payments not previously withdrawn. The earnings at death may not be less than zero and may not be more than 250% of the purchase payments not previously withdrawn that are one or more years old. TERMINATING THE BENEFIT PROTECTOR: - You may terminate the rider within 30 days of the first rider anniversary. - You may terminate the rider within 30 days of any rider anniversary beginning with the seventh rider anniversary. - The rider will terminate when you make a full withdrawal from the contract or when annuity payouts begin. IF YOUR SPOUSE IS SOLE BENEFICIARY and you die before the retirement date, your spouse may keep the contract as owner with the contract value equal to the death benefite that would otherwise have been paid. We will substitute this new contract value on the date of death for "purchase payments not previously withdrawn" used in calculating earnings at death. Your spouse has the option of discontinuing the Benefit Protector within 30 days of the date of death. For an example of how we calculate the death benefit under the Benefit Protector, please see the example in the Benefit Protector-SM- Plus Death Benefit Rider below. NOTE: For special tax considerations associated with the Benefit Protector, see "Taxes." BENEFIT PROTECTOR-SM- PLUS DEATH BENEFIT RIDER (BENEFIT PROTECTOR PLUS) The Benefit Protector Plus is not available under contracts issued through AEFA. The Benefit Protector Plus is intended to provide an additional benefit to your beneficiary to help offset expenses after your death such as funeral expenses or federal and state taxes. This is an optional benefit that you may select for an additional annual charge (see "Charges"). The Benefit Protector Plus provides reduced benefits if you or the annuitant are 70 or older at the rider effective date and it does not provide any additional benefit before the first rider anniversary and it does not provide any benefit beyond what is offered under the Benefit Protector rider during the second rider year. Be sure to discuss with your sales representative whether or not the Benefit Protector Plus is appropriate for your situation. If this rider is available in your state and both you and the annuitant are 75 or younger at contract issue, you may choose to add the Benefit Protector Plus to you contract. You must elect the Benefit Protector Plus at the time you purchase your contract and your rider effective date will be the contract issue date. This rider is only available under nonqualified annuities purchased through a transfer or exchange. You may not select this rider if you select the Benefit Protector or the Enhanced Death Benefit Riders. We reserve the right to discontinue offering the Benefit Protector Plus for new contracts. The Benefit Protector Plus provides that if you or the annuitant die after the first contract anniversary, but before annuity payouts begin, and while this contract is in force, we will pay the beneficiary the following less any purchase payment credits added to the contract in the last 12 months: - the benefits payable under the Benefit Protector described above, PLUS - a percentage of purchase payments made within 60 days of contract issue not previously withdrawn as follows:
PERCENTAGE IF YOU AND THE ANNUITANT ARE PERCENTAGE IF YOU OR THE ANNUITANT ARE CONTRACT YEAR UNDER AGE 70 ON THE RIDER EFFECTIVE DATE 70 OR OLDER ON THE RIDER EFFECTIVE DATE One and Two 0% 0% Three and Four 10 3.75 Five or more 20 7.5
Another way to describe the benefits payable under the Benefit Protector Plus rider is as follows (less any purchase payment credits added to the contract in the last 12 months): - the standard death benefit (see "Benefits in Case of Death") PLUS
IF YOU AND THE ANNUITANT ARE UNDER IF YOU OR THE ANNUITANT ARE AGE 70 CONTRACT YEAR AGE 70 ON THE RIDER EFFECTIVE DATE, ADD... OR OLDER ON THE RIDER EFFECTIVE DATE, ADD... 1 Zero Zero 2 40% x earnings at death (see above) 15% x earnings at death 3 & 4 40% x (earnings at death + 25% 15% x (earnings at death + 25% initial purchase payment*) initial purchase payment*) 5+ 40% x (earnings at death + 50% 15% x (earnings at death + 50% initial purchase payment*) initial purchase payment*)
* Initial purchase payments are payments made within 60 days of contract issue not previously withdrawn. -------------------------------------------------------------------------------- WELLS FARGO ADVANTAGE BUILDER VARIABLE ANNUITY -- PROSPECTUS 47 TERMINATING THE BENEFIT PROTECTOR PLUS: - You may terminate the rider within 30 days of the first rider anniversary. - You may terminate the rider within 30 days of any rider anniversary beginning with the seventh rider anniversary. - The rider will terminate when you make a full withdrawal from the contract or when annuity payouts begin. EXAMPLE OF THE BENEFIT PROTECTOR AND BENEFIT PROTECTOR PLUS: - You purchase the contract with a payment of $100,000 on Jan. 01, 2001 and you and the annuitant are under age 70. We add a $2,000 credit to your contract. - On July 1, 2001 the contract value grows to $105,000. The death benefit on July 1, 2001 equals the standard death benefit, which is the contract value less any purchase payment credits added to the contract in the last 12 months, or $103,000. You have not reached the first contract anniversary so neither the Benefit Protector nor the Benefit Protector Plus provides any additional benefit at this time. - On Jan. 1, 2002 the contract value grows to $110,000. You have not reached the second contract anniversary so the Benefit Protector Plus does not provide any additional benefit at this time. The death benefit on Jan. 1, 2002 equals: the standard death benefit (contract value): $110,000 plus the Benefit Protector benefit which equals 40% of earnings at death (the standard death benefit minus payments not previously withdrawn): 0.40 x ($110,000 - $100,000) = +4,000 -------- Total death benefit of: $114,000 - On Jan. 1, 2003 the contract value falls to $105,000. The death benefit on Jan. 1, 2003 equals: the standard death benefit (MAV): $110,000 plus the Benefit Protector benefit (40% of earnings at death): 0.40 x ($110,000 - $100,000) = +4,000 plus the Benefit Protector Plus which in the third contract year equals 10% of purchase payments made within 60 days of contract issue and not previously withdrawn: 0.10 x $100,000 = +10,000 -------- Total death benefit of: $124,000 - On Feb. 1, 2003 the contract value remains at $105, 000 and you request a partial withdrawal, including the applicable 8% withdrawal charge, of $50,000. We will withdraw $10,500 from your contract value free of charge (10% of your prior anniversary's contract value). The remainder of the withdrawal is subject to an 8% withdrawal charge because your payment is two years old, so we will withdraw $39,500 ($36,340 + $3,160 in withdrawal charges) from your contract value. Altogether, we will withdraw $50,000 and pay you $46,840. We calculate purchase payments not previously withdrawn as $100,000 - $45,000 = $55,000 (remember that $5,000 of the partial withdrawal is contract earnings). The death benefit on Feb. 1, 2003 equals: standard death benefit (MAV adjusted for partial withdrawals): $57,619 plus the Benefit Protector benefit (40% of earnings at death): 0.40 x ($57,619 - $55,000) = +1,048 plus the Benefit Protector Plus which in the third contract year equals 10% of purchase payments made within 60 days of contract issue and not previously withdrawn: 0.10 x $55,000 = +5,500 --------- Total death benefit of: $64,167 - On Jan. 1, 2004 the contract value falls $40,000. The death benefit on Jan. 1, 2004 equals the death benefit paid on Feb. 1, 2003. The reduction in contract value has no effect. - On Jan. 1, 2010 the contract value grows to a new high of $200,000. Earnings at death reaches its maximum of 250% of purchase payments not previously withdrawn that are one or more years old. Because we are beyond the fourth contract anniversary the Benefit Protector Plus also reaches its maximum of 20%. The death benefit on Jan. 1, 2010 equals: standard death benefit (contract value): $200,000 plus the Benefit Protector (40% of earnings at death, up to a maximum of 100% of purchase payments not previously withdrawn that are one or more years old) +55,000 plus the Benefit Protector Plus which after the fourth contract year equals 20% of purchase payments made within 60 days of contract issue and not previously withdrawn: 0.20 x $55,000 = +11,000 -------- Total death benefit of: $266,000 -------------------------------------------------------------------------------- 48 WELLS FARGO ADVANTAGE BUILDER VARIABLE ANNUITY -- PROSPECTUS - On July 1, 2010 you make an additional purchase payment of $50,000 and we add a purchase payment credit of $1,000. Your new contract value is now $250,000. The new purchase payment is less than one year old and so it has no effect on either the Benefit Protector or Benefit Protector Plus values. The death benefit on July 1, 2010 equals: standard death benefit (contract value less any purchase payment credits added in the last 12 months): $249,000 plus the Benefit Protector (40% of earnings at death, up to a maximum of 100% of purchase payments not previously withdrawn that are one or more years old) +55,000 plus the Benefit Protector Plus which after the fourth contract year equals 20% of purchase payments made within 60 days of contract issue and not previously withdrawn: 0.20 x $55,000 = +11,000 -------- Total death benefit of: $315,000 - On July 1, 2011 the contract value remains $250,000 and the "new" purchase payment is one year old. The value of the Benefit Protector changes but value of the Benefit Protector Plus remains constant. The death benefit on July 1, 2011 equals: standard death benefit (contract value): $250,000 plus the Benefit Protector benefit which equals 40% of earnings at death (the standard death benefit minus payments not previously withdrawn): 0.40 x ($250,000 - $105,000) = +58,000 plus the Benefit Protector Plus which after the fourth contract year equals 20% of purchase payments made within 60 days of contract issue and not previously withdrawn: 0.20 x $55,000 = +11,000 -------- Total death benefit of: $319,000 IF YOUR SPOUSE IS SOLE BENEFICIARY and you die before the retirement date, your spouse may keep the contract as owner with the contract value equal to the death benefite that would otherwise have been paid. We will then terminate the Benefit Protector Plus and substitute the standard death benefit (see "Benefits in Case of Death"). NOTE: For special tax considerations associated with the Benefit Protector Plus, see "Taxes." ENHANCED DEATH BENEFIT RIDER (EDB) The EDB is intended to help protect your beneficiaries financially while your investments have the opportunity to grow. This is an optional benefit that you may select for an additional charge (see "Charges"). The EDB does not provide any additional benefit before the first contract anniversary and it may not be appropriate for issue ages 75 to 79 because the benefit values may be limited after age 81. Be sure to discuss with your sales representative whether or not the EDB is appropriate for your situation. If this rider is available in your state and both you and the annuitant are 79 or younger at contract issue, you may choose to add the EDB to your contract at the time of purchase. Once you select the EDB you may not cancel it. You may not add the EDB if you add either the Benefit Protector or the Benefit Protector Plus to your contract. You must select the EDB if you choose to add the Guaranteed Minimum Income Benefit Rider to your contract The EDB provides that if you or the annuitant die before annuity payouts begin while this contract is in force, we will pay the beneficiary the greatest of the following less any purchase payment credits added in the last 12 months: - the standard death benefit (see "Benefits in Case of Death"); or - the 5% rising floor. 5% RISING FLOOR: This is the sum of the value of your fixed accounts plus the variable account floor. We calculate the variable account floor on each contract anniversary through age 80. There is no variable account floor prior to the first contract anniversary. On the first contract anniversary, we set the variable account floor equal to: - the initial purchase payments and purchase payment credits allocated to the subaccounts increased by 5%, - plus any subsequent amounts allocated to the subaccounts, and - minus adjusted transfers or partial withdrawals from the subaccounts. -------------------------------------------------------------------------------- WELLS FARGO ADVANTAGE BUILDER VARIABLE ANNUITY -- PROSPECTUS 49 Every contract anniversary after that, through age 80, we reset the variable account floor by accumulating the prior anniversary's variable account floor at 5% plus any subsequent amounts allocated to the subaccounts minus adjusted transfers or partial withdrawals from the subaccounts. We stop resetting the variable account floor after you or the annuitant reach age 81. However, we continue to add subsequent amounts you allocate to the subaccounts and subtract adjusted transfers or partial withdrawals from the subaccounts. (PWT X VAT) 5% RISING FLOOR ADJUSTED TRANSFERS OR PARTIAL WITHDRAWALS = ------------ SV PWT = the amount transferred from the subaccounts or the amount of the partial withdrawal (including any applicable withdrawal charge) from the subaccounts. VAT = variable account floor on the date of (but prior to) the transfer or partial withdrawal. SV = value of the subaccounts on the date of (but prior to) the transfer or partial withdrawal. EXAMPLE: - You purchase the contract with a payment of $20,000 on Jan. 1, 2001 and we add a $400 purchase payment credit to your contract. You allocate $5,100 to the one-year fixed account and $15,300 to the subaccounts. - On Jan. 1, 2002 (the first contract anniversary), the one-year fixed account value is $5,200 and the subaccount value is $12,000. Total contract value is $17, 200. - On March 1, 2002, the one-year fixed account value is $5,300 and the subaccount value is $14,000. Total contract value is $19,300. You take a $1,500 partial withdrawal all from the subaccounts, leaving the contract value at $17,800. The death benefit on March 1, 2002 is calculated as follows: The standard death benefit (which in this case is the MAV) Greatest of your contract anniversary contract values: $20,400.00 plus purchase payments made since that anniversary: +0.00 minus the standard death benefit adjusted partial withdrawal taken since that anniversary, calculated as: ($1,500 x $20,400) ------------------ = -1,585.49 $19,300 ---------- standard death benefit, which is the MAV: $18,814.51 ========== The 5% rising floor: The variable account floor on Jan. 1, 2002, calculated as: 1.05 x 15,300 = $16,065.00 plus amounts allocated to the subaccounts since that anniversary: +0.00 minus the 5% rising floor adjusted partial withdrawal from the subaccounts, calculated as: (1,500 x 16,065) ---------------- = -1,721.25 14,000 ---------- variable account floor benefit: $14,343.75 plus the one-year fixed account value: +5,300.00 ---------- 5% rising floor (value of the fixed accounts plus the variable account floor): $19,643.75 ========== EDB, calculated as the greater of the standard death benefit or the 5% rising floor: $19,643.75 -------------------------------------------------------------------------------- 50 WELLS FARGO ADVANTAGE BUILDER VARIABLE ANNUITY -- PROSPECTUS GUARANTEED MINIMUM INCOME BENEFIT RIDER (GMIB) The GMIB is intended to provide you with a guaranteed minimum lifetime income regardless of the volatility inherent in the investments in the subaccounts. If the annuitant is between age 70 and age 75 at contract issue, you should consider whether the GMIB is appropriate for your situation because: - you must hold the GMIB for 10 years*, - the GMIB terminates after the annuitant's 86th birthday, - you can only exercise the GMIB within 30 days after a contract anniversary*, - the MAV and the 5% rising floor values we use in the GMIB benefit base to calculate annuity payouts under the GMIB are limited after age 81, and - the additional costs associated with the rider. Be sure to discuss whether or not the GMIB is appropriate for your situation with your sales representative. * Unless the annuitant qualifies for a contingent event (see "Charges -- Contingent events"). If this rider is available in your state and the annuitant is 75 or younger at contract issue, you may choose to add this benefit to your contract for an additional annual charge which we describe below. You must elect the GMIB along with the EDB at the time you purchase your contract and your rider effective date will be the contract issue date. In some instances we may allow you to add the GMIB to your contract at a later date if it was not available when you initially purchased your contract. In these instances, we would add the GMIB at the next contract anniversary and this would become the rider effective date. For purposes of calculating the GMIB benefit base under these circumstances, we consider the contract value on the rider effective date to be the initial purchase payment; we disregard all previous purchase payments, purchase payment credits, transfers and withdrawals in the GMIB calculations. INVESTMENT SELECTION UNDER THE GMIB: You may allocate your purchase payments and purchase payment credits or transfers to any of the subaccounts or the fixed accounts. However, we reserve the right to limit the amount you allocate to subaccounts investing in the Wells Fargo VT Money Market Fund to 10% of the total amount in the subaccounts. If we are required to activate this restriction, and you have more than 10% of your subaccount value in this fund, we will send you a notice and ask that you reallocate your contract value so that the 10% limitation is satisfied within 60 days. We will terminate the GMIB if you have not satisfied the limitation after 60 days. EXERCISING THE GMIB: - you may only exercise the GMIB within 30 days after any contract anniversary following the expiration of a ten-year waiting period from the rider effective date. However, there is an exception if at any time the annuitant experiences a "contingent event" (disability, terminal illness, confinement to a nursing home or hospital, or unemployment, see "Charges -- Contingent events" for more details.) - the annuitant on the retirement date must be between 50 and 86 years old. - you can only take an annuity payout under one of the following annuity payout plans: -- Plan A - Life Annuity -- no refund -- Plan B - Life Annuity with ten years certain -- Plan D - Joint and last survivor life annuity-- no refund - you may change the annuitant for the payouts. If you exercise the GMIB under a contingent event, you can take up to 50% of the benefit base in cash. You can use the balance of the benefit base (described below) for annuity payouts calculated using the guaranteed annuity purchase rates under any one of the payout plans listed above as long as the annuitant is between 50 and 86 years old on the retirement date. The GMIB guarantees a minimum amount of fixed annuity lifetime income or a minimum first year variable annuity payout. We calculate fixed annuity payouts and first year variable annuity payouts using the guaranteed annuity purchase rates stated in Table B of the contract. After the first year, lifetime income variable annuity payouts will depend on the investment performance of the subaccounts you select. The payouts will be higher if your investment performance is greater than a 5% annual return and lower if investment performance is less than a 5% annual return. The GMIB benchmarks the contract growth at each anniversary against several comparison values and sets the GMIB benefit base (described below) equal to the largest value. The GMIB benefit base, less any applicable premium tax, is the value we apply to the guaranteed annuity purchase rates stated in Table B of the contract to calculate the minimum annuity payouts you will receive if you exercise the GMIB. If the GMIB benefit base is greater than the contract value, the GMIB may provide a higher annuity payout level than is otherwise available. However, the GMIB uses guaranteed annuity purchase rates that are more conservative than the annuity purchase rates that we will apply at annuitization under the standard contract provisions. Therefore, the level of income provided by the GMIB may be less than the income the contract otherwise provides. If the annuity payouts through the standard contract provisions are more favorable than the payouts available through the GMIB, you may elect the higher standard payout option. The GMIB does not create contract value or guarantee the performance of any investment option. -------------------------------------------------------------------------------- WELLS FARGO ADVANTAGE BUILDER VARIABLE ANNUITY -- PROSPECTUS 51 GMIB BENEFIT BASE: If the GMIB is effective at contract issue, the GMIB benefit base is the greatest of: 1. total purchase payments and purchase payment credits minus adjusted partial withdrawals; 2. contract value; 3. the MAV at the last contract anniversary plus any payments and purchase payment credits since that anniversary minus adjusted partial withdrawals since that anniversary; or 4. the 5% rising floor. Keep in mind that the MAV and the 5% rising floor values are limited after age 81. We reserve the right to exclude from the GMIB benefit base any purchase payments and purchase payment credits you make in the five years before you exercise the GMIB. We would do so only if such payments and credits total $50,000 or more or if they are 25% or more of total contract payments and credits. If we exercise this right, we: - subtract each payment and purchase payment credit adjusted for market value from the contract value and the MAV. - subtract each payment and purchase payment credit from the 5% rising floor. We adjust the payments and purchase payment credits allocated to the fixed account for market value. We increase payments and purchase payment credits allocated to the subaccounts by 5% for the number of full contract years they have been in the contract before we subtract them from the 5% rising floor. For each payment and purchase payment credit, we calculate the market value adjustment to the contract value, MAV, and the fixed account value of the 5% rising floor as: (PMT x CVG) ------------ ECV PMT = each purchase payment made in the five years before you exercise the GMIB. CVG = current contract value at the time you exercise the GMIB. ECV = the estimated contract value on the anniversary prior to the payment in question. We assume that all payments, purchase payment credits and partial withdrawals occur at the beginning of a contract year. For each payment and purchase payment credit , we calculate the 5% increase of payments and purchase payment credits allocated to the subaccounts as: to the power of CY PMT x (1.05) CY = the full number of contract years the payment and purchase payment credit have been in the contract. TERMINATING THE GMIB: - You may terminate the rider within 30 days after the first and fifth rider anniversaries. - You may terminate the rider any time after the tenth rider anniversary. - The rider will terminate on the date: -- you make a full withdrawal from the contract; -- a death benefit is payable; or -- you choose to begin taking annuity payouts under the regular contract provisions. - The rider will terminate on the contract anniversary after the annuitant's 86th birthday. EXAMPLE: - You purchase the contract with a payment of $100,000 on Jan. 1, 2001 and we add a $2,000 purchase payment credit to your contract. You allocate all your purchase payments and purchase payment credits to the subaccounts. - There are no additional purchase payments and no partial withdrawals. - Assume the annuitant is male and age 55 at contract issue. For the joint and last survivor option (annuity payout Plan D), the joint annuitant is female and age 55 at contract issue. -------------------------------------------------------------------------------- 52 WELLS FARGO ADVANTAGE BUILDER VARIABLE ANNUITY -- PROSPECTUS Taking into account fluctuations in contract value due to market conditions, we calculate the GMIB benefit base as:
CONTRACT GMIB ANNIVERSARY CONTRACT VALUE MAV 5% RISING FLOOR BENEFIT BASE 1 $107,000 $107,000 $107,100 2 125,000 125,000 112,455 3 132,000 132,000 118,078 4 150,000 150,000 123,982 5 85,000 150,000 130,181 6 120,000 150,000 136,690 7 138,000 150,000 143,524 8 152,000 152,000 150,700 9 139,000 152,000 158,235 10 126,000 152,000 166,147 $166,147 11 138,000 152,000 174,455 174,455 12 147,000 152,000 183,177 183,177 13 163,000 163,000 192,336 192,336 14 159,000 163,000 201,953 201,953 15 215,000 215,000 212,051 215,000
NOTE: The MAV and 5% rising floor values are limited after age 81. Additionally, the GMIB benefit base may increase if the contract value increases. However, you should keep in mind that you are always entitled to annuitize using the contract value without exercising the GMIB. If you annuitize the contract within 30 days after a contract anniversary, the payout under a fixed annuity option (which is the same as the minimum payout for the first year under a variable annuity options) would be:
MINIMUM GUARANTEED MONTHLY INCOME CONTRACT PLAN A - PLAN B - PLAN D - JOINT AND ANNIVERSARY GMIB LIFE ANNUITY-- LIFE ANNUITY WITH LAST SURVIVOR LIFE AT EXERCISE BENEFIT BASE NO REFUND TEN YEARS CERTAIN ANNUITY-- NO REFUND 10 $166,147 (5% rising floor) $ 865.63 $ 842.37 $689.51 15 215,000 (MAV) 1,281.40 1,221.20 991.15
The payouts above are shown at guaranteed annuity rates stated in Table B of the contract. Payouts under the standard provisions of this contract will be based on our annuity rates in effect at annuitization and are guaranteed to be greater than or equal to the guaranteed annuity rates stated in Table B of the contract. The fixed annuity payout available under the standard provisions of this contract would be at least as great as shown below:
CONTRACT PLAN A - PLAN B - PLAN D - JOINT AND ANNIVERSARY LIFE ANNUITY-- LIFE ANNUITY WITH LAST SURVIVOR LIFE AT EXERCISE CONTRACT VALUE NO REFUND TEN YEARS CERTAIN ANNUITY-- NO REFUND 10 $126,000 $ 656.46 $ 638.82 $522.90 15 215,000 1,281.40 1,221.20 991.15
At the 15th contract anniversary you would not experience a benefit from the GMIB as the payout available to you is equal to or less than the payout available under the standard provisions of the contract. Remember that after the first year, lifetime income payouts under a variable annuity payout option will depend on the investment performance of the subaccounts you select. The payouts will be higher if investment performance is greater than a 5% annual return and lower if investment performance is less than a 5% annual return. -------------------------------------------------------------------------------- WELLS FARGO ADVANTAGE BUILDER VARIABLE ANNUITY -- PROSPECTUS 53 THE GMIB FEE: This fee currently costs 0.30% of the GMIB benefit base annually and it is taken in a lump sum from the contract value on each contract anniversary at the end of each contract year. If the contract is terminated or if annuity payouts begin, we will deduct the fee at that time adjusted for the number of calendar days coverage was in place. We cannot increase the GMIB fee after the rider effective date and it does not apply after annuity payouts begin. We can increase the GMIB fee on new contracts up to a maximum of 0.75%. We calculate the fee as follows: BB + AT - FAV BB = the GMIB benefit base. AT = adjusted transfers from the subaccounts to the fixed accounts made in the six months before the contract anniversary calculated as: PT x VAT ---------- SVT PT = the amount transferred from the subaccounts to the fixed accounts within six months of the contract anniversary VAT = variable account floor on the date of (but prior to) the transfer SVT = value of the subaccounts on the date of (but prior to) the transfer FAV = the value of your fixed accounts. The result of AT - FAV will never be greater than zero. This allows us to base the GMIB fee largely on the subaccounts. EXAMPLE: - You purchase the contract with a payment of $100,000 on Jan. 1, 2001 and we add a purchase payment credit of $2,000 to your contract. You allocate all of your payment and the purchase payment credit to the subaccounts. - You make no transfers or partial withdrawals.
CONTRACT GMIB FEE VALUE ON WHICH WE GMIB FEE ANNIVERSARY CONTRACT VALUE PERCENTAGE BASE THE GMIB FEE CHARGED TO YOU 1 $ 80,000 0.30% 5% rising floor = $102,000 x 1.05 $321 2 150,000 0.30 Contract value = $150,000 450 3 102,000 0.30 MAV = $150,000 450
THE ANNUITY PAYOUT PERIOD As owner of the contract, you have the right to decide how and to whom annuity payouts will be made starting at the retirement date. You may select one of the annuity payout plans outlined below, or we may mutually agree on other payout arrangements. We do not deduct any withdrawal charges under the payout plans listed below. You also decide whether we will make annuity payouts on a fixed or variable basis, or a combination of fixed and variable. The 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 one-year fixed account to provide fixed dollar payouts and/or among the subaccounts to provide variable annuity payouts. During the annuity payout period, we reserve the right to limit the number of subaccounts in which you may invest. The Guarantee Period Accounts are not available during this payout period. AMOUNTS OF FIXED AND VARIABLE PAYOUTS DEPEND ON: - the annuity payout plan you select; - the annuitant's age and, in most cases, sex; - the annuity table in the contract; and - the amounts you allocated to the accounts at settlement. In addition, for variable payouts only, amounts depend on the investment performance of the subaccounts you select. These payouts will vary from month to month because the performance of the funds will fluctuate. (In the case of fixed annuities, payouts remain the same from month to month.) For information with respect to transfers between accounts after annuity payouts begin, see "Making the Most of Your Contract -- Transfer policies." -------------------------------------------------------------------------------- 54 WELLS FARGO ADVANTAGE BUILDER VARIABLE ANNUITY -- PROSPECTUS ANNUITY TABLES The annuity tables in your contract show the amount of the monthly payout 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.) Table B shows the minimum amount of each fixed payout. Amounts in Table B are based on the guaranteed annual effective interest rate shown in your contract. We declare current payout rates that we use in determining the actual amount of your fixed payout. The current payout rates will equal or exceed the guaranteed payout rates shown in Table B. We will furnish these rates to you upon request. Table A shows the amount of the first monthly variable payout assuming 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. 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 A 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 Table A results in a higher initial payment, but later payouts will increase more slowly when annuity unit values rise and decrease more rapidly when they decline. ANNUITY PAYOUT PLANS You may choose any one of these annuity payout plans by giving us written instructions at least 30 days before contract values are used to purchase the payout plan: - PLAN A - LIFE ANNUITY -- NO REFUND: We make monthly payouts until the annuitant's death. Payouts end with the last payout before the annuitant's death. We will not make any further payouts. This means that if the annuitant dies after we have 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 payout. If the original contract had a six-year withdrawal charge schedule, the discount rate we use in the calculation will vary between 5.32% and 6.82% depending on the applicable assumed investment rate. If the original contract had an eight-year withdrawal charge schedule, the discount rate we use in the calculation will vary between 5.07% and 6.57% depending on the applicable assumed investment rate. (See "Charges -- Withdrawal charge under Annuity Payout Plan E.") You can also take a portion of the discounted value once a year. If you do so, your monthly payouts will be reduced by the proportion of your withdrawal to the full discounted value. A 10% IRS penalty tax could apply if you take a withdrawal. (See "Taxes.") ANNUITY PAYOUT PLAN REQUIREMENTS FOR QUALIFIED ANNUITIES: If you purchased a qualified annuity, you must select a payout plan as of the retirement date set forth in your contract. You have the responsibility for electing a payout plan that complies with your contract and with applicable law. Your contract describes you payout plan options. The options will meet certain IRS regulations governing required minimum distributions if the payout plan meets the incidental distribution benefit requirements, if any, and the payouts are made: - in equal of substantially equal payments over a period not longer than the life of the annuitant or over the life of the annuitant and designated beneficiary; or - in equal or substantially equal payments over a period not longer than the life expectancy of the annuitant or over the life expectancy of the annuitant and a designated beneficiary; or - over a period certain not longer than the life expectancy of the annuitant or over the life expectancy of the annuitant and designated beneficiary. IF WE DO NOT RECEIVE INSTRUCTIONS: You must give us written instructions for the annuity payouts at least 30 days before the annuitant's retirement date. If you do not, we will make payouts under Plan B, with 120 monthly payouts guaranteed. Contract values that you allocated to the one-year fixed account will provide fixed dollar payouts and contract values that you allocated among the subaccounts will provide variable annuity payouts. -------------------------------------------------------------------------------- WELLS FARGO ADVANTAGE BUILDER VARIABLE ANNUITY -- PROSPECTUS 55 IF MONTHLY PAYOUTS WOULD BE LESS THAN $20: We will calculate the amount of monthly payouts at the time the contract value is used to purchase a payout plan. If the calculations show that monthly payouts would be less than $20, we have the right to pay the contract value to the owner in a lump sum or to change the frequency of the payouts. DEATH AFTER ANNUITY PAYOUTS BEGIN: If you or the annuitant die after annuity payouts begin, we will pay any amount payable to the beneficiary as provided in the annuity payout plan in effect. TAXES Generally, under current law, your contract has a tax-deferral feature. This means any increase in the value of the fixed accounts and/or subaccounts in which you invest is taxable to you only when you receive a payout or withdrawal (see detailed discussion below). Any portion of the annuity payouts and any withdrawals you request that represent ordinary income normally are taxable. We will send you a tax information reporting form for any year in which we made a taxable distribution according to our records. Roth IRAs may grow and be distributed tax free if you meet certain distribution requirements. ANNUITY PAYOUTS UNDER NONQUALIFIED ANNUITIES: A portion of each payout will be ordinary income and subject to tax, and a portion of each payout will be considered a return of part of your investment and will not be taxed. All amounts you receive after your investment in the contract is fully recovered will be subject to tax. Tax law requires that all nonqualified deferred annuity contracts issued by the same company (and possibly its affiliates) to the same owner during a calendar year be taxed as a single, unified contract when you take distributions from any one of those contracts. QUALIFIED ANNUITIES: When you use your contract to fund a retirement plan that is already tax deferred under the Code, the contract will not provide any necessary or additional tax deferral for that retirement plan. Adverse tax consequences may result if you do not ensure that contributions, distributions and other transactions under the contract comply with the law. Qualified annuities have minimum distribution rules that govern the timing and amount of distributions during your life (except for Roth IRAs) and after your death. You should refer to your retirement plan or adoption agreement, or consult a tax advisor for more information about these distribution rules. ANNUITY PAYOUTS UNDER QUALIFIED ANNUITIES (EXCEPT ROTH IRAS): Under a qualified annuity, the entire payout generally is includable as ordinary income and is subject to tax except to the extent that contributions were made with after-tax dollars. If you or your employer invested in your contract with deductible or pre-tax dollars as part of a tax-deferred retirement plan, such amounts are not considered to be part of your investment in the contract and will be taxed when paid to you. PURCHASE PAYMENT CREDITS: These are considered earnings and are taxed accordingly. WITHDRAWALS: If you withdraw part or all of your contract before your annuity payouts begin, your withdrawal payment will be taxed to the extent that the value of your contract immediately before the withdrawal exceeds your investment. You also may have to pay a 10% IRS penalty for withdrawals you make before reaching age 59 1/2 unless certain exceptions apply. For qualified annuities, other penalties may apply if you make withdrawals from your contract before your plan specifies that you can receive payouts. DEATH BENEFITS TO BENEFICIARIES UNDER NONQUALIFIED ANNUITIES: The death benefit under a contract 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 year he or she receives the payments. DEATH BENEFITS TO BENEFICIARIES UNDER QUALIFIED ANNUITIES: The entire death benefit generally is taxable as ordinary income to the beneficiary in the year he or she receives the payments. Death benefits under a Roth IRA generally are not taxable as ordinary income to the beneficiary if certain distribution requirements are met. SPECIAL CONSIDERATIONS IF YOU SELECT EITHER THE BENEFIT PROTECTOR-SM- OR THE BENEFIT PROTECTOR-SM- PLUS DEATH BENEFIT RIDERS: As of the date of this prospectus, we believe that charges related to these riders are not subject to current taxation. Therefore, we will not report these charges as partial withdrawals from your contract. However, the IRS may determine that these charges should be treated as partial withdrawals subject to taxation to the extent of any gain as well as the 10% tax penalty for withdrawals before the age of 59 1/2, if applicable. We reserve the right to report charges for these riders as partial withdrawals if we, as a withholding and reporting agent, believe that we are required to report them. In addition, we will report the benefits attributable to this rider on the death of you or annuitant as an annuity death benefit distribution, not as proceeds from life insurance. 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. -------------------------------------------------------------------------------- 56 WELLS FARGO ADVANTAGE BUILDER VARIABLE ANNUITY -- PROSPECTUS 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: - 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 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. 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. -------------------------------------------------------------------------------- WELLS FARGO ADVANTAGE BUILDER VARIABLE ANNUITY -- PROSPECTUS 57 SUBSTITUTION OF INVESTMENTS We may substitute the funds in which the subaccounts invest if: - laws or regulations change; - the existing funds become unavailable; or - in our judgment, the funds no longer are suitable for the subaccounts. If any of these situations occur, and if we believe it is in the best interest of persons having voting rights under the contract, we have the right to substitute the funds currently listed in this prospectus for other funds. We may also: - add new subaccounts; - combine any two or more subaccounts; - make additional subaccounts investing in additional funds; - transfer assets to and from the subaccounts or the variable account; and - eliminate or close any subaccounts. In the event of substitution or any of these changes, we may amend the contract and take whatever action is necessary and appropriate without your consent or approval. However, we will not make any substitution or change without the necessary approval of the SEC and state insurance departments. We will notify you of any substitution or change. ABOUT THE SERVICE PROVIDERS PRINCIPAL UNDERWRITER American Express Financial Advisors Inc. (AEFA) serves as the principal underwriter for the contract. Its offices are located at 70100 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, a financial services company headquartered in New York City. The contracts will be distributed by broker-dealers which have entered into distribution agreements with AEFA and American Enterprise Life. 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. American Enterprise Life is a stock life insurance company organized in 1981 under the laws of the state of Indiana. Its administrative offices are located at 829 AXP Financial Center, Minneapolis, MN 55474. Its statutory address is 100 Capitol Center South, 201 North Illinois Street, Indianapolis, IN 46204. American Enterprise Life conducts a conventional life insurance business. American Enterprise Life pays cash compensation to the broker-dealers and insurance agencies who have entered into distribution agreements with American Enterprise Life and AEFA for the sale of contracts. This compensation will not result in any charge to contract owners or to the variable account in addition to the charges described in this prospectus. This cash compensation will not be more than 9.0% of the purchase payments it receives on the contracts. From time to time and in accordance with applicable laws and regulations we will pay or permit other promotional incentives, in cash or credit or other compensation. 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 the suits, RICHARD W. AND ELIZABETH J. THORESEN V. 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 on Oct. 13, 1998. The action was brought by individuals who purchased an annuity in a qualified plan. They allege that the sale of annuities in tax-deferred contributory retirement investment plans (e.g., IRAs) is never appropriate. The plaintiffs purport to represent a class consisting of all persons who made similar purchases. The plaintiffs seek damages in an unspecified amount, including restitution of allegedly lost investment earnings and restoration of contract values. In January 2000, AEFC reached an agreement in principle to settle the three class-action lawsuits described above. It is expected the settlement will provide $215 million of benefits to more than two million participants and for release by class members of all insurance and annuity market conduct claims dating back to 1985. -------------------------------------------------------------------------------- 58 WELLS FARGO ADVANTAGE BUILDER VARIABLE ANNUITY -- PROSPECTUS In August, 2000 an action entitled LESA BENACQUISTO, DANIEL BENACQUISTO, RICHARD THORESEN, ELIZABETH THORESEN, ARNOLD MORK, ISABELLA MORK, RONALD MELCHERT AND SUSAN MELCHERT V. AMERICAN EXPRESS FINANCIAL CORPORATION, AMERICAN EXPRESS FINANCIAL ADVISORS, AMERICAN CENTURION LIFE ASSURANCE COMPANY, AMERICAN ENTERPRISE LIFE INSURANCE COMPANY, AMERICAN PARTNERS LIFE INSURANCE COMPANY, IDS LIFE INSURANCE COMPANY AND IDS LIFE INSURANCE COMPANY OF NEW YORK was commenced in the United States District Court for the District of Minnesota. The complaint put at issue various alleged sales practices and misrepresentations and allegations of violations of federal laws. In September, 2000 the plaintiffs filed a consolidated complaint in State Court alleging the same claims as the previous actions. On Oct. 2, 2000 the District Court, Fourth Judicial District for the State of Minnesota, County of Hennepin and the United States District Court for the District of Minnesota entered an order conditionally certifying a class for settlement purposes, preliminarily approving the class settlement, directing the issuance of a class notice to the class and scheduling a hearing to determine the fairness of settlement for March, 2001. On March 6, 2001 the District Court, Fourth Judicial District for the State of Minnesota, County of Hennepin and the United States District Court for the District of Minnesota heard oral arguments on plaintiffs' motions for final approval of the class action settlement. Six motions to intervene were filed together with objections to the proposed settlement. We are awaiting a final order from the court. ADDITIONAL INFORMATION ABOUT AMERICAN ENTERPRISE LIFE SELECTED FINANCIAL DATA The following selected financial data for American Enterprise Life should be read in conjunction with the financial statements and notes.
THREE MONTHS ENDED YEARS ENDED DEC. 31 (THOUSANDS) March 31, 2001 March 31, 2000 2000 1999 1998 1997 1996 ------------------------------------------------------------------------------------------------------------------------------------ Net investment income $ 69,460 $ 77,586 $ 299,759 $ 322,746 $ 340,219 $ 332,268 $ 271,719 Net loss on investments (18,542) (2,425) 469 6,565 (4,788) (509) (5,258) Other 3,765 2,289 12,248 8,338 7,662 6,329 5,753 Total revenues $ 54,863 $ 77,450 $ 312,476 $ 337,649 $ 343,093 $ 338,088 $ 272,214 Income before income taxes $ (11,624) $ 9,978 $ 38,452 $ 50,662 $ 36,421 $ 44,958 $ 35,735 Net income $ (7,637) $ 6,332 $ 24,365 $ 33,987 $ 22,026 $ 28,313 $ 22,823 Total assets $4,617,668 $4,532,394 $4,652,221 $4,603,343 $4,885,621 $4,973,413 $4,425,837 ------------------------------------------------------------------------------------------------------------------------------------
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS THREE MONTHS ENDED MARCH 31, 2001 COMPARED TO THREE MONTHS ENDED MARCH 31, 2000: Net loss was $7.6 million in the first quarter of 2001, compared to net income of $6.3 million in the first quarter of 2000. Loss before income taxes totaled $11.6 million in the first quarter 2001, compared with income of $10.0 million in the first quarter of 2000. This decline primarily reflects a net pre-tax loss of $18.5 from the write-down and sale of certain high-yield securities. Total investment contract deposits received increased to $202 million in the first quarter of 2001, compared with $67 million in the first quarter of 2000. This increase is primarily due to an increase in variable annuity deposits received from sales. Total revenues decreased to $54.9 million in the first quarter of 2001, compared with $77.5 million in the first quarter of 2000. The decrease is primarily due to net realized losses on investments and decreases in net investment income. Net investment income, the largest component of revenues, decreased 10% from the same period of the prior year, reflecting a decrease in investments owned and lower investment yields. Policyholder and contractholder charges increased 13% to $1.7 million in the first quarter of 2001, compared with $1.5 million in the first quarter of 2000, reflecting an increase in annuity surrender charges. American Enterprise Life receives mortality and expense risk fees from the separate accounts. Mortality and expense risk fees increased 175% to $2.2 million in the first quarter of 2001, compared with $.8 million in the first quarter of 2000, reflecting an increase in separate account assets. Net realized loss on investments was $18.5 million in the first quarter of 2001, compared with a net loss of $2.4 million in the first quarter of 2000. The increase in net realized losses was primarily due to the loss on sale and writedowns of fixed maturity investments. Total benefits and expenses decreased 1% to $66.5 million in the first quarter of 2001, compared with $67.5 million in 2000. The largest component of expenses, interest credited on investment contracts, decreased $6.6 million to $42.5 million in the first quarter of 2001, compared to $49.1 in the first quarter of 2000, reflecting a decrease in fixed annuities in force and lower crediting rates. Amortization of deferred policy acquisition costs increased to $12.2 million, compared to $10.7 million in the first quarter of 2000. This increase was due primarily to increased aggregate amounts in force. Other operating expenses increased 55% to $11.9 million in the first quarter of 2001, compared to $7.7 million in the first quarter of 2000. This increase is mainly due to higher technology costs related to growth initiatives. -------------------------------------------------------------------------------- WELLS FARGO ADVANTAGE BUILDER VARIABLE ANNUITY -- PROSPECTUS 59 THREE MONTHS ENDED MARCH 31, 2000 COMPARED TO THREE MONTHS ENDED MARCH 31, 1999: Net income decreased 2% to $6.3 million in the first quarter of 2000, compared to $6.5 million in the first quarter of 1999. Earnings decline resulted primarily from weak equity markets and narrower spreads on the investment portfolio. Total investment contract deposits received decreased to $67 million in the first quarter of 2000, compared with $71 million in the first quarter of 1999. This decrease is primarily due to a decrease in variable annuity deposits in 2000. Total revenues decreased to $77.5 million in the first quarter of 2000, compared with $78.3 million in the first quarter of 1999. The decrease is primarily due to a decrease in net investment income. Net investment income, the largest component of revenues, decreased 4% from the same period of the prior year, reflecting a decrease in investments owned and lower investment yields. Policyholder and contractholder charges increased 25% to $1.5 million in the first quarter of 2000, compared with $1.2 million in the first quarter of 1999, reflecting an increase in annuity surrender charges. American Enterprise Life receives mortality and expense risk fees from the separate accounts. Mortality and expense risk fees increased 60% to $.8 million in the first quarter of 2000, compared with $.5 million in the first quarter of 1999, this reflects the increase in separate account assets. Net realized loss on investments was $2.4 million in the first quarter of 2000, compared with a net loss of $3.8 million in 1999. The net realized loss was primarily due to losses on the sale and writedown of fixed maturity investments. Total benefits and expenses decreased 1% to $67.5 million in the first quarter of 2000, compared with $68.3 million in 1999. The largest component of expenses, interest credited on investment contracts, decreased $3.2 million to $49.1 million for the first quarter of 2000, compared to $52.3 million in the first quarter of 1999. This reflects a decrease in fixed annuities in force and lower crediting rates. Amortization of deferred policy acquisition costs increased to $10.7 million, compared to $9.2 million in the first quarter of 1999. This increase was due primarily to increased aggregate amounts in force. Other operating expenses increased 15% to $7.7 million in the first quarter of 2000, compared to $6.7 million in the first quarter of 1999. This increase is mainly due to higher technology costs related to growth initiatives. DEC. 31, 2000 COMPARED TO DEC. 31, 1999: Net income decreased 29% to $24 million in 2000, compared to $34 million in 1999. Income before income taxes totaled $38 million in 2000, compared with $51 million in 1999. The decrease was primarily the result of lower net investment income of $300 million in 2000, compared with $323 million in 1999. Total investment contract deposits received increased to $721 million in 2000, compared with $336 million in 1999. This increase is primarily due to an increase in variable annuity deposits in 2000. Total revenues decreased to $312 million in 2000, compared with $338 million in 1999. The decrease is primarily due to decreases in net investment income and net realized gains on investments. Net investment income, the largest component of revenues, decreased 7% from the prior year, reflecting a decrease in investments owned and lower investment yields. Policyholder and contractholder charges increased 13% to $6.9 million in 2000, compared with $6.1 million in 1999, reflecting an increase in annuity withdrawal charges. American Enterprise Life receives mortality and expense risk fees from the separate accounts. Mortality and expense risk fees increased 135% to $5.4 million in 2000, compared with $2.3 million in 1999, this reflects the increase in separate account assets. Net realized gain on investments was $0.5 million in 2000, compared with $6.6 million in 1999. The decrease in net realized gains was primarily due to the loss on sale and writedowns of fixed maturity investments. Total benefits and expenses decreased 5% to $274 million in 2000, compared with $287 million in 1999. The largest component of expenses, interest credited on investment contracts, decreased to $191 million, reflecting a decrease in fixed annuities in force and lower crediting rates. Amortization of deferred policy acquisition costs increased to $48 million, compared to $43 million in 1999. This increase was due primarily to increased aggregate amounts in force. Other operating expenses remained steady at $35 million in 2000. DEC. 31, 1999 COMPARED TO DEC. 31, 1998: Net income increased 54% to $34 million in 1999, compared to $22 million in 1998. Earnings growth resulted primarily net realized gains of $6.6 million in 1999, compared to net realized losses of $4.8 in 1998. Income before income taxes totaled $51 million in 1999, compared with $36 million in 1998. Total investment contract deposits received decreased to $336 million in 1999, compared with $348 million in 1998. This decrease is primarily due to a decrease in sales of variable annuities in 1999. Total revenues decreased to $338 million in 1999, compared with $343 million in 1998. The decrease is primarily due to decreased net investment income which was partially offset by an increase in realized gain on investments. Net investment income, the largest component of revenues, decreased 5% from the prior year, reflecting decreases in investments owned and investment yields. -------------------------------------------------------------------------------- WELLS FARGO ADVANTAGE BUILDER VARIABLE ANNUITY -- PROSPECTUS 60 Contractholder charges decreased 5% to $6.1 million in 1999, compared with $6.4 million in 1998, reflecting a decrease in fixed annuities inforce. American Enterprise Life receives mortality and expense risk fees from the separate accounts. Mortality and expense risk fees increased 77% to $2.3 million in 1999, compared with $1.3 million in 1998, this reflects the increase in separate account assets. Net realized gain on investments was $6.6 million in 1999, compared to a net realized loss on investments of $4.8 million in 1998. The net realized gains were primarily due to the sale of available for sale fixed maturity investments at a gain as well as a decrease in the allowance for mortgage loan losses based on management's regular evaluation of allowance adequacy. Total benefits and expenses decreased slightly to $287 million in 1999. The largest component of expenses, interest credited on investment contracts, decreased to $209 million, reflecting a decrease in fixed annuities in force and lower interest rates. Amortization of deferred policy acquisition costs decreased to $43 million, compared to $54 million in 1998. This decrease was due primarily to decreased aggregate amounts in force, as well as the impact of changing prospective assumptions in 1998 based on actual lapse experience on certain fixed annuities. Other operating expenses increased 46% to $35 million in 1999, compared to $24 million in 1998. This increase primarily reflects technology costs related to growth initiatives. RISK MANAGEMENT The sensitivity analysis of the test of market risk discussed below estimates the effects of hypothetical sudden and sustained changes in the applicable market conditions on the ensuing year's earnings based on year-end positions. The market changes, assumed to occur as of year-end, is a 100 basis point increase in market interest rates. Computations of the prospective effects of hypothetical interest rate change based on numerous assumptions, including relative levels of market interest rates as well as the levels of assets and liabilities. The hypothetical changes and assumptions will be different from what actually occurs in the future. Furthermore, the computations do not anticipate actions that may be taken by management if the hypothetical market changes actually occurred over time. As a result, actual earnings effects in the future will differ from those quantified below. American Enterprise Life primarily invests in fixed income securities over a broad range of maturities for the purpose of providing fixed annuity clients with a competitive rate of return on their investments while minimizing risk, and to provide a dependable and targeted spread between the interest rate earned on investments and the interest rate credited to contractholders' accounts. American Enterprise Life does not invest in securities to generate trading profits. American Enterprise Life has an investment committee that holds regularly scheduled meetings and, when necessary, special meetings. At these meetings, the committee reviews models projecting different interest rate scenarios and their impact on profitability. The objective of the committee is to structure the investment security portfolio based upon the type and behavior of products in the liability portfolio so as to achieve targeted levels of profitability. Rates credited to contractholders' accounts are generally reset at shorter intervals than the maturity of underlying investments. Therefore, margins may be negatively impacted by increases in the general level of interest rates. Part of the committee's strategy includes the purchase of some types of derivatives, such as interest rate caps, swaps and floors, for hedging purposes. These derivatives protect margins by increasing investment returns if there is a sudden and severe rise in interest rates, thereby mitigating the impact of an increase in rates credited to contractholders' accounts. The negative effect on American Enterprise Life's pretax earnings of a 100 basis point increase in interest rates, which assumes repricings and customer behavior based on the application of proprietary models to the book of business at Dec. 31, 2000, would be approximately $4.6 million. LIQUIDITY AND CAPITAL RESOURCES The liquidity requirements of American Enterprise Life are met by funds provided by annuity considerations, investment income, proceeds from sales of investments as well as maturities and periodic repayments of investment principal. The primary uses of funds are policy benefits, commissions and operating expenses, policy loans, and investment purchases. American Enterprise Life has an available line of credit with AEFC aggregating $50 million. The line of credit is used strictly as a short-term source of funds. No borrowings were outstanding under the agreement at Dec. 31, 2000. At Dec. 31, 2000, outstanding reverse repurchase agreements totaled $25 million. At Dec. 31, 2000, investments in fixed maturities comprised 80% of American Enterprise Life's total invested assets. Of the fixed maturity portfolio, approximately 30% is invested in GNMA, FNMA and FHLMC mortgage-backed securities which are considered AAA/Aaa quality. At Dec. 31, 2000, approximately 15% of American Enterprise Life's investments in fixed maturities were below investment grade bonds. These investments may be subject to a higher degree of risk than the investment grade issues because of the borrower's generally greater sensitivity to adverse economic conditions, such as recession or increasing interest rates, and in certain instances, the lack of an active secondary market. Expected returns on below investment grade bonds reflect consideration of such factors. American Enterprise Life has identified those fixed maturities for which a decline in fair value is determined to be other than temporary, and has written them down to fair value with a charge to earnings. -------------------------------------------------------------------------------- WELLS FARGO ADVANTAGE BUILDER VARIABLE ANNUITY -- PROSPECTUS 61 At Dec. 31, 2000, net unrealized depreciation on fixed maturities held to maturity included $10.7 million of gross unrealized appreciation and $17.8 million of gross unrealized depreciation. Net unrealized depreciation on fixed maturities available for sale included $30.2 million of gross unrealized appreciation and $125.6 million of gross unrealized depreciation. At Dec. 31, 2000, American Enterprise Life had an allowance for losses for mortgage loans totaling $3.3 million. The economy and other factors have caused a number of insurance companies to go under regulatory supervision. This circumstance has resulted in assessments by state guaranty associations to cover losses to policyholders of insolvent or rehabilitated companies. Some assessments can be partially recovered through a reduction in future premium taxes in certain states. American Enterprise Life established an asset for guaranty association assessments paid to those states allowing a reduction in future premium taxes over a reasonable period of time. The asset is being amortized as premium taxes are reduced. American Enterprise Life has also estimated the potential effect of future assessments on American Enterprise Life's financial position and results of operations and has established a reserve for such potential assessments. The National Association of Insurance Commissioners has established risk-based capital standards to determine the capital requirements of a life insurance company based upon the risks inherent in its operations. These standards require the computation of a risk-based capital amount which is then compared to a company's actual total adjusted capital. The computation involves applying factors to various statutory financial data to address four primary risks: asset default, adverse insurance experience, interest rate risk and external events. These standards provide for regulatory attention when the percentage of total adjusted capital to authorized control level risk-based capital is below certain levels. As of Dec. 31, 2000, American Enterprise Life's total adjusted capital was well in excess of the levels requiring regulatory attention. RESERVES In accordance with the insurance laws and regulations under which we operate, we are obligated to carry on our books, as liabilities, actuarially determined reserves to meet our obligations on our outstanding annuity contracts. We base our reserves for deferred annuity contracts on accumulation value and for fixed annuity contracts in a benefit status on established industry mortality tables. These reserves are computed amounts that will be sufficient to meet our policy obligations at their maturities. INVESTMENTS Of our total investments of $3,735,994 at Dec. 31, 2000, 27% was invested in mortgage-backed securities, 54% in corporate and other bonds, 19% in primary mortgage loans on real estate and less than 1% in other investments. COMPETITION We are engaged in a business that is highly competitive due to the large number of stock and mutual life insurance companies and other entities marketing insurance products. There are over 1,600 stock, mutual and other types of insurers in the life insurance business. BEST'S INSURANCE REPORTS, Life-Health edition 2000, assigned us one of its highest classifications, A+ (Superior). EMPLOYEES As of Dec. 31, 2000, we had no employees. PROPERTIES We occupy office space in Minneapolis, MN, which is leased by AEFC. We reimburse AEFC for rent based on direct and indirect allocation methods. Facilities occupied by us are believed to be adequate for the purposes for which they are used and well maintained. STATE REGULATION American Enterprise Life is subject to the laws of the State of Indiana governing insurance companies and to the regulations of the Indiana Department of Insurance. An annual statement in the prescribed form is filed with the Indiana Department of Insurance each year covering our operation for the preceding year and its financial condition at the end of such year. Regulation by the Indiana Department of Insurance includes periodic examination to determine American Enterprise's contract liabilities and reserves so that the Indiana Department of Insurance may certify that these items are correct. The Company's books and accounts are subject to review by the Indiana Department of Insurance at all times. Such regulation does not, however, involve any supervision of the account's management or the company's investment practices or policies. In addition, American Enterprise Life is subject to regulation under the insurance laws of other jurisdictions in which it operates. A full examination of American Enterprise Life's operations is conducted periodically by the National Association of Insurance Commissioners. Under insurance guaranty fund laws, in most states, insurers doing business therein can be assessed up to prescribed limits for policyholder losses incurred by insolvent companies. Most of these laws do provide however, that an assessment may be excused or deferred if it would threaten an insurer's own financial strength. -------------------------------------------------------------------------------- 62 WELLS FARGO ADVANTAGE BUILDER VARIABLE ANNUITY -- PROSPECTUS DIRECTORS AND EXECUTIVE OFFICERS* The directors and principal executive officers of American Enterprise Life and the principal occupation of each during the last five years is as follows: DIRECTORS GUMER C. ALVERO Born in 1967 Director, chairman of the board and executive vice president - Annuities since January 2001; vice president - Variable Annuities, AEFC, since April 1998; executive assistant to president/CEO, AEFC, from April 1996 to April 1998. CAROL A. HOLTON Born in 1952 Director, president and chief executive officer since January 2001; vice president - Third Party Distribution, AEFC, since April 1998; director - Distributor Services, AEFC, from September 1997 to April 1998; director - Business Systems and Operations, F&G Life, from July 1996 to August 1997. PAUL S. MANNWEILER** Born in 1949 Director since 1986; Partner at Locke Reynolds Boyd & Weisell since 1980. TERESA J. RASMUSSEN Born in 1956 Director, vice president, general counsel and secretary since December 2000; vice president and assistant general counsel, AEFC, since August 2000; senior counsel, assistant vice president, AEFC, from October 1995 to August 2000. OFFICERS OTHER THAN DIRECTORS LORRAINE R. HART Born in 1951 Vice president - Investments since 1992; vice president - Insurance Investments, AEFC since 1998; and vice president - Investments, American Express Certificate Company since 1994. STUART A. SEDLACEK Born in 1957 Executive vice president since 1998; executive vice president - Assured Assets, 1994 to 1998; senior vice president and chief financial officer, AEFC, since 1998; vice president, AEFC, from September 1988 to 1998. PHILIP C. WENTZEL Born in 1961 Vice president and controller since 1998; director of financial reporting and analyses, AEFC, from 1992 to 1997. DAVID L. YOWAN Born in 1957 Vice president and treasurer since March 2001; senior vice president and assistant treasurer of American Express Company since January 1999; vice president and corporate treasurer, AEFC, since April 2001; senior portfolio and risk management officer for the North American Consumer Bank of Citigroup from August 1987 to January 1999. * The address for all of the directors and principal officers is: 200 AXP Financial Center, Minneapolis, MN 55474 except for Mr. Mannweiler who is an independent director. ** Mr. Mannweiler's address is: 201 No. Illinois Street, Indianapolis, IN 46204 -------------------------------------------------------------------------------- WELLS FARGO ADVANTAGE BUILDER VARIABLE ANNUITY -- PROSPECTUS 63 EXECUTIVE COMPENSATION Our executive officers also may serve one or more affiliated companies. The following table reflects cash compensation paid to the five most highly compensated executive officers as a group for services rendered in the most recent year to us and our affiliates. The table also shows the total cash compensation paid to all our executive officers, as a group, who were executive officers at any time during the most recent year.
NAME OF INDIVIDUAL OR NUMBER IN GROUP POSITION HELD CASH COMPENSATION Five most highly compensated executive officers as a group: $8,138,209 Stephen W. Roszell President and Chief Executive Officer Richard W. Kling Chairman of the Board Lorraine R. Hart Vice President - Investments David M. Kuplic Assistant Vice President - Investments Stuart A. Sedlacek Executive Vice President All executive officers as a group (11) $11,289,475
SECURITY OWNERSHIP OF MANAGEMENT Our directors and officers do not beneficially own any outstanding shares of stock of the company. All of our outstanding shares of stock are beneficially owned by IDS Life. The percentage of shares of IDS Life owned by any director, and by all our directors and officers as a group, does not exceed 1% of the class outstanding. EXPERTS Ernst & Young LLP, independent auditors, have audited the financial statements of American Enterprise Life Insurance Company at Dec. 31, 2000 and 1999, and for each of the three years in the period ended Dec. 31, 2000, and the individual and combined statements of the segregated asset subaccounts of American Enterprise Variable Annuity Account as of Dec. 31, 2000 and for the periods indicated therein, as set forth in their reports. We've included our financial statements in the prospectus and elsewhere in the registration statement in reliance on Ernst & Young LLP's reports, given on their authority as experts in accounting and auditing. -------------------------------------------------------------------------------- 64 WELLS FARGO ADVANTAGE BUILDER VARIABLE ANNUITY -- PROSPECTUS American Enterprise Life Insurance Company -------------------------------------------------------------------------------- Balance sheet March 31, 2001 (unaudited) ($ thousands, except share amounts) Assets Investments: Fixed maturities: Available for sale, at fair value (amortized cost: $2,938,428) $2,983,792 Mortgage loans on real estate 715,916 Other investments 918 ------------------------------------------------------------------------------- Total investments 3,700,626 Cash and cash equivalents 78,310 Amounts due from brokers 2,244 Accounts receivable 893 Accrued investment income 48,281 Deferred policy acquisition costs 200,740 Deferred income taxes 17,815 Other assets 8,560 Separate account assets 560,199 ------------------------------------------------------------------------------- Total assets $4,617,668 =============================================================================== Liabilities and Stockholder's Equity Liabilities: Future policy benefits: Fixed annuities $3,536,944 Universal life-type insurance 8 Policy claims and other policyholders' funds 5,291 Amounts due to brokers 2,077 Other liabilities 56,813 Separate account liabilities 560,199 ------------------------------------------------------------------------------- Total liabilities 4,161,332 Stockholder's equity: Capital stock, $150 par value per share; 100,000 shares authorized, 20,000 shares issued and outstanding 3,000 Additional paid-in capital 281,872 Accumulated other comprehensive loss: Net unrealized securities losses (8,450) Net unrealized derivative losses (27,987) Retained earnings 207,901 ------------------------------------------------------------------------------- Total stockholder's equity 456,336 ------------------------------------------------------------------------------- Total liabilities and stockholder's equity $4,617,668 =============================================================================== See accompanying notes. -------------------------------------------------------------------------------- WELLS FARGO ADVANTAGE BUILDER VARIABLE ANNUITY -- PROSPECTUS 65 American Enterprise Life Insurance Company -------------------------------------------------------------------------------- Statements of income Three months ended March 31, (unaudited) ($ thousands) 2001 2000 Revenues: Policyholder and contractholder charges $ 1,746 $ 1,476 Mortality and expense risk fees 2,199 813 Net investment income 69,460 77,586 Net realized loss on investments (18,542) (2,425) -------------------------------------------------------------------------------- Total revenues 54,863 77,450 ------------------------------------------------------------------------------- Benefits and expenses: Interest credited on investment contracts 42,473 49,052 Amortization of deferred policy acquisition costs 12,155 10,745 Other operating expenses 11,859 7,675 ------------------------------------------------------------------------------- Total benefits and expenses 66,487 67,472 ------------------------------------------------------------------------------- (Loss) income before income taxes (11,624) 9,978 Income taxes (3,987) 3,646 ------------------------------------------------------------------------------- Net (loss) income $ (7,637) $ 6,332 =============================================================================== See accompanying notes. -------------------------------------------------------------------------------- 66 WELLS FARGO ADVANTAGE BUILDER VARIABLE ANNUITY -- PROSPECTUS American Enterprise Life Insurance Company -------------------------------------------------------------------------------- Statements of cash flows Three months ended March 31, (unaudited) ($ thousands) 2001 2000 Cash flows from operating activities: Net (loss) income $ (7,637) $ 6,332 Adjustments to reconcile net (loss) income to net cash provided by operating activities: Change in accrued investment income 6,660 2,481 Change in accounts receivable (26) (2) Change in other assets 2,791 (11) Change in deferred policy acquisition costs, net (2,118) 4,306 Change in policy claims and other policyholders' funds (4,004) (4,317) Deferred income tax provision (5,077) (1,883) Change in other liabilities 5,225 12,723 (Accretion of discount) amortization of premium, net (58) 641 Net realized loss on investments 18,542 2,425 Other, net 4,514 (131) ------------------------------------------------------------------------------- Net cash provided by operating activities 18,812 22,564 Cash flows from investing activities: Fixed maturities held to maturity: Maturities, sinking fund payments and calls -- 10,022 Fixed maturities available for sale: Purchases (39,196) (1,496) Maturities, sinking fund payments and calls 49,904 58,318 Sales 76,926 5,495 Other investments, excluding policy loans: Purchases (1,696) (1,388) Sales 9,789 12,779 Change in amounts due from brokers (928) -- Change in amounts due to brokers (22,310) 275 -------------------------------------------------------------------------------- Net cash provided by investing activities 72,489 84,005 Cash flows from financing activities: Activity related to universal life-type insurance and investment contracts: Considerations received 159,985 52,023 Surrenders and death benefits (250,299) (207,644) Interest credited to account balances 42,471 49,052 ------------------------------------------------------------------------------- Net cash used in financing activities (47,843) (106,569) -------------------------------------------------------------------------------- Net increase in cash and cash equivalents 43,458 -- Cash and cash equivalents at beginning of period 34,852 -- ------------------------------------------------------------------------------- Cash and cash equivalents at end of period $ 78,310 $ -- =============================================================================== See accompanying notes. -------------------------------------------------------------------------------- WELLS FARGO ADVANTAGE BUILDER VARIABLE ANNUITY -- PROSPECTUS 67 American Enterprise Life Insurance Company -------------------------------------------------------------------------------- Notes to Financial Statements (unaudited) ($ thousands) 1. GENERAL In the opinion of the management of American Enterprise Life Insurance Company (the Company), the accompanying unaudited financial statements contain all adjustments (consisting of normal recurring adjustments) necessary to present fairly its balance sheet as of March 31, 2001 and the related statements of income and cash flows for the three month periods ended March 31, 2001 and 2000. 2. NEW ACCOUNTING PRONOUNCEMENT In June 1998, the Financial Accounting Standards Board (FASB) issued, and subsequently amended, Statement of Financial Accounting Standards (SFAS) No. 133, "Accounting for Derivative Instruments and Hedging Activities," which the Company adopted on January 1, 2001. This Statement establishes accounting and reporting standards for derivative instruments, including some embedded in other contracts, and hedging activities. It requires that an entity recognize all derivatives as either assets or liabilities on the balance sheet and measure those instruments at fair value. Derivatives that are not hedges must be adjusted to fair value through income. Changes in the fair value of a derivative are recorded in income or directly to equity, depending on the instrument's designated use. For those derivative instruments that are designated and qualify as hedging instruments under SFAS 133, a company must designate the hedging instrument, based upon the exposure being hedged, as either a fair value hedge, cash flow hedge or a hedge of a net investment in a foreign operation. For derivative instruments not designated as hedging instruments per SFAS 133, changes in fair value are adjusted immediately through earnings. Currently, the Company does not carry derivatives that are designated or qualify as hedging instruments under SFAS No. 133. Because of changes to the rules for hedging investments, the transition provisions of SFAS 133, as amended, permitted held-to-maturity securities under SFAS No. 115, "Accounting for Certain Investments in Debt and Equity Securities," to be reclassified at the date of adoption to available-for-sale or trading. The Company reclassified all held-to-maturity securities to available-for-sale upon adoption. Prior to adopting SFAS No. 133, the Company's interest rate caps, floors and swaps qualified as cash flow hedges. The derivatives do not qualify for hedge accounting per SFAS No. 133. For "pre-existing" cash flow-type hedges, the transition adjustment upon adoption of SFAS No. 133 was reported in accumulated other comprehensive income (OCI) as a cumulative effect of an accounting change. This resulted in a decrease of $34,727 to other comprehensive income (OCI), net of tax. The Company estimates $7,500 of net derivative losses included in OCI will be reclassified into earnings within the next twelve months. The adoption of SFAS No. 133 did not have a significant impact on the Company's results of operations. 3. COMPREHENSIVE INCOME Total comprehensive income (loss) was $18,022 and ($4,551) for the three months ended March 31, 2001 and 2000, respectively. March 31, 2001 March 31, 2000 Net (Loss) Income $ (7,637) $ 6,332 Other comprehensive loss Unrealized gains on available-for-sale securities, net of tax 53,646 (10,883) Net unrealized loss on derivative instruments, net of tax (27,987) -- -------------------------------------------------------------------------------- Total comprehensive income $ 18,022 $ (4,551) -------------------------------------------------------------------------------- 4. INCOME TAXES The Company's effective income tax rate was 34.3% for the three months ended March 31, 2001 compared to 36.5% for the three months ended March 31, 2000. The net impact of changes in state tax rules for certain states had a favorable impact on the effective tax rate for the Company. -------------------------------------------------------------------------------- 68 WELLS FARGO ADVANTAGE BUILDER VARIABLE ANNUITY -- PROSPECTUS American Enterprise Life Insurance Company ------------------------------------------------------------------------------- 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, 2000 and 1999, and the related statements of income, stockholder's equity and cash flows for each of the three years in the period ended December 31, 2000. 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, 2000 and 1999, and the results of its operations and its cash flows for each of the three years in the period ended December 31, 2000, in conformity with accounting principles generally accepted in the United States. /S/ Ernst & Young LLP Ernst & Young LLP February 8, 2001 Minneapolis, Minnesota -------------------------------------------------------------------------------- WELLS FARGO ADVANTAGE BUILDER VARIABLE ANNUITY -- PROSPECTUS 69 American Enterprise Life Insurance Company ------------------------------------------------------------------------------- Balance sheets December 31, ($ thousands, except share amounts) 2000 1999 Assets Investments: Fixed maturities: Held to maturity, at amortized cost (fair value: 2000, $927,031; 1999, $984,103) $ 934,091 $1,006,349 Available for sale, at fair value (amortized cost: 2000, $2,163,906; 1999, $2,411,799) 2,068,487 2,304,487 --------- --------- 3,002,578 3,310,836 Mortgage loans on real estate 724,009 785,253 Other investments 9,407 11,470 ----- ------ Total investments 3,735,994 4,107,559 Cash and cash equivalents 34,852 -- Amounts due from brokers 1,316 -- Accounts receivable 867 316 Accrued investment income 54,941 56,676 Deferred policy acquisition costs 198,622 180,288 Deferred income taxes 26,350 37,501 Other assets 9,969 9 Separate account assets 589,310 220,994 ------- ------- Total assets $4,652,221 $4,603,343 ========== ========== Liabilities and stockholder's equi1ty Liabilities: Future policy benefits for: Fixed annuities $3,584,784 $3,921,513 Universal life-type insurance 10 -- Policy claims and other policyholders' funds 9,295 12,097 Amounts due to brokers 24,387 25,215 Other liabilities 6,326 17,436 Separate account liabilities 589,310 220,994 ------- ------- Total liabilities 4,214,112 4,197,255 Commitments and contingencies 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: Net unrealized securities losses (62,097) (69,753) Retained earnings 215,334 190,969 ------- ------- Total stockholder's equity 438,109 406,088 ------- ------- Total liabilities and stockholder's equity $4,652,221 $4,603,343 ========== ========== See accompanying notes. -------------------------------------------------------------------------------- 70 WELLS FARGO ADVANTAGE BUILDER VARIABLE ANNUITY -- PROSPECTUS American Enterprise Life Insurance Company ------------------------------------------------------------------------------- Statements of income Years ended December 31, ($ thousands) 2000 1999 1998 Revenues: Net investment income $299,759 $322,746 $340,219 Policyholder and contractholder charges 6,865 6,069 6,387 Mortality and expense risk fees 5,383 2,269 1,275 Net realized gain (loss) on investments 469 6,565 (4,788) --- ----- ------ Total revenues 312,476 337,649 343,093 ------- ------- ------- Benefits and expenses: Interest credited on investment contracts 191,040 208,583 228,533 Amortization of deferred policy acquisition costs 47,676 43,257 53,663 Other operating expenses 35,308 35,147 24,476 ------ ------ ------ Total benefits and expenses 274,024 286,987 306,672 ------- ------- ------- Income before income taxes 38,452 50,662 36,421 Income taxes 14,087 16,675 14,395 ------ ------ ------ Net income $ 24,365 $ 33,987 $ 22,026 ======== ======== ======== See accompanying notes. -------------------------------------------------------------------------------- WELLS FARGO ADVANTAGE BUILDER VARIABLE ANNUITY -- PROSPECTUS 71 American Enterprise Life Insurance Company -------------------------------------------------------------------------------
Statements of stockholder's equity Accumulated Other Total Additional Comprehensive Stockholder's Capital Paid-In (Loss) Income, Retained Three years ended December 31, ($ thousands) Equity Stock Capital Net of Tax Earnings Balance, January 1, 1998 $ 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 of $2,179 (4,047) -- -- (4,047) -- ------ ----- ----- ------ ----- 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 Comprehensive income: Net income 24,365 -- -- -- 24,365 Unrealized holding gains arising during the year, net of taxes of $(4,812) 8,937 -- -- 8,937 -- Reclassification adjustment for gains included in net income, net of tax of $690 (1,281) -- -- (1,281) -- ------ ----- ----- ------ ----- Other comprehensive income 7,656 -- -- 7,656 -- ----- ----- ----- ----- ----- Comprehensive income 32,021 ------ Balance, December 31, 2000 $ 438,109 $2,000 $282,872 $ (62,097) $215,334 ========= ====== ======== =========== ======== See accompanying notes.
-------------------------------------------------------------------------------- 72 WELLS FARGO ADVANTAGE BUILDER VARIABLE ANNUITY -- PROSPECTUS American Enterprise Life Insurance Company -------------------------------------------------------------------------------
Statements of cash flows Years ended December 31, ($ thousands) 2000 1999 1998 Cash flows from operating activities: Net income $ 24,365 $ 33,987 $ 22,026 Adjustments to reconcile net income to net cash (used in) provided by operating activities: Change in accrued investment income 1,735 5,064 (2,152) Change in accounts receivable (551) (102) 349 Change in deferred policy acquisition costs, net (18,334) 16,191 28,022 Change in other assets (9,960) 34 74 Change in policy claims and other policyholders' funds (2,802) 4,708 (3,939) Deferred income tax provision (benefit) 7,029 711 (9,591) Change in other liabilities (11,110) (7,064) 7,595 Amortization of premium, net 2,682 2,315 122 Net realized (gain) loss on investments (469) (6,565) 4,788 Other, net (233) (1,562) 2,544 ---- ------ ----- Net cash (used in) provided by operating activities (7,648) 47,717 49,838 Cash flows from investing activities: Fixed maturities held to maturity: Maturities 65,716 65,705 73,601 Sales 5,128 8,466 31,117 Fixed maturities available for sale: Purchases (101,665) (593,888) (298,885) Maturities 171,297 248,317 335,357 Sales 176,296 469,126 48,492 Other investments: Purchases (1,388) (28,520) (161,252) Sales 65,978 57,548 78,681 Change in amounts due from brokers (1,316) -- -- Change in amounts due to brokers (828) (29,132) 19,412 ---- ------- ------ Net cash provided by investing activities 379,218 197,622 126,523 Cash flows from financing activities: Activity related to universal life type insurance and investment contracts: Considerations received 398,462 299,899 302,158 Surrenders and other benefits (926,220) (753,821) (707,052) Interest credited to account balances 191,040 208,583 228,533 ------- ------- ------- Net cash used in financing activities (336,718) (245,339) (176,361) -------- -------- -------- Net increase in cash and cash equivalents 34,852 -- -- Cash and cash equivalents at beginning of year -- -- -- ---- ---- ---- Cash and cash equivalents at end of year $ 34,852 $ -- $ -- ========= ========= ========= See accompanying notes.
-------------------------------------------------------------------------------- WELLS FARGO ADVANTAGE BUILDER VARIABLE ANNUITY -- PROSPECTUS 73 American Enterprise Life Insurance Company ------------------------------------------------------------------------------- Notes to Financial Statements 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 and variable universal life are offered as well. The Company distributes its products through financial institutions and unbranded independent financial advisors. 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 and marketable equity securities 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. 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. Mortgage loans on real estate are carried at amortized cost less a reserve 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. 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 a reserve for mortgage loan losses. The reserve 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 reserve 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 reserve 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. Amounts paid or received under interest rate swap agreements are recognized as an adjustment to investment income. -------------------------------------------------------------------------------- 74 WELLS FARGO ADVANTAGE BUILDER VARIABLE ANNUITY -- PROSPECTUS American Enterprise Life Insurance Company ------------------------------------------------------------------------------- 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: 2000 1999 1998 Cash paid during the year for: Income taxes $14,861 $22,007 $19,035 Interest on borrowings 1,073 2,187 5,437 Recognition of profits on annuity contracts Profits on fixed and variable deferred annuities are recognized by the Company over the lives of the contracts, using primarily the interest method. Profits on fixed annuities represent the excess of investment income earned from investment of contract considerations over interest credited to contract owners and other expenses. Profits on variable annuities represent the excess of contractholder charges over the costs of benefits provided and other expenses. The retrospective deposit method is used in accounting for fixed and variable universal life-type insurance. Under this method, profits are recognized over the lives of the policies in proportion to the estimated gross profits expected to be realized. Policyholder and contractholder charges include surrender charges and fees collected regarding the issue and administration of annuity contracts. 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 variable 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 2000, unlocking adjustments resulted in a net increase in amortization of $1.5 million. Net unlocking adjustments in 1999 were not significant. During 1998, unlocking adjustments resulted in a net increase in amortization of $11 million. Liabilities for future policy benefits Liabilities for universal-life type insurance and fixed and variable deferred annuities are accumulation values. Liabilities for fixed annuities in a benefit status are based on established industry mortality tables and interest rates ranging from 5% to 9.5%, depending on year of issue. Federal income taxes The Company's taxable income is included in the consolidated federal income tax return of American Express Company. The Company provides for income taxes on a separate return basis, except that, under an agreement between AEFC and American Express Company, tax benefit is recognized for losses to the extent they can be used on the consolidated tax return. It is the policy of AEFC and its subsidiaries that AEFC will reimburse subsidiaries for all tax benefits. Included in other liabilities at December 31, 2000 and 1999 are $9,944 and $2,147, receivable from and payable to, respectively, IDS Life for federal income taxes. Separate account business The separate account assets and liabilities represent funds held for the exclusive benefit of the variable annuity contract owners. The Company receives mortality and expense risk fees from the variable annuity separate accounts. The Company makes contractual mortality assurances to the variable annuity contract owners that the net assets of the separate accounts will not be affected by future variations in the actual life expectancy experience of the annuitants and beneficiaries from the mortality assumptions implicit in the annuity contracts. The Company makes periodic fund transfers to, or withdrawals from, the separate account assets for such actuarial adjustments for variable annuities that are in the benefit payment period. The Company also guarantees that the rates at which administrative fees are deducted from contract funds will not exceed contractual maximums. -------------------------------------------------------------------------------- WELLS FARGO ADVANTAGE BUILDER VARIABLE ANNUITY -- PROSPECTUS 75 American Enterprise Life Insurance Company ------------------------------------------------------------------------------- Accounting changes In June 1998, the Financial Accounting Standards Board (FASB) issued, and subsequently amended, Statement of Financial Accounting Standards (SFAS) No. 133, "Accounting for Derivative Instruments and Hedging Activities," which the company adopted on January 1, 2001. This Statement establishes accounting and reporting standards for derivative instruments, including some embedded in other contracts, and hedging activities. It requires that an entity recognize all derivatives as either assets or liabilities on the balance sheet and measure those instruments at fair value. Changes in the fair value of a derivative will be recorded in income or directly to equity, depending on the instrument's designated use. A one-time opportunity to reclassify held-to-maturity investments to available-for-sale is allowed without tainting the remaining securities in the held-to-maturity portfolio. The Company has elected to take this opportunity to reclass its held-to-maturity investments to available-for-sale. As of January 1, 2001, the cumulative impact of applying the Statement's accounting requirements will not have a significant impact on the Company's financial position or results of operations. In September 2000, the FASB issued SFAS No. 140, "Accounting for Transfers and Servicing of Financial Assets and Extinguishments of Liabilities," superceding SFAS No. 125. The Statement is effective for transfers and servicing of financial assets and extinguishments of liabilities occurring after March 31, 2001. The Statement is effective for recognition and reclassification of collateral and for disclosures relating to securitization transactions and collateral for fiscal years ending after December 15, 2000. The company does not expect SFAS No. 140 to have a material impact on the company's financial position or results of operations. In July 2000, the FASB's Emerging Issues Task Force (EITF) issued a consensus on Issue 99-20, "Recognition of Interest Income and Impairment on Purchased Beneficial Interests in Securitized Financial Assets." The consensus must be adopted for fiscal quarters beginning after March 15, 2001, with earlier adoption permitted. Issue 99-20 prescribes new procedures for recording interest income and measuring impairment on retained and purchased beneficial interests. Application of the provisions of the consensus will not have a material impact on the Company's financial position or results of operations. Reclassifications Certain 1999 and 1998 amounts have been reclassified to conform to the 2000 presentation. 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, 2000 are as follows: Gross Gross Amortized unrealized unrealized Fair Held to maturity cost gains losses value U.S. Government agency obligations $ 6,949 $ 26 $ 55 $ 6,920 State and municipal obligations 2,101 1 -- 2,102 Corporate bonds and obligations 773,630 9,876 17,470 766,036 Mortgage-backed securities 151,411 801 239 151,973 ------- --- --- ------- $934,091 $10,704 $ 17,764 $ 927,031 ======== ======= ======== ========== Available for sale U.S. Government agency obligations $ 5,154 $ 284 $ -- $ 5,438 State and municipal obligations 2,250 5 -- 2,255 Corporate bonds and obligations 1,319,781 19,103 123,865 1,215,019 Mortgage-backed securities 836,721 10,780 1,726 845,775 ------- ------ ----- ------- $2,163,906 $30,172 $125,591 $2,068,487 ========== ======= ======== ========== -------------------------------------------------------------------------------- 76 WELLS FARGO ADVANTAGE BUILDER VARIABLE ANNUITY -- PROSPECTUS American Enterprise Life Insurance Company ------------------------------------------------------------------------------- The amortized cost, gross unrealized gains and losses and fair value of investments in fixed maturities at December 31, 1999 are as follows: 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 and fair value of investments in fixed maturities at December 31, 2000 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 from one to five years $405,375 $402,691 Due from five to ten years 321,802 317,320 Due in more than ten years 55,503 55,047 Mortgage-backed securities 151,411 151,973 ------- ------- $934,091 $927,031 ======== ======== Amortized Fair Available for sale cost value Due from one to five years $ 61,851 $ 67,514 Due from five to ten years 965,579 878,853 Due in more than ten years 299,755 276,345 Mortgage-backed securities 836,721 845,775 ------- ------- $2,163,906 $2,068,487 ========== ========== During the years ended December 31, 2000, 1999 and 1998, fixed maturities classified as held to maturity were sold with amortized cost of $5,128, $8,466 and $31,117, 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 2000 with proceeds of $176,296 and gross realized gains and losses of $3,488 and $1,516 respectively. 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. At December 31, 2000, bonds carried at $3,259 were on deposit with various states as required by law. At December 31, 2000, investments in fixed maturities comprised 80 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 $463 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 2000 1999 Aaa/AAA $ 998,333 $1,168,144 Aaa/AA 1,000 -- Aa/AA 34,535 42,859 Aa/A 59,569 52,416 A/A 367,643 422,668 A/BBB 121,028 189,072 Baa/BBB 989,301 995,152 Baa/BB 67,156 64,137 Below investment grade 459,432 483,700 ------- ------- $3,097,997 $3,418,148 ========== ========== -------------------------------------------------------------------------------- WELLS FARGO ADVANTAGE BUILDER VARIABLE ANNUITY -- PROSPECTUS 77 American Enterprise Life Insurance Company ------------------------------------------------------------------------------- At December 31, 2000, approximately 92 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, 2000, 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: December 31, 2000 December 31, 1999 On balance Commitments On balance Commitments Region sheet to purchase sheet to purchase South Atlantic $172,349 $-- $194,325 $ -- Middle Atlantic 106,376 -- 118,699 -- East North Central 122,354 -- 126,243 -- Mountain 100,208 -- 103,751 -- West North Central 110,669 -- 125,891 513 New England 39,877 -- 43,345 802 Pacific 38,559 -- 41,396 -- West South Central 30,172 -- 31,153 -- East South Central 6,749 -- 7,100 -- ----- ----- ----- ----- 727,313 -- 791,903 1,315 Less allowance for losses 3,304 -- 6,650 -- ----- ----- ----- ----- $724,009 $-- $785,253 $1,315 ======== === ======== ====== December 31, 2000 December 31, 1999 On balance Commitments On balance Commitments Property type sheet to purchase sheet to purchase Department/retail stores $214,927 $-- $232,449 $1,315 Apartments 152,906 -- 181,346 -- Office buildings 191,767 -- 202,132 -- Industrial buildings 80,330 -- 83,186 -- Hotels/Motels 41,977 -- 43,839 -- Medical buildings 29,173 -- 32,284 -- Nursing/retirement homes 6,471 -- 6,608 -- Mixed Use 9,762 -- 10,059 -- ----- ----- ------ ----- 727,313 -- 791,903 1,315 Less allowance for losses 3,304 -- 6,650 -- ----- ----- ----- ----- $724,009 $-- $785,253 $1,315 ======== === ======== ====== 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, 2000 and 1999, the Company's recorded investment in impaired loans was $9,014 and $5,200, respectively, with allowances of $500 and $1,250, respectively. During 2000 and 1999, the average recorded investment in impaired loans was $4,684 and $5,399, respectively. The Company recognized $221, $136 and $251 of interest income related to impaired loans for the years ended December 31, 2000, 1999 and 1998, respectively. -------------------------------------------------------------------------------- 78 WELLS FARGO ADVANTAGE BUILDER VARIABLE ANNUITY -- PROSPECTUS American Enterprise Life Insurance Company ------------------------------------------------------------------------------- The following table presents changes in the allowance for investment losses related to all loans: 2000 1999 1998 Balance, January 1 $6,650 $8,500 $3,718 (Reduction) provision for investment losses (3,346) (1,850) 4,782 ------ ------ ----- Balance, December 31 $3,304 $6,650 $8,500 ====== ====== ====== At December 31, 2000 the Company had no commitments to purchase investments. Net investment income for the years ended December 31 is summarized as follows: 2000 1999 1998 Interest on fixed maturities $237,201 $265,199 $285,260 Interest on mortgage loans 59,686 63,721 65,351 Interest on cash equivalents 1,136 534 137 Other 5,693 (1,755) (2,493) ----- ------ ------ 303,716 327,699 348,255 Less investment expenses 3,957 4,953 8,036 ----- ----- ----- $299,759 $322,746 $340,219 ======== ======== ======== Net realized gain (loss) on investments for the years ended December 31 is summarized as follows: 2000 1999 1998 Fixed maturities $ (2,877) $ 4,715 $ 28 Mortgage loans 3,346 (1,650) (4,816) ----- ------ ------ $ 469 $ 3,065 $(4,788) ======== ======= ======= Changes in net unrealized appreciation (depreciation) of investments for the years ended December 31 are summarized as follows: 2000 1999 1998 Fixed maturities available for sale $11,894 $(175,458) $(8,032) 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 for the years ended December 31, consists of the following: 2000 1999 1998 Federal income taxes: Current $ 6,170 $15,531 $23,227 Deferred 7,029 711 (9,591) ----- --- ------ 13,199 16,242 13,636 State income taxes-- current 888 433 759 --- --- --- Income tax expense $14,087 $16,675 $14,395 ======= ======= =======
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: 2000 1999 1998 Provision Rate Provision Rate Provision Rate Federal income taxes based on the statutory rate $13,458 35.0% $17,731 35.0% $13,972 35.0% Increases (decreases) are attributable to : Tax-excluded interest (4) -- (14) -- (35) (0.1) State tax, net of federal benefit 578 1.5 281 0.5 493 1.2 Other, net 55 0.1 (1,323) (2.6) (35) -- -- --- ------ ---- --- --- Total income taxes $14,087 36.6% $16,675 32.9% $14,395 36.1% ======= ==== ======= ==== ======= ====
Significant components of the Company's deferred income tax assets and liabilities as of December 31 are as follows: Deferred income tax assets: 2000 1999 Policy reserves $40,242 $46,243 Unrealized losses on investments 31,441 39,678 Other 6,208 1,070 ----- ----- Total deferred income tax assets 77,891 86,991 ------ ------ Deferred income tax liabilities: Deferred policy acquisition costs 51,541 49,490 ------ ------ Total deferred income tax liabilities 51,541 49,490 ------ ------ Net deferred income tax assets $26,350 $37,501 ======= ======= -------------------------------------------------------------------------------- WELLS FARGO ADVANTAGE BUILDER VARIABLE ANNUITY -- PROSPECTUS 79 American Enterprise Life Insurance Company ------------------------------------------------------------------------------- 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 $31,152 and $58,223 as of December 31, 2000 and 1999, respectively. In addition, dividends in excess of $nil would require approval by the Insurance Department of the state of Indiana. Statutory net (loss) income for the years ended December 31 and statutory capital and surplus as of December 31, are summarized as follows: 2000 1999 1998 Statutory net (loss) income $(11,928) $ 15,241 $ 37,902 Statutory capital and surplus 315,930 343,094 330,588 The National Association of Insurance Commissioners (NAIC) revised the Accounting Practices and Procedures Manual in a process referred to as Codification. The revised manual will be effective January 1, 2001. The state of Indiana has adopted the provisions of the revised manual. The revised manual has changed, to some extent, prescribed statutory accounting practices and will result in changes to the accounting practices that the Company uses to prepare their statutory-basis financial statements. Management believes these changes will not adversely impact the Company's statutory-basis capital and surplus as of January 1, 2001. 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 $6,489 and $8,258 at December 31, 2000 and 1999, 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 $45,191, $38,931 and $28,482 for the years ended December 31, 2000, 1999 and 1998, respectively. Certain of these costs are included in deferred policy acquisition costs. 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, 2000 or 1999. 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. -------------------------------------------------------------------------------- 80 WELLS FARGO ADVANTAGE BUILDER VARIABLE ANNUITY -- PROSPECTUS American Enterprise Life Insurance Company ------------------------------------------------------------------------------- The Company's holdings of derivative financial instruments are as follows: Notional Carrying Fair Total credit December 31, 2000 amount amount value exposure Assets: Interest rate caps $ 500,000 $2,037 $ 414 $ 414 Interest rate floors 2,000,000 6,489 13,185 13,185 Off balance sheet: Interest rate swaps 2,000,000 -- (51,369) (51,369) --------- ------ ------- ------- $8,526 $(37,770) $(37,770) ====== ======== ======== Notional Carrying Fair Total credit December 31, 1999 amount amount value exposure 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: Interest rate swaps 2,000,000 -- 18,274 18,274 --------- ----- ------ ------ $11,470 $24,962 $24,962 ======= ======= ======= 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 2001 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.
December 31, 2000 December 31, 1999 Carrying Fair Carrying Fair Financial Assets amount value amount value Investments: Fixed maturities (Note 2): Held to maturity $ 934,091 $ 927,031 $1,006,349 $ 984,103 Available for sale 2,068,487 2,068,487 2,304,487 2,304,487 Mortgage loans on real estate (Note 2) 724,009 740,992 785,253 770,095 Derivative financial instruments (Note 7) 8,526 (37,770) 11,470 24,962 Separate account assets (Note 1) 589,310 589,310 220,994 220,994 Cash and cash equivalents 34,852 34,852 -- -- Financial Liabilities Future policy benefits for fixed annuities $3,567,085 $3,480,270 $3,905,849 $3,778,945 Separate account liabilities 589,310 567,989 220,994 209,942 ------- ------- ------- -------
At December 31, 2000 and 1999, the carrying amount and fair value of future policy benefits for fixed annuities exclude life insurance-related contracts carried at $17,699 and $15,633, respectively. The fair value of these benefits is based on the status of the annuities at December 31, 2000 and 1999. 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 2000 and 1999. 9. COMMITMENTS AND CONTINGENCIES In January 2000, AEFC reached an agreement in principle to settle three class-action lawsuits related to the sales of insurance and annuity products, anticipated to provide for approximately $215 million of benefits. The Company had been named as a co-defendant in one of these lawsuits. In September 2000, the court gave preliminary approval to the proposed settlement and AEFC has mailed notices to all of the over two million class members. A fairness hearing is scheduled for March 2001, with final approval anticipated in the second quarter, pending any legal appeals. The anticipated costs of settlement remain unchanged from 1999. The portion of the settlement allocated to the Company did not have a material impact on the Company's financial position or results of operations. The agreement 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 final court approval. -------------------------------------------------------------------------------- WELLS FARGO ADVANTAGE BUILDER VARIABLE ANNUITY -- PROSPECTUS 81 TABLE OF CONTENTS OF THE STATEMENT OF ADDITIONAL INFORMATION Performance Information .............................. 3 Calculating Annuity Payouts .......................... 21 Rating Agencies ...................................... 22 Principal Underwriter ................................ 22 Independent Auditors ................................. 22 Condensed Financial Information (Unaudited) .......... 23 Financial Statements -------------------------------------------------------------------------------- 82 WELLS FARGO ADVANTAGE BUILDER VARIABLE ANNUITY -- PROSPECTUS American Enterprise Life Insurance Company (American Express logo) 829 AXP Financial Center Minneapolis, MN 55474 (800)333-3437 44224 E (7/01) [AMERICAN EXPRESS LOGO] WELLS FARGO ADVANTAGE-SM- VARIABLE ANNUITY ISSUED BY: AMERICAN ENTERPRISE LIFE INSURANCE COMPANY PROSPECTUS JULY 23, 2001 INDIVIDUAL OR GROUP FLEXIBLE PREMIUM DEFERRED COMBINATION FIXED/VARIABLE ANNUITY AMERICAN ENTERPRISE VARIABLE ANNUITY ACCOUNT ISSUED BY: AMERICAN ENTERPRISE LIFE INSURANCE COMPANY (AMERICAN ENTERPRISE LIFE) 829 AXP Financial Center Minneapolis, MN 55474 Telephone: (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 - Goldman Sachs Variable Insurance Trust (VIT) - AIM Variable Insurance Funds - MFS-Registered Trademark- Variable Insurance Trust-SM- - The Dreyfus Socially Responsible Growth Fund, Inc. - Putnam Variable Trust - IB Shares - Fidelity Variable Insurance Products - Service Class 2 - Wells Fargo Variable Trust Funds - Franklin-Registered Trademark- Templeton-Registered Trademark- Variable Insurance Products Trust (FTVIPT) - Class 2
Please read the prospectuses carefully and keep them for future reference. THE SECURITIES AND EXCHANGE COMMISSION (SEC) HAS NOT APPROVED OR DISAPPROVED THESE SECURITIES OR PASSED UPON THE ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE. AN INVESTMENT IN THIS CONTRACT IS NOT A DEPOSIT OF A BANK OR FINANCIAL INSTITUTION AND IS NOT INSURED OR GUARANTEED BY THE FEDERAL DEPOSIT INSURANCE CORPORATION OR ANY OTHER GOVERNMENT AGENCY. AN INVESTMENT IN THIS CONTRACT INVOLVES INVESTMENT RISK INCLUDING THE POSSIBLE LOSS OF PRINCIPAL. A Statement of Additional Information (SAI), dated the same date as this prospectus, is incorporated by reference into this prospectus. It is filed with the SEC and is available without charge by contacting American Enterprise Life at the telephone number and address listed above. The table of contents of the SAI is on the last page of this prospectus. The SEC maintains an Internet site. This prospectus, the SAI and other information about the product are available on the EDGAR Database on the SEC's Internet site at (http://www.sec.gov). Variable annuities are complex investment vehicles. Before you invest, be sure to ask your sales representative about the variable annuity's features, benefits, risks and fees, and whether the variable annuity is appropriate for you, based upon your financial situation and objectives. American Enterprise Life offers several different annuities which your sales representative may be authorized to offer to you. Each annuity has different features and benefits that may be appropriate for you based on your financial situation and needs, your age and how you intend to use the annuity. The different features and benefits may include the investment and fund manager options, variations in interest rate amount and guarantees, credits, withdrawal charge schedules and access to annuity account values. The fees and charges may also be different between each annuity. TABLE OF CONTENTS KEY TERMS ....................................................................3 THE CONTRACT IN BRIEF ........................................................4 EXPENSE SUMMARY ..............................................................6 CONDENSED FINANCIAL INFORMATION (UNAUDITED) .................................19 FINANCIAL STATEMENTS ........................................................24 PERFORMANCE INFORMATION .....................................................25 THE VARIABLE ACCOUNT AND THE FUNDS ..........................................26 THE FIXED ACCOUNTS ..........................................................31 BUYING YOUR CONTRACT ........................................................34 CHARGES .....................................................................35 VALUING YOUR INVESTMENT .....................................................39 MAKING THE MOST OF YOUR CONTRACT ............................................40 WITHDRAWALS .................................................................44 CHANGING OWNERSHIP ..........................................................44 BENEFITS IN CASE OF DEATH ...................................................44 OPTIONAL BENEFITS ...........................................................46 THE ANNUITY PAYOUT PERIOD ...................................................54 TAXES .......................................................................56 VOTING RIGHTS ...............................................................57 SUBSTITUTION OF INVESTMENTS .................................................58 ABOUT THE SERVICE PROVIDERS .................................................58 ADDITIONAL INFORMATION ABOUT AMERICAN ENTERPRISE LIFE .......................59 DIRECTORS AND EXECUTIVE OFFICERS ............................................63 EXPERTS .....................................................................64 AMERICAN ENTERPRISE LIFE INSURANCE COMPANY FINANCIAL INFORMATION ............65 TABLE OF CONTENTS OF THE STATEMENT OF ADDITIONAL INFORMATION ................82 -------------------------------------------------------------------------------- 2 WELLS FARGO ADVANTAGE VARIABLE ANNUITY -- PROSPECTUS 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. ASSUMED INVESTMENT RATE: The rate of return we assume your investments will earn when we calculate your initial annuity payout amount using the annuity table in your contract. The standard assumed investment rate we use is 5% but you may request we substitute an assumed investment rate of 3.5%. BENEFICIARY: The person you designate to receive benefits in case of the owner's or annuitant's death while the contract is in force and before annuity payouts begin. CLOSE OF BUSINESS: When the New York Stock Exchange (NYSE) closes, normally 4 p.m. Eastern time. CONTRACT: A deferred annuity contract, or a certificate showing your interest under a group annuity contract, that permits you to accumulate money for retirement by making one or more purchase payments. It provides for lifetime or other forms of payouts beginning at a specified time in the future. CONTRACT VALUE: The total value of your contract before we deduct any applicable charges. CONTRACT YEAR: A period of 12 months, starting on the effective date of your contract and on each anniversary of the effective date. FIXED ACCOUNTS: The one-year fixed account is an account to which you may allocate purchase payments. Amounts you allocate to this account earn interest at rates that we declare periodically. Guarantee Period Accounts are fixed accounts to which you may also allocate purchase payments. These accounts have guaranteed interest rates declared for periods ranging from two to ten years. Withdrawals from the Guarantee Period Accounts done more than 30 days before the end of the Guarantee Period will receive a Market Value Adjustment, which may result in a gain or loss of principal. FUNDS: Investment options under your contract. You may allocate your purchase payments into subaccounts investing in shares of any or all of these funds. GUARANTEE PERIOD: The number of years that a guaranteed interest rate is credited. MARKET VALUE ADJUSTMENT (MVA): A positive or negative adjustment assessed if any portion of a Guarantee Period Account is withdrawn or transferred more than 30 days before the end of its Guarantee Period. OWNER (YOU, YOUR): The person who controls the contract (decides on investment allocations, transfers, payout options, etc.). Usually, but not always, the owner is also the annuitant. The owner is responsible for taxes, regardless of whether he or she receives the contract's benefits. QUALIFIED ANNUITY: A contract that you purchase to fund one of the following tax-deferred retirement plans that is subject to applicable federal law and any rules of the plan itself: - Individual Retirement Annuities (IRAs) under Section 408(b) of the Internal Revenue Code of 1986, as amended (the Code) - Roth IRAs under Section 408A of the Code - Simplified Employee Pension (SEP) plans under Section 408(k) of the Code A qualified annuity will not provide any necessary or additional tax deferral if it is used to fund a retirement plan that is already tax deferred. All other contracts are considered NONQUALIFIED ANNUITIES. RETIREMENT DATE: The date when annuity payouts are scheduled to begin. RIDER EFFECTIVE DATE: The date you add a rider to your contract. 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. -------------------------------------------------------------------------------- WELLS FARGO ADVANTAGE VARIABLE ANNUITY -- PROSPECTUS 3 THE CONTRACT IN BRIEF PURPOSE: The purpose of the contract is to allow you to accumulate money for retirement. You do this by making one or more purchase payments. You may allocate your purchase payments to the fixed accounts and/or subaccounts under the contract. These accounts, in turn, may earn returns that increase the value of the contract. Beginning at a specified time in the future called the retirement date, the contract provides lifetime or other forms of payouts of your contract value (less any applicable premium tax). As in the case of other annuities, it may not be advantageous for you to purchase this contract as a replacement for, or in addition to, an existing annuity or life insurance contract. Most annuities have a tax-deferred feature. So do many retirement plans under the Internal Revenue Code. As a result, when you use an annuity to fund a retirement plan that is tax deferred, your annuity will not provide any necessary or additional tax deferral for that retirement plan. But annuities do have features other than tax deferral that may help you reach your retirement goals. You should consult your tax advisor prior to making a purchase for an explanation of the tax implications to you. FREE LOOK PERIOD: You may return your contract to your sales representative or to our office within the time stated on the first page of your contract and receive a full refund of the contract value. However, you bear the investment risk from the time of purchase until you return the contract; the refund amount may be more or less than the payment you made. (Exception: If the law requires, we will refund all of your purchase payments.) ACCOUNTS: Currently, you may allocate your purchase payments among any or all of: - 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. 26) - the fixed accounts, which earn interest at rates that we adjust periodically. Some states restrict the amount you can allocate to these accounts. (p. 31) BUYING YOUR CONTRACT: Your sales representative will help you complete and submit an application. Applications are subject to acceptance at our office. Contracts issued through American Express Financial Advisors Inc. (AEFA) are only available with a seven-year withdrawal charge schedule. You may buy a qualified annuity or a nonqualified annuity through your AEFA sales representative. You may be able to buy another contract with the same underlying funds. This contract has different mortality and expense risk fees and withdrawal charges and offers purchase payment credits. For information on this contract, please call us at the telephone number listed on the first page of this prospectus or ask your sales representative. After your initial purchase payment, you have the option of making additional purchase payments in the future. (p. 34) - Minimum purchase payment: for Systematic Investment Plans: $50 initial payment. $50 for additional payments. for all other payment plans: $5,000 initial payment for contracts issued in South Carolina, Texas and Washington. $2,000 initial payment for contracts issued in all other states. $100 for additional payments. - Maximum total purchase payments (without prior approval): $99,999 for contracts issued through AEFA. $1,000,000 for all other contracts. TRANSFERS: Subject to certain restrictions, you currently may redistribute your contract value among the accounts without charge at any time until annuity payouts begin, and once per contract year among the subaccounts after annuity payouts begin. Transfers out of the Guarantee Period Accounts done more than 30 days before the end of the Guarantee Period will be subject to a MVA. You may establish automated transfers among the accounts. Fixed account transfers are subject to special restrictions. (p. 42) WITHDRAWALS: You may withdraw all or part of your contract value at any time before the retirement date. You also may establish automated partial withdrawals. Withdrawals may be subject to charges and tax penalties (including a 10% IRS penalty if you make withdrawals prior to your reaching age 59 1/2) and may have other tax consequences; also, certain restrictions apply. (p. 44) CHANGING OWNERSHIP: You may change ownership of a nonqualified annuity by written instruction, but this may have federal income tax consequences. Restrictions apply to changing ownership of a qualified annuity. (p. 44) 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) -------------------------------------------------------------------------------- 4 WELLS FARGO ADVANTAGE VARIABLE ANNUITY -- PROSPECTUS OPTIONAL BENEFITS: This contract offers optional features that are available for additional charges if you meet certain criteria. (p. 46) ANNUITY PAYOUTS: You can apply your contract value to an annuity payout plan that begins on the retirement date. You may choose from a variety of plans to make sure that payouts continue as long as you like. If you purchased a qualified annuity, the payout schedule must meet the requirements of the tax-deferred retirement plan. We can make payouts on a fixed or variable basis, or both. Total monthly payouts may include amounts from each subaccount and the one-year fixed account. During the annuity payout period, your choices for subaccounts may be limited. The Guarantee Period Accounts are not available during the payout period. (p. 54) 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. 56) CHARGES: We assess certain charges in connection with your contract (p. 35): - $30 annual contract administrative charge; - a 0.15% variable account administrative charge (if you allocate money to one or more subaccounts); - a 1.30% mortality and expense risk fee (if you allocate money to one or more subaccounts) with a five-year withdrawal charge schedule(1); - a 1.05% mortality and expense risk fee (if you allocate money to one or more subaccounts) with a seven-year withdrawal charge schedule; - if you select the Benefit Protector-SM- Death Benefit Rider(2) (Benefit Protector), an annual fee of 0.25% of the contract value; - if you select the Benefit Protector-SM- Plus Death Benefit Rider(2) (Benefit Protector Plus), an annual fee of 0.40% of the contract value; - if you select the Enhanced Death Benefit Rider(2) (EDB), an additional 0.20% mortality and expense risk fee (if you allocate money to one or more subaccounts); - if you select the Guaranteed Minimum Income Benefit Rider(3) (GMIB), an annual fee (currently 0.30%) based on the GMIB benefit base; - 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. (1) Contracts issued through AEFA are only available with a seven-year withdrawal charge schedule. (2) You may select one of the following: the EDB, the Benefit Protector or the Benefit Protector Plus. Riders may not be available in all states. The Benefit Protector and the Benefit Protector Plus are only available if you and the annuitant are 75 or younger at contract issue. The EDB is only available if both you and the annuitant are 79 or younger at contract issue. (3) The GMIB is only available at the time you purchase your contract if the annuitant is 75 or younger at contract issue and you also select the EDB. Riders may not be available in all states. -------------------------------------------------------------------------------- WELLS FARGO ADVANTAGE VARIABLE ANNUITY -- PROSPECTUS 5 EXPENSE SUMMARY The purpose of the following information is to help you understand the various costs and expenses associated with your contract. You pay no sales charge when you purchase your contract. We show all costs that we deduct directly from your contract or indirectly from the subaccounts and funds below. Some expenses may vary as we explain under "Charges." Please see the funds' prospectuses for more information on the operating expenses for each fund. CONTRACT OWNER EXPENSES WITHDRAWAL CHARGE (contingent deferred sales charge as a percentage of purchase payment withdrawn) You select either a five-year or seven-year withdrawal charge schedule at the time of application.
FIVE-YEAR SCHEDULE SEVEN-YEAR SCHEDULE YEARS FROM PURCHASE WITHDRAWAL CHARGE YEARS FROM PURCHASE WITHDRAWAL CHARGE PAYMENT RECEIPT PERCENTAGE PAYMENT RECEIPT PERCENTAGE 1 8% 1 8% 2 8 2 8 3 6 3 7 4 4 4 6 5 2 5 5 Thereafter 0 6 4 7 2 Thereafter 0
A withdrawal charge also applies to payouts under certain annuity payout plans (see "Charges -- Withdrawal charge" and "The Annuity Payout Period -- Annuity payout plans"). ANNUAL CONTRACT ADMINISTRATIVE CHARGE: $30* * We will waive this charge when your contract value is $50,000 or more on the current contract anniversary. BENEFIT PROTECTOR-SM- DEATH BENEFIT RIDER (BENEFIT PROTECTOR) FEE: 0.25% (As a percentage of the contract value charged annually at the contract anniversary. This is an optional expense.) BENEFIT PROTECTOR-SM- PLUS DEATH BENEFIT RIDER (BENEFIT PROTECTOR PLUS) FEE: 0.40% (As a percentage of the contract value charged annually at the contract anniversary. This is an optional expense.) GUARANTEED MINIMUM INCOME BENEFIT RIDER (GMIB) FEE: 0.30% (As a percentage of the GMIB benefit base charged annually at the contract anniversary. This is an optional expense.)
-------------------------------------------------------------------------------- 6 WELLS FARGO ADVANTAGE VARIABLE ANNUITY -- PROSPECTUS ANNUAL VARIABLE ACCOUNT EXPENSES (As a percentage of average subaccount value) You can choose the length of your contract's withdrawal charge schedule and the death benefit guarantee provided. The combination you choose determines the fees you pay. The table below shows the combinations available to you and their cost.
FIVE-YEAR WITHDRAWAL SEVEN-YEAR WITHDRAWAL CHARGE SCHEDULE CHARGE SCHEDULE VARIABLE ACCOUNT ADMINISTRATIVE CHARGE: 0.15% 0.15% MORTALITY AND EXPENSE RISK FEE: 1.30 1.05 ENHANCED DEATH BENEFIT RIDER (EDB) FEE: 0.20 0.20 --------------- --------------- (As part of the mortality and expense risk fee. This is an optional expense.) TOTAL ANNUAL VARIABLE ACCOUNT EXPENSES WITHOUT THE OPTIONAL EDB FEE: 1.45% 1.20% TOTAL ANNUAL VARIABLE ACCOUNT EXPENSES WITH THE OPTIONAL EDB FEE: 1.65% 1.40%
ANNUAL OPERATING EXPENSES OF THE FUNDS (AFTER FEE WAIVERS AND/OR EXPENSE REIMBURSEMENTS, IF APPLICABLE, AS A PERCENTAGE OF AVERAGE DAILY NET ASSETS)
MANAGEMENT 12b-1 OTHER FEES FEES EXPENSES TOTAL AXP-Registered Trademark- Variable Portfolio - Blue Chip Advantage Fund .56% .13% .26% .95%(1) Capital Resource Fund .60 .13 .04 .77(2) Diversified Equity Income Fund .56 .13 .26 .95(1) Extra Income Fund .62 .13 .07 .82(2) Federal Income Fund .61 .13 .13 .87(1) New Dimensions Fund-Registered Trademark- .60 .13 .05 .78(2) Small Cap Advantage Fund .75 .13 .31 1.19(1) AIM V.I. Capital Appreciation Fund .61 -- .21 .82(3) Value Fund .61 -- .23 .84(3) Dreyfus The Dreyfus Socially Responsible Growth Fund, Inc. - Initial Share Class .75 -- .03 .78(4) Fidelity VIP Dynamic Capital Appreciation Portfolio (Service Class 2) .57 .25 .61 1.43(5) High Income Portfolio (Service Class 2) .58 .25 .18 1.01(3) Mid Cap Portfolio (Service Class 2) .57 .25 .17 .99(6) Franklin Templeton VIP Trust Franklin Income Securities Fund - Class 2 .49 .25 .01 .75(7),(8) Franklin Real Estate Fund - Class 2 .58 .25 .02 .85(7),(8) Franklin Small Cap Fund - Class 2 .49 .25 .28 1.02(8),(9),(10) Mutual Shares Securities Fund - Class 2 .60 .25 .20 1.05(8) Goldman Sachs VIT CORE-SM- U.S. Equity Fund .70 -- .20 .90(11) Global Income Fund .90 -- .25 1.15(11) Internet Tollkeeper Fund-SM- 1.00 -- .25 1.25(11) Mid Cap Value Fund .80 -- .25 1.05(11)
-------------------------------------------------------------------------------- WELLS FARGO ADVANTAGE VARIABLE ANNUITY -- PROSPECTUS 7 ANNUAL OPERATING EXPENSES OF THE FUNDS (AFTER FEE WAIVERS AND/OR EXPENSE REIMBURSEMENTS, IF APPLICABLE, AS A PERCENTAGE OF AVERAGE DAILY NET ASSETS) (CONTINUED)
MANAGEMENT 12b-1 OTHER FEES FEES EXPENSES TOTAL MFS-Registered Trademark- Investors Trust Series - Initial Class (previously MFS-Registered Trademark- Growth with Income Series) .75% --% .12% .87%(12) Utilities Series - Initial Class .75 -- .16 .91(12) Putnam Variable Trust Putnam VT International Growth Fund - Class IB Shares .76 .25 .18 1.19(13) Putnam VT Vista Fund - Class IB Shares .60 .25 .07 .92(13) Wells Fargo VT Asset Allocation Fund .57 .25 .18 1.00(14) Corporate Bond Fund .25 .25 .40 .90(14) Equity Income Fund .53 .25 .22 1.00(14) Equity Value Fund .15 .25 .60 1.00(14) Growth Fund .47 .25 .28 1.00(14) International Equity Fund .15 .25 .60 1.00(14) Large Company Growth Fund .27 .25 .48 1.00(14) Money Market Fund .50 -- .35 .85(14) Small Cap Growth Fund .15 .25 .80 1.20(14)
(1) The fund's expense figures are based on actual expenses, after fee waivers and expenses reimbursements, for the fiscal year ending Aug. 31, 2000. Without fee waivers and expense reimbursements "Other Expense" and "Total" would be 0.27% and 0.96% for AXP Variable Portfolio - Blue Chip Advantage Fund, 0.80% and 1.49% for AXP Variable Portfolio - Diversified Equity Income Fund, 0.15% and 0.89% for AXP Variable Portfolio - Federal Income Fund, and 0.55% and 1.43% for AXP Variable Portfolio - Small Cap Advantage Fund. (2) The fund's expense figures are based on actual expenses for the fiscal year ended Aug. 31, 2000. (3) Figures in "Management Fees," "12b-1 Fees," "Other Expenses" and "Total" are based on actual expenses for the fiscal year ended Dec. 31, 2000. (4) These expenses are for the Initial Share Class for the fiscal year ended Dec. 31, 2000. Actual expenses in future years may be higher or lower than the expenses shown. (5) The annual class operating expenses provided are based on estimated expenses. (6) There were no reimbursements or expense reductions for the period ended Dec. 31, 2000. Actual annual class operating expenses were lower because a portion of the brokerage commissions that the fund paid was used to reduce the fund's expenses, and/or because through arrangements with the fund's custodian, credits realized as a result of uninvested cash balances were used to reduce a portion of the fund's custodian expenses. See the accompanying fund prospectus for details. (7) The Fund administration fee is paid indirectly through the management fee. (8) The Fund's Class 2 distribution plan or "Rule 12b-1 plan" is described in the fund's prospectus. (9) Total annual Fund operating expenses differ from the ratio of expenses to average net assets shown in the Financial Highlights table included in the Fund's Annual Report to Shareholders for the fiscal year ended Dec. 31, 2000 because they have been restated due to a new management agreement effective May 1, 2000. (10) The manager has agreed in advance to make an estimated reduction of 0.04% in its fee to reflect reduced services resulting from the Fund's investment in a Franklin Templeton money fund. This reduction is required by the Fund's Board of Trustees and an order of the Securities and Exchange Commission. Absent this reduction, "Management Fees" and "Total" would have been 0.53% and 1.06% for Franklin Small Cap Fund - Class 2. (11) Expense ratios are shown after fee waivers and expense reimbursements by the investment adviser. The expense ratios before the waivers and reimbursements would have been: 0.70%, 0.17%, and 0.87% for CORE-SM- U.S. Equity Fund, and 0.90%, 2.05% and 2.95% for Global Income Fund, 1.00%, 4.62% and 5.62% for Internet Tollkeeper Fund and 0.80%, 0.42% and 1.22% for Mid Cap Value Fund. CORE-SM- and Internet Tollkeeper Fund-SM- are service marks of Goldman, Sachs & Co. (12) 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 Investors Trust Series and 0.90% for Utilities Series. (13) Restated to reflect an increase in 12b-1 fees currently payable to Putnam Investment Management, LLC ("Putnam Management"). The Trustees currently limit payments on class IB shares to 0.25% of average net assets. Actual 12b-1 fees during the most recent fiscal year were 0.15% of average net assets. (14) Amounts represent expenses as of Dec. 31, 2000. Expenses are shown after fee waivers and expense reimbursements. Without fee waivers and expense reimbursements "Management Fees," "Other Expenses" and "Total" would have been 0.70%, 0.18% and 1.13% for Wells Fargo VT Asset Allocation Fund, 0.60%, 0.40% and 1.25% for Wells Fargo VT Corporate Bond Fund, 0.70%, 0.22% and 1.17% for Wells Fargo VT Equity Income Fund, 0.70%, 0.62% and 1.57% for Wells Fargo VT Equity Value Fund, 0.70%, 0.28% and 1.23% for Wells Fargo VT Growth Fund, 0.90%, 1.25% and 2.40% for Wells Fargo VT International Equity Fund, 0.70%, 0.48% and 1.43% for Wells Fargo VT Large Company Growth Fund 0.55%, 0.35% and 0.90% for Wells Fargo VT Money Market Fund, and 0.90%, 1.26% and 2.41% for Wells Fargo VT Small Cap Growth Fund. -------------------------------------------------------------------------------- 8 WELLS FARGO ADVANTAGE VARIABLE ANNUITY -- PROSPECTUS EXAMPLES*: In order to provide a more meaningful discussion about the contract and its options, we provide expense examples for each fund showing every available optional contract feature combination. These examples assume that applicable fund fee waivers and/or expense reimbursements will continue for the periods shown. Under each fund you will find an example showing: 1) the base contract with no optional riders, 2) the contract with selection of the optional Benefit Protector-SM- Death Benefit Rider, 3) the contract with selection of the optional Benefit Protector-SM- Plus Death Benefit Rider, 4) the contract with selection of the optional Enhanced Death Benefit Rider, and 5) the contract with selection of the optional Guaranteed Minimum Income Benefit Rider and Enhanced Death Benefit Rider. We first show the expenses for your contract assuming selection of the six-year withdrawal charge schedule followed by the expenses for your contract assuming selection of the eight-year withdrawal charge schedule. You would pay the following expenses on a $1,000 investment if you selected a FIVE-YEAR WITHDRAWAL CHARGE SCHEDULE** and assuming a 5% annual return and ...
A TOTAL WITHDRAWAL AT THE END OF EACH TIME PERIOD 1 YEAR 3 YEARS 5 YEARS 10 YEARS AXP-Registered Trademark- VP - Blue Chip Advantage Fund base contract with no optional riders $104.94 $136.71 $151.10 $279.47 optional Benefit Protector 107.50 144.37 163.83 304.59 optional Benefit Protector Plus 109.04 148.95 171.41 319.36 optional EDB 106.99 142.84 161.30 299.62 optional GMIB and EDB 110.14 152.51 177.79 334.59 AXP-Registered Trademark- VP - Capital Resource Fund base contract with no optional riders 103.09 131.16 141.85 261.00 optional Benefit Protector 105.66 138.86 154.68 286.57 optional Benefit Protector Plus 107.19 143.45 162.31 301.61 optional EDB 105.14 137.32 152.12 281.50 optional GMIB and EDB 108.29 147.01 168.68 316.77 AXP-Registered Trademark- VP - Diversified Equity Income Fund base contract with no optional riders 104.94 136.71 151.10 279.47 optional Benefit Protector 107.50 144.37 163.83 304.59 optional Benefit Protector Plus 109.04 148.95 171.41 319.36 optional EDB 106.99 142.84 161.30 299.62 optional GMIB and EDB 110.14 152.51 177.79 334.59 AXP-Registered Trademark- VP - Extra Income Fund base contract with no optional riders 103.61 132.70 144.43 266.16 optional Benefit Protector 106.17 140.39 157.23 291.61 optional Benefit Protector Plus 107.71 144.98 164.84 306.57 optional EDB 105.66 138.86 154.68 286.57 optional GMIB and EDB 108.81 148.54 171.21 321.75 AXP-Registered Trademark- VP - Federal Income Fund base contract with no optional riders 104.12 134.24 147.00 271.30 optional Benefit Protector 106.68 141.92 159.77 296.62 optional Benefit Protector Plus 108.22 146.51 167.37 311.51 optional EDB 106.17 140.39 157.23 291.61 optional GMIB and EDB 109.32 150.07 173.75 326.71 AXP VP - New Dimensions Fund-Registered Trademark- base contract with no optional riders 103.20 131.47 142.37 262.03 optional Benefit Protector 105.76 139.16 155.19 287.58 optional Benefit Protector Plus 107.30 143.76 162.82 302.60 optional EDB 105.25 137.63 152.63 282.52 optional GMIB and EDB 108.40 147.31 169.18 317.77 NO WITHDRAWAL OR SELECTION OF AN ANNUITY PAYOUT PLAN AT THE END OF EACH TIME PERIOD 1 YEAR 3 YEARS 5 YEARS 10 YEARS AXP-Registered Trademark- VP - Blue Chip Advantage Fund base contract with no optional riders $24.94 $76.71 $131.10 $279.47 optional Benefit Protector 27.50 84.37 143.83 304.59 optional Benefit Protector Plus 29.04 88.95 151.41 319.36 optional EDB 26.99 82.84 141.30 299.62 optional GMIB and EDB 30.14 92.51 157.79 334.59 AXP-Registered Trademark- VP - Capital Resource Fund base contract with no optional riders 23.09 71.16 121.85 261.00 optional Benefit Protector 25.66 78.86 134.68 286.57 optional Benefit Protector Plus 27.19 83.45 142.31 301.61 optional EDB 25.14 77.32 132.12 281.50 optional GMIB and EDB 28.29 87.01 148.68 316.77 AXP-Registered Trademark- VP - Diversified Equity Income Fund base contract with no optional riders 24.94 76.71 131.10 279.47 optional Benefit Protector 27.50 84.37 143.83 304.59 optional Benefit Protector Plus 29.04 88.95 151.41 319.36 optional EDB 26.99 82.84 141.30 299.62 optional GMIB and EDB 30.14 92.51 157.79 334.59 AXP-Registered Trademark- VP - Extra Income Fund base contract with no optional riders 23.61 72.70 124.43 266.16 optional Benefit Protector 26.17 80.39 137.23 291.61 optional Benefit Protector Plus 27.71 84.98 144.84 306.57 optional EDB 25.66 78.86 134.68 286.57 optional GMIB and EDB 28.81 88.54 151.21 321.75 AXP-Registered Trademark- VP - Federal Income Fund base contract with no optional riders 24.12 74.24 127.00 271.30 optional Benefit Protector 26.68 81.92 139.77 296.62 optional Benefit Protector Plus 28.22 86.51 147.37 311.51 optional EDB 26.17 80.39 137.23 291.61 optional GMIB and EDB 29.32 90.07 153.75 326.71 AXP VP - New Dimensions Fund-Registered Trademark- base contract with no optional riders 23.20 71.47 122.37 262.03 optional Benefit Protector 25.76 79.16 135.19 287.58 optional Benefit Protector Plus 27.30 83.76 142.82 302.60 optional EDB 25.25 77.63 132.63 282.52 optional GMIB and EDB 28.40 87.31 149.18 317.77
-------------------------------------------------------------------------------- WELLS FARGO ADVANTAGE VARIABLE ANNUITY -- PROSPECTUS 9 You would pay the following expenses on a $1,000 investment if you selected a FIVE-YEAR WITHDRAWAL CHARGE SCHEDULE** and assuming a 5% annual return and ... (continued)
A TOTAL WITHDRAWAL AT THE END OF EACH TIME PERIOD 1 YEAR 3 YEARS 5 YEARS 10 YEARS AXP-Registered Trademark- VP - Small Cap Advantage Fund base contract with no optional riders $107.40 $144.07 $163.33 $303.60 optional Benefit Protector 109.96 151.70 175.93 328.12 optional Benefit Protector Plus 111.50 156.25 183.43 342.54 optional EDB 109.45 150.17 173.42 323.26 optional GMIB and EDB 112.60 159.82 189.83 357.84 AIM V.I. Capital Appreciation Fund base contract with no optional riders 103.61 132.70 144.43 266.16 optional Benefit Protector 106.17 140.39 157.23 291.61 optional Benefit Protector Plus 107.71 144.98 164.84 306.57 optional EDB 105.66 138.86 154.68 286.57 optional GMIB and EDB 108.81 148.54 171.21 321.75 AIM V.I. Value Fund base contract with no optional riders 103.81 133.32 145.46 268.22 optional Benefit Protector 106.37 141.00 158.25 293.61 optional Benefit Protector Plus 107.91 145.60 165.86 308.55 optional EDB 105.86 139.47 155.70 288.59 optional GMIB and EDB 109.01 149.15 172.23 323.74 The Dreyfus Socially Responsible Growth Fund, Inc. - Initial Share Class base contract with no optional riders 103.20 131.47 142.37 262.03 optional Benefit Protector 105.76 139.16 155.19 287.58 optional Benefit Protector Plus 107.30 143.76 162.82 302.60 optional EDB 105.25 137.63 152.63 282.52 optional GMIB and EDB 108.40 147.31 169.18 317.77 Fidelity VIP Dynamic Capital Appreciation Portfolio (Service Class 2) base contract with no optional riders 109.86 151.39 175.43 327.15 optional Benefit Protector 112.42 158.98 187.90 351.09 optional Benefit Protector Plus 113.96 163.52 195.33 365.17 optional EDB 111.91 157.47 185.42 346.35 optional GMIB and EDB 115.06 167.09 201.75 380.55 Fidelity VIP High Income Portfolio (Service Class 2) base contract with no optional riders 105.55 138.55 154.17 285.56 optional Benefit Protector 108.12 146.21 166.87 310.53 optional Benefit Protector Plus 109.65 150.78 174.42 325.21 optional EDB 107.60 144.68 164.34 305.58 optional GMIB and EDB 110.75 154.34 180.81 340.45 Fidelity VIP Mid Cap Portfolio (Service Class 2) base contract with no optional riders 105.35 137.93 153.15 283.53 optional Benefit Protector 107.91 145.60 165.86 308.55 optional Benefit Protector Plus 109.45 150.17 173.42 323.26 optional EDB 107.40 144.07 163.33 303.60 optional GMIB and EDB 110.55 153.73 179.80 338.50 NO WITHDRAWAL OR SELECTION OF AN ANNUITY PAYOUT PLAN AT THE END OF EACH TIME PERIOD 1 YEAR 3 YEARS 5 YEARS 10 YEARS AXP-Registered Trademark- VP - Small Cap Advantage Fund base contract with no optional riders $27.40 $ 84.07 $143.33 $303.60 optional Benefit Protector 29.96 91.70 155.93 328.12 optional Benefit Protector Plus 31.50 96.25 163.43 342.54 optional EDB 29.45 90.17 153.42 323.26 optional GMIB and EDB 32.60 99.82 169.83 357.84 AIM V.I. Capital Appreciation Fund base contract with no optional riders 23.61 72.70 124.43 266.16 optional Benefit Protector 26.17 80.39 137.23 291.61 optional Benefit Protector Plus 27.71 84.98 144.84 306.57 optional EDB 25.66 78.86 134.68 286.57 optional GMIB and EDB 28.81 88.54 151.21 321.75 AIM V.I. Value Fund base contract with no optional riders 23.81 73.32 125.46 268.22 optional Benefit Protector 26.37 81.00 138.25 293.61 optional Benefit Protector Plus 27.91 85.60 145.86 308.55 optional EDB 25.86 79.47 135.70 288.59 optional GMIB and EDB 29.01 89.15 152.23 323.74 The Dreyfus Socially Responsible Growth Fund, Inc. - Initial Share Class base contract with no optional riders 23.20 71.47 122.37 262.03 optional Benefit Protector 25.76 79.16 135.19 287.58 optional Benefit Protector Plus 27.30 83.76 142.82 302.60 optional EDB 25.25 77.63 132.63 282.52 optional GMIB and EDB 28.40 87.31 149.18 317.77 Fidelity VIP Dynamic Capital Appreciation Portfolio (Service Class 2) base contract with no optional riders 29.86 91.39 155.43 327.15 optional Benefit Protector 32.42 98.98 167.90 351.09 optional Benefit Protector Plus 33.96 103.52 175.33 365.17 optional EDB 31.91 97.47 165.42 346.35 optional GMIB and EDB 35.06 107.09 181.75 380.55 Fidelity VIP High Income Portfolio (Service Class 2) base contract with no optional riders 25.55 78.55 134.17 285.56 optional Benefit Protector 28.12 86.21 146.87 310.53 optional Benefit Protector Plus 29.65 90.78 154.42 325.21 optional EDB 27.60 84.68 144.34 305.58 optional GMIB and EDB 30.75 94.34 160.81 340.45 Fidelity VIP Mid Cap Portfolio (Service Class 2) base contract with no optional riders 25.35 77.93 133.15 283.53 optional Benefit Protector 27.91 85.60 145.86 308.55 optional Benefit Protector Plus 29.45 90.17 153.42 323.26 optional EDB 27.40 84.07 143.33 303.60 optional GMIB and EDB 30.55 93.73 159.80 338.50
-------------------------------------------------------------------------------- 10 WELLS FARGO ADVANTAGE VARIABLE ANNUITY -- PROSPECTUS You would pay the following expenses on a $1,000 investment if you selected a FIVE-YEAR WITHDRAWAL CHARGE SCHEDULE** and assuming a 5% annual return and ... (continued)
A TOTAL WITHDRAWAL AT THE END OF EACH TIME PERIOD 1 YEAR 3 YEARS 5 YEARS 10 YEARS FTVIPT Franklin Income Securities Fund - Class 2 base contract with no optional riders $102.89 $130.54 $140.82 $258.92 optional Benefit Protector 105.45 138.24 153.66 284.55 optional Benefit Protector Plus 106.99 142.84 161.30 299.62 optional EDB 104.94 136.71 151.10 279.47 optional GMIB and EDB 108.09 146.39 167.66 314.77 FTVIPT Franklin Real Estate Fund - Class 2 base contract with no optional riders 103.91 133.63 145.97 269.25 optional Benefit Protector 106.48 141.31 158.76 294.62 optional Benefit Protector Plus 108.01 145.90 166.36 309.54 optional EDB 105.96 139.78 156.21 289.59 optional GMIB and EDB 109.11 149.46 172.73 324.73 FTVIPT Franklin Small Cap Fund - Class 2 base contract with no optional riders 105.66 138.86 154.68 286.57 optional Benefit Protector 108.22 146.51 167.37 311.51 optional Benefit Protector Plus 109.76 151.09 174.93 326.18 optional EDB 107.71 144.98 164.84 306.57 optional GMIB and EDB 110.86 154.65 181.31 341.43 FTVIPT Mutual Shares Securities Fund - Class 2 base contract with no optional riders 105.96 139.78 156.21 289.59 optional Benefit Protector 108.53 147.43 168.89 314.46 optional Benefit Protector Plus 110.06 152.00 176.43 329.09 optional EDB 108.01 145.90 166.36 309.54 optional GMIB and EDB 111.16 155.56 182.82 344.34 Goldman Sachs VIT CORE-SM- U.S. Equity Fund base contract with no optional riders 104.43 135.17 148.54 274.37 optional Benefit Protector 106.99 142.84 161.30 299.62 optional Benefit Protector Plus 108.53 147.43 168.89 314.46 optional EDB 106.48 141.31 158.76 294.62 optional GMIB and EDB 109.63 150.98 175.26 329.67 Goldman Sachs VIT Global Income Fund base contract with no optional riders 106.99 142.84 161.30 299.62 optional Benefit Protector 109.55 150.48 173.92 324.24 optional Benefit Protector Plus 111.09 155.04 181.43 338.72 optional EDB 109.04 148.95 171.41 319.36 optional GMIB and EDB 112.19 158.60 187.83 354.01 Goldman Sachs VIT Internet Tollkeeper Fund-SM- base contract with no optional riders 108.01 145.90 166.36 309.54 optional Benefit Protector 110.58 153.52 178.93 333.92 optional Benefit Protector Plus 112.11 158.07 186.41 348.25 optional EDB 110.06 152.00 176.43 329.09 optional GMIB and EDB 113.21 161.64 192.82 363.57 NO WITHDRAWAL OR SELECTION OF AN ANNUITY PAYOUT PLAN AT THE END OF EACH TIME PERIOD 1 YEAR 3 YEARS 5 YEARS 10 YEARS FTVIPT Franklin Income Securities Fund - Class 2 base contract with no optional riders $22.89 $ 70.54 $120.82 $258.92 optional Benefit Protector 25.45 78.24 133.66 284.55 optional Benefit Protector Plus 26.99 82.84 141.30 299.62 optional EDB 24.94 76.71 131.10 279.47 optional GMIB and EDB 28.09 86.39 147.66 314.77 FTVIPT Franklin Real Estate Fund - Class 2 base contract with no optional riders 23.91 73.63 125.97 269.25 optional Benefit Protector 26.48 81.31 138.76 294.62 optional Benefit Protector Plus 28.01 85.90 146.36 309.54 optional EDB 25.96 79.78 136.21 289.59 optional GMIB and EDB 29.11 89.46 152.73 324.73 FTVIPT Franklin Small Cap Fund - Class 2 base contract with no optional riders 25.66 78.86 134.68 286.57 optional Benefit Protector 28.22 86.51 147.37 311.51 optional Benefit Protector Plus 29.76 91.09 154.93 326.18 optional EDB 27.71 84.98 144.84 306.57 optional GMIB and EDB 30.86 94.65 161.31 341.43 FTVIPT Mutual Shares Securities Fund - Class 2 base contract with no optional riders 25.96 79.78 136.21 289.59 optional Benefit Protector 28.53 87.43 148.89 314.46 optional Benefit Protector Plus 30.06 92.00 156.43 329.09 optional EDB 28.01 85.90 146.36 309.54 optional GMIB and EDB 31.16 95.56 162.82 344.34 Goldman Sachs VIT CORE-SM- U.S. Equity Fund base contract with no optional riders 24.43 75.17 128.54 274.37 optional Benefit Protector 26.99 82.84 141.30 299.62 optional Benefit Protector Plus 28.53 87.43 148.89 314.46 optional EDB 26.48 81.31 138.76 294.62 optional GMIB and EDB 29.63 90.98 155.26 329.67 Goldman Sachs VIT Global Income Fund base contract with no optional riders 26.99 82.84 141.30 299.62 optional Benefit Protector 29.55 90.48 153.92 324.24 optional Benefit Protector Plus 31.09 95.04 161.43 338.72 optional EDB 29.04 88.95 151.41 319.36 optional GMIB and EDB 32.19 98.60 167.83 354.01 Goldman Sachs VIT Internet Tollkeeper Fund-SM- base contract with no optional riders 28.01 85.90 146.36 309.54 optional Benefit Protector 30.58 93.52 158.93 333.92 optional Benefit Protector Plus 32.11 98.07 166.41 348.25 optional EDB 30.06 92.00 156.43 329.09 optional GMIB and EDB 33.21 101.64 172.82 363.57
-------------------------------------------------------------------------------- WELLS FARGO ADVANTAGE VARIABLE ANNUITY -- PROSPECTUS 11 You would pay the following expenses on a $1,000 investment if you selected a FIVE-YEAR WITHDRAWAL CHARGE SCHEDULE** and assuming a 5% annual return and ... (continued)
A TOTAL WITHDRAWAL AT THE END OF EACH TIME PERIOD 1 YEAR 3 YEARS 5 YEARS 10 YEARS Goldman Sachs VIT Mid Cap Value Fund base contract with no optional riders $105.96 $139.78 $156.21 $289.59 optional Benefit Protector 108.53 147.43 168.89 314.46 optional Benefit Protector Plus 110.06 152.00 176.43 329.09 optional EDB 108.01 145.90 166.36 309.54 optional GMIB and EDB 111.16 155.56 182.82 344.34 MFS-Registered Trademark- Investors Trust Series - Initial Class (previously MFS-Registered Trademark- Growth with Income Series) base contract with no optional riders 104.12 134.24 147.00 271.30 optional Benefit Protector 106.68 141.92 159.77 296.62 optional Benefit Protector Plus 108.22 146.51 167.37 311.51 optional EDB 106.17 140.39 157.23 291.61 optional GMIB and EDB 109.32 150.07 173.75 326.71 MFS-Registered Trademark- Utilities Series - Initial Class base contract with no optional riders 104.53 135.47 149.05 275.39 optional Benefit Protector 107.09 143.15 161.80 300.61 optional Benefit Protector Plus 108.63 147.73 169.39 315.44 optional EDB 106.58 141.62 159.26 295.62 optional GMIB and EDB 109.73 151.29 175.77 330.65 Putnam VT International Growth Fund - Class IB Shares base contract with no optional riders 107.40 144.07 163.33 303.60 optional Benefit Protector 109.96 151.70 175.93 328.12 optional Benefit Protector Plus 111.50 156.25 183.43 342.54 optional EDB 109.45 150.17 173.42 323.26 optional GMIB and EDB 112.60 159.82 189.83 357.84 Putnam VT Vista Fund - Class IB Shares base contract with no optional riders 104.63 135.78 149.56 276.42 optional Benefit Protector 107.19 143.45 162.31 301.61 optional Benefit Protector Plus 108.73 148.04 169.90 316.43 optional EDB 106.68 141.92 159.77 296.62 optional GMIB and EDB 109.83 151.60 176.27 331.64 Wells Fargo VT Asset Allocation Fund base contract with no optional riders 105.45 138.24 153.66 284.55 optional Benefit Protector 108.01 145.90 166.36 309.54 optional Benefit Protector Plus 109.55 150.48 173.92 324.24 optional EDB 107.50 144.37 163.83 304.59 optional GMIB and EDB 110.65 154.04 180.31 339.48 Wells Fargo VT Corporate Bond Fund base contract with no optional riders 104.43 135.17 148.54 274.37 optional Benefit Protector 106.99 142.84 161.30 299.62 optional Benefit Protector Plus 108.53 147.43 168.89 314.46 optional EDB 106.48 141.31 158.76 294.62 optional GMIB and EDB 109.63 150.98 175.26 329.67 NO WITHDRAWAL OR SELECTION OF AN ANNUITY PAYOUT PLAN AT THE END OF EACH TIME PERIOD 1 YEAR 3 YEARS 5 YEARS 10 YEARS Goldman Sachs VIT Mid Cap Value Fund base contract with no optional riders $25.96 $79.78 $136.21 $289.59 optional Benefit Protector 28.53 87.43 148.89 314.46 optional Benefit Protector Plus 30.06 92.00 156.43 329.09 optional EDB 28.01 85.90 146.36 309.54 optional GMIB and EDB 31.16 95.56 162.82 344.34 MFS-Registered Trademark- Investors Trust Series - Initial Class (previously MFS-Registered Trademark- Growth with Income Series) base contract with no optional riders 24.12 74.24 127.00 271.30 optional Benefit Protector 26.68 81.92 139.77 296.62 optional Benefit Protector Plus 28.22 86.51 147.37 311.51 optional EDB 26.17 80.39 137.23 291.61 optional GMIB and EDB 29.32 90.07 153.75 326.71 MFS-Registered Trademark- Utilities Series - Initial Class base contract with no optional riders 24.53 75.47 129.05 275.39 optional Benefit Protector 27.09 83.15 141.80 300.61 optional Benefit Protector Plus 28.63 87.73 149.39 315.44 optional EDB 26.58 81.62 139.26 295.62 optional GMIB and EDB 29.73 91.29 155.77 330.65 Putnam VT International Growth Fund - Class IB Shares base contract with no optional riders 27.40 84.07 143.33 303.60 optional Benefit Protector 29.96 91.70 155.93 328.12 optional Benefit Protector Plus 31.50 96.25 163.43 342.54 optional EDB 29.45 90.17 153.42 323.26 optional GMIB and EDB 32.60 99.82 169.83 357.84 Putnam VT Vista Fund - Class IB Shares base contract with no optional riders 24.63 75.78 129.56 276.42 optional Benefit Protector 27.19 83.45 142.31 301.61 optional Benefit Protector Plus 28.73 88.04 146.90 316.43 optional EDB 26.68 81.92 139.77 296.62 optional GMIB and EDB 29.83 91.60 156.27 331.64 Wells Fargo VT Asset Allocation Fund base contract with no optional riders 25.45 78.24 133.66 284.55 optional Benefit Protector 28.01 85.90 146.36 309.54 optional Benefit Protector Plus 29.55 90.48 153.92 324.24 optional EDB 27.50 84.37 143.83 304.59 optional GMIB and EDB 30.65 94.04 160.31 339.48 Wells Fargo VT Corporate Bond Fund base contract with no optional riders 24.43 75.17 128.54 274.37 optional Benefit Protector 26.99 82.84 141.30 299.62 optional Benefit Protector Plus 28.53 87.43 148.89 314.46 optional EDB 26.48 81.31 138.76 294.62 optional GMIB and EDB 29.63 90.98 155.26 329.67
-------------------------------------------------------------------------------- 12 WELLS FARGO ADVANTAGE VARIABLE ANNUITY -- PROSPECTUS You would pay the following expenses on a $1,000 investment if you selected a FIVE-YEAR WITHDRAWAL CHARGE SCHEDULE** and assuming a 5% annual return and ... (continued)
A TOTAL WITHDRAWAL AT THE END OF EACH TIME PERIOD 1 YEAR 3 YEARS 5 YEARS 10 YEARS Wells Fargo VT Equity Income Fund base contract with no optional riders $105.45 $138.24 $153.66 $284.55 optional Benefit Protector 108.01 145.90 166.36 309.54 optional Benefit Protector Plus 109.55 150.48 173.92 324.24 optional EDB 107.50 144.37 163.83 304.59 optional GMIB and EDB 110.65 154.04 180.31 339.48 Wells Fargo VT Equity Value Fund base contract with no optional riders 105.45 138.24 153.66 284.55 optional Benefit Protector 108.01 145.90 166.36 309.54 optional Benefit Protector Plus 109.55 150.48 173.92 324.24 optional EDB 107.50 144.37 163.83 304.59 optional GMIB and EDB 110.65 154.04 180.31 339.48 Wells Fargo VT Growth Fund base contract with no optional riders 105.45 138.24 153.66 284.55 optional Benefit Protector 108.01 145.90 166.36 309.54 optional Benefit Protector Plus 109.55 150.48 173.92 324.24 optional EDB 107.50 144.37 163.83 304.59 optional GMIB and EDB 110.65 154.04 180.31 339.48 Wells Fargo VT International Equity Fund base contract with no optional riders 105.45 138.24 153.66 284.55 optional Benefit Protector 108.01 145.90 166.36 309.54 optional Benefit Protector Plus 109.55 150.48 173.92 324.24 optional EDB 107.50 144.37 163.83 304.59 optional GMIB and EDB 110.65 154.04 180.31 339.48 Wells Fargo VT Large Company Growth Fund base contract with no optional riders 105.45 138.24 153.66 284.55 optional Benefit Protector 108.01 145.90 166.36 309.54 optional Benefit Protector Plus 109.55 150.48 173.92 324.24 optional EDB 107.50 144.37 163.83 304.59 optional GMIB and EDB 110.65 154.04 180.31 339.48 Wells Fargo VT Money Market Fund base contract with no optional riders 103.91 133.63 145.97 269.25 optional Benefit Protector 106.48 141.31 158.76 294.62 optional Benefit Protector Plus 108.01 145.90 166.36 309.54 optional EDB 105.96 139.78 156.21 289.59 optional GMIB and EDB 109.11 149.46 172.73 324.73 Wells Fargo VT Small Cap Growth Fund base contract with no optional riders 107.50 144.37 163.83 304.59 optional Benefit Protector 110.06 152.00 176.43 329.09 optional Benefit Protector Plus 111.60 156.56 183.93 343.50 optional EDB 109.55 150.48 173.92 324.24 optional GMIB and EDB 112.70 160.12 190.33 358.80 NO WITHDRAWAL OR SELECTION OF AN ANNUITY PAYOUT PLAN AT THE END OF EACH TIME PERIOD 1 YEAR 3 YEARS 5 YEARS 10 YEARS Wells Fargo VT Equity Income Fund base contract with no optional riders $25.45 $ 78.24 $133.66 $284.55 optional Benefit Protector 28.01 85.90 146.36 309.54 optional Benefit Protector Plus 29.55 90.48 153.92 324.24 optional EDB 27.50 84.37 143.83 304.59 optional GMIB and EDB 30.65 94.04 160.31 339.48 Wells Fargo VT Equity Value Fund base contract with no optional riders 25.45 78.24 133.66 284.55 optional Benefit Protector 28.01 85.90 146.36 309.54 optional Benefit Protector Plus 29.55 90.48 153.92 324.24 optional EDB 27.50 84.37 143.83 304.59 optional GMIB and EDB 30.65 94.04 160.31 339.48 Wells Fargo VT Growth Fund base contract with no optional riders 25.45 78.24 133.66 284.55 optional Benefit Protector 28.01 85.90 146.36 309.54 optional Benefit Protector Plus 29.55 90.48 153.92 324.24 optional EDB 27.50 84.37 143.83 304.59 optional GMIB and EDB 30.65 94.04 160.31 339.48 Wells Fargo VT International Equity Fund base contract with no optional riders 25.45 78.24 133.66 284.55 optional Benefit Protector 28.01 85.90 146.36 309.54 optional Benefit Protector Plus 29.55 90.48 153.92 324.24 optional EDB 27.50 84.37 143.83 304.59 optional GMIB and EDB 30.65 94.04 160.31 339.48 Wells Fargo VT Large Company Growth Fund base contract with no optional riders 25.45 78.24 133.66 284.55 optional Benefit Protector 28.01 85.90 146.36 309.54 optional Benefit Protector Plus 29.55 90.48 153.92 324.24 optional EDB 27.50 84.37 143.83 304.59 optional GMIB and EDB 30.65 94.04 160.31 339.48 Wells Fargo VT Money Market Fund base contract with no optional riders 23.91 73.63 125.97 269.25 optional Benefit Protector 26.48 81.31 138.76 294.62 optional Benefit Protector Plus 28.01 85.90 146.36 309.54 optional EDB 25.96 79.78 136.21 289.59 optional GMIB and EDB 29.11 89.46 152.73 324.73 Wells Fargo VT Small Cap Growth Fund base contract with no optional riders 27.50 84.37 143.83 304.59 optional Benefit Protector 30.06 92.00 156.43 329.09 optional Benefit Protector Plus 31.60 96.56 163.93 343.50 optional EDB 29.55 90.48 153.92 324.24 optional GMIB and EDB 32.70 100.12 170.33 358.80
-------------------------------------------------------------------------------- WELLS FARGO ADVANTAGE VARIABLE ANNUITY -- PROSPECTUS 13 You would pay the following expenses on a $1,000 investment if you selected a SEVEN-YEAR WITHDRAWAL CHARGE SCHEDULE and assuming a 5% annual return and ...
A TOTAL WITHDRAWAL AT THE END OF EACH TIME PERIOD 1 YEAR 3 YEARS 5 YEARS 10 YEARS AXP-Registered Trademark- VP - Blue Chip Advantage Fund base contract with no optional riders $102.38 $139.00 $168.23 $253.72 optional Benefit Protector 104.94 146.71 181.10 279.47 optional Benefit Protector Plus 106.48 151.31 188.76 294.62 optional EDB 104.43 145.17 178.54 274.37 optional GMIB and EDB 107.58 154.86 195.11 309.76 AXP-Registered Trademark- VP - Capital Resource Fund base contract with no optional riders 100.53 133.43 158.88 234.79 optional Benefit Protector 103.09 141.16 171.85 261.00 optional Benefit Protector Plus 104.63 145.78 179.56 276.42 optional EDB 102.58 139.62 169.27 255.81 optional GMIB and EDB 105.73 149.33 185.91 291.49 AXP-Registered Trademark- VP - Diversified Equity Income Fund base contract with no optional riders 102.38 139.00 168.23 253.72 optional Benefit Protector 104.94 146.71 181.10 279.47 optional Benefit Protector Plus 106.48 151.31 188.76 294.62 optional EDB 104.43 145.17 178.54 274.37 optional GMIB and EDB 107.58 154.86 195.11 309.76 AXP-Registered Trademark- VP - Extra Income Fund base contract with no optional riders 101.04 134.98 161.49 240.08 optional Benefit Protector 103.61 142.70 174.43 266.16 optional Benefit Protector Plus 105.14 147.32 182.12 281.50 optional EDB 103.09 141.16 171.85 261.00 optional GMIB and EDB 106.24 150.87 188.47 296.60 AXP-Registered Trademark- VP - Federal Income Fund base contract with no optional riders 101.56 136.52 164.09 245.35 optional Benefit Protector 104.12 144.24 177.00 271.30 optional Benefit Protector Plus 105.66 148.86 184.68 286.57 optional EDB 103.61 142.70 174.43 266.16 optional GMIB and EDB 106.76 152.40 191.03 301.68 AXP VP - New Dimensions Fund-Registered Trademark- base contract with no optional riders 100.63 133.74 159.41 235.85 optional Benefit Protector 103.20 141.47 172.37 262.03 optional Benefit Protector Plus 104.73 146.09 180.08 277.44 optional EDB 102.68 139.93 169.78 256.85 optional GMIB and EDB 105.83 149.64 186.42 292.52 AXP-Registered Trademark- VP - Small Cap Advantage Fund base contract with no optional riders 104.84 146.40 180.59 278.45 optional Benefit Protector 107.40 154.07 193.33 303.60 optional Benefit Protector Plus 108.94 158.65 200.90 318.38 optional EDB 106.89 152.54 190.79 298.62 optional GMIB and EDB 110.04 162.21 207.28 333.60 NO WITHDRAWAL OR SELECTION OF AN ANNUITY PAYOUT PLAN AT THE END OF EACH TIME PERIOD 1 YEAR 3 YEARS 5 YEARS 10 YEARS AXP-Registered Trademark- VP - Blue Chip Advantage Fund base contract with no optional riders $22.38 $69.00 $118.23 $253.72 optional Benefit Protector 24.94 76.71 131.10 279.47 optional Benefit Protector Plus 26.48 81.31 138.76 294.62 optional EDB 24.43 75.17 128.54 274.37 optional GMIB and EDB 27.58 84.86 145.11 309.76 AXP-Registered Trademark- VP - Capital Resource Fund base contract with no optional riders 20.53 63.43 108.88 234.79 optional Benefit Protector 23.09 71.16 121.85 261.00 optional Benefit Protector Plus 24.63 75.78 129.56 276.42 optional EDB 22.58 69.62 119.27 255.81 optional GMIB and EDB 25.73 79.33 135.91 291.49 AXP-Registered Trademark- VP - Diversified Equity Income Fund base contract with no optional riders 22.38 69.00 118.23 253.72 optional Benefit Protector 24.94 76.71 131.10 279.47 optional Benefit Protector Plus 26.48 81.31 138.76 294.62 optional EDB 24.43 75.17 128.54 274.37 optional GMIB and EDB 27.58 84.86 145.11 309.76 AXP-Registered Trademark- VP - Extra Income Fund base contract with no optional riders 21.04 64.98 111.49 240.08 optional Benefit Protector 23.61 72.70 124.43 266.16 optional Benefit Protector Plus 25.14 77.32 132.12 281.50 optional EDB 23.09 71.16 121.85 261.00 optional GMIB and EDB 26.24 80.87 138.47 296.60 AXP-Registered Trademark- VP - Federal Income Fund base contract with no optional riders 21.56 66.52 114.09 245.35 optional Benefit Protector 24.12 74.24 127.00 271.30 optional Benefit Protector Plus 25.66 78.86 134.68 286.57 optional EDB 23.61 72.70 124.43 266.16 optional GMIB and EDB 26.76 82.40 141.03 301.68 AXP VP - New Dimensions Fund-Registered Trademark- base contract with no optional riders 20.63 63.74 109.41 235.85 optional Benefit Protector 23.20 71.47 122.37 262.03 optional Benefit Protector Plus 24.73 76.09 130.08 277.44 optional EDB 22.68 69.93 119.78 256.85 optional GMIB and EDB 25.83 79.64 136.42 292.52 AXP-Registered Trademark- VP - Small Cap Advantage Fund base contract with no optional riders 24.84 76.40 130.59 278.45 optional Benefit Protector 27.40 84.07 143.33 303.60 optional Benefit Protector Plus 28.94 88.65 150.90 318.38 optional EDB 26.89 82.54 140.79 298.62 optional GMIB and EDB 30.04 92.21 157.28 333.60
-------------------------------------------------------------------------------- 14 WELLS FARGO ADVANTAGE VARIABLE ANNUITY -- PROSPECTUS You would pay the following expenses on a $1,000 investment if you selected a SEVEN-YEAR WITHDRAWAL CHARGE SCHEDULE and assuming a 5% annual return and ... (continued)
A TOTAL WITHDRAWAL AT THE END OF EACH TIME PERIOD 1 YEAR 3 YEARS 5 YEARS 10 YEARS AIM V.I. Capital Appreciation Fund base contract with no optional riders $101.04 $134.98 $161.49 $240.08 optional Benefit Protector 103.61 142.70 174.43 266.16 optional Benefit Protector Plus 105.14 147.32 182.12 281.50 optional EDB 103.09 141.16 171.85 261.00 optional GMIB and EDB 106.24 150.87 188.47 296.60 AIM V.I. Value Fund base contract with no optional riders 101.25 135.60 162.53 242.19 optional Benefit Protector 103.81 143.32 175.46 268.22 optional Benefit Protector Plus 105.35 147.93 183.15 283.53 optional EDB 103.30 141.78 172.88 263.07 optional GMIB and EDB 106.45 151.48 189.49 298.63 The Dreyfus Socially Responsible Growth Fund, Inc. - Initial Share Class base contract with no optional riders 100.63 133.74 159.41 235.85 optional Benefit Protector 103.20 141.47 172.37 262.03 optional Benefit Protector Plus 104.73 146.09 180.08 277.44 optional EDB 102.68 139.93 169.78 256.85 optional GMIB and EDB 105.83 149.64 186.42 292.52 Fidelity VIP Dynamic Capital Appreciation Portfolio (Service Class 2) base contract with no optional riders 107.30 153.76 192.82 302.60 optional Benefit Protector 109.86 161.39 205.43 327.15 optional Benefit Protector Plus 111.40 165.95 212.93 341.59 optional EDB 109.35 159.87 202.92 322.29 optional GMIB and EDB 112.50 169.51 219.33 356.89 Fidelity VIP High Income Portfolio (Service Class 2) base contract with no optional riders 102.99 140.85 171.33 259.96 optional Benefit Protector 105.55 148.55 184.17 285.56 optional Benefit Protector Plus 107.09 153.15 191.80 300.61 optional EDB 105.04 147.01 181.61 280.49 optional GMIB and EDB 108.19 156.70 198.17 315.77 Fidelity VIP Mid Cap Portfolio (Service Class 2) base contract with no optional riders 102.79 140.23 170.30 257.89 optional Benefit Protector 105.35 147.93 183.15 283.53 optional Benefit Protector Plus 106.89 152.54 190.79 298.62 optional EDB 104.84 146.40 180.59 278.45 optional GMIB and EDB 107.99 156.09 197.15 313.77 FTVIPT Franklin Income Securities Fund - Class 2 base contract with no optional riders 100.33 132.80 157.84 232.66 optional Benefit Protector 102.89 140.54 170.82 258.92 optional Benefit Protector Plus 104.43 145.17 178.54 274.37 optional EDB 102.38 139.00 168.23 253.72 optional GMIB and EDB 105.53 148.71 184.88 289.44 NO WITHDRAWAL OR SELECTION OF AN ANNUITY PAYOUT PLAN AT THE END OF EACH TIME PERIOD 1 YEAR 3 YEARS 5 YEARS 10 YEARS AIM V.I. Capital Appreciation Fund base contract with no optional riders $21.04 $64.98 $111.49 $240.08 optional Benefit Protector 23.61 72.70 124.43 266.16 optional Benefit Protector Plus 25.14 77.32 132.12 281.50 optional EDB 23.09 71.16 121.85 261.00 optional GMIB and EDB 26.24 80.87 138.47 296.60 AIM V.I. Value Fund base contract with no optional riders 21.25 65.60 112.53 242.19 optional Benefit Protector 23.81 73.32 125.46 268.22 optional Benefit Protector Plus 25.35 77.93 133.15 283.53 optional EDB 23.30 71.78 122.88 263.07 optional GMIB and EDB 26.45 81.48 139.49 298.63 The Dreyfus Socially Responsible Growth Fund, Inc. - Initial Share Class base contract with no optional riders 20.63 63.74 109.41 235.85 optional Benefit Protector 23.20 71.47 122.37 262.03 optional Benefit Protector Plus 24.73 76.09 130.08 277.44 optional EDB 22.68 69.93 119.78 256.85 optional GMIB and EDB 25.83 79.64 136.42 292.52 Fidelity VIP Dynamic Capital Appreciation Portfolio (Service Class 2) base contract with no optional riders 27.30 83.76 142.82 302.60 optional Benefit Protector 29.86 91.39 155.43 327.15 optional Benefit Protector Plus 31.40 95.95 162.93 341.59 optional EDB 29.35 89.87 152.92 322.29 optional GMIB and EDB 32.50 99.51 169.33 356.89 Fidelity VIP High Income Portfolio (Service Class 2) base contract with no optional riders 22.99 70.85 121.33 259.96 optional Benefit Protector 25.55 78.55 134.17 285.56 optional Benefit Protector Plus 27.09 83.15 141.80 300.61 optional EDB 25.04 77.01 131.61 280.49 optional GMIB and EDB 28.19 86.70 148.17 315.77 Fidelity VIP Mid Cap Portfolio (Service Class 2) base contract with no optional riders 22.79 70.23 120.30 257.89 optional Benefit Protector 25.35 77.93 133.15 283.53 optional Benefit Protector Plus 26.89 82.54 140.79 298.62 optional EDB 24.84 76.40 130.59 278.45 optional GMIB and EDB 27.99 86.09 147.15 313.77 FTVIPT Franklin Income Securities Fund - Class 2 base contract with no optional riders 20.33 62.80 107.84 232.66 optional Benefit Protector 22.89 70.54 120.82 258.92 optional Benefit Protector Plus 24.43 75.17 128.54 274.37 optional EDB 22.38 69.00 118.23 253.72 optional GMIB and EDB 25.53 78.71 134.88 289.44
-------------------------------------------------------------------------------- WELLS FARGO ADVANTAGE VARIABLE ANNUITY -- PROSPECTUS 15 You would pay the following expenses on a $1,000 investment if you selected a SEVEN-YEAR WITHDRAWAL CHARGE SCHEDULE and assuming a 5% annual return and ... (continued)
A TOTAL WITHDRAWAL AT THE END OF EACH TIME PERIOD 1 YEAR 3 YEARS 5 YEARS 10 YEARS FTVIPT Franklin Real Estate Fund - Class 2 base contract with no optional riders $101.35 $135.90 $163.05 $243.25 optional Benefit Protector 103.91 143.63 175.97 269.25 optional Benefit Protector Plus 105.45 148.24 183.66 284.55 optional EDB 103.40 142.09 173.40 264.10 optional GMIB and EDB 106.55 151.79 190.01 299.65 FTVIPT Franklin Small Cap Fund - Class 2 base contract with no optional riders 103.09 141.16 171.85 261.00 optional Benefit Protector 105.66 148.86 184.68 286.57 optional Benefit Protector Plus 107.19 153.45 192.31 301.61 optional EDB 105.14 147.32 182.12 281.50 optional GMIB and EDB 108.29 157.01 198.68 316.77 FTVIPT Mutual Shares Securities Fund - Class 2 base contract with no optional riders 103.40 142.09 173.40 264.10 optional Benefit Protector 105.96 149.78 186.21 289.59 optional Benefit Protector Plus 107.50 154.37 193.83 304.59 optional EDB 105.45 148.24 183.66 284.55 optional GMIB and EDB 108.60 157.93 200.20 319.76 Goldman Sachs VIT CORE-SM- U.S. Equity Fund base contract with no optional riders 101.86 137.45 165.64 248.50 optional Benefit Protector 104.43 145.17 178.54 274.37 optional Benefit Protector Plus 105.96 149.78 186.21 289.59 optional EDB 103.91 143.63 175.97 269.25 optional GMIB and EDB 107.06 153.33 192.56 304.72 Goldman Sachs VIT Global Income Fund base contract with no optional riders 104.43 145.17 178.54 274.37 optional Benefit Protector 106.99 152.84 191.30 299.62 optional Benefit Protector Plus 108.53 157.43 198.89 314.46 optional EDB 106.48 151.31 188.76 294.62 optional GMIB and EDB 109.63 160.98 205.26 329.67 Goldman Sachs VIT Internet Tollkeeper Fund-SM- base contract with no optional riders 105.45 148.24 183.66 284.55 optional Benefit Protector 108.01 155.90 196.36 309.54 optional Benefit Protector Plus 109.55 160.48 203.92 324.24 optional EDB 107.50 154.37 193.83 304.59 optional GMIB and EDB 110.65 164.04 210.31 339.48 Goldman Sachs VIT Mid Cap Value Fund base contract with no optional riders 103.40 142.09 173.40 264.10 optional Benefit Protector 105.96 149.78 186.21 289.59 optional Benefit Protector Plus 107.50 154.37 193.83 304.59 optional EDB 105.45 148.24 183.66 284.55 optional GMIB and EDB 108.60 157.93 200.20 319.76 NO WITHDRAWAL OR SELECTION OF AN ANNUITY PAYOUT PLAN AT THE END OF EACH TIME PERIOD 1 YEAR 3 YEARS 5 YEARS 10 YEARS FTVIPT Franklin Real Estate Fund - Class 2 base contract with no optional riders $21.35 $65.90 $113.05 $243.25 optional Benefit Protector 23.91 73.63 125.97 269.25 optional Benefit Protector Plus 25.45 78.24 133.66 284.55 optional EDB 23.40 72.09 123.40 264.10 optional GMIB and EDB 26.55 81.79 140.01 299.65 FTVIPT Franklin Small Cap Fund - Class 2 base contract with no optional riders 23.09 71.16 121.85 261.00 optional Benefit Protector 25.66 78.86 134.68 286.57 optional Benefit Protector Plus 27.19 83.45 142.31 301.61 optional EDB 25.14 77.32 132.12 281.50 optional GMIB and EDB 28.29 87.01 148.68 316.77 FTVIPT Mutual Shares Securities Fund - Class 2 base contract with no optional riders 23.40 72.09 123.40 264.10 optional Benefit Protector 25.96 79.78 136.21 289.59 optional Benefit Protector Plus 27.50 84.37 143.83 304.59 optional EDB 25.45 78.24 133.66 284.55 optional GMIB and EDB 28.60 87.93 150.20 319.76 Goldman Sachs VIT CORE-SM- U.S. Equity Fund base contract with no optional riders 21.86 67.45 115.64 248.50 optional Benefit Protector 24.43 75.17 128.54 274.37 optional Benefit Protector Plus 25.96 79.78 136.21 289.59 optional EDB 23.91 73.63 125.97 269.25 optional GMIB and EDB 27.06 83.33 142.56 304.72 Goldman Sachs VIT Global Income Fund base contract with no optional riders 24.43 75.17 128.54 274.37 optional Benefit Protector 26.99 82.84 141.30 299.62 optional Benefit Protector Plus 28.53 87.43 148.89 314.46 optional EDB 26.48 81.31 138.76 294.62 optional GMIB and EDB 29.63 90.98 155.26 329.67 Goldman Sachs VIT Internet Tollkeeper Fund-SM- base contract with no optional riders 25.45 78.24 133.66 284.55 optional Benefit Protector 28.01 85.90 146.36 309.54 optional Benefit Protector Plus 29.55 90.48 153.92 324.24 optional EDB 27.50 84.37 143.83 304.59 optional GMIB and EDB 30.65 94.04 160.31 339.48 Goldman Sachs VIT Mid Cap Value Fund base contract with no optional riders 23.40 72.09 123.40 264.10 optional Benefit Protector 25.96 79.78 136.21 289.59 optional Benefit Protector Plus 27.50 84.37 143.83 304.59 optional EDB 25.45 78.24 133.66 284.55 optional GMIB and EDB 28.60 87.93 150.20 319.76
-------------------------------------------------------------------------------- 16 WELLS FARGO ADVANTAGE VARIABLE ANNUITY -- PROSPECTUS You would pay the following expenses on a $1,000 investment if you selected a SEVEN-YEAR WITHDRAWAL CHARGE SCHEDULE and assuming a 5% annual return and ... (continued)
A TOTAL WITHDRAWAL AT THE END OF EACH TIME PERIOD 1 YEAR 3 YEARS 5 YEARS 10 YEARS MFS-Registered Trademark- Investors Trust Series - Initial Class (previously MFS-Registered Trademark- Growth with Income Series) base contract with no optional riders $101.56 $136.52 $164.09 $245.35 optional Benefit Protector 104.12 144.24 177.00 271.30 optional Benefit Protector Plus 105.66 148.86 184.68 286.57 optional EDB 103.61 142.70 174.43 266.16 optional GMIB and EDB 106.76 152.40 191.03 301.68 MFS-Registered Trademark- Utilities Series - Initial Class base contract with no optional riders 101.97 137.76 166.16 249.54 optional Benefit Protector 104.53 145.47 179.05 275.39 optional Benefit Protector Plus 106.07 150.08 186.72 290.60 optional EDB 104.02 143.94 176.48 270.28 optional GMIB and EDB 107.17 153.63 193.07 305.73 Putnam VT International Growth Fund - Class IB Shares base contract with no optional riders 104.84 146.40 180.59 278.45 optional Benefit Protector 107.40 154.07 193.33 303.60 optional Benefit Protector Plus 108.94 158.65 200.90 318.38 optional EDB 106.89 152.54 190.79 298.62 optional GMIB and EDB 110.04 162.21 207.28 333.60 Putnam VT Vista Fund - Class IB Shares base contract with no optional riders 102.07 138.07 166.68 250.59 optional Benefit Protector 104.63 145.78 179.56 276.42 optional Benefit Protector Plus 106.17 150.39 187.23 291.61 optional EDB 104.12 144.24 177.00 271.30 optional GMIB and EDB 107.27 153.94 193.58 306.74 Wells Fargo VT Asset Allocation Fund base contract with no optional riders 102.89 140.54 170.82 258.92 optional Benefit Protector 105.45 148.24 183.66 284.55 optional Benefit Protector Plus 106.99 152.84 191.30 299.62 optional EDB 104.94 146.71 181.10 279.47 optional GMIB and EDB 108.09 156.39 197.66 314.77 Wells Fargo VT Corporate Bond Fund base contract with no optional riders 101.86 137.45 165.64 248.50 optional Benefit Protector 104.43 145.17 178.54 274.37 optional Benefit Protector Plus 105.96 149.78 186.21 289.59 optional EDB 103.91 143.63 175.97 269.25 optional GMIB and EDB 107.06 153.33 192.56 304.72 Wells Fargo VT Equity Income Fund base contract with no optional riders 102.89 140.54 170.82 258.92 optional Benefit Protector 105.45 148.24 183.66 284.55 optional Benefit Protector Plus 106.99 152.84 191.30 299.62 optional EDB 104.94 146.71 181.10 279.47 optional GMIB and EDB 108.09 156.39 197.66 314.77 NO WITHDRAWAL OR SELECTION OF AN ANNUITY PAYOUT PLAN AT THE END OF EACH TIME PERIOD 1 YEAR 3 YEARS 5 YEARS 10 YEARS MFS-Registered Trademark- Investors Trust Series - Initial Class (previously MFS-Registered Trademark- Growth with Income Series) base contract with no optional riders $21.56 $66.52 $114.09 $245.35 optional Benefit Protector 24.12 74.24 127.00 271.30 optional Benefit Protector Plus 25.66 78.86 134.68 286.57 optional EDB 23.61 72.70 124.43 266.16 optional GMIB and EDB 26.76 82.40 141.03 301.68 MFS-Registered Trademark- Utilities Series - Initial Class base contract with no optional riders 21.97 67.76 116.16 249.54 optional Benefit Protector 24.53 75.47 129.05 275.39 optional Benefit Protector Plus 26.07 80.08 136.72 290.60 optional EDB 24.02 73.94 126.48 270.28 optional GMIB and EDB 27.17 83.63 143.07 305.73 Putnam VT International Growth Fund - Class IB Shares base contract with no optional riders 24.84 76.40 130.59 278.45 optional Benefit Protector 27.40 84.07 143.33 303.60 optional Benefit Protector Plus 28.94 88.65 150.90 318.38 optional EDB 26.89 82.54 140.79 298.62 optional GMIB and EDB 30.04 92.21 157.28 333.60 Putnam VT Vista Fund - Class IB Shares base contract with no optional riders 22.07 68.07 116.68 250.59 optional Benefit Protector 24.63 75.78 129.56 276.42 optional Benefit Protector Plus 26.17 80.39 137.23 291.61 optional EDB 24.12 74.24 127.00 271.30 optional GMIB and EDB 27.27 83.94 143.58 306.74 Wells Fargo VT Asset Allocation Fund base contract with no optional riders 22.89 70.54 120.82 258.92 optional Benefit Protector 25.45 78.24 133.66 284.55 optional Benefit Protector Plus 26.99 82.84 141.30 299.62 optional EDB 24.94 76.71 131.10 279.47 optional GMIB and EDB 28.09 86.39 147.66 314.77 Wells Fargo VT Corporate Bond Fund base contract with no optional riders 21.86 67.45 115.64 248.50 optional Benefit Protector 24.43 75.17 128.54 274.37 optional Benefit Protector Plus 25.96 79.78 136.21 289.59 optional EDB 23.91 73.63 125.97 269.25 optional GMIB and EDB 27.06 83.33 142.56 304.72 Wells Fargo VT Equity Income Fund base contract with no optional riders 22.89 70.54 120.82 258.92 optional Benefit Protector 25.45 78.24 133.66 284.55 optional Benefit Protector Plus 26.99 82.84 141.30 299.62 optional EDB 24.94 76.71 131.10 279.47 optional GMIB and EDB 28.09 86.39 147.66 314.77
-------------------------------------------------------------------------------- WELLS FARGO ADVANTAGE VARIABLE ANNUITY -- PROSPECTUS 17 You would pay the following expenses on a $1,000 investment if you selected a SEVEN-YEAR WITHDRAWAL CHARGE SCHEDULE and assuming a 5% annual return and ... (continued)
A TOTAL WITHDRAWAL AT THE END OF EACH TIME PERIOD 1 YEAR 3 YEARS 5 YEARS 10 YEARS Wells Fargo VT Equity Value Fund base contract with no optional riders $102.89 $140.54 $170.82 $258.92 optional Benefit Protector 105.45 148.24 183.66 284.55 optional Benefit Protector Plus 106.99 152.84 191.30 299.62 optional EDB 104.94 146.71 181.10 279.47 optional GMIB and EDB 108.09 156.39 197.66 314.77 Wells Fargo VT Growth Fund base contract with no optional riders 102.89 140.54 170.82 258.92 optional Benefit Protector 105.45 148.24 183.66 284.55 optional Benefit Protector Plus 106.99 152.84 191.30 299.62 optional EDB 104.94 146.71 181.10 279.47 optional GMIB and EDB 108.09 156.39 197.66 314.77 Wells Fargo VT International Equity Fund base contract with no optional riders 102.89 140.54 170.82 258.92 optional Benefit Protector 105.45 148.24 183.66 284.55 optional Benefit Protector Plus 106.99 152.84 191.30 299.62 optional EDB 104.94 146.71 181.10 279.47 optional GMIB and EDB 108.09 156.39 197.66 314.77 Wells Fargo VT Large Company Growth Fund base contract with no optional riders 102.89 140.54 170.82 258.92 optional Benefit Protector 105.45 148.24 183.66 284.55 optional Benefit Protector Plus 106.99 152.84 191.30 299.62 optional EDB 104.94 146.71 181.10 279.47 optional GMIB and EDB 108.09 156.39 197.66 314.77 Wells Fargo VT Money Market Fund base contract with no optional riders 101.35 135.90 163.05 243.25 optional Benefit Protector 103.91 143.63 175.97 269.25 optional Benefit Protector Plus 105.45 148.24 183.66 284.55 optional EDB 103.40 142.09 173.40 264.10 optional GMIB and EDB 106.55 151.79 190.01 299.65 Wells Fargo VT Small Cap Growth Fund base contract with no optional riders 104.94 146.71 181.10 279.47 optional Benefit Protector 107.50 154.37 193.83 304.59 optional Benefit Protector Plus 109.04 158.95 201.41 319.36 optional EDB 106.99 152.84 191.30 299.62 optional GMIB and EDB 110.14 162.51 207.79 334.59 NO WITHDRAWAL OR SELECTION OF AN ANNUITY PAYOUT PLAN AT THE END OF EACH TIME PERIOD 1 YEAR 3 YEARS 5 YEARS 10 YEARS Wells Fargo VT Equity Value Fund base contract with no optional riders $22.89 $70.54 $120.82 $258.92 optional Benefit Protector 25.45 78.24 133.66 284.55 optional Benefit Protector Plus 26.99 82.84 141.30 299.62 optional EDB 24.94 76.71 131.10 279.47 optional GMIB and EDB 28.09 86.39 147.66 314.77 Wells Fargo VT Growth Fund base contract with no optional riders 22.89 70.54 120.82 258.92 optional Benefit Protector 25.45 78.24 133.66 284.55 optional Benefit Protector Plus 26.99 82.84 141.30 299.62 optional EDB 24.94 76.71 131.10 279.47 optional GMIB and EDB 28.09 86.39 147.66 314.77 Wells Fargo VT International Equity Fund base contract with no optional riders 22.89 70.54 120.82 258.92 optional Benefit Protector 25.45 78.24 133.66 284.55 optional Benefit Protector Plus 26.99 82.84 141.30 299.62 optional EDB 24.94 76.71 131.10 279.47 optional GMIB and EDB 28.09 86.39 147.66 314.77 Wells Fargo VT Large Company Growth Fund base contract with no optional riders 22.89 70.54 120.82 258.92 optional Benefit Protector 25.45 78.24 133.66 284.55 optional Benefit Protector Plus 26.99 82.84 141.30 299.62 optional EDB 24.94 76.71 131.10 279.47 optional GMIB and EDB 28.09 86.39 147.66 314.77 Wells Fargo VT Money Market Fund base contract with no optional riders 21.35 65.90 113.05 243.25 optional Benefit Protector 23.91 73.63 125.97 269.25 optional Benefit Protector Plus 25.45 78.24 133.66 284.55 optional EDB 23.40 72.09 123.40 264.10 optional GMIB and EDB 26.55 81.79 140.01 299.65 Wells Fargo VT Small Cap Growth Fund base contract with no optional riders 24.94 76.71 131.10 279.47 optional Benefit Protector 27.50 84.37 143.83 304.59 optional Benefit Protector Plus 29.04 88.95 151.41 319.36 optional EDB 26.99 82.84 141.30 299.62 optional GMIB and EDB 30.14 92.51 157.79 334.59
* In these examples, the $30 contract administrative charge is approximated as a 0.033% charge based on our estimated average contract size. Premium taxes imposed by some state and local governments are not reflected in these tables. 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. ** Contracts issued through AEFA are only available with a seven-year withdrawal charge schedule. YOU SHOULD NOT CONSIDER THESE EXAMPLES AS REPRESENTATIONS OF PAST OR FUTURE EXPENSES. ACTUAL EXPENSES MAY BE MORE OR LESS THAN THOSE SHOWN. -------------------------------------------------------------------------------- 18 WELLS FARGO ADVANTAGE VARIABLE ANNUITY -- PROSPECTUS CONDENSED FINANCIAL INFORMATION (UNAUDITED) The following tables give per-unit information about the financial history of the subaccounts representing the highest (1.65%) and lowest (1.20%) total annual variable account expense combinations. The SAI contains tables that give per-unit information about the financial history of each subaccount. We have not provided this information for some subaccounts because they are new and do not have any history. You may obtain a copy of the SAI without charge by contacting us at the telephone number or address listed on the first page of this prospectus.
YEAR ENDED DEC. 31, 2000 1999 1998 1997 1996 1995 ------------------------------------------------------------------------------------------------------------------------------------ SUBACCOUNT WBCA2(1) (INVESTING IN SHARES OF AXP-Registered Trademark- VARIABLE PORTFOLIO - BLUE CHIP ADVANTAGE FUND) Accumulation unit value at beginning of period $1.00 -- -- -- -- -- Accumulation unit value at end of period $0.91 -- -- -- -- -- Number of accumulation units outstanding at end of period (000 omitted) 130 -- -- -- -- -- Ratio of operating expense to average net assets 1.65% -- -- -- -- -- ------------------------------------------------------------------------------------------------------------------------------------ SUBACCOUNT WBCA7(1) (INVESTING IN SHARES OF AXP-Registered Trademark- VARIABLE PORTFOLIO - BLUE CHIP ADVANTAGE FUND) Accumulation unit value at beginning of period $1.00 -- -- -- -- -- Accumulation unit value at end of period $0.92 -- -- -- -- -- Number of accumulation units outstanding at end of period (000 omitted) 364 -- -- -- -- -- Ratio of operating expense to average net assets 1.20% -- -- -- -- -- ------------------------------------------------------------------------------------------------------------------------------------ SUBACCOUNT WCAR2(1) (INVESTING IN SHARES OF AXP-Registered Trademark- VARIABLE PORTFOLIO - CAPITAL RESOURCE FUND) Accumulation unit value at beginning of period $1.00 -- -- -- -- -- Accumulation unit value at end of period $0.83 -- -- -- -- -- Number of accumulation units outstanding at end of period (000 omitted) 13 -- -- -- -- -- Ratio of operating expense to average net assets 1.65% -- -- -- -- -- ------------------------------------------------------------------------------------------------------------------------------------ SUBACCOUNT WCAR7(1) (INVESTING IN SHARES OF AXP-Registered Trademark- VARIABLE PORTFOLIO - CAPITAL RESOURCE FUND) Accumulation unit value at beginning of period $1.00 -- -- -- -- -- Accumulation unit value at end of period $0.83 -- -- -- -- -- Number of accumulation units outstanding at end of period (000 omitted) 66 -- -- -- -- -- Ratio of operating expense to average net assets 1.20% -- -- -- -- -- ------------------------------------------------------------------------------------------------------------------------------------ SUBACCOUNT WDEI2(1) (INVESTING IN SHARES OF AXP-Registered Trademark- VARIABLE PORTFOLIO - DIVERSIFIED EQUITY INCOME 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 (000 omitted) 3 -- -- -- -- -- Ratio of operating expense to average net assets 1.65% -- -- -- -- -- ------------------------------------------------------------------------------------------------------------------------------------ SUBACCOUNT WDEI7(1) (INVESTING IN SHARES OF AXP-Registered Trademark- VARIABLE PORTFOLIO - DIVERSIFIED EQUITY INCOME 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 (000 omitted) 98 -- -- -- -- -- Ratio of operating expense to average net assets 1.20% -- -- -- -- -- ------------------------------------------------------------------------------------------------------------------------------------ SUBACCOUNT WEXI2(1) (INVESTING IN SHARES OF AXP-Registered Trademark- VARIABLE PORTFOLIO - EXTRA INCOME FUND) Accumulation unit value at beginning of period $1.00 -- -- -- -- -- Accumulation unit value at end of period $0.88 -- -- -- -- -- Number of accumulation units outstanding at end of period (000 omitted) 62 -- -- -- -- -- Ratio of operating expense to average net assets 1.65% -- -- -- -- -- ------------------------------------------------------------------------------------------------------------------------------------ SUBACCOUNT WEXI7(1) (INVESTING IN SHARES OF AXP-Registered Trademark- VARIABLE PORTFOLIO - EXTRA INCOME FUND) Accumulation unit value at beginning of period $1.00 -- -- -- -- -- Accumulation unit value at end of period $0.90 -- -- -- -- -- Number of accumulation units outstanding at end of period (000 omitted) 175 -- -- -- -- -- Ratio of operating expense to average net assets 1.20% -- -- -- -- -- ------------------------------------------------------------------------------------------------------------------------------------ SUBACCOUNT WFDI2(1) (INVESTING IN SHARES OF AXP-Registered Trademark- VARIABLE PORTFOLIO - FEDERAL INCOME FUND) Accumulation unit value at beginning of period $1.00 -- -- -- -- -- Accumulation unit value at end of period $1.05 -- -- -- -- -- Number of accumulation units outstanding at end of period (000 omitted) 331 -- -- -- -- -- Ratio of operating expense to average net assets 1.65% -- -- -- -- -- ------------------------------------------------------------------------------------------------------------------------------------
-------------------------------------------------------------------------------- WELLS FARGO ADVANTAGE VARIABLE ANNUITY -- PROSPECTUS 19
YEAR ENDED DEC. 31, 2000 1999 1998 1997 1996 1995 ------------------------------------------------------------------------------------------------------------------------------------ SUBACCOUNT WFDI7(1) (INVESTING IN SHARES OF AXP-Registered Trademark- VARIABLE PORTFOLIO - FEDERAL INCOME FUND) Accumulation unit value at beginning of period $1.00 -- -- -- -- -- Accumulation unit value at end of period $1.07 -- -- -- -- -- Number of accumulation units outstanding at end of period (000 omitted) 125 -- -- -- -- -- Ratio of operating expense to average net assets 1.20% -- -- -- -- -- ------------------------------------------------------------------------------------------------------------------------------------ SUBACCOUNT WNDM2(1) (INVESTING IN SHARES OF AXP-Registered Trademark- VARIABLE PORTFOLIO - NEW DIMENSIONS FUND-REGISTERED TRADEMARK-) Accumulation unit value at beginning of period $1.00 -- -- -- -- -- Accumulation unit value at end of period $0.86 -- -- -- -- -- Number of accumulation units outstanding at end of period (000 omitted) 483 -- -- -- -- -- Ratio of operating expense to average net assets 1.65% -- -- -- -- -- ------------------------------------------------------------------------------------------------------------------------------------ SUBACCOUNT WNDM7(1) (INVESTING IN SHARES OF AXP-Registered Trademark- VARIABLE PORTFOLIO - NEW DIMENSIONS FUND-REGISTERED TRADEMARK-) Accumulation unit value at beginning of period $1.00 -- -- -- -- -- Accumulation unit value at end of period $0.86 -- -- -- -- -- Number of accumulation units outstanding at end of period (000 omitted) 1,038 -- -- -- -- -- Ratio of operating expense to average net assets 1.20% -- -- -- -- -- ------------------------------------------------------------------------------------------------------------------------------------ SUBACCOUNT WSCA2(1) (INVESTING IN SHARES OF AXP-Registered Trademark- VARIABLE PORTFOLIO - SMALL CAP ADVANTAGE FUND) Accumulation unit value at beginning of period $1.00 -- -- -- -- -- Accumulation unit value at end of period $0.90 -- -- -- -- -- Number of accumulation units outstanding at end of period (000 omitted) 39 -- -- -- -- -- Ratio of operating expense to average net assets 1.65% -- -- -- -- -- ------------------------------------------------------------------------------------------------------------------------------------ SUBACCOUNT WSCA7(1) (INVESTING IN SHARES OF AXP-Registered Trademark- VARIABLE PORTFOLIO - SMALL CAP ADVANTAGE FUND) Accumulation unit value at beginning of period $1.00 -- -- -- -- -- Accumulation unit value at end of period $0.90 -- -- -- -- -- Number of accumulation units outstanding at end of period (000 omitted) 9 -- -- -- -- -- Ratio of operating expense to average net assets 1.20% -- -- -- -- -- ------------------------------------------------------------------------------------------------------------------------------------ SUBACCOUNT WCAP2(1) (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 $0.75 -- -- -- -- -- Number of accumulation units outstanding at end of period (000 omitted) 149 -- -- -- -- -- Ratio of operating expense to average net assets 1.65% -- -- -- -- -- ------------------------------------------------------------------------------------------------------------------------------------ SUBACCOUNT WCAP7(1) (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 $0.75 -- -- -- -- -- Number of accumulation units outstanding at end of period (000 omitted) 1,707 -- -- -- -- -- Ratio of operating expense to average net assets 1.20% -- -- -- -- -- ------------------------------------------------------------------------------------------------------------------------------------ SUBACCOUNT WVAL2(1) (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 $0.81 -- -- -- -- -- Number of accumulation units outstanding at end of period (000 omitted) 1,483 -- -- -- -- -- Ratio of operating expense to average net assets 1.65% -- -- -- -- -- ------------------------------------------------------------------------------------------------------------------------------------ SUBACCOUNT WVAL7(1) (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 $0.81 -- -- -- -- -- Number of accumulation units outstanding at end of period (000 omitted) 5,982 -- -- -- -- -- Ratio of operating expense to average net assets 1.20% -- -- -- -- -- ------------------------------------------------------------------------------------------------------------------------------------ SUBACCOUNT WSRG2(1) (INVESTING IN SHARES OF THE DREYFUS SOCIALLY RESPONSIBLE GROWTH FUND, INC. - INITIAL SHARE CLASS) Accumulation unit value at beginning of period $1.00 -- -- -- -- -- Accumulation unit value at end of period $0.90 -- -- -- -- -- Number of accumulation units outstanding at end of period (000 omitted) 71 -- -- -- -- -- Ratio of operating expense to average net assets 1.65% -- -- -- -- -- ------------------------------------------------------------------------------------------------------------------------------------ SUBACCOUNT WSRG7(1) (INVESTING IN SHARES OF THE DREYFUS SOCIALLY RESPONSIBLE GROWTH FUND, INC. - INITIAL SHARE CLASS) Accumulation unit value at beginning of period $1.00 -- -- -- -- -- Accumulation unit value at end of period $0.90 -- -- -- -- -- Number of accumulation units outstanding at end of period (000 omitted) 834 -- -- -- -- -- Ratio of operating expense to average net assets 1.20% -- -- -- -- -- ------------------------------------------------------------------------------------------------------------------------------------
-------------------------------------------------------------------------------- 20 WELLS FARGO ADVANTAGE VARIABLE ANNUITY -- PROSPECTUS
YEAR ENDED DEC. 31, 2000 1999 1998 1997 1996 1995 ------------------------------------------------------------------------------------------------------------------------------------ SUBACCOUNT WISE2(1) (INVESTING IN SHARES OF FTVIPT FRANKLIN INCOME SECURITIES FUND - CLASS 2) 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 (000 omitted) 177 -- -- -- -- -- Ratio of operating expense to average net assets 1.65% -- -- -- -- -- ------------------------------------------------------------------------------------------------------------------------------------ SUBACCOUNT WISE7(1) (INVESTING IN SHARES OF FTVIPT FRANKLIN INCOME SECURITIES FUND - CLASS 2) Accumulation unit value at beginning of period $1.00 -- -- -- -- -- Accumulation unit value at end of period $1.16 -- -- -- -- -- Number of accumulation units outstanding at end of period (000 omitted) 102 -- -- -- -- -- Ratio of operating expense to average net assets 1.20% -- -- -- -- -- ------------------------------------------------------------------------------------------------------------------------------------ SUBACCOUNT WRES2(1) (INVESTING IN SHARES OF FTVIPT FRANKLIN REAL ESTATE FUND - CLASS 2) Accumulation unit value at beginning of period $1.00 -- -- -- -- -- Accumulation unit value at end of period $1.18 -- -- -- -- -- Number of accumulation units outstanding at end of period (000 omitted) 2 -- -- -- -- -- Ratio of operating expense to average net assets 1.65% -- -- -- -- -- ------------------------------------------------------------------------------------------------------------------------------------ SUBACCOUNT WRES7(1) (INVESTING IN SHARES OF FTVIPT FRANKLIN REAL ESTATE FUND - CLASS 2) Accumulation unit value at beginning of period $1.00 -- -- -- -- -- Accumulation unit value at end of period $1.34 -- -- -- -- -- Number of accumulation units outstanding at end of period (000 omitted) 24 -- -- -- -- -- Ratio of operating expense to average net assets 1.20% -- -- -- -- -- ------------------------------------------------------------------------------------------------------------------------------------ SUBACCOUNT WSMC2(1) (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 $0.60 -- -- -- -- -- Number of accumulation units outstanding at end of period (000 omitted) 258 -- -- -- -- -- Ratio of operating expense to average net assets 1.65% -- -- -- -- -- ------------------------------------------------------------------------------------------------------------------------------------ SUBACCOUNT WSMC7(1) (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 $0.66 -- -- -- -- -- Number of accumulation units outstanding at end of period (000 omitted) 1,378 -- -- -- -- -- Ratio of operating expense to average net assets 1.20% -- -- -- -- -- ------------------------------------------------------------------------------------------------------------------------------------ SUBACCOUNT WMSS2(1) (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 $1.11 -- -- -- -- -- Number of accumulation units outstanding at end of period (000 omitted) 3 -- -- -- -- -- Ratio of operating expense to average net assets 1.65% -- -- -- -- -- ------------------------------------------------------------------------------------------------------------------------------------ SUBACCOUNT WMSS7(1) (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 $1.18 -- -- -- -- -- Number of accumulation units outstanding at end of period (000 omitted) 245 -- -- -- -- -- Ratio of operating expense to average net assets 1.20% -- -- -- -- -- ------------------------------------------------------------------------------------------------------------------------------------ SUBACCOUNT WUSE2(1) (INVESTING IN SHARES OF GOLDMAN SACHS VIT CORE-SM- U.S. EQUITY FUND) Accumulation unit value at beginning of period $1.00 -- -- -- -- -- Accumulation unit value at end of period $0.91 -- -- -- -- -- Number of accumulation units outstanding at end of period (000 omitted) 144 -- -- -- -- -- Ratio of operating expense to average net assets 1.65% -- -- -- -- -- ------------------------------------------------------------------------------------------------------------------------------------ SUBACCOUNT WUSE7(1) (INVESTING IN SHARES OF GOLDMAN SACHS VIT CORE-SM- U.S. EQUITY FUND) Accumulation unit value at beginning of period $1.00 -- -- -- -- -- Accumulation unit value at end of period $0.92 -- -- -- -- -- Number of accumulation units outstanding at end of period (000 omitted) 730 -- -- -- -- -- Ratio of operating expense to average net assets 1.20% -- -- -- -- -- ------------------------------------------------------------------------------------------------------------------------------------ SUBACCOUNT WGLI2(1) (INVESTING IN SHARES OF GOLDMAN SACHS VIT GLOBAL INCOME FUND) Accumulation unit value at beginning of period $1.00 -- -- -- -- -- Accumulation unit value at end of period $1.06 -- -- -- -- -- Number of accumulation units outstanding at end of period (000 omitted) 184 -- -- -- -- -- Ratio of operating expense to average net assets 1.65% -- -- -- -- -- ------------------------------------------------------------------------------------------------------------------------------------
-------------------------------------------------------------------------------- WELLS FARGO ADVANTAGE VARIABLE ANNUITY -- PROSPECTUS 21
YEAR ENDED DEC. 31, 2000 1999 1998 1997 1996 1995 ------------------------------------------------------------------------------------------------------------------------------------ SUBACCOUNT WGLI7(1) (INVESTING IN SHARES OF GOLDMAN SACHS VIT GLOBAL INCOME FUND) Accumulation unit value at beginning of period $1.00 -- -- -- -- -- Accumulation unit value at end of period $1.07 -- -- -- -- -- Number of accumulation units outstanding at end of period (000 omitted) 93 -- -- -- -- -- Ratio of operating expense to average net assets 1.20% -- -- -- -- -- ------------------------------------------------------------------------------------------------------------------------------------ SUBACCOUNT WITO2(2) (INVESTING IN SHARES OF GOLDMAN SACHS VIT INTERNET TOLLKEEPER FUND-SM-) Accumulation unit value at beginning of period $1.00 -- -- -- -- -- Accumulation unit value at end of period $0.67 -- -- -- -- -- Number of accumulation units outstanding at end of period (000 omitted) 45 -- -- -- -- -- Ratio of operating expense to average net assets 1.65% -- -- -- -- -- ------------------------------------------------------------------------------------------------------------------------------------ SUBACCOUNT WITO7(2) (INVESTING IN SHARES OF GOLDMAN SACHS VIT INTERNET TOLLKEEPER FUND-SM-) Accumulation unit value at beginning of period $1.00 -- -- -- -- -- Accumulation unit value at end of period $0.67 -- -- -- -- -- Number of accumulation units outstanding at end of period (000 omitted) 310 -- -- -- -- -- Ratio of operating expense to average net assets 1.20% -- -- -- -- -- ------------------------------------------------------------------------------------------------------------------------------------ SUBACCOUNT WMCV2(1) (INVESTING IN SHARES OF GOLDMAN SACHS VIT MID CAP VALUE FUND) Accumulation unit value at beginning of period $1.00 -- -- -- -- -- Accumulation unit value at end of period $1.41 -- -- -- -- -- Number of accumulation units outstanding at end of period (000 omitted) 37 -- -- -- -- -- Ratio of operating expense to average net assets 1.65% -- -- -- -- -- ------------------------------------------------------------------------------------------------------------------------------------ SUBACCOUNT WMCV7(1) (INVESTING IN SHARES OF GOLDMAN SACHS VIT MID CAP VALUE FUND) Accumulation unit value at beginning of period $1.00 -- -- -- -- -- Accumulation unit value at end of period $1.42 -- -- -- -- -- Number of accumulation units outstanding at end of period (000 omitted) 593 -- -- -- -- -- Ratio of operating expense to average net assets 1.20% -- -- -- -- -- ------------------------------------------------------------------------------------------------------------------------------------ SUBACCOUNT WGIS2(1) (INVESTING IN SHARES OF MFS-Registered Trademark- INVESTORS TRUST SERIES - INITIAL CLASS(3)) Accumulation unit value at beginning of period $1.00 -- -- -- -- -- Accumulation unit value at end of period $1.02 -- -- -- -- -- Number of accumulation units outstanding at end of period (000 omitted) 57 -- -- -- -- -- Ratio of operating expense to average net assets 1.65% -- -- -- -- -- ------------------------------------------------------------------------------------------------------------------------------------ SUBACCOUNT WGIS7(1) (INVESTING IN SHARES OF MFS-Registered Trademark- INVESTORS TRUST SERIES - INITIAL CLASS(3)) 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 (000 omitted) 488 -- -- -- -- -- Ratio of operating expense to average net assets 1.20% -- -- -- -- -- ------------------------------------------------------------------------------------------------------------------------------------ SUBACCOUNT WUTS2(1) (INVESTING IN SHARES OF MFS-Registered Trademark- UTILITIES SERIES - INITIAL CLASS) Accumulation unit value at beginning of period $1.00 -- -- -- -- -- Accumulation unit value at end of period $0.85 -- -- -- -- -- Number of accumulation units outstanding at end of period (000 omitted) 366 -- -- -- -- -- Ratio of operating expense to average net assets 1.65% -- -- -- -- -- ------------------------------------------------------------------------------------------------------------------------------------ SUBACCOUNT WUTS7(1) (INVESTING IN SHARES OF MFS-Registered Trademark- UTILITIES SERIES - INITIAL CLASS) Accumulation unit value at beginning of period $1.00 -- -- -- -- -- Accumulation unit value at end of period $0.93 -- -- -- -- -- Number of accumulation units outstanding at end of period (000 omitted) 1,220 -- -- -- -- -- Ratio of operating expense to average net assets 1.20% -- -- -- -- -- ------------------------------------------------------------------------------------------------------------------------------------ SUBACCOUNT WIGR2(1) (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 $0.75 -- -- -- -- -- Number of accumulation units outstanding at end of period (000 omitted) 499 -- -- -- -- -- Ratio of operating expense to average net assets 1.65% -- -- -- -- -- ------------------------------------------------------------------------------------------------------------------------------------ SUBACCOUNT WIGR7(1) (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 $0.83 -- -- -- -- -- Number of accumulation units outstanding at end of period (000 omitted) 2,927 -- -- -- -- -- Ratio of operating expense to average net assets 1.20% -- -- -- -- -- ------------------------------------------------------------------------------------------------------------------------------------
-------------------------------------------------------------------------------- 22 WELLS FARGO ADVANTAGE VARIABLE ANNUITY -- PROSPECTUS
YEAR ENDED DEC. 31, 2000 1999 1998 1997 1996 1995 ------------------------------------------------------------------------------------------------------------------------------------ SUBACCOUNT WVIS2(1) (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 $0.73 -- -- -- -- -- Number of accumulation units outstanding at end of period (000 omitted) 384 -- -- -- -- -- Ratio of operating expense to average net assets 1.65% -- -- -- -- -- ------------------------------------------------------------------------------------------------------------------------------------ SUBACCOUNT WVIS7(1) (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 $0.75 -- -- -- -- -- Number of accumulation units outstanding at end of period (000 omitted) 3,180 -- -- -- -- -- Ratio of operating expense to average net assets 1.20% -- -- -- -- -- ------------------------------------------------------------------------------------------------------------------------------------ SUBACCOUNT WAAL2(1) (INVESTING IN SHARES OF WELLS FARGO VT ASSET ALLOCATION FUND) Accumulation unit value at beginning of period $1.00 -- -- -- -- -- Accumulation unit value at end of period $0.98 -- -- -- -- -- Number of accumulation units outstanding at end of period (000 omitted) 1,029 -- -- -- -- -- Ratio of operating expense to average net assets 1.65% -- -- -- -- -- ------------------------------------------------------------------------------------------------------------------------------------ SUBACCOUNT WAAL7(1) (INVESTING IN SHARES OF WELLS FARGO VT ASSET ALLOCATION FUND) 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 (000 omitted) 2,012 -- -- -- -- -- Ratio of operating expense to average net assets 1.20% -- -- -- -- -- ------------------------------------------------------------------------------------------------------------------------------------ SUBACCOUNT WCBD2(1) (INVESTING IN SHARES OF WELLS FARGO VT CORPORATE BOND FUND) Accumulation unit value at beginning of period $1.00 -- -- -- -- -- Accumulation unit value at end of period $1.06 -- -- -- -- -- Number of accumulation units outstanding at end of period (000 omitted) 793 -- -- -- -- -- Ratio of operating expense to average net assets 1.65% -- -- -- -- -- ------------------------------------------------------------------------------------------------------------------------------------ SUBACCOUNT WCBD7(1) (INVESTING IN SHARES OF WELLS FARGO VT CORPORATE BOND 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 (000 omitted) 408 -- -- -- -- -- Ratio of operating expense to average net assets 1.20% -- -- -- -- -- ------------------------------------------------------------------------------------------------------------------------------------ SUBACCOUNT WEQI2(1) (INVESTING IN SHARES OF WELLS FARGO VT EQUITY INCOME FUND) Accumulation unit value at beginning of period $1.00 -- -- -- -- -- Accumulation unit value at end of period $1.12 -- -- -- -- -- Number of accumulation units outstanding at end of period (000 omitted) 123 -- -- -- -- -- Ratio of operating expense to average net assets 1.65% -- -- -- -- -- ------------------------------------------------------------------------------------------------------------------------------------ SUBACCOUNT WEQI7(1) (INVESTING IN SHARES OF WELLS FARGO VT EQUITY INCOME FUND) 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 (000 omitted) 1,204 -- -- -- -- -- Ratio of operating expense to average net assets 1.20% -- -- -- -- -- ------------------------------------------------------------------------------------------------------------------------------------ SUBACCOUNT WEQV2(1) (INVESTING IN SHARES OF WELLS FARGO VT EQUITY VALUE 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 (000 omitted) 302 -- -- -- -- -- Ratio of operating expense to average net assets 1.65% -- -- -- -- -- ------------------------------------------------------------------------------------------------------------------------------------ SUBACCOUNT WEQV7(1) (INVESTING IN SHARES OF WELLS FARGO VT EQUITY VALUE 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 (000 omitted) 213 -- -- -- -- -- Ratio of operating expense to average net assets 1.20% -- -- -- -- -- ------------------------------------------------------------------------------------------------------------------------------------ SUBACCOUNT WGRO2(1) (INVESTING IN SHARES OF WELLS FARGO VT GROWTH FUND) Accumulation unit value at beginning of period $1.00 -- -- -- -- -- Accumulation unit value at end of period $0.87 -- -- -- -- -- Number of accumulation units outstanding at end of period (000 omitted) 117 -- -- -- -- -- Ratio of operating expense to average net assets 1.65% -- -- -- -- -- ------------------------------------------------------------------------------------------------------------------------------------
-------------------------------------------------------------------------------- WELLS FARGO ADVANTAGE VARIABLE ANNUITY -- PROSPECTUS 23
YEAR ENDED DEC. 31, 2000 1999 1998 1997 1996 1995 ------------------------------------------------------------------------------------------------------------------------------------ SUBACCOUNT WGRO7(1) (INVESTING IN SHARES OF WELLS FARGO VT GROWTH FUND) Accumulation unit value at beginning of period $1.00 -- -- -- -- -- Accumulation unit value at end of period $0.87 -- -- -- -- -- Number of accumulation units outstanding at end of period (000 omitted) 266 -- -- -- -- -- Ratio of operating expense to average net assets 1.20% -- -- -- -- -- ------------------------------------------------------------------------------------------------------------------------------------ SUBACCOUNT WIEQ2(4) (INVESTING IN SHARES OF WELLS FARGO VT INTERNATIONAL EQUITY FUND) Accumulation unit value at beginning of period $1.00 -- -- -- -- -- Accumulation unit value at end of period $0.89 -- -- -- -- -- Number of accumulation units outstanding at end of period (000 omitted) -- -- -- -- -- -- Ratio of operating expense to average net assets 1.65% -- -- -- -- -- ------------------------------------------------------------------------------------------------------------------------------------ SUBACCOUNT WIEQ7(4) (INVESTING IN SHARES OF WELLS FARGO VT INTERNATIONAL EQUITY FUND) Accumulation unit value at beginning of period $1.00 -- -- -- -- -- Accumulation unit value at end of period $0.89 -- -- -- -- -- Number of accumulation units outstanding at end of period (000 omitted) 111 -- -- -- -- -- Ratio of operating expense to average net assets 1.20% -- -- -- -- -- ------------------------------------------------------------------------------------------------------------------------------------ SUBACCOUNT WLCG2(1) (INVESTING IN SHARES OF WELLS FARGO VT LARGE COMPANY GROWTH FUND) Accumulation unit value at beginning of period $1.00 -- -- -- -- -- Accumulation unit value at end of period $0.95 -- -- -- -- -- Number of accumulation units outstanding at end of period (000 omitted) 1,454 -- -- -- -- -- Ratio of operating expense to average net assets 1.65% -- -- -- -- -- ------------------------------------------------------------------------------------------------------------------------------------ SUBACCOUNT WLCG7(1) (INVESTING IN SHARES OF WELLS FARGO VT LARGE COMPANY GROWTH FUND) Accumulation unit value at beginning of period $1.00 -- -- -- -- -- Accumulation unit value at end of period $0.95 -- -- -- -- -- Number of accumulation units outstanding at end of period (000 omitted) 7,702 -- -- -- -- -- Ratio of operating expense to average net assets 1.20% -- -- -- -- -- ------------------------------------------------------------------------------------------------------------------------------------ SUBACCOUNT WMMK2(1) (INVESTING IN SHARES OF WELLS FARGO VT MONEY MARKET 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 (000 omitted) 668 -- -- -- -- -- Ratio of operating expense to average net assets 1.65% -- -- -- -- -- ------------------------------------------------------------------------------------------------------------------------------------ SUBACCOUNT WMMK7(1) (INVESTING IN SHARES OF WELLS FARGO VT MONEY MARKET FUND) 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 (000 omitted) 317 -- -- -- -- -- Ratio of operating expense to average net assets 1.20% -- -- -- -- -- ------------------------------------------------------------------------------------------------------------------------------------ SUBACCOUNT WSCG2(1) (INVESTING IN SHARES OF WELLS FARGO VT SMALL CAP GROWTH FUND) Accumulation unit value at beginning of period $1.00 -- -- -- -- -- Accumulation unit value at end of period $0.56 -- -- -- -- -- Number of accumulation units outstanding at end of period (000 omitted) 393 -- -- -- -- -- Ratio of operating expense to average net assets 1.65% -- -- -- -- -- ------------------------------------------------------------------------------------------------------------------------------------ SUBACCOUNT WSCG7(1) (INVESTING IN SHARES OF WELLS FARGO VT SMALL CAP GROWTH FUND) Accumulation unit value at beginning of period $1.00 -- -- -- -- -- Accumulation unit value at end of period $0.56 -- -- -- -- -- Number of accumulation units outstanding at end of period (000 omitted) 2,319 -- -- -- -- -- Ratio of operating expense to average net assets 1.20% -- -- -- -- -- ------------------------------------------------------------------------------------------------------------------------------------
(1) Operations commenced on March 3, 2000. (2) Operations commenced on May 1, 2000. (3) Previously named MFS-Registered Trademark- Growth with Income Series. (4) Operations commenced on July 3, 2000. FINANCIAL STATEMENTS You can find the audited financial statements of the subaccounts with financial history in the SAI. The SAI does not include the audited financial statements for some of the subaccounts because they are new and have not had any activity to date. You can find our audited financial statements later in this prospectus. -------------------------------------------------------------------------------- 24 WELLS FARGO ADVANTAGE VARIABLE ANNUITY -- PROSPECTUS PERFORMANCE INFORMATION Performance information for the subaccounts may appear from time to time in advertisements or sales literature. This information reflects the performance of a hypothetical investment in a particular subaccount during a specified time period. We show actual performance from the date the subaccounts began investing in funds. Currently we do not provide performance information for some of the subaccounts because they are new and have not had any activity to date. However, we show performance from the commencement date of the funds as if the contract existed at that time, which it did not. Although we base performance figures on historical earnings, past performance does not guarantee future results. We include non-recurring charges (such as withdrawal charges) in total return figures, but not in yield quotations. Excluding non-recurring charges in yield calculations increases the reported value. We may show total return quotations by means of schedules, charts or graphs. Total return figures reflect deduction of the following changes: - contract administrative charge, - variable account administrative charge, - Enhanced Death Benefit Rider fee, - Guaranteed Minimum Income Benefit Rider fee, - applicable mortality and expense risk fee, and - withdrawal charge (assuming a withdrawal at the end of the illustrated period). We also show optional total return quotations that reflect deduction of the Benefit Protector(SM) Death Benefit Rider fee or the Benefit Protector(SM) Plus Death Benefit Rider fee. We also show optional total return quotations that do not reflect deduction of the withdrawal charge (assuming no withdrawal), or fees for any of the optional features. 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. -------------------------------------------------------------------------------- WELLS FARGO ADVANTAGE VARIABLE ANNUITY -- PROSPECTUS 25 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:
---------- ---------------------------------- ------------------------------------------------- ------------------------------------ SUBACCOUNT INVESTING IN INVESTMENT OBJECTIVES AND POLICIES INVESTMENT ADVISOR OR MANAGER ---------- ---------------------------------- ------------------------------------------------- ------------------------------------ WBCA2 AXP-Registered Trademark- Objective: long-term total return exceeding IDS Life Insurance Company (IDS WBCA4 Variable Portfolio - Blue Chip that of the U.S. stock market. Invests Life), investment manager; American WBCA5 Advantage Fund primarily in common stocks of companies Express Financial Corporation WBCA7 included in the unmanaged S&P 500 Index. (AEFC), investment advisor. ---------- ---------------------------------- ------------------------------------------------- ------------------------------------ ECR AXP-Registered Trademark- Objective: capital appreciation. Invests IDS Life, investment manager; AEFC, WCAR2 Variable Portfolio - Capital primarily in U.S. common stocks and other investment advisor. WCAR4 Resource Fund securities convertible into common stocks. WCAR7 ---------- ---------------------------------- ------------------------------------------------- ------------------------------------ WDEI2 AXP-Registered Trademark- Objective: a high level of current income and, IDS Life, investment manager; AEFC, WDEI4 Variable Portfolio - Diversified as a secondary goal, steady growth of capital. investment advisor. WDEI5 Equity Income Fund Invests primarily in dividend-paying common and WDEI7 preferred stocks. ---------- ---------------------------------- ------------------------------------------------- ------------------------------------ EIA AXP-Registered Trademark- Objective: high current income, with capital IDS Life, investment manager; AEFC, WEXI2 Variable Portfolio - Extra growth as a secondary objective. Invests investment advisor. WEXI4 Income Fund primarily in high-yielding, high-risk corporate WEXI7 bonds issued by U.S. and foreign companies and governments. ---------- ---------------------------------- ------------------------------------------------- ------------------------------------ WFDI2 AXP-Registered Trademark- Objective: a high level of current income and IDS Life, investment manager; AEFC, WFDI4 Variable Portfolio - Federal safety of principal consistent with an investment advisor. WFDI5 Income Fund investment in U.S. government and government WFDI7 agency securities. Invests primarily in debt obligations issued or guaranteed as to principal and interest by the U.S. government, its agencies or instrumentalities. ---------- ---------------------------------- ------------------------------------------------- ------------------------------------ EGD AXP-Registered Trademark- Objective: long-term growth of capital. Invests IDS Life, investment manager; AEFC, WNDM2 Variable Portfolio - New primarily in common stocks of U.S. and foreign investment advisor. WNDM4 Dimensions Fund-Registered companies showing potential for significant WNDM7 Trademark- growth. ---------- ---------------------------------- ------------------------------------------------- ------------------------------------ WSCA2 AXP-Registered Trademark- Objective: long-term capital growth. Invests IDS Life, investment manager; AEFC, WSCA4 Variable Portfolio - Small Cap primarily in equity stocks of small companies investment advisor; Kenwood Capital WSCA5 Advantage Fund that are often included in the S&P SmallCap 600 Management LLC, sub-investment WSCA7 Index or the Russell 2000 Index. advisor. ---------- ---------------------------------- ------------------------------------------------- ------------------------------------ ECA AIM V.I. Capital Appreciation Objective: growth of capital. Invests mainly in A I M Advisors, Inc. WCAP2 Fund common stocks of companies likely to benefit WCAP4 from new or innovative products, services or WCAP7 processes as well as those with above-average growth and excellent prospects for future growth. ---------- ---------------------------------- ------------------------------------------------- ------------------------------------
-------------------------------------------------------------------------------- 26 WELLS FARGO ADVANTAGE VARIABLE ANNUITY -- PROSPECTUS
---------- ---------------------------------- ------------------------------------------------- ------------------------------------ SUBACCOUNT INVESTING IN INVESTMENT OBJECTIVES AND POLICIES INVESTMENT ADVISOR OR MANAGER ---------- ---------------------------------- ------------------------------------------------- ------------------------------------ EVA AIM V.I. Value Fund Objective: long-term growth of capital with A I M Advisors, Inc. WVAL2 income as a secondary objective. Invests WVAL4 primarily in equity securities judged to be WVAL7 undervalued relative to the investment advisor's appraisal of the current or projected earnings of the companies issuing the securities, or relative to current market values of assets owned by the companies issuing the securities, or relative to the equity market generally. ---------- ---------------------------------- ------------------------------------------------- ------------------------------------ ESR The Dreyfus Socially Responsible Objective: capital growth, with current income The Dreyfus Corporation, investment WSRG2 Growth Fund, Inc. - Initial as a secondary objective. Invests primarily in advisor; NCM Capital Management WSRG4 Share Class the common stock of companies that, in the Group, Inc., sub-investment advisor. WSRG7 opinion of the fund's management, meet traditional investment standards and conduct their business in a manner that contributes to the enhancement of the quality of life in America. ---------- ---------------------------------- ------------------------------------------------- ------------------------------------ WDYC2 Fidelity VIP Dynamic Capital Objective: capital appreciation. Invests Fidelity Management & Research WDYC4 Appreciation Portfolio (Service primarily in growth or value common stocks of Company (FMR), investment manager; WDYC5 Class 2) domestic and foreign issuers. FMR U.K., FMR Far East, Fidelity WDYC7 Investments Japan Limited (FIJ) and FMR Co. Inc. (FMRC), sub-investment advisors ---------- ---------------------------------- ------------------------------------------------- ------------------------------------ WHIP2 Fidelity VIP High Income Objective: high level of current income while FMR, investment manager; FMR U.K., WHIP4 Portfolio (Service Class 2) also considering growth of capital. Invests FMR Far East, FIJ and FMRC, WHIP5 primarily in foreign and domestic issued sub-investment advisors. WHIP7 income-producing debt securities, preferred stocks and convertible securities, with an emphasis on lower-quality debt securities. Invests in companies in troubled or uncertain financial condition. ---------- ---------------------------------- ------------------------------------------------- ------------------------------------ WMDC2 Fidelity VIP Mid Cap Portfolio Objective: long-term growth of capital. Invests FMR, investment manager; FMR U.K., WMDC4 (Service Class 2) primarily in medium market capitalization FMR Far East, FIJ and FMRC, WMDC5 common stocks. sub-investment advisors. WMDC7 ---------- ---------------------------------- ------------------------------------------------- ------------------------------------ WISE2 FTVIPT Franklin Income Objective: maximize income while maintaining Franklin Advisers, Inc. WISE4 Securities Fund - Class 2 prospects for capital appreciation. Invests WISE5 primarily in a diversified portfolio of debt WISE7 and equity securities, including high yield, lower-rated "junk bonds." ---------- ---------------------------------- ------------------------------------------------- ------------------------------------ ERE FTVIPT Franklin Real Estate Fund Objective: capital appreciation with a Franklin Advisers, Inc. WRES2 - Class 2 secondary goal to earn current income. Invests WRES4 primarily in equity securities of companies WRES7 operating in the real estate industry, primarily equity real estate investment trusts (REITS). ---------- ---------------------------------- ------------------------------------------------- ------------------------------------
-------------------------------------------------------------------------------- WELLS FARGO ADVANTAGE VARIABLE ANNUITY -- PROSPECTUS 27
---------- ---------------------------------- ------------------------------------------------- ------------------------------------ SUBACCOUNT INVESTING IN INVESTMENT OBJECTIVES AND POLICIES INVESTMENT ADVISOR OR MANAGER ---------- ---------------------------------- ------------------------------------------------- ------------------------------------ WSMC2 FTVIPT Franklin Small Cap Fund - Objective: long-term capital growth. Invests Franklin Advisers, Inc. WSMC4 Class 2 primarily in equity securities of U.S. small WSMC5 capitalization (small cap) companies with WSMC7 market cap values not exceeding (i) $1.5 billion, or (ii) the highest market cap value in the Russell 2000-Registered Trademark- Index, whichever is greater, at the time of purchase. ---------- ---------------------------------- ------------------------------------------------- ------------------------------------ EMU FTVIPT Mutual Shares Securities Objective: capital appreciation, with income as Franklin Mutual Advisers, LLC WMSS2 Fund - Class 2 a secondary goal. Invests primarily in equity WMSS4 securities of companies that the manager WMSS7 believes are available at market prices less than their value based on certain recognized or objective criteria (intrinsic value). ---------- ---------------------------------- ------------------------------------------------- ------------------------------------ JUS Goldman Sachs VIT CORE-SM- U.S. Objective: seeks long-term growth of capital Goldman Sachs Asset Management WUSE2 Equity Fund and dividend income. Invests primarily in a WUSE4 broadly diversified portfolio of large-cap and WUSE7 blue chip equity securities representing all major sectors of the U.S. economy. ---------- ---------------------------------- ------------------------------------------------- ------------------------------------ JGL Goldman Sachs VIT Global Income Objective: seeks high total return, emphasizing Goldman Sachs Asset Management WGLI2 Fund current income, and, to a lesser extent, International WGLI4 providing opportunities for capital WGLI7 appreciation. Invests primarily in a portfolio of high quality fixed-income securities of U.S. and foreign issuers and enters into transactions in foreign currencies. ---------- ---------------------------------- ------------------------------------------------- ------------------------------------ WITO2 Goldman Sachs VIT Internet Objective: seeks long-term growth of capital. Goldman Sachs Asset Management WITO4 Tollkeeper Fund-SM- Invests primarily in equity securities of WITO5 companies the investment adviser believes will WITO7 benefit from the growth of the Internet by providing access, infrastructure, content and services to Internet companies and customers. ---------- ---------------------------------- ------------------------------------------------- ------------------------------------ JMC Goldman Sachs VIT Mid Cap Value Objective: seeks long-term capital Goldman Sachs Asset Management WMCV2 Fund appreciation. Invests primarily in WMCV4 mid-capitalization companies within the range WMCV7 of the market capitalization of companies constituting the Russell Midcap Value index at the time of investment. ---------- ---------------------------------- ------------------------------------------------- ------------------------------------ WGIS2 MFS-Registered Trademark- Objective: long-term growth of capital with a MFS Investment Management-Registered WGIS4 Investors Trust Series - Initial secondary objective to seek reasonable current Trademark- WGIS5 Class (previously MFS-Registered income. Invests primarily in common stocks and WGIS7 Trademark- Growth with Income related securities, such as preferred stocks, Series) convertible securities and depositary receipts for those securities. ---------- ---------------------------------- ------------------------------------------------- ------------------------------------ EUT MFS-Registered Trademark- Objective: capital growth and current income. MFS Investment Management-Registered WUTS2 Utilities Series - Initial Class Invests primarily in equity and debt securities Trademark- WUTS4 of domestic and foreign companies in the WUTS7 utilities industry. ---------- ---------------------------------- ------------------------------------------------- ------------------------------------
-------------------------------------------------------------------------------- 28 WELLS FARGO ADVANTAGE VARIABLE ANNUITY -- PROSPECTUS
---------- ---------------------------------- ------------------------------------------------- ------------------------------------ SUBACCOUNT INVESTING IN INVESTMENT OBJECTIVES AND POLICIES INVESTMENT ADVISOR OR MANAGER ---------- ---------------------------------- ------------------------------------------------- ------------------------------------ EPL Putnam VT International Growth Objective: capital appreciation. Invests Putnam Investment Management, LLC WIGR2 Fund - Class IB Shares mainly in growth stocks outside the United WIGR4 States that reflect a value lower than that WIGR7 which Putnam Management places on the company or whose earnings we believe are likely to grow over time. ---------- ---------------------------------- ------------------------------------------------ ------------------------------------- EPT Putnam VT Vista Fund - Class IB Objective: capital appreciation. Invests Putnam Investment Management, LLC WVIS2 Shares mainly in common stocks of mid-sized U.S. WVIS4 companies with a focus on growth stocks. WVIS7 ---------- ---------------------------------- ------------------------------------------------ ------------------------------------- WAAL2 Wells Fargo VT Asset Allocation Objective: long-term total return, consistent Wells Fargo Funds Management, LLC, WAAL4 Fund with reasonable risk. Invests primarily in the advisor; Barclays Global Fund WAAL5 securities of various indexes to replicate the Advisors, sub-advisor. WAAL7 total return of the index. We use an asset allocation model to allocate and reallocate assets among common stocks (S&P 500 Index), U.S. Treasury bonds (Lehman Brothers 20+ Bond Index) and money market instruments, operating from a target allocation of 60% stocks and 40% bonds. ---------- ---------------------------------- ------------------------------------------------ ------------------------------------- WCBD2 Wells Fargo VT Corporate Bond Objective: high level of current income Wells Fargo Funds Management, LLC, WCBD4 Fund consistent with reasonable risk. Invests advisor; Wells Capital Management WCBD5 primarily in corporate debt securities of any Incorporated, sub-advisor. WCBD7 maturity. ---------- ---------------------------------- ------------------------------------------------ ------------------------------------- WEQI2 Wells Fargo VT Equity Income Objective: long-term capital appreciation and Wells Fargo Funds Management, LLC, WEQI4 Fund above-average dividend income. Invests advisor; Wells Capital Management WEQI5 primarily in common stocks of large, Incorporated, sub-advisor. WEQI7 high-quality domestic companies with above-average return potential and above-average dividend income. ---------- ---------------------------------- ------------------------------------------------ ------------------------------------- WEQV2 Wells Fargo VT Equity Value Fund Objective: long-term capital appreciation. Wells Fargo Funds Management, LLC, WEQV4 Invests primarily in equity securities that we advisor; Wells Capital Management WEQV5 believe are undervalued in relation to the Incorporated, sub-advisor. WEQV7 overall stock markets. ---------- ---------------------------------- ------------------------------------------------ ------------------------------------- WGRO2 Wells Fargo VT Growth Fund Objective: long-term capital appreciation. Wells Fargo Funds Management, LLC, WGRO4 Invests primarily in common stocks and other advisor; Wells Capital Management WGRO5 equity securities. We look for companies that Incorporated, sub-advisor. WGRO7 have a strong earnings growth trend that we believe have above-average prospects for future growth. ---------- ---------------------------------- ------------------------------------------------ ------------------------------------- WIEQ2 Wells Fargo VT International Objective: total return with an emphasis on Wells Fargo Funds Management, LLC, WIEQ4 Equity Fund capital appreciation over the long-term. advisor; Wells Capital Management WIEQ5 Invests primarily in equity securities of Incorporated, sub-advisor. WIEQ7 non-U.S. companies. ---------- ---------------------------------- ------------------------------------------------ ------------------------------------- WLCG2 Wells Fargo VT Large Company Objective: long-term capital appreciation. Wells Fargo Funds Management, LLC, WLCG4 Growth Fund Invests primarily in common stock of large, advisor; Peregrine Capital WLCG5 high-quality domestic companies that have Management, Inc., sub-advisor. WLCG7 superior growth potential. ---------- ---------------------------------- ------------------------------------------------ -------------------------------------
-------------------------------------------------------------------------------- WELLS FARGO ADVANTAGE VARIABLE ANNUITY -- PROSPECTUS 29
---------- ---------------------------------- ------------------------------------------------- ------------------------------------ SUBACCOUNT INVESTING IN INVESTMENT OBJECTIVES AND POLICIES INVESTMENT ADVISOR OR MANAGER ---------- ---------------------------------- ------------------------------------------------- ------------------------------------ WMMK2 Wells Fargo VT Money Market Fund Objective: current income, while preserving Wells Fargo Funds Management, LLC, WMMK4 capital and liquidity. Invests primarily in advisor; Wells Capital Management WMMK5 high-quality, U.S. dollar-denominated money Incorporated, sub-advisor. WMMK7 market instruments, including debt obligations. ---------- ---------------------------------- ------------------------------------------------ ------------------------------------- WSCG2 Wells Fargo VT Small Cap Growth Objective: long-term capital appreciation. Wells Fargo Funds Management, LLC, WSCG4 Fund Invests primarily in common stocks issued by advisor; Wells Capital Management WSCG5 companies whose market capitalization falls Incorporated, sub-advisor. WSCG7 within the range of the Russell 2000 Index, which is considered a small capitalization index. ---------- ---------------------------------- ------------------------------------------------ -------------------------------------
A fund underlying your contract in which a subaccount invests may have a name, portfolio manager, objectives, strategies and characteristics that are the same or substantially similar to those of a publicly-traded retail mutual fund. Despite these similarities, an underlying fund is not the same as any publicly-traded retail mutual fund. Each underlying fund will have its own unique portfolio holdings, fees, operating expenses and operating results. The results of each underlying fund may differ significantly from any publicly-traded retail mutual fund. The investment managers and advisors cannot guarantee that the funds will meet their investment objectives. Please read the funds' prospectuses for facts you should know before investing. These prospectuses are also available by contacting us at the address or telephone number on the first page of this prospectus. All funds are available to serve as the underlying investments for variable annuities. Some funds also are available to serve as investment options for variable life insurance policies and tax-deferred retirement plans. It is possible that in the future, it may be disadvantageous for variable annuity accounts and variable life insurance accounts and/or tax-deferred retirement plans to invest in the available funds simultaneously. Although the insurance company and the funds do not currently foresee any such disadvantages, the boards of directors or trustees of the appropriate funds will monitor events in order to identify any material conflicts between annuity owners, policy owners and tax-deferred retirement plans and to determine what action, if any, should be taken in response to a conflict. If a board were to conclude that it should establish separate funds for the variable annuity, variable life insurance and tax-deferred retirement plan accounts, you would not bear any expenses associated with establishing separate funds. Please refer to the funds' prospectuses for risk disclosure regarding simultaneous investments by variable annuity, variable life insurance and tax-deferred retirement plan accounts. The Internal Revenue Service (IRS) issued final regulations relating to the diversification requirements under Section 817(h) of the Code. Each fund intends to comply with these requirements. The variable account was established under Indiana law on July 15, 1987, and the subaccounts are registered together as a single unit investment trust under the Investment Company Act of 1940 (the 1940 Act). This registration does not involve any supervision of our management or investment practices and policies by the SEC. All obligations arising under the contracts are general obligations of American Enterprise Life. The variable account meets the definition of a separate account under federal securities laws. We credit or charge income, capital gains and capital losses of each subaccount only to that subaccount. State insurance law prohibits us from charging a subaccount with liabilities of any other subaccount or of our general business. The variable account includes other subaccounts that are available under contracts that are not described in this prospectus. The U.S. Treasury and the IRS indicated that they may provide additional guidance on investment control. This concerns how many variable subaccounts an insurance company may offer and how many exchanges among subaccounts it may allow before the contract owner would be currently taxed on income earned within subaccount assets. At this time, we do not know what the additional guidance will be or when action will be taken. We reserve the right to modify the contract, as necessary, so that the owner will not be subject to current taxation as the owner of the subaccount assets. We intend to comply with all federal tax laws so that the contract continues to qualify as an annuity for federal income tax purposes. We reserve the right to modify the contract as necessary to comply with any new tax laws. -------------------------------------------------------------------------------- 30 WELLS FARGO ADVANTAGE VARIABLE ANNUITY -- PROSPECTUS THE FIXED ACCOUNTS GUARANTEE PERIOD ACCOUNTS (GPAS) You may allocate purchase payments to one or more of the GPAs with Guarantee Periods ranging from two to ten years. These accounts are not available in all states and are not offered after annuity payouts begin. Some states also restrict the amount you can allocate to these accounts. Each GPA pays an interest rate that is declared when you allocate money to that account. That interest rate is then fixed for the Guarantee Period that you chose. We will periodically change the declared interest rate for any future allocations to these accounts, but we will not change the rate paid on money currently in a GPA. The minimum guaranteed interest rate on the GPAs is 3%. The interest rates that we will declare as guaranteed rates in the future are determined by us at our discretion. We will determine these rates based on various factors including, but not limited to, the interest rate environment, returns earned on investments backing these annuities, the rates currently in effect for new and existing American Enterprise Life annuities, product design, competition and American Enterprise Life's revenues and other expenses. WE CANNOT PREDICT NOR CAN WE GUARANTEE FUTURE GUARANTEED INTEREST RATES ABOVE THE 3% RATE. You may transfer or withdraw contract value out of the GPAs within 30 days before the end of the Guarantee Period without receiving a MVA (see "Market Value Adjustment (MVA)" below.) At that time you may choose to start a new Guarantee Period of the same length, transfer the contract value to another GPA, transfer the contract value to any of the subaccounts, or withdraw the contract value from the contract (subject to applicable withdrawal provisions). If we do not receive any instructions at the end of your Guarantee Period, we will automatically transfer the contract value into the one-year fixed account. We hold amounts you allocate to the GPAs in a "nonunitized" separate account we have established under the Indiana Insurance Code. This separate account provides an additional measure of assurance that we will make full payment of amounts due under the GPAs. State insurance law prohibits us from charging this separate account with liabilities of any other separate account or of our general business. We own the assets of this separate account as well as any favorable investment performance of those assets. You do not participate in the performance of the assets held in this separate account. We guarantee all benefits relating to your value in the GPAs. This guarantee is based on the continued claims-paying ability of the company. We intend to construct and manage the investment portfolio relating to the separate account using a strategy known as "immunization." Immunization seeks to lock in a defined return on the pool of assets versus the pool of liabilities over a specified time horizon. Since the return on the assets versus the liabilities is locked in, it is "immune" to any potential fluctuations in interest rates during the given time. We achieve immunization by constructing a portfolio of assets with a price sensitivity to interest rate changes (i.e., price duration) that is essentially equal to the price duration of the corresponding portfolio of liabilities. Portfolio immunization provides us with flexibility and efficiency in creating and managing the asset portfolio, while still assuring safety and soundness for funding liability obligations. We must invest this portfolio of assets in accordance with requirements established by applicable state laws regarding the nature and quality of investments that life insurance companies may make and the percentage of their assets that they may commit to any particular type of investment. Our investment strategy will incorporate the use of a variety of debt instruments having price durations tending to match the applicable Guarantee Periods. These instruments include, but are not necessarily limited to, the following: - Securities issued by the U.S. government or its agencies or instrumentalities, which issues may or may not be guaranteed by the U.S. government; - Debt securities that have an investment grade, at the time of purchase, within the four highest grades assigned by any of three nationally recognized rating agencies -- Standard & Poor's, Moody's Investors Service or Fitch (formerly Duff & Phelp's) -- or are rated in the two highest grades by the National Association of Insurance Commissioners; - Other debt instruments which are unrated or rated below investment grade, limited to 10% of assets at the time of purchase; and - Real estate mortgages, limited to 45% of portfolio assets at the time of acquisition. In addition, options and futures contracts on fixed income securities will be used from time to time to achieve and maintain appropriate investment and liquidity characteristics on the overall asset portfolio. While this information generally describes our investment strategy, we are not obligated to follow any particular strategy except as may be required by federal law and Indiana and other state insurance laws. -------------------------------------------------------------------------------- WELLS FARGO ADVANTAGE VARIABLE ANNUITY -- PROSPECTUS 31 MARKET VALUE ADJUSTMENT (MVA) We guarantee the contract value allocated to your GPA, including the interest credited, if you do not make any transfers or withdrawals from that GPA prior to 30 days before the end of the Guarantee Period. However, we will apply an MVA if a transfer or withdrawal occurs prior to this time. The MVA also affects amounts withdrawn from a GPA prior to 30 days before the end of the Guarantee Period that are used to purchase payouts under an annuity payout plan. We will refer to all of these transactions as "early withdrawals" in the discussion below. When you request an early withdrawal, we adjust the early withdrawal amount by an MVA formula. The early withdrawal amount reflects the relationship between the guaranteed interest rate you are earning in your current GPA and the interest rate we are crediting on new GPAs that end at the same time as your current GPA. The MVA is sensitive to changes in current interest rates. The magnitude of any applicable MVA will depend on our current schedule of guaranteed interest rates at the time of the withdrawal, the time remaining in your Guarantee Period and your guaranteed interest rate. The MVA is negative, zero or positive depending on how the guaranteed interest rate on your GPA compares to the interest rate of a new GPA for the same number of years as the Guarantee Period remaining on your GPA. Before we look at the MVA formula, it may help to look in a general way at how comparing your GPA's guaranteed rate and the rate for a new GPA affects the MVA. Relationship between your GPA's guaranteed rate and the new GPA for the same time as the Guarantee Period remaining on your GPA:
IF YOUR GPA RATE IS: THE MVA IS: Less than the new GPA rate + 0.10% Negative Equal to the new GPA rate + 0.10% Zero Greater than the new GPA rate + 0.10% Positive
GENERAL EXAMPLES Assume: - You purchase a contract and allocate part of your purchase payment to the ten-year GPA. - We guarantee an interest rate of 4.5% annually for your ten-year Guarantee Period. - After three years, you decide to make a withdrawal from your GPA. In other words, there are seven years left in your Guarantee Period. Remember that the MVA depends partly on the interest rate of a new GPA for the same number of years as the Guarantee Period remaining on your GPA. In this case, that is seven years. EXAMPLE 1: Remember that your GPA is earning 4.5%. Assume at the time of your withdrawal new GPAs that we offer with a seven-year Guarantee Period are earning 5.0%. We add 0.10% to the 5.0% rate to get 5.10%. Your GPA's 4.5% rate is less than the 5.10% rate and, as reflected in the table above, the MVA will be negative. EXAMPLE 2: Remember again that your GPA is earning 4.5%, and assume that new GPAs that we offer with a seven-year Guarantee Period are earning 4.0%. We add 0.10% to the 4.0% rate to get 4.10%. In this example, since your GPA's 4.5% rate is greater than the 4.10% rate, the MVA will be positive. To determine that adjustment precisely, you will have to use the formula described below. SAMPLE MVA CALCULATIONS: The precise MVA formula we apply is as follows: to the power of n/12 EARLY WITHDRAWAL AMOUNT X [((1 + I) / (1 + J + .001)) - 1] = MVA Where: i = rate earned in the GPA from which amounts are being transferred or withdrawn. j = current rate for a new Guaranteed Period equal to the remaining term in the current Guarantee Period. n = number of months remaining in the current Guarantee Period (rounded up). EXAMPLES Using assumptions similar to those we used in the examples above: - You purchase a contract and allocate part of your purchase payment to the ten-year GPA. - We guarantee an interest rate of 4.5% annually for your ten-year Guarantee Period. - After three years, you decide to make a $1,000 withdrawal from your GPA. In other words, there are seven years left in your Guarantee Period. -------------------------------------------------------------------------------- 32 WELLS FARGO ADVANTAGE VARIABLE ANNUITY -- PROSPECTUS EXAMPLE 1: You request an early withdrawal of $1,000 from your ten-year GPA earning a guaranteed interest rate of 4.5%. Assume at the time of your withdrawal new GPAs that we offer with a seven-year Guarantee Period are earning 5.0%. Using the formula above, we determine the MVA as follows: to the power of 84/12 $1,000 x [(1.045 / (1 + .05 + .001)) - 1] = -$39.28 In this example, the MVA is a negative $39.28. EXAMPLE 2: You request an early withdrawal of $1,000 from your ten-year GPA earning a guaranteed interest rate of 4.5%. Assume at the time of your withdrawal new GPAs that we offer with a seven-year Guarantee Period are earning 4.0%. Using the formula above, we determine the MVA as follows: to the power of 84/12 $1,000 x [(1.045 / (1 + .04 + .001)) - 1] = $27.21 In this example, the MVA is a positive $27.21. Please note that when you allocate your purchase payment to the ten-year GPA and you have begun your fourth contract year at the beginning of the Guarantee Period, your withdrawal charge percentage is 4% if you chose the five-year schedule and 6% if you chose the seven-year schedule. (See "Charges -- Withdrawal Charge.") We do not apply MVAs to the amounts we deduct for withdrawal charges, so we would deduct the withdrawal charge from your early withdrawal after we applied the MVA. Also note that when you request an early withdrawal, we withdraw an amount from your GPA that will give you the net amount you requested after we apply the MVA and any applicable withdrawal charge, unless you request otherwise. The current interest rate we offer on the GPA will change periodically at our discretion. It is the rate we are then paying on purchase payments, renewals and transfers paid under this class of contracts for Guarantee Period durations equaling the remaining Guarantee Period of the GPA to which the formula is being applied. We will not apply MVAs to amounts withdrawn for the annual contract administrative charge, to amounts we pay as death claims or to automatic transfers from the two-year Guarantee Period Account. In some states, the MVA is limited. THE ONE-YEAR FIXED ACCOUNT You may also allocate purchase payments or transfer accumulated value to the one-year fixed account. Some states may restrict the amount you can allocate to this account. We back the principal and interest guarantees relating to the one-year fixed account. These guarantees are based on the continued claims-paying ability of the company. The value of the one-year fixed account increases as we credit interest to the account. Purchase payments and transfers to the one-year fixed account become part of our general account. We credit and compound interest daily to produce the annual effective rate which we declare. The interest rate we apply to each purchase payment or transfer to the one-year fixed account is guaranteed for one year. Thereafter we will change the 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 American Enterprise Life annuities, product design, competition, and American Enterprise Life's revenues and expenses. Interest in the one-year fixed account is not required to be registered with the SEC. However, the Market Value Adjustment interests under the contracts are registered with the SEC. The SEC staff does not review the disclosures in this prospectus on the one-year fixed account (but the SEC does review the disclosures in this prospectus on the Market Value Adjustment interests). Disclosures regarding the one-year fixed account, however, may be subject to certain generally applicable provisions of the federal securities laws relating to the accuracy and completeness of statements made in prospectuses. (See "Making the Most of Your Contract -- Transfer policies" for restrictions on transfers involving the one-year fixed account.) -------------------------------------------------------------------------------- WELLS FARGO ADVANTAGE VARIABLE ANNUITY -- PROSPECTUS 33 BUYING YOUR CONTRACT Your sales representative will help you complete and submit an application and send it along with your initial purchase payment to our office. As the owner, you have all rights and may receive all benefits under the contract. You may buy a qualified annuity or a nonqualified annuity through your AEFA sales representative. You may be able to buy another contract with the same underlying funds. This contract has different mortality and expense risk fees and withdrawal charges and offers purchase payment credits. For information on this contract please call us at the telephone number listed on the first page of this prospectus or ask your sales representative. You can own a nonqualified annuity in joint tenancy with rights of survivorship only in spousal situations. You cannot own a qualified annuity in joint tenancy. You can buy a contract or become an annuitant if you are 85 or younger. (The age limit may be younger for qualified annuities in some states.) When you apply, you may select: - the length of the withdrawal charge period (five or seven years)(1); - the optional Benefit Protector-SM- Death Benefit Rider(2); - the optional Benefit Protector-SM- Plus Death Benefit Rider(2); - the optional Enhanced Death Benefit Rider(2); - the optional Guaranteed Minimum Income Benefit Rider(3); - the one-year fixed account, Guarantee Period Accounts and/or subaccounts in which you want to invest(4); - how you want to make purchase payments; and - a beneficiary. (l) Contract issued through AEFA are only available with a seven-year withdrawal charge schedule. (2) You may select one of the following: the EDB, the Benefit Protector or the Benefit Protector Plus. Riders may not be available in all states. The Benefit Protector and the Benefit Protector Plus are only available if you and the annuitant are 75 or younger at contract issue. The EDB is only available if both you and the annuitant are 79 or younger at contract issue. (3) The GMIB is only available at the time you purchase your contract if the annuitant is 75 or younger at contract issue and you also select the EDB. Riders may not be available in all states. (4) Some states restrict the amount you can allocate to the fixed accounts. The contract provides for allocation of purchase payments to the subaccounts of the variable account and/or to the fixed accounts in even 1% increments. If your application is complete, we will process it and apply your purchase payment to the fixed accounts and subaccounts you selected within two business days after we receive it at our office. If we accept your application, we will send you a contract. If we cannot accept your application within five business days, we will decline it and return your payment. We will credit additional purchase payments you make to your accounts on the valuation date we receive them. We will value the additional payments at the next accumulation unit value calculated after we receive your payments at our office. You may make monthly payments to your contract under a Systematic Investment Plan (SIP). To begin the SIP, you will complete and send a form and your first SIP payment along with your application. There is no charge for SIP. You can stop your SIP payments at any time. In most states, you may make additional purchase payments to nonqualified and qualified annuities until the retirement date. THE RETIREMENT DATE Annuity payouts are scheduled to begin on the retirement date. When we process your application, we will establish the retirement date to the maximum age or date described below. You can also select a date within the maximum limits. You can align this date with your actual retirement from a job, or it can be a different future date, depending on your needs and goals and on certain restrictions. You also can change the date, provided you send us written instructions at least 30 days before annuity payouts begin. FOR NONQUALIFIED ANNUITIES AND ROTH IRAs, the retirement date must be: - no earlier than the 30th day after the contract's effective date; and - no later than the annuitant's 85th birthday or the tenth contract anniversary, if purchased after age 75. FOR QUALIFIED ANNUITIES (EXCEPT ROTH IRAs), to avoid IRS penalty taxes, the retirement date generally must be: - on or after the date the annuitant reaches age 59 1/2; and - for IRAs and SEPs, by April 1 of the year following the calendar year when the annuitant reaches age 70 1/2. If you take the minimum IRA distribution as required by the Code from another tax-qualified investment, or in the form of partial withdrawals from this contract, annuity payouts can start as late as the annuitant's 85th birthday or the tenth contract anniversary, if later. -------------------------------------------------------------------------------- 34 WELLS FARGO ADVANTAGE VARIABLE ANNUITY -- PROSPECTUS BENEFICIARY We will pay your named beneficiary the death benefit if it becomes payable before the retirement date while the contract is in force and before annuity payouts begin. If there is no named beneficiary, then you or your estate will be the beneficiary. (See "Benefits in Case of Death" for more about beneficiaries.) PURCHASE PAYMENTS
MINIMUM PURCHASE PAYMENTS: If paying by SIP(1): $50 initial payment. $50 for additional payments. If paying by any other method: $5,000 initial payment for contracts issued in South Carolina, Texas and Washington. $2,000 initial payment for contracts issued in all other states. $100 for additional payments. (1) Payments made using SIP must total $2,000 before you can make partial withdrawals. MAXIMUM TOTAL ALLOWABLE PURCHASE PAYMENTS(2) (WITHOUT PRIOR APPROVAL): $99,999 for contracts issued through AEFA. $1,000,000 for all other contracts.
(2) This limit applies in total to all American Enterprise Life annuities you own. We reserve the right to increase the maximum limit. For qualified annuities, the tax-deferred retirement plan's or the Code's limits on annual contributions also apply. HOW TO MAKE PURCHASE PAYMENTS 1 BY LETTER: Send your check along with your name and contract number to: AMERICAN ENTERPRISE LIFE INSURANCE COMPANY 829 AXP FINANCIAL CENTER MINNEAPOLIS, MN 55474 2 BY SIP: Contact your sales representative to complete the necessary SIP paperwork. CHARGES CONTRACT ADMINISTRATIVE CHARGE We charge this fee for establishing and maintaining your records. We deduct $30 from the contract value on your contract anniversary at the end of each contract year. We prorate this charge among the subaccounts and the fixed accounts in the same proportion your interest in each account bears to your total contract value. We will waive this charge when your contract value is $50,000 or more on the current contract anniversary. If you take a full withdrawal from your contract, we will deduct this charge at the time of withdrawal regardless of the contract value. We cannot increase the annual contract administrative charge and it does not apply after annuity payouts begin or when we pay death benefits. VARIABLE ACCOUNT ADMINISTRATIVE CHARGE We apply this charge daily to the subaccounts. It is reflected in the unit values of your subaccounts and it totals 0.15% of their average daily net assets on an annual basis. It covers certain administrative and operating expenses of the subaccounts such as accounting, legal and data processing fees and expenses involved in the preparation and distribution of reports and prospectuses. We cannot increase the variable account administrative charge. MORTALITY AND EXPENSE RISK FEE We charge this fee daily to the subaccounts. The unit values of your subaccounts reflect this fee. For contracts with a five-year withdrawal charge schedule, this fee totals 1.30% of their average daily net assets on an annual basis. For contracts with a seven-year withdrawal charge schedule, this fee totals 1.05% of their average daily net assets on an annual basis. This fee covers the mortality and expense risk that we assume. Approximately two-thirds of this amount is for our assumption of mortality risk, and one-third is for our assumption of expense risk. If you choose the optional Enhanced Death Benefit Rider, we will charge an additional 0.20% of the average daily net assets on annual basis (see "Enhanced Death Benefit Rider fee" below). These fees do not apply to the fixed accounts. We cannot increase these fees. -------------------------------------------------------------------------------- WELLS FARGO ADVANTAGE VARIABLE ANNUITY -- PROSPECTUS 35 Mortality risk arises because of our guarantee to pay a death benefit and our guarantee to make annuity payouts according to the terms of the contract, no matter how long a specific annuitant lives and no matter how long our entire group of annuitants live. If, as a group, annuitants outlive the life expectancy we assumed in our actuarial tables, then we must take money from our general assets to meet our obligations. If, as a group, annuitants do not live as long as expected, we could profit from the mortality risk fee. Expense risk arises because we cannot increase the contract administrative charge or the variable account administrative charge and these charges may not cover our expenses. We would have to make up any deficit from our general assets. We could profit from the expense risk fee if future expenses are less than expected. The subaccounts pay us the mortality and expense risk fee they accrued as follows: - first, to the extent possible, the subaccounts pay this fee from any dividends distributed from the funds in which they invest; - then, if necessary, the funds redeem shares to cover any remaining fees payable. We may use any profits we realize from the subaccounts' payment to us of the mortality and expense risk fee for any proper corporate purpose, including, among others, payment of distribution (selling) expenses. We do not expect that the withdrawal charge, discussed in the following paragraphs, will cover sales and distribution expenses. BENEFIT PROTECTOR-SM- DEATH BENEFIT RIDER FEE We charge a fee for the optional feature only if you select it(1). If selected, we deduct 0.25% of your contract value on your contract anniversary at the end of each contract year. We prorate this fee among the subaccounts and fixed accounts in the same proportion your interest in each account bears to your total contract value. When annuity payouts begin, or if you terminate the contract for any reason other than death, we will deduct this fee, adjusted for the number of calendar days coverage was in place. We cannot increase this annual fee after the rider effective date and it does not apply after annuity payouts begin or when we pay death benefits. We can increase this fee on new contracts up to a maximum of 0.75%. BENEFIT PROTECTOR-SM- PLUS DEATH BENEFIT RIDER FEE We charge a fee for the optional feature only if you select it(1). If selected, we deduct 0.40% of your contract value on your contract anniversary at the end of each contract year. We prorate this fee among the subaccounts and fixed accounts in the same proportion your interest in each account bears to your total contract value. When annuity payouts begin, or if you terminate the contract for any reason other than death, we will deduct this fee, adjusted for the number of calendar days coverage was in place. We cannot increase this annual fee after the rider effective date and it does not apply after annuity payouts begin or when we pay death benefits. We can increase this fee on new contracts up to a maximum of 1.25%. ENHANCED DEATH BENEFIT RIDER FEE We charge a fee for this optional feature only if you select it(1). If selected, we apply this fee daily to the subaccounts as part of the mortality and expense risk fee. It is reflected in the unit values of the subaccounts and it totals 0.20% of their average daily net assets on an annual basis. We cannot increase this fee. (1) You may select one of the following: the EDB, the Benefit Protector or the Benefit Protector Plus. Riders may not be available in all states. The Benefit Protector and the Benefit Protector Plus are only available if you and the annuitant are 75 or younger at contract issue. The EDB is only available if both you and the annuitant are 79 or younger at contract issue. GUARANTEED MINIMUM INCOME BENEFIT RIDER (GMIB) FEE We charge a fee (currently 0.30%) based on the GMIB benefit base for this optional feature only if you select it(2). If selected, we deduct the fee from the contract value on your contract anniversary at the end of each contract year. We prorate this fee among the subaccounts and fixed accounts in the same proportion your interest in each account bears to your total contract value. If the contract is terminated or if annuity payouts begin, we will deduct the fee at that time adjusted for the number of calendar days coverage was in place. We cannot increase the GMIB fee after the rider effective date and it does not apply after annuity payouts begin. We can increase the GMIB fee on new contracts up to a maximum of 0.75%. For details on how we calculate the fee, see "Optional Benefits -- Guaranteed Minimum Income Benefit Rider." (2) The GMIB is only available at the time you purchase your contract if the annuitant is 75 or younger at contract issue and you also select the EDB. Riders may not be available in all states. WITHDRAWAL CHARGE If you withdraw all or part of your contract, you may be subject to a withdrawal charge. A withdrawal charge applies if all or part of the withdrawal amount is from purchase payments we received within five or seven years before withdrawal. You select the withdrawal charge period at the time of your application for the contract*. The withdrawal charge percentages that apply to you are shown in your contract. In addition, amounts withdrawn from a Guarantee Period Account more than 30 days before the end of the applicable Guarantee Period will be subject to a MVA. (See "The Fixed Accounts -- Market Value Adjustment (MVA).") -------------------------------------------------------------------------------- 36 WELLS FARGO ADVANTAGE VARIABLE ANNUITY -- PROSPECTUS For purposes of calculating any withdrawal charge, we treat amounts withdrawn from your contract value in the following order: 1. First, in each contract year, we withdraw amounts totaling up to 15% of your prior anniversary's contract value. (We consider your initial purchase payment to be the prior anniversary's contract value during the first contract year.) We do not assess a withdrawal charge on this amount. 2. Next, we withdraw contract earnings, if any, that are greater than the annual 15% free withdrawal amount described in number one above. Contract earnings equal contract value less purchase payments received and not previously withdrawn. We do not assess a withdrawal charge on contract earnings. NOTE: We determine contract earnings by looking at the entire contract value, not the earnings of any particular subaccount or the fixed accounts. 3. Next we withdraw purchase payments received prior to the withdrawal charge period you selected and shown in your contract. We do not assess a withdrawal charge on these purchase payments. 4. Finally, if necessary, we withdraw purchase payments received that are still within the withdrawal charge period you selected and shown in your contract. We withdraw these payments on a "first-in, first-out" (FIFO) basis. We do assess a withdrawal charge on these payments. We determine your withdrawal charge by multiplying each of your payments withdrawn by the applicable withdrawal charge percentage, and then adding the total withdrawal charges. The withdrawal charge percentage depends on the number of years since you made the payments that are withdrawn, depending on the schedule you selected*:
FIVE-YEAR SCHEDULE SEVEN-YEAR SCHEDULE YEARS FROM PURCHASE WITHDRAWAL CHARGE YEARS FROM PURCHASE WITHDRAWAL CHARGE PAYMENT RECEIPT PERCENTAGE PAYMENT RECEIPT PERCENTAGE 1 8% 1 8% 2 8 2 8 3 6 3 7 4 4 4 6 5 2 5 5 Thereafter 0 6 4 7 2 Thereafter 0
* Contracts issued through AEFA are only available with a seven-year withdrawal charge schedule. For a partial withdrawal that is subject to a withdrawal charge, the amount we actually deduct from your contract value will be the amount you request plus any applicable withdrawal charge. The withdrawal charge percentage is applied to this total amount. We pay you the amount you requested. EXAMPLE: Assume you requested a withdrawal of $1,000 and there is a withdrawal charge of 7%. The total amount we actually deduct from your contract is $1,075.26. We determine this amount as follows: AMOUNT REQUESTED / (1.00 - WITHDRAWAL CHARGE) OR $1,000 / .93 = $1,075.26 By applying the 7% withdrawal charge to $1,075.26, the withdrawal charge is $75.26. We pay you the $1,000 you requested. If you make a full withdrawal of your contract, we also will deduct the applicable contract administrative charge. WITHDRAWAL CHARGE UNDER ANNUITY PAYOUT PLAN E -- PAYOUTS FOR A SPECIFIED PERIOD: Under this payout plan, you can choose to take a withdrawal. The amount that you can withdraw is the present value of any remaining variable payouts. If the original contract had a five-year withdrawal charge schedule, the discount rate we use in the calculation will be 5.27% if the assumed investment rate is 3.5% and 6.77% if the assumed investment rate is 5%. If the original contract had a seven-year withdrawal charge schedule, the discount rate we use in the calculation will be 5.02% if the assumed investment rate is 3.5% and 6.52% if the assumed investment rate is 5%. The withdrawal charge equals the present value of the remaining payouts using the assumed investment rate minus the present value of the remaining payouts using the discount rate. In no event would your withdrawal charge exceed 9% of the amount available for payouts under the plan. -------------------------------------------------------------------------------- WELLS FARGO ADVANTAGE VARIABLE ANNUITY -- PROSPECTUS 37 WITHDRAWAL CHARGE CALCULATION EXAMPLE The following is an example of the calculation we would make to determine the withdrawal charge on a contract with a seven-year withdrawal charge schedule with this history: - The contract date is Nov. 1, 2001 with a contract year of Nov. 1 through Oct. 30 and with an anniversary date of Nov. 1 each year; and - We received these payments -- $10,000 Nov. 1, 2001; -- $8,000 Dec. 31, 2007; and -- $6,000 Feb. 20, 2009; and - You withdraw the contract for its total withdrawal value of $38,101 on Aug. 5, 2011 and made no other withdrawals during that contract year; and - The prior anniversary Nov. 1, 2010 contract value was $38,488.
WITHDRAWAL CHARGE EXPLANATION $ 0 $5,773.20 is 15% of the prior anniversary's contract value withdrawn without withdrawal charge; and 0 $8,327.80 is contract earnings in excess of the 15% free withdrawal amount withdrawn without withdrawal charge; and 0 $10,000 Nov. 1, 2001 payment was received eight or more years before withdrawal and is withdrawn without withdrawal charge; and 480 $8,000 Dec. 31, 2007 payment is in its fourth year from receipt, withdrawn with a 6% withdrawal charge; and 420 $6,000 Feb. 20, 2009 payment is in its third year from receipt ----- withdrawn with a 7% withdrawal charge. $900
WAIVER OF WITHDRAWAL CHARGES We do not assess withdrawal charges for: - withdrawals of any contract earnings; - withdrawals of amounts totaling up to 15% of your prior contract anniversary's contract value to the extent it exceeds contract earnings; - required minimum distributions from a qualified annuity (for those amounts required to be distributed from the contract described in this prospectus); - contracts settled using an annuity payout plan; - withdrawals made as a result of one of the "Contingent events" described below to the extent permitted by state law (see your contract for additional conditions and restrictions); - amounts we refund to you during the free look period; and - death benefits. CONTINGENT EVENTS - Withdrawals you make if you or the annuitant are confined to a hospital or nursing home and have been for the prior 60 days. Your contract will include this provision when you and the annuitant are under age 76 at contract issue. You must provide proof satisfactory to us of the confinement as of the date you request the withdrawal. - To the extent permitted by state law, withdrawals you make if you or the annuitant are diagnosed in the second or later contract years as disabled with a medical condition that with reasonable medical certainty will result in death within 12 months or less from the date of the licensed physician's statement. You must provide us with a licensed physician's statement containing the terminal illness diagnosis and the date the terminal illness was initially diagnosed. - Withdrawals you make if you or the annuitant become disabled within the meaning of the Code Section 72(m)(7) after contract issue. The disabled person must also be receiving Social Security disability or state long term disability benefits. The disabled person must be age 70 or younger at the time of withdrawal. You must provide us with a signed letter from the disabled person stating that he or she meets the above criteria, a legible photocopy of Social Security disability or state long term disability benefit payments and the application for such payments. - Withdrawals you make once a year if you or the annuitant become unemployed at least one year after contract issue, up to the following amounts each year: (a) 25% of your prior anniversary's contract value (or $10,000 if greater) if the unemployment condition is met for at least 30 straight days; or (b) 50% of your prior anniversary's contract value (or $10,000 if greater) if the unemployment condition is met for at least 180 straight days. -------------------------------------------------------------------------------- 38 WELLS FARGO ADVANTAGE VARIABLE ANNUITY -- PROSPECTUS The unemployment condition is met if the unemployed person is currently receiving unemployment compensation from a government unit of the United States, whether federal or state. You must provide us with a signed letter from the unemployed person stating that he or she meets the above criteria and a legible photocopy of the unemployment payment benefits meeting the above criteria with regard to dates. 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 issued. Currently, we deduct any applicable premium tax when annuity payouts begin, but we reserve the right to deduct this tax at other times such as when you make purchase payments or when you make a full withdrawal from your contract. VALUING YOUR INVESTMENT We value your accounts as follows: FIXED ACCOUNTS We value the amounts you allocated to the fixed accounts directly in dollars. The value of a fixed account equals: - the sum of your purchase payments and transfer amounts allocated to the one- year fixed account and the Guarantee Period Accounts; - plus interest credited; - minus the sum of amounts withdrawn after the MVA (including any applicable withdrawal charges) and amounts transferred out; - minus any prorated contract administrative charge; - minus any prorated portion of the Benefit Protector-SM- Death Benefit Rider fee (if applicable); - minus any prorated portion of the Benefit Protector-SM- Plus Death Benefit Rider fee (if applicable); and - minus any prorated portion of the Guaranteed Minimum Income Benefit Rider fee (if applicable). SUBACCOUNTS We convert amounts you allocated to the subaccounts into accumulation units. Each time you make a purchase payment or transfer amounts into one of the subaccounts, we credit a certain number of accumulation units to your contract for that subaccount. Conversely, each time you take a partial withdrawal, transfer amounts out of a subaccount, or we assess a contract administrative charge, the Benefit Protector fee, or the Benefit Protector Plus fee, or the Guaranteed Minimum Income Benefit Rider fee, we subtract a certain number of accumulation units from your contract. The accumulation units are the true measure of investment value in each subaccount during the accumulation period. They are related to, but not the same as, the net asset value of the fund in which the subaccount invests. The dollar value of each accumulation unit can rise or fall daily depending on the variable account expenses, performance of the fund and on certain fund expenses. Here is how we calculate accumulation unit values: NUMBER OF UNITS: to calculate the number of accumulation units for a particular subaccount we divide your investment by the current accumulation unit value. ACCUMULATION UNIT VALUE: the current accumulation unit value for each subaccount equals the last value times the subaccount's current net investment factor. WE DETERMINE THE NET INVESTMENT FACTOR BY: - adding the fund's current net asset value per share, plus the per share amount of any accrued income or capital gain dividends to obtain a current adjusted net asset value per share; then - dividing that sum by the previous adjusted net asset value per share; and - subtracting the percentage factor representing the mortality and expense risk fee, the variable account administrative charge and the Enhanced Death Benefit Rider fee (if applicable) 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. -------------------------------------------------------------------------------- WELLS FARGO ADVANTAGE VARIABLE ANNUITY -- PROSPECTUS 39 FACTORS THAT AFFECT SUBACCOUNT ACCUMULATION UNITS: accumulation units may change in two ways -- in number and in value. The number of accumulation units you own may fluctuate due to: - additional purchase payments you allocate to the subaccounts; - transfers into or out of the subaccounts; - partial withdrawals; - withdrawal charges; - prorated portions of the contract administrative charge; - prorated portions of the Benefit Protector-SM- Death Benefit Rider fee (if applicable); - prorated portions of the Benefit Protector-SM- Plus Death Benefit Rider fee (if applicable); and/or - prorated portions of the Guaranteed Minimum Income Benefit Rider fee (if applicable). Accumulation unit values will fluctuate due to: - changes in funds' net asset value; - dividends distributed to the subaccounts; - capital gains or losses of funds; - fund operating expenses; and/or - mortality and expense risk fee, the variable account administrative charge and the Enhanced Death Benefit Rider fee (if applicable). MAKING THE MOST OF YOUR CONTRACT AUTOMATED DOLLAR-COST AVERAGING Currently, you can use automated transfers to take advantage of dollar-cost averaging (investing a fixed amount at regular intervals). For example, you might transfer a set amount monthly from a relatively conservative subaccount to a more aggressive one, or to several others, or from the one-year fixed account or the two-year Guarantee Period Account (without a MVA) to one or more subaccounts. The three to ten year Guarantee Period Accounts are not available for automated transfers. You can also obtain the benefits of dollar-cost averaging by setting up regular automatic SIP payments. There is no charge for dollar-cost averaging. This systematic approach can help you benefit from fluctuations in accumulation unit values caused by fluctuations in the market values of the funds. Since you invest the same amount each period, you automatically acquire more units when the market value falls and fewer units when it rises. The potential effect is to lower your average cost per unit. HOW DOLLAR-COST AVERAGING WORKS
By investing an equal number NUMBER of dollars each month... AMOUNT ACCUMULATION OF UNITS MONTH INVESTED UNIT VALUE PURCHASED you automatically buy Jan $100 $20 5.00 more units when the Feb 100 18 5.56 per unit market price is low... Mar 100 17 5.88 Apr 100 15 6.67 May 100 16 6.25 and fewer units Jun 100 18 5.56 when the per unit Jul 100 17 5.88 market price is high. Aug 100 19 5.26 Sept 100 21 4.76 Oct 100 20 5.00
You paid an average price of only $17.91 per unit over the 10 months, while the average market price actually was $18.10. Dollar-cost averaging does not guarantee that any subaccount will gain in value nor will it protect against a decline in value if market prices fall. Because dollar-cost averaging involves continuous investing, your success will depend upon your willingness to continue to invest regularly through periods of low price levels. Dollar-cost averaging can be an effective way to help meet your long-term goals. For specific features contact your sales representative. -------------------------------------------------------------------------------- 40 WELLS FARGO ADVANTAGE VARIABLE ANNUITY -- PROSPECTUS TIERED DOLLAR-COST AVERAGING (TIERED DCA) PROGRAM If your net contract value(1) is at least $10,000, you can choose to participate in the Tiered DCA program. There is no charge for the Tiered DCA program. Under the Tiered DCA program, you can allocate a new purchase payment to one of two special Tiered DCA accounts. We determine which Tiered DCA account you are eligible for as follows:
IF YOUR NET CONTRACT VALUE(1) IS ... WE ALLOCATE YOUR NEW PURCHASE PAYMENTS TO: $10,000 - $49,999 Tier 1 DCA account $50,000 or more Tier 2 DCA account(2)
(1) "Net contract value" equals your current contract value plus any new purchase payment you make. If this is a new contract funded by purchase payments from multiple sources, we determine your net contract value based on the purchase payments, withdrawal requests and exchange requests submitted with your application. (2) You cannot allocate your new purchase payments to a Tier 1 DCA account if you are eligible to participate in a Tier 2 DCA account. You may only allocate a new purchase payment of at least $1,000 to the Tiered DCA account for which you are eligible. You cannot transfer existing contract values into the Tiered DCA account. Each Tiered DCA account lasts for only six months from the time we receive your first purchase payment. We make monthly transfers of your total Tiered DCA account value into the other accounts you selected over the six-month period. We credit interest to each Tiered DCA account at rates that generally are higher than those we credit to the one-year fixed account and the two-year Guarantee Period Account. We credit higher rates on the Tier 2 DCA account than on the Tier 1 DCA account. We will change the interest rate on each Tiered DCA account from time to time at our discretion. We base these rates on competition and on the interest rate we are crediting to the one-year fixed account at the time of the change. Once we credit interest to a particular purchase payment, that rate does not change even if we change the rate we credit on new purchase payments or if your net contract value changes. We credit each Tiered DCA account with current guaranteed annual rate that is in effect on the date we receive your purchase payment. However, we credit this annual rate over the six-month period on the balance remaining in your Tiered DCA account. Therefore, the net effective interest rate you receive is less than the stated annual rate. We do not credit this interest after we transfer the value out of the Tiered DCA account into the accounts you selected. Once you establish a Tiered DCA account you cannot allocate additional purchase payments to it. However, you may establish another new Tiered DCA account and allocate new purchase payments to it when we change the interest rates we offer on these accounts. If you are funding a Tiered DCA account come from multiple sources, we apply each purchase payment to the account and credit interest on that purchase payment on the date we receive it. This means that all purchase payments may not be in the Tiered DCA account at the beginning of the six-month period. Therefore, you may receive less total interest than you would have if all your purchase payments were in the Tiered DCA account from the beginning. If we receive any of your multiple payments after the six-month period ends, you can either allocate those payments to a new Tiered DCA account (if available) or to any other accounts available under your contract. You cannot participate in the Tiered DCA program if you are making payments under a Systematic Investment Plan. You may simultaneously participate in the Tiered DCA program and the asset-rebalancing program as long as your subaccount allocation is the same under both programs. If you elect to change your subaccount allocation under one program, we automatically will change it under the other program so they match. If you participate in more than one Tiered DCA account, the asset allocation for each account may be different as long as you are not also participating in the asset-rebalancing program. You may terminate your participation in the Tiered DCA program at any time. If you do, we will not credit the current guaranteed annual interest rate on any remaining Tiered DCA account balance. We will transfer the remaining balance from your Tiered DCA account to the other accounts you selected for your DCA transfers or we will allocate it in any manner you specify. Similarly, if we cannot accept any additional purchase payments into the Tiered DCA program, we will allocate the purchase payments to the other accounts you selected for your DCA transfers or in any other manner you specify. We can modify the terms or discontinue the Tiered DCA program at any time. Any modifications will not affect any purchase payments that are already in a Tiered DCA account. For more information on the Tiered DCA program, contact your sales representative. ASSET REBALANCING You can ask us in writing to automatically rebalance the subaccount portion of your contract value either quarterly, semi-annually, or annually. The period you select will start to run on the date we record your request. On the first valuation date of each of these periods, we automatically will rebalance your contract value so that the value in each subaccount matches your current subaccount percentage allocations. These percentage allocations must be in whole numbers. Asset rebalancing does not apply to the fixed accounts. There is no charge for asset rebalancing. The contract value must be at least $2,000. You can change your percentage allocations or your rebalancing period at any time by contacting us in writing. If you are also participating in the Tiered DCA program and you change your subaccount asset allocation for the asset-rebalancing program, we will change your subaccount asset allocation under the Tiered DCA program to match. 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. -------------------------------------------------------------------------------- WELLS FARGO ADVANTAGE VARIABLE ANNUITY -- PROSPECTUS 41 TRANSFERRING BETWEEN ACCOUNTS You may transfer contract value from any one subaccount, or the fixed accounts, to another subaccount before annuity payouts begin. (Certain restrictions apply to transfers involving the fixed accounts.) We will process your transfer on the valuation date we receive your request. We will value your transfer at the next accumulation unit value calculated after we receive your request. There is no charge for transfers. Before making a transfer, you should consider the risks involved in changing investments. Transfers out of the Guarantee Period Accounts will be subject to a MVA if done more than 30 days before the end of the Guarantee Period. We may suspend or modify transfer privileges at any time. Excessive trading activity can disrupt fund management strategy and increase expenses, which are borne by all contract owners who allocated purchase payments to the fund regardless of their transfer activity. We may apply modifications or restrictions in any reasonable manner to prevent transfers we believe will disadvantage other contract owners. These modifications could include, but not be limited to: - requiring a minimum time period between each transfer; - not accepting transfer requests of an agent acting under power of attorney on behalf of more than one contract owner; or - limiting the dollar amount that a contract owner may transfer at any one time. For information on transfers after annuity payouts begin, see "Transfer policies" below. TRANSFER POLICIES - Before annuity payouts begin, you may transfer contract values between the subaccounts, or from the subaccounts to the fixed accounts at any time. However, if you made a transfer from the one-year fixed account to the subaccounts, you may not make a transfer from any subaccount back to the one-year fixed account for six months following that transfer. - You may transfer contract values from the one-year fixed account to the subaccounts or the Guarantee Period Accounts once a year on or within 30 days before or after the contract anniversary (except for automated transfers, which can be set up at any time for certain transfer periods subject to certain minimums). Transfers from the one-year fixed account are not subject to a MVA. - You may transfer contract values from a Guarantee Period Account any time after 60 days of transfer or payment allocation to the account. Transfers made more than 30 days before the end of the Guarantee Period will receive a MVA, which may result in a gain or loss of contract value. - If we receive your request on or within 30 days before or after the contract anniversary date, the transfer from the one-year fixed account to the subaccounts or the Guarantee Period Accounts will be effective on the valuation date we receive it. - We will not accept requests for transfers from the one-year fixed account at any other time. - Once annuity payouts begin, you may not make transfers to or from the one-year fixed account, but you may make transfers once per contract year among the subaccounts. During the annuity payout period, we reserve the right to limit the number of subaccounts in which you may invest. - Once annuity payouts begin, you may not make any transfers to the Guarantee Period Accounts. -------------------------------------------------------------------------------- 42 WELLS FARGO ADVANTAGE VARIABLE ANNUITY -- PROSPECTUS HOW TO REQUEST A TRANSFER OR WITHDRAWAL 1 BY LETTER: Send your name, contract number, Social Security Number or Taxpayer Identification Number and signed request for a transfer or withdrawal to: AMERICAN ENTERPRISE LIFE INSURANCE COMPANY 829 AXP FINANCIAL CENTER MINNEAPOLIS, MN 55474 MINIMUM AMOUNT Transfers or withdrawals: $500 or entire account balance MAXIMUM AMOUNT Transfers or withdrawals: Contract value or entire account balance 2 BY AUTOMATED TRANSFERS AND AUTOMATED PARTIAL WITHDRAWALS: Your sales representative can help you set up automated transfers or partial withdrawals among your subaccounts or fixed accounts. You can start or stop this service by written request or other method acceptable to us. You must allow 30 days for us to change any instructions that are currently in place. - Automated transfers from the one-year fixed account to any one of the subaccounts may not exceed an amount that, if continued, would deplete the one-year fixed account within 12 months. - Automated withdrawals may be restricted by applicable law under some contracts. - You may not make additional purchase payments if automated partial withdrawals are in effect. - Automated partial withdrawals may result in IRS taxes and penalties on all or part of the amount withdrawn. MINIMUM AMOUNT Transfers or withdrawals: $100 monthly; $250 quarterly, semiannually or annually 3 BY PHONE: Call between 8 a.m. and 7 p.m. Central time: (800) 333-3437 MINIMUM AMOUNT Transfers or withdrawals: $500 or entire account balance MAXIMUM AMOUNT Transfers: Contract value or entire account balance Withdrawals: $25,000 We answer telephone requests promptly, but you may experience delays when the call volume is unusually high. If you are unable to get through, use the mail procedure as an alternative. We will honor any telephone transfer or withdrawal requests that we believe are authentic and we will use reasonable procedures to confirm that they are. This includes asking identifying questions and tape recording calls. We will not allow a telephone withdrawal within 30 days of a phoned-in address change. As long as we follow the procedures, we (and our affiliates) will not be liable for any loss resulting from fraudulent requests. Telephone transfers and withdrawals are automatically available. You may request that telephone transfers and withdrawals not be authorized from your account by writing to us. -------------------------------------------------------------------------------- WELLS FARGO ADVANTAGE VARIABLE ANNUITY -- PROSPECTUS 43 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 full withdrawals, we will compute the value of your contract at the next accumulation unit value calculated after we receive your request. We may ask you to return the contract. You may have to pay charges (see "Charges -- Withdrawal Charge") and IRS taxes and penalties (see "Taxes"). You cannot make withdrawals after annuity payouts begin except under Plan E (see "The Annuity Payout Period -- Annuity Payout Plans"). WITHDRAWAL POLICIES If you have a balance in more than one account and you request a partial withdrawal, we will withdraw money from all your subaccounts and/or the fixed accounts in the same proportion as your value in each account correlates to your total contract value, unless you request otherwise. RECEIVING PAYMENT By regular or express mail: - payable to owner; - mailed to address of record. NOTE: We will charge you a fee if you request express mail delivery. Normally, we will send the payment within seven days after receiving your request. However, we may postpone the payment if: -- the withdrawal amount includes a purchase payment check that has not cleared; -- the NYSE is closed, except for normal holiday and weekend closings; -- trading on the NYSE is restricted, according to SEC rules; -- an emergency, as defined by SEC rules, makes it impractical to sell securities or value the net assets of the accounts; or -- the SEC permits us to delay payment for the protection of security holders. CHANGING OWNERSHIP You may change ownership of your nonqualified annuity at any time by completing a change of ownership form we approve and sending it to our office. The change will become binding upon us when we receive and record it. We will honor any change of ownership request that we believe is authentic and we will use reasonable procedures to confirm authenticity. If we follow these procedures, we will not take any responsibility for the validity of the change. If you have a nonqualified annuity, you may incur income tax liability by transferring, assigning or pledging any part of it. (See "Taxes.") If you have a qualified annuity, you may not sell, assign, transfer, discount or pledge your contract as collateral for a loan, or as security for the performance of an obligation or for any other purpose except as required or permitted by the Code. However, if the owner is a trust or custodian, or an employer acting in a similar capacity, ownership of the contract may be transferred to the annuitant. BENEFITS IN CASE OF DEATH We will pay the death benefit to your beneficiary upon the earlier of your death or the annuitant's death. We will base the benefit paid on the death benefit coverage you select when you purchase the contract. If a contract has more than one person as the owner, we will pay benefits upon the first to die of any owner or the annuitant. STANDARD DEATH BENEFIT: If you or the annuitant die before annuity payouts begin while this contract is in force, we will pay the beneficiary the greatest of: 1. total purchase payments minus adjusted partial withdrawals; 2. contract value; or 3. the maximum anniversary value immediately preceding the date of death plus any payments made since that anniversary minus adjusted partial withdrawals since that anniversary. STANDARD DEATH BENEFIT ADJUSTED PARTIAL WITHDRAWALS = (PW X DB) / CV PW = the partial withdrawal including any applicable withdrawal charge or MVA. DB = the death benefit on the date of (but prior to) the partial withdrawal. CV = contract value on the date of (but prior to) the partial withdrawal. -------------------------------------------------------------------------------- 44 WELLS FARGO ADVANTAGE VARIABLE ANNUITY -- PROSPECTUS MAXIMUM ANNIVERSARY VALUE (MAV): This is the greatest of your contract values on any contract anniversary plus subsequent purchase payments minus adjusted partial withdrawals. We calculate the MAV on each contract anniversary through age 80. There is no MAV prior to the first contract anniversary. On the first contract anniversary we set the MAV equal to the highest of your (a) current contract value, or (b) total purchase payments minus adjusted partial withdrawals. Every contract anniversary after that, through age 80, we compare the previous anniversary's MAV to the current contract value and we reset the MAV if the current contract value is higher. We stop resetting the MAV after you or the annuitant reach age 81. However, we continue to add subsequent purchase payments and subtract adjusted partial withdrawals from the MAV. EXAMPLE: - You purchase the contract with a payment of $20,000 on Jan. 1, 2001. - On Jan. 1, 2002 (the first contract anniversary) the contract value grows to $24,000. - On March 1, 2002 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 standard death benefit on March 1, 2002 as follows: Purchase payments minus adjusted partial withdrawals: Total purchase payments: $20,000.00 minus the standard death benefit adjusted partial withdrawals, calculated as: ($1,500 x $20,000) / $22,000 = -1,363.64 ---------- for a death benefit of: $18,636.36 ========== Contract value at death: $20,500.00 ========== The MAV immediately preceding the date of death plus any payments made since that anniversary minus adjusted partial withdrawals: Greatest of your contract anniversary contract values: $24,000.00 plus purchase payments made since that anniversary: +0.00 minus the standard death benefit adjusted partial withdrawals, calculated as: ---------- ($1,500 x $24,000) / $22,000 = -1,636.36 ---------- for a death benefit of: $22,363.64 ========== The standard death benefit, calculated as the greatest of these three values is the MAV: $22,363.64
IF YOU DIE BEFORE YOUR RETIREMENT DATE: 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, at a rate no less than required by law. We will mail payment to the beneficiary within seven days after or death claim requirements are fulfilled. NONQUALIFIED ANNUITIES: If your spouse is sole beneficiary and you die before the retirement date, your spouse may keep the contract as owner with the contract value equal to the death benefit that would otherwise have been paid. To do this your spouse must, within 60 days after we receive proof of death, give us written instructions to keep the contract in force. There will be no withdrawal charges on the contract from that point forward unless additional purchase payments are made. The Guaranteed Minimum Income Benefit Rider (see "Optional Benefits"), if selected, will terminate. If your beneficiary is not your spouse, 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. QUALIFIED ANNUITIES: The IRS has issued proposed regulations which will affect distributions from your qualified annuity. These are proposed regulations that may take effect Jan. 1, 2002. The information below is an explanation based on existing law. Contract your tax advisor if you have any questions as to the impact of the new proposed rules on your situation. -------------------------------------------------------------------------------- WELLS FARGO ADVANTAGE VARIABLE ANNUITY -- PROSPECTUS 45 If your spouse is the sole beneficiary, your spouse may keep the contract as owner until the date on which the annuitant would have reached age 70 1/2, or any other date permitted by the Code. The contract value will be equal to the death benefit that would otherwise have been paid. There will be no withdrawal charges on the contract from that point forward unless additional purchase payments are made. The Guaranteed Minimum Income Benefit Rider (see "Optional Benefits"), if selected, will terminate. If your beneficiary is not your spouse, 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 following the year of your death; and - the payout period does not extend beyond the beneficiary's life or life expectancy. OPTIONAL BENEFITS BENEFIT PROTECTOR-SM- DEATH BENEFIT RIDER (BENEFIT PROTECTOR) The Benefit Protector is not available under contracts issued through AEFA. The Benefit Protector is intended to provide an additional benefit to your beneficiary to help offset expenses after your death such as funeral expenses or federal and state taxes. This is an optional benefit that you may select for an additional annual charge (see "Charges"). The Benefit Protector provides reduced benefits if you or the annuitant are 70 or older at the rider effective date and it does not provide any additional benefit before the first rider anniversary. Be sure to discuss with your sales representative whether or not the Benefit Protector is appropriate for your situation. If this rider is available in your state and both you and the annuitant are 75 or younger at contract issue, you may choose to add the Benefit Protector to your contract. Generally, you must elect the Benefit Protector at the time you purchase your contract and your rider effective date will be the contract issue date. This rider is only available under a nonqualified annuity contract. You may not select this rider if you select the Benefit Protector Plus or the Enhanced Death Benefit Riders. We reserve the right to discontinue offering the Benefit Protector for new contracts. In some instances the rider effective date for the Benefit Protector may be after we issue the contract according to terms determined by us and at our sole discretion. The Benefit Protector provides that if you or the annuitant die after the first contract anniversary, but before annuity payouts begin, and while this contract is in force, we will pay the beneficiary: - the standard death benefit (see "Benefits in Case of Death), PLUS - 40% of your earnings at death if you and the annuitant were under age 70 on the rider effective date, up to a maximum of 100% of purchase payments not previously withdrawn that are one or more years old; or - 15% of your earnings at death if you or the annuitant were 70 or older on the rider effective date, up to a maximum of 37.5% of purchase payments not previously withdrawn that are one or more years old. EARNINGS AT DEATH: for purposes of the Benefit Protector and Benefit Protector Plus riders, this is an amount equal to the standard death benefit minus purchase payments not previously withdrawn. The earnings at death may not be less than zero and may not be more than 250% of the purchase payments not previously withdrawn that are one or more years old. TERMINATING THE BENEFIT PROTECTOR: - You may terminate the rider within 30 days of the first rider anniversary. - You may terminate the rider within 30 days of any rider anniversary beginning with the seventh rider anniversary. - The rider will terminate when you make a full withdrawal from the contract or when annuity payouts begin. IF YOUR SPOUSE IS SOLE BENEFICIARY and you die before the retirement date, your spouse may keep the contract as owner with the contract value equal to the death benefit that would otherwise have been paid. We will substitute this new contract value on the date of death for "purchase payments not previously withdrawn" used in calculating earnings at death. Your spouse has the option of discontinuing the Benefit Protector within 30 days of the date of death. For an example of how we calculate the death benefit under the Benefit Protector, please see the example in the Benefit Protector-SM- Plus Death Benefit Rider below. NOTE: For special tax considerations associated with the Benefit Protector, see "Taxes." -------------------------------------------------------------------------------- 46 WELLS FARGO ADVANTAGE VARIABLE ANNUITY -- PROSPECTUS BENEFIT PROTECTOR-SM- PLUS DEATH BENEFIT RIDER (BENEFIT PROTECTOR PLUS) The Benefit Protector Plus is not available under contracts issued through AEFA. The Benefit Protector Plus is intended to provide an additional benefit to your beneficiary to help offset expenses after your death such as funeral expenses or federal and state taxes. This is an optional benefit that you may select for an additional annual charge (see "Charges"). The Benefit Protector Plus provides reduced benefits if you or the annuitant are 70 or older at the rider effective date and it does not provide any additional benefit before the first rider anniversary and it does not provide any benefit beyond what is offered under the Benefit Protector rider during the second rider year. Be sure to discuss with your sales representative whether or not the Benefit Protector Plus is appropriate for your situation. If this rider is available in your state and both you and the annuitant are 75 or younger at contract issue, you may choose to add the Benefit Protector Plus to you contract. You must elect the Benefit Protector Plus at the time you purchase your contract and your rider effective date will be the contract issue date. This rider is only available under nonqualified annuities purchased through a transfer or exchange. You may not select this rider if you select the Benefit Protector or the Enhanced Death Benefit Riders. We reserve the right to discontinue offering the Benefit Protector Plus for new contracts. The Benefit Protector Plus provides that if you or the annuitant die after the first contract anniversary, but before annuity payouts begin, and while this contract is in force, we will pay the beneficiary: - the benefits payable under the Benefit Protector described above, PLUS - a percentage of purchase payments made within 60 days of contract issue not previously withdrawn as follows:
PERCENTAGE IF YOU AND THE ANNUITANT ARE PERCENTAGE IF YOU OR THE ANNUITANT ARE CONTRACT YEAR UNDER AGE 70 ON THE RIDER EFFECTIVE DATE 70 OR OLDER ON THE RIDER EFFECTIVE DATE One and Two 0% 0% Three and Four 10% 3.75% Five or more 20% 7.5%
TERMINATING THE BENEFIT PROTECTOR PLUS: - You may terminate the rider within 30 days of the first rider anniversary. - You may terminate the rider within 30 days of any rider anniversary beginning with the seventh rider anniversary. - The rider will terminate when you make a full withdrawal from the contract or when annuity payouts begin. Another way to describe the benefits payable under the Benefit Protector Plus rider is as follows: - the standard death benefit (see "Benefits in Case of Death") PLUS
IF YOU AND THE ANNUITANT ARE UNDER IF YOU OR THE ANNUITANT ARE AGE 70 CONTRACT YEAR AGE 70 ON THE RIDER EFFECTIVE DATE, ADD... OR OLDER ON THE RIDER EFFECTIVE DATE, ADD... 1 Zero Zero 2 40% x earnings at death (see above) 15% x earnings at death 3 & 4 40% x (earnings at death + 25% of 15% x (earnings at death + 25% of initial purchase payment*) initial purchase payment*) 5+ 40% x (earnings at death + 50% of 15% x (earnings at death + 50% of initial purchase payment*) initial purchase payment*)
* Initial purchase payments are payments made within 60 days of contract issue not previously withdrawn. EXAMPLE OF THE BENEFIT PROTECTOR AND BENEFIT PROTECTOR PLUS: - You purchase the contract with a payment of $100,000 on Jan. 01, 2001 and you and the annuitant are under age 70. You select the seven-year withdrawal charge schedule. - On July 1, 2001 the contract value grows to $105,000. The death benefit on July 1, 2001 equals the standard death benefit, which is the contract value, or $105,000. You have not reached the first contract anniversary so neither the Benefit Protector nor the Benefit Protector Plus provides any additional benefit at this time. - On Jan. 1, 2002 the contract value grows to $110,000. You have not reached the second contract anniversary so the Benefit Protector Plus does not provide any additional benefit at this time. The death benefit on Jan 1, 2002 equals: the standard death benefit (contract value): $110,000 plus the Benefit Protector benefit which equals 40% of earnings at death (the standard death benefit minus payments not previously withdrawn): 0.40 x ($110,000 - $100,000) = +4,000 -------- Total death benefit of: $114,000
-------------------------------------------------------------------------------- WELLS FARGO ADVANTAGE VARIABLE ANNUITY -- PROSPECTUS 47 - On Jan. 1, 2003 the contract value falls to $105,000. The death benefit on Jan. 1, 2003 equals: the standard death benefit (MAV): $110,000 plus the Benefit Protector benefit (40% of earnings at death): 0.40 x ($110,000 - $100,000) = +4,000 plus the Benefit Protector Plus which in the third contract year equals 10% of purchase payments made within 60 days of contract issue and not previously withdrawn: 0.10 x $100,000 = +10,000 -------- Total death benefit of: $124,000
- On Feb. 1, 2003 the contract value remains at $105,000 and you request a partial withdrawal, including the applicable 7% withdrawal charge, of $50,000. We will withdraw $15,750 from your contract value free of charge (15% of your prior anniversary's contract value). The remainder of the withdrawal is subject to an 7% withdrawal charge because your payment is two years old, so we will withdraw $34,250 ($31,852 + $2,398 in withdrawal charges) from your contract value. Altogether, we will withdraw $50,000 and pay you $47,602. We calculate purchase payments not previously withdrawn as $100,000 - $45,000 = $55,000 (remember that $5,000 of the partial withdrawal is contract earnings). The death benefit on Feb. 1, 2003 equals: standard death benefit (MAV adjusted for partial withdrawals): $57,619 plus the Benefit Protector benefit (40% of earnings at death): 0.40 x ($57,619 - $55,000) = +1,048 plus the Benefit Protector Plus which in the third contract year equals 10% of purchase payments made within 60 days of contract issue and not previously withdrawn: 0.10 x $55,000 = +5,500 -------- Total death benefit of: $64,167
- On Jan. 1, 2004 the contract value falls $40,000. The death benefit on Jan. 1, 2004 equals the death benefit paid on Feb. 1, 2003. The reduction in contract value has no effect. - On Jan. 1, 2010 the contract value grows to a new high of $200,000. Earnings at death reaches its maximum of 250% of purchase payments not previously withdrawn that are one or more years old. Because we are beyond the fourth contract anniversary the Benefit Protector Plus also reaches its maximum of 20%. The death benefit on Jan. 1, 2010 equals: standard death benefit (contract value): $200,000 plus the Benefit Protector (40% of earnings at death, up to a maximum of 100% of purchase payments not previously withdrawn that are one or more years old) +55,000 plus the Benefit Protector Plus which after the fourth contract year equals 20% of purchase payments made within 60 days of contract issue and not previously withdrawn: 0.20 x $55,000 = +11,000 -------- Total death benefit of: $266,000
- On July 1, 2010 you make an additional purchase payment of $50,000 and your contract value grows to $250,000. The new purchase payment is less than one year old and so it has no effect on either the Benefit Protector or Benefit Protector Plus values. The death benefit on July 1, 2010 equals: standard death benefit (contract value): $250,000 plus the Benefit Protector (40% of earnings at death, up to a maximum of 100% of purchase payments not previously withdrawn that are one or more years old) +55,000 plus the Benefit Protector Plus which after the fourth contract year equals 20% of purchase payments made within 60 days of contract issue and not previously withdrawn: 0.20 x $55,000 = +11,000 -------- Total death benefit of: $316,000
-------------------------------------------------------------------------------- 48 WELLS FARGO ADVANTAGE VARIABLE ANNUITY -- PROSPECTUS - On July 1, 2011 the contract value remains $250,000 and the "new" purchase payment is one year old. The value of the Benefit Protector changes but value of the Benefit Protector Plus remains constant. The death benefit on July 1, 2011 equals: standard death benefit (contract value): $250,000 plus the Benefit Protector benefit which equals 40% of earnings at death (the standard death benefit minus payments not previously withdrawn): 0.40 x ($250,000 - $105,000) = +58,000 plus the Benefit Protector Plus which after the fourth contract year equals 20% of purchase payments made within 60 days of contract issue and not previously withdrawn: 0.20 x $55,000 = +11,000 -------- Total death benefit of: $319,000
IF YOUR SPOUSE IS SOLE BENEFICIARY and you die before the retirement date, your spouse may keep the contract as owner with the contract value equal to the death benefit that would otherwise have been paid. We will then terminate the Benefit Protector Plus and substitute the standard death benefit (see "Benefits in Case of Death"). NOTE: For special tax considerations associated with the Benefit Protector Plus, see "Taxes." ENHANCED DEATH BENEFIT RIDER (EDB) The EDB is intended to help protect your beneficiaries financially while your investments have the opportunity to grow. This is an optional benefit that you may select for an additional charge (see "Charges"). The EDB does not provide any additional benefit before the first contract anniversary and it may not be appropriate for issue ages 75 to 79 because the benefit values may be limited after age 81. Be sure to discuss with your sales representative whether or not the EDB is appropriate for your situation. If this rider is available in your state and both you and the annuitant are 79 or younger at contract issue, you may choose to add the EDB to your contract at the time of purchase. Once you select the EDB you may not cancel it. You may not add the EDB if you add either the Benefit Protector or the Benefit Protector Plus to your contract. You must select the EDB if you choose to add the Guaranteed Minimum Income Benefit Rider to your contract. The EDB provides that if you or the annuitant die before annuity payouts begin while this contract is in force, we will pay the beneficiary the greatest of: - the standard death benefit (see "Benefits in Case of Death"); or - the 5% rising floor. 5% RISING FLOOR: This is the sum of the value of your fixed accounts plus the variable account floor. We calculate the variable account floor on each contract anniversary through age 80. There is no variable account floor prior to the first contract anniversary. On the first contract anniversary, we set the variable account floor equal to: - the initial purchase payments allocated to the subaccounts increased by 5%, - plus any subsequent amounts allocated to the subaccounts, and - minus adjusted transfers or partial withdrawals from the subaccounts. Every contract anniversary after that, through age 80, we reset the variable account floor by accumulating the prior anniversary's variable account floor at 5% plus any subsequent amounts allocated to the subaccounts minus adjusted transfers or partial withdrawals from the subaccounts. We stop resetting the variable account floor after you or the annuitant reach age 81. However, we continue to add subsequent amounts you allocate to the subaccounts and subtract adjusted transfers or partial withdrawals from the subaccounts. 5% RISING FLOOR ADJUSTED TRANSFERS OR PARTIAL WITHDRAWALS = (PWT x VAT) / SV PWT = the amount transferred from the subaccounts or the amount of the partial withdrawal (including any applicable withdrawal charge) from the subaccounts. VAT = variable account floor on the date of (but prior to) the transfer or partial withdrawal. SV = value of the subaccounts on the date of (but prior to) the transfer or partial withdrawal. EXAMPLE: - You purchase the contract with a payment of $20,000 on Jan. 1, 2001 with $5,000 allocated to the one-year fixed account and $15,000 allocated to the subaccounts. - On Jan. 1, 2002 (the first contract anniversary), the one-year fixed account value is $5,200 and the subaccount value is $12,000. Total contract value is $17,200. - On March 1, 2002, the one-year fixed account value is $5,300 and the subaccount value is $14,000. Total contract value is $19,300. You take a $1,500 partial withdrawal all from the subaccounts, leaving the contract value at $17,800. -------------------------------------------------------------------------------- WELLS FARGO ADVANTAGE VARIABLE ANNUITY -- PROSPECTUS 49 The death benefit on March 1, 2002 is calculated as follows: The standard death benefit (which in this case is the MAV): Greatest of your contract anniversary contract values: $20,000.00 plus purchase payments made since that anniversary: +0.00 minus the standard death benefit adjusted partial withdrawal Taken since that anniversary, calculated as: ($1,500 x $20,000) / $19,300 = -1,554.40 ---------- Standard death benefit, which is the MAV: $18,445.60 ========== The 5% rising floor: The variable account floor on Jan. 1, 2002, calculated as: 1.05 x 15,000 = $15,750.00 plus amounts allocated to the subaccounts since that anniversary: +0.00 minus the 5% rising floor adjusted partial withdrawal from the subaccounts, calculated as: (1,500 x 15,750) / 14,000 = -$1,687.50 ---------- variable account floor benefit: $14,062.50 plus the one-year fixed account value: +5,300.00 ---------- 5% rising floor (value of the fixed accounts plus the variable account floor): $19,362.50 ========== EDB, calculated as the greater of the standard death benefit or the 5% rising floor: $19,362.50
GUARANTEED MINIMUM INCOME BENEFIT RIDER (GMIB) The GMIB is intended to provide you with a guaranteed minimum lifetime income regardless of the volatility inherent in the investments in the subaccounts. If the annuitant is between age 70 and age 75 at contract issue, you should consider whether the GMIB is appropriate for your situation because: - you must hold the GMIB for 10 years*, - the GMIB terminates after the annuitant's 86th birthday, - you can only exercise the GMIB within 30 days after a contract anniversary*, - the MAV and the 5% rising floor values we use in the GMIB benefit base to calculate annuity payouts under the GMIB are limited after age 81, and - the additional costs associated with the rider. Be sure to discuss whether or not the GMIB is appropriate for your situation with your sales representative. * Unless the annuitant qualifies for a contingent event (see "Charges -- Contingent events"). If this rider is available in your state and the annuitant is 75 or younger at contract issue, you may choose to add this benefit to your contract for an additional annual charge which we describe below. You must elect the GMIB along with the EDB at the time you purchase your contract and your rider effective date will be the contract issue date. In some instances we may allow you to add the GMIB to your contract at a later date if it was not available when you initially purchased your contract. In these instances, we would add the GMIB at the next contract anniversary and this would become the rider effective date. For purposes of calculating the GMIB benefit base under these circumstances, we consider the contract value on the rider effective date to be the initial purchase payment; we disregard all previous purchase payments, transfers and withdrawals in the GMIB calculations. INVESTMENT SELECTION UNDER THE GMIB: You may allocate your purchase payments or transfers to any of the subaccounts or the fixed accounts. However, we reserve the right to limit the amount you allocate to subaccounts investing in the Wells Fargo VT Money Market Fund to 10% of the total amount in the subaccounts. If we are required to activate this restriction, and you have more than 10% of your subaccount value in this fund, we will send you a notice and ask that you reallocate your contract value so that the 10% limitation is satisfied within 60 days. We will terminate the GMIB if you have not satisfied the limitation after 60 days. -------------------------------------------------------------------------------- 50 WELLS FARGO ADVANTAGE VARIABLE ANNUITY -- PROSPECTUS EXERCISING THE GMIB: - you may only exercise the GMIB within 30 days after any contract anniversary following the expiration of a ten-year waiting period from the rider effective date. However, there is an exception if at any time the annuitant experiences a "contingent event" (disability, terminal illness, confinement to a nursing home or hospital, or unemployment, see "Charges -- Contingent events" for more details.) - the annuitant on the retirement date must be between 50 and 86 years old. - you can only take an annuity payout under one of the following annuity payout plans: -- Plan A - Life Annuity -- no refund -- Plan B - Life Annuity with ten years certain -- Plan D - Joint and last survivor life annuity -- no refund - you may change the annuitant for the payouts. If you exercise the GMIB under a contingent event, you can take up to 50% of the benefit base in cash. You can use the balance of the GMIB benefit base (described below) for annuity payouts calculated using the guaranteed annuity purchase rates under any one of the payout plans listed above as long as the annuitant is between 50 and 86 years old on the retirement date. The GMIB guarantees a minimum amount of fixed annuity lifetime income or a minimum first year variable annuity payout. We calculate fixed annuity payouts and first year variable annuity payouts using the guaranteed annuity purchase rates stated in Table B of the contract. After the first year, lifetime income variable annuity payouts will depend on the investment performance of the subaccounts you select. The payouts will be higher if your investment performance is greater than a 5% annual return and lower if investment performance is less than a 5% annual return. The GMIB benchmarks the contract growth at each anniversary against several comparison values and sets the GMIB benefit base (described below) equal to the largest value. The GMIB benefit base, less any applicable premium tax, is the value we apply to the guaranteed annuity purchase rates stated in Table B of the contract to calculate the minimum annuity payouts you will receive if you exercise the GMIB. If the GMIB benefit base is greater than the contract value, the GMIB may provide a higher annuity payout level than is otherwise available. However, the GMIB uses guaranteed annuity purchase rates that are more conservative than the annuity purchase rates that we will apply at annuitization under the standard contract provisions. Therefore, the level of income provided by the GMIB may be less than the income the contract otherwise provides. If the annuity payouts through the standard contract provisions are more favorable than the payouts available through the GMIB, you may elect the higher standard payout option. The GMIB does not create contract value or guarantee the performance of any investment option. GMIB BENEFIT BASE: If the GMIB is effective at contract issue, the GMIB benefit base is the greatest of: 1. total purchase payments minus adjusted partial withdrawals; 2. contract value; 3. the MAV at the last contract anniversary plus any payments made since that anniversary minus adjusted partial withdrawals since that anniversary; or 4. the 5% rising floor. Keep in mind that the MAV and the 5%rising floor values are limited after age 81. We reserve the right to exclude from the GMIB benefit base any purchase payments you make in the five years before you exercise the GMIB. We would do so only if such payments total $50,000 or more or if they are 25% or more of total contract payments. If we exercise this right, we: - subtract each payment adjusted for market value from the contract value and the MAV. - subtract each payment from the 5% rising floor. We adjust the payments made to the fixed account for market value. We increase payments allocated to the subaccounts by 5% for the number of full contract years they have been in the contract before we subtract them from the 5% rising floor. For each payment, we calculate the market value adjustment to the contract value, MAV, and the fixed account value of the 5% rising floor as: (PMT x CVG) / ECV PMT = each purchase payment made in the five years before you exercise the GMIB. CVG = current contract value at the time you exercise the GMIB. ECV = the estimated contract value on the anniversary prior to the payment in question. We assume that all payments and partial withdrawals occur at the beginning of a contract year. -------------------------------------------------------------------------------- WELLS FARGO ADVANTAGE VARIABLE ANNUITY -- PROSPECTUS 51 For each payment, we calculate the 5% increase of payments allocated to the subaccounts as: to the power of CY PMT x (1.05) CY = the full number of contract years the payment has been in the contract. TERMINATING THE GMIB: - You may terminate the rider within 30 days after the first and fifth rider anniversaries. - You may terminate the rider any time after the tenth rider anniversary. - The rider will terminate on the date: -- you make a full withdrawal from the contract; -- a death benefit is payable; or -- you choose to begin taking annuity payouts under the regular contract provisions. - The rider will terminate on the contract anniversary after the annuitant's 86th birthday. EXAMPLE: - You purchase the contract with a payment of $100,000 on Jan. 1, 2001 and you allocate all your purchase payments to the subaccounts. - There are no additional purchase payments and no partial withdrawals. - Assume the annuitant is male and age 55 at contract issue. For the joint and last survivor option (annuity payout Plan D), the joint annuitant is female and age 55 at contract issue. Taking into account fluctuations in contract value due to market conditions, we calculate the GMIB benefit base as:
CONTRACT GMIB ANNIVERSARY CONTRACT VALUE MAV 5% RISING FLOOR BENEFIT BASE 1 $107,000 $107,000 $105,000 2 125,000 125,000 110,250 3 132,000 132,000 115,763 4 150,000 150,000 121,551 5 85,000 150,000 127,628 6 120,000 150,000 134,010 7 138,000 150,000 140,710 8 152,000 152,000 147,746 9 139,000 152,000 155,133 10 126,000 152,000 162,889 $162,889 11 138,000 152,000 171,034 171,034 12 147,000 152,000 179,586 179,586 13 163,000 163,000 188,565 188,565 14 159,000 163,000 197,993 197,993 15 212,000 212,000 207,893 212,000
NOTE: The MAV and 5% rising floor values are limited after age 81. Additionally, the GMIB benefit base may increase if the contract value increases. However, you should keep in mind that you are always entitled to annuitize using the contract value without exercising the GMIB. -------------------------------------------------------------------------------- 52 WELLS FARGO ADVANTAGE VARIABLE ANNUITY -- PROSPECTUS If you annuitize the contract within 30 days after a contract anniversary, the payout under a fixed annuity option (which is the same as the minimum payout for the first year under a variable annuity options) would be:
MINIMUM GUARANTEED MONTHLY INCOME CONTRACT PLAN A - PLAN B - PLAN D - JOINT AND ANNIVERSARY GMIB LIFE ANNUITY-- LIFE ANNUITY WITH LAST SURVIVOR LIFE AT EXERCISE BENEFIT BASE NO REFUND TEN YEARS CERTAIN ANNUITY-- NO REFUND 10 $162,889 (5% rising floor) $ 848.65 $ 825.85 $675.99 15 212,000 (MAV) 1,263.52 1,204.16 977.32
The payouts above are shown at guaranteed annuity rates stated in Table B of the contract. Payouts under the standard provisions of this contract will be based on our annuity rates in effect at annuitization and are guaranteed to be greater than or equal to the guaranteed annuity rates stated in Table B of the contract. The fixed annuity payout available under the standard provisions of this contract would be at least as great as shown below:
CONTRACT PLAN A - PLAN B - PLAN D - JOINT AND ANNIVERSARY LIFE ANNUITY-- LIFE ANNUITY WITH LAST SURVIVOR LIFE AT EXERCISE CONTRACT VALUE NO REFUND TEN YEARS CERTAIN ANNUITY-- NO REFUND 10 $126,000 $ 656.46 $ 638.82 $522.90 15 212,000 1,263.52 1,204.16 977.32
At the 15th contract anniversary you would not experience a benefit from the GMIB as the payout available to you is equal to or less than the payout available under the standard provisions of the contract. Remember that after the first year, lifetime income payouts under a variable annuity payout option will depend on the investment performance of the subaccounts you select. The payouts will be higher if investment performance is greater than a 5% annual return and lower if investment performance is less than a 5% annual return. THE GMIB FEE: This fee currently costs 0.30% of the GMIB benefit base annually and it is taken in a lump sum from the contract value on each contract anniversary at the end of each contract year. If the contract is terminated or if annuity payouts begin, we will deduct the fee at that time adjusted for the number of calendar days coverage was in place. We cannot increase the GMIB fee after the rider effective date and it does not apply after annuity payouts begin. We can increase the GMIB fee on new contracts up to a maximum of 0.75%. We calculate the fee as follows: BB + AT - FAV BB = the GMIB benefit base. AT = adjusted transfers from the subaccounts to the fixed accounts made in the six months before the contract anniversary calculated as: (PT x VAT) / SVT PT = the amount transferred from the subaccounts to the fixed accounts within six months of the contract anniversary VAT = variable account floor on the date of (but prior to) the transfer SVT = value of the subaccounts on the date of (but prior to) the transfer FAV = the value of your fixed accounts. The result of AT - FAV will never be greater than zero. This allows us to base the GMIB fee largely on the subaccounts. EXAMPLE: - You purchase the contract with a payment of $100,000 on Jan. 1, 2001 and allocate all of your payment to the subaccounts. - You make no transfers or partial withdrawals.
CONTRACT GMIB FEE VALUE ON WHICH WE GMIB FEE ANNIVERSARY CONTRACT VALUE PERCENTAGE BASE THE GMIB FEE CHARGED TO YOU 1 $ 80,000 0.30% 5% rising floor = $100,000 x 1.05 $315 2 150,000 0.30% Contract value = $150,000 450 3 102,000 0.30% MAV = $150,000 450
-------------------------------------------------------------------------------- WELLS FARGO ADVANTAGE VARIABLE ANNUITY -- PROSPECTUS 53 THE ANNUITY PAYOUT PERIOD As owner of the contract, you have the right to decide how and to whom annuity payouts will be made starting at the retirement date. You may select one of the annuity payout plans outlined below, or we may mutually agree on other payout arrangements. We do not deduct any withdrawal charges under the payout plans listed below. You also decide whether we will make annuity payouts on a fixed or variable basis, or a combination of fixed and variable. The 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 one-year fixed account to provide fixed dollar payouts and/or among the subaccounts to provide variable annuity payouts. During the annuity payout period, we reserve the right to limit the number of subaccounts in which you may invest. The Guarantee Period Accounts are not available during this payout period. AMOUNTS OF FIXED AND VARIABLE PAYOUTS DEPEND ON: - the annuity payout plan you select; - the annuitant's age and, in most cases, sex; - the annuity table in the contract; and - the amounts you allocated to the accounts at settlement. In addition, for variable payouts only, amounts depend on the investment performance of the subaccounts you select. These payouts will vary from month to month because the performance of the funds will fluctuate. (In the case of fixed annuities, payouts remain the same from month to month.) For information with respect to transfers between accounts after annuity payouts begin, see "Making the Most of Your Contract -- Transfer policies." ANNUITY TABLES The annuity tables in your contract show the amount of the monthly payout 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.) Table B shows the minimum amount of each fixed payout. Amounts in Table B are based on the guaranteed annual effective interest rate shown in your contract. We declare current payout rates that we use in determining the actual amount of your fixed payout. The current payout rates will equal or exceed the guaranteed payout rates shown in Table B. We will furnish these rates to you upon request. Table A shows the amount of the first monthly variable payout assuming 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. 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 A 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 Table A results in a higher initial payment, but later payouts will increase more slowly when annuity unit values rise and decrease more rapidly when they decline. -------------------------------------------------------------------------------- 54 WELLS FARGO ADVANTAGE VARIABLE ANNUITY -- PROSPECTUS 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 have 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 payout. If the original contract had a five-year withdrawal charge schedule, the discount rate we use in the calculation will vary between 5.27% and 6.77% depending on the applicable assumed investment rate. If the original contract had a seven-year withdrawal charge schedule, the discount rate we use in the calculation will vary between 5.02% and 6.52% depending on the applicable assumed investment rate. (See "Charges -- Withdrawal charge under Annuity Payout Plan E.") You can also take a portion of the discounted value once a year. If you do so, your monthly payouts will be reduced by the proportion of your withdrawal to the full discounted value. A 10% IRS penalty tax could apply if you take a withdrawal. (See "Taxes.") ANNUITY PAYOUT PLAN REQUIREMENTS FOR QUALIFIED ANNUITIES: If you purchased a qualified annuity, you must select a payout plan as of the retirement date set forth in your contract. You have the responsibility for electing a payout plan that complies with your contract and with applicable law. Your contract describes you payout plan options. The options will meet certain IRS regulations governing required minimum distributions if the payout plan meets the incidental distribution benefit requirements, if any, and the payouts are made: - in equal of substantially equal payments over a period not longer than the life of the annuitant or over the life of the annuitant and designated beneficiary; or - in equal or substantially equal payments over a period not longer than the life expectancy of the annuitant or over the life expectancy of the annuitant and a designated beneficiary; or - over a period certain not longer than the life expectancy of the annuitant or over the life expectancy of the annuitant and designated beneficiary. IF WE DO NOT RECEIVE INSTRUCTIONS: You must give us written instructions for the annuity payouts at least 30 days before the annuitant's retirement date. If you do not, we will make payouts under Plan B, with 120 monthly payouts guaranteed. Contract values that you allocated to the one-year fixed account will provide fixed dollar payouts and contract values that you allocated among the subaccounts will provide variable annuity payouts. IF MONTHLY PAYOUTS WOULD BE LESS THAN $20: We will calculate the amount of monthly payouts at the time the contract value is used to purchase a payout plan. If the calculations show that monthly payouts would be less than $20, we have the right to pay the contract value to 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. -------------------------------------------------------------------------------- WELLS FARGO ADVANTAGE VARIABLE ANNUITY -- PROSPECTUS 55 TAXES Generally, under current law, your contract has a tax-deferral feature. This means any increase in the value of the fixed accounts and/or subaccounts in which you invest is taxable to you only when you receive a payout or withdrawal (see detailed discussion below). Any portion of the annuity payouts and any withdrawals you request that represent ordinary income normally are taxable. We will send you a tax information reporting form for any year in which we made a taxable distribution according to our records. Roth IRAs may grow and be distributed tax free if you meet certain distribution requirements. ANNUITY PAYOUTS UNDER NONQUALIFIED ANNUITIES: A portion of each payout will be ordinary income and subject to tax, and a portion of each payout will be considered a return of part of your investment and will not be taxed. All amounts you receive after your investment in the contract is fully recovered will be subject to tax. Tax law requires that all nonqualified deferred annuity contracts issued by the same company (and possibly its affiliates) to the same owner during a calendar year be taxed as a single, unified contract when you take distributions from any one of those contracts. QUALIFIED ANNUITIES: When you use your contract to fund a retirement plan that is already tax deferred under the Code, the contract will not provide any necessary or additional tax deferral for that retirement plan. Adverse tax consequences may result if you do not ensure that contributions, distributions and other transactions under the contract comply with the law. Qualified annuities have minimum distribution rules that govern the timing and amount of distributions during your life (except for Roth IRAs) and after your death. You should refer to your retirement plan or adoption agreement, or consult a tax advisor for more information about these distribution rules. ANNUITY PAYOUTS UNDER QUALIFIED ANNUITIES (EXCEPT ROTH IRAs): Under a qualified annuity, the entire payout generally is includable as ordinary income and is subject to tax except to the extent that contributions were made with after-tax dollars. If you or your employer invested in your contract with deductible or pre-tax dollars as part of a tax-deferred retirement plan, such amounts are not considered to be part of your investment in the contract and will be taxed when paid to you. WITHDRAWALS: If you withdraw part or all of your contract before your annuity payouts begin, your withdrawal payment will be taxed to the extent that the value of your contract immediately before the withdrawal exceeds your investment. You also may have to pay a 10% IRS penalty for withdrawals you make before reaching age 59 1/2 unless certain exceptions apply. For qualified annuities, other penalties may apply if you make withdrawals from your contract before your plan specifies that you can receive payouts. DEATH BENEFITS TO BENEFICIARIES UNDER NONQUALIFIED ANNUITIES: The death benefit under a contract 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 year he or she receives the payments. DEATH BENEFITS TO BENEFICIARIES UNDER QUALIFIED ANNUITIES: The entire death benefit generally is taxable as ordinary income to the beneficiary in the year he or she receives the payments. Death benefits under a Roth IRA generally are not taxable as ordinary income to the beneficiary if certain distribution requirements are met. SPECIAL CONSIDERATIONS IF YOU SELECT EITHER THE BENEFIT PROTECTOR OR THE BENEFIT PROTECTOR PLUS DEATH BENEFIT RIDERS: As of the date of this prospectus, we believe that charges related to these riders are not subject to current taxation. Therefore, we will not report these charges as partial withdrawals from your contract. However, the IRS may determine that these charges should be treated as partial withdrawals subject to taxation to the extent of any gain as well as the 10% tax penalty for withdrawals before the age of 59 1/2, if applicable. We reserve the right to report charges for these riders as partial withdrawals if we, as a withholding and reporting agent, believe that we are required to report them. In addition, we will report the benefits attributable to this rider on the death of you or annuitant as an annuity death benefit distribution, not as proceeds from life insurance. ANNUITIES OWNED BY CORPORATIONS, PARTNERSHIPS OR TRUSTS: For nonqualified annuities, any annual increase in the value of annuities held by such entities generally will be treated as ordinary income received during that year. This provision is effective for purchase payments made after Feb. 28, 1986. However, if the trust was set up for the benefit of a natural person only, the income will remain tax deferred. PENALTIES: If you receive amounts from your contract before reaching age 59 1/2, you may have to pay a 10% IRS penalty on the amount includable in your ordinary income. However, this penalty will not apply to any amount received: - 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 exceptions may apply if you make withdrawals from your contract before you reach age 59 1/2. -------------------------------------------------------------------------------- 56 WELLS FARGO ADVANTAGE VARIABLE ANNUITY -- PROSPECTUS 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. 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. -------------------------------------------------------------------------------- WELLS FARGO ADVANTAGE VARIABLE ANNUITY -- PROSPECTUS 57 SUBSTITUTION OF INVESTMENTS We may substitute the funds in which the subaccounts invest if: - laws or regulations change; - the existing funds become unavailable; or - in our judgment, the funds no longer are suitable for the subaccounts. If any of these situations occur, and if we believe it is in the best interest of persons having voting rights under the contract, we have the right to substitute the funds currently listed in this prospectus for other funds. We may also: - add new subaccounts; - combine any two or more subaccounts; - make additional subaccounts investing in additional funds; - transfer assets to and from the subaccounts or the variable account; and - eliminate or close any subaccounts. In the event of substitution or any of these changes, we may amend the contract and take whatever action is necessary and appropriate without your consent or approval. However, we will not make any substitution or change without the necessary approval of the SEC and state insurance departments. We will notify you of any substitution or change. ABOUT THE SERVICE PROVIDERS PRINCIPAL UNDERWRITER American Express Financial Advisors Inc. (AEFA) serves as the principal underwriter for the contract. Its offices are located at 70100 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, a financial services company headquartered in New York City. The contracts will be distributed by broker-dealers which have entered into distribution agreements with AEFA and American Enterprise Life. 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. American Enterprise Life is a stock life insurance company organized in 1981 under the laws of the state of Indiana. Its administrative offices are located at 829 AXP Financial Center, Minneapolis, MN 55474. Its statutory address is 100 Capitol Center South, 201 North Illinois Street, Indianapolis, IN 46204. American Enterprise Life conducts a conventional life insurance business. American Enterprise Life pays cash compensation to the broker-dealers and insurance agencies who have entered into distribution agreements with American Enterprise Life and AEFA for the sale of contracts. This compensation will not result in any charge to contract owners or to the variable account in addition to the charges described in this prospectus. This cash compensation will not be more than 9.0% of the purchase payments it receives on the contracts. From time to time and in accordance with applicable laws and regulations we will pay or permit other promotional incentives, in cash or credit or other compensation. 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 the suits, RICHARD W. AND ELIZABETH J. THORESEN V. 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 on Oct. 13, 1998. The action was brought by individuals who purchased an annuity in a qualified plan. They allege that the sale of annuities in tax-deferred contributory retirement investment plans (e.g., IRAs) is never appropriate. The plaintiffs purport to represent a class consisting of all persons who made similar purchases. The plaintiffs seek damages in an unspecified amount, including restitution of allegedly lost investment earnings and restoration of contract values. In January 2000, AEFC reached an agreement in principle to settle the three class-action lawsuits described above. It is expected the settlement will provide $215 million of benefits to more than two million participants and for release by class members of all insurance and annuity market conduct claims dating back to 1985. -------------------------------------------------------------------------------- 58 WELLS FARGO ADVANTAGE VARIABLE ANNUITY -- PROSPECTUS In August, 2000 an action entitled LESA BENACQUISTO, DANIEL BENACQUISTO, RICHARD THORESEN, ELIZABETH THORESEN, ARNOLD MORK, ISABELLA MORK, RONALD MELCHERT AND SUSAN MELCHERT V. AMERICAN EXPRESS FINANCIAL CORPORATION, AMERICAN EXPRESS FINANCIAL ADVISORS, AMERICAN CENTURION LIFE ASSURANCE COMPANY, AMERICAN ENTERPRISE LIFE INSURANCE COMPANY, AMERICAN PARTNERS LIFE INSURANCE COMPANY, IDS LIFE INSURANCE COMPANY AND IDS LIFE INSURANCE COMPANY OF NEW YORK was commenced in the United States District Court for the District of Minnesota. The complaint put at issue various alleged sales practices and misrepresentations and allegations of violations of federal laws. In September, 2000 the plaintiffs filed a consolidated complaint in State Court alleging the same claims as the previous actions. On Oct. 2, 2000 the District Court, Fourth Judicial District for the State of Minnesota, County of Hennepin and the United States District Court for the District of Minnesota entered an order conditionally certifying a class for settlement purposes, preliminarily approving the class settlement, directing the issuance of a class notice to the class and scheduling a hearing to determine the fairness of settlement for March, 2001. On March 6, 2001 the District Court, Fourth Judicial District for the State of Minnesota, County of Hennepin and the United States District Court for the District of Minnesota heard oral arguments on plaintiffs' motions for final approval of the class action settlement. Six motions to intervene were filed together with objections to the proposed settlement. We are awaiting a final order from the court. ADDITIONAL INFORMATION ABOUT AMERICAN ENTERPRISE LIFE SELECTED FINANCIAL DATA The following selected financial data for American Enterprise Life should be read in conjunction with the financial statements and notes.
Three months ended YEARS ENDED DEC. 31 (THOUSANDS) March 31, 2001 March 31, 2000 2000 1999 1998 1997 1996 ------------------------------------------------------------------------------------------------------------------------------------ Net investment income $ 69,460 $ 77,586 $ 299,759 $ 322,746 $ 340,219 $ 332,268 $ 271,719 Net loss on investments (18,542) (2,425) 469 6,565 (4,788) (509) (5,258) Other 3,765 2,289 12,248 8,338 7,662 6,329 5,753 Total revenues $ 54,863 $ 77,450 $ 312,476 $ 337,649 $ 343,093 $ 338,088 $ 272,214 Income before income taxes $ (11,624) $ 9,978 $ 38,452 $ 50,662 $ 36,421 $ 44,958 $ 35,735 Net income $ (7,637) $ 6,332 $ 24,365 $ 33,987 $ 22,026 $ 28,313 $ 22,823 Total assets $4,617,668 $4,532,394 $4,652,221 $4,603,343 $4,885,621 $4,973,413 $4,425,837 ------------------------------------------------------------------------------------------------------------------------------------
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS Three Months Ended March 31, 2001 Compared to Three Months Ended March 31, 2000: Net loss was $7.6 million in the first quarter of 2001, compared to net income of $6.3 million in the first quarter of 2000. Loss before income taxes totaled $11.6 million in the first quarter 2001, compared with income of $10.0 million in the first quarter of 2000. This decline primarily reflects a net pre-tax loss of $18.5 from the write-down and sale of certain high-yield securities. Total investment contract deposits received increased to $202 million in the first quarter of 2001, compared with $67 million in the first quarter of 2000. This increase is primarily due to an increase in variable annuity deposits received from sales. Total revenues decreased to $54.9 million in the first quarter of 2001, compared with $77.5 million in the first quarter of 2000. The decrease is primarily due to net realized losses on investments and decreases in net investment income. Net investment income, the largest component of revenues, decreased 10% from the same period of the prior year, reflecting a decrease in investments owned and lower investment yields. Policyholder and contractholder charges increased 13% to $1.7 million in the first quarter of 2001, compared with $1.5 million in the first quarter of 2000, reflecting an increase in annuity surrender charges. American Enterprise Life receives mortality and expense risk fees from the separate accounts. Mortality and expense risk fees increased 175% to $2.2 million in the first quarter of 2001, compared with $.8 million in the first quarter of 2000, reflecting an increase in separate account assets. Net realized loss on investments was $18.5 million in the first quarter of 2001, compared with a net loss of $2.4 million in the first quarter of 2000. The increase in net realized losses was primarily due to the loss on sale and writedowns of fixed maturity investments. Total benefits and expenses decreased 1% to $66.5 million in the first quarter of 2001, compared with $67.5 million in 2000. The largest component of expenses, interest credited on investment contracts, decreased $6.6 million to $42.5 million in the first quarter of 2001, compared to $49.1 in the first quarter of 2000, reflecting a decrease in fixed annuities in force and lower crediting rates. Amortization of deferred policy acquisition costs increased to $12.2 million, compared to $10.7 million in the first quarter of 2000. This increase was due primarily to increased aggregate amounts in force. Other operating expenses increased 55% to $11.9 million in the first quarter of 2001, compared to $7.7 million in the first quarter of 2000. This increase is mainly due to higher technology costs related to growth initiatives. -------------------------------------------------------------------------------- WELLS FARGO ADVANTAGE VARIABLE ANNUITY -- PROSPECTUS 59 Three Months Ended March 31, 2000 Compared to Three Months Ended March 31, 1999: Net income decreased 2% to $6.3 million in the first quarter of 2000, compared to $6.5 million in the first quarter of 1999. Earnings decline resulted primarily from weak equity markets and narrower spreads on the investment portfolio. Total investment contract deposits received decreased to $67 million in the first quarter of 2000, compared with $71 million in the first quarter of 1999. This decrease is primarily due to a decrease in variable annuity deposits in 2000. Total revenues decreased to $77.5 million in the first quarter of 2000, compared with $78.3 million in the first quarter of 1999. The decrease is primarily due to a decrease in net investment income. Net investment income, the largest component of revenues, decreased 4% from the same period of the prior year, reflecting a decrease in investments owned and lower investment yields. Policyholder and contractholder charges increased 25% to $1.5 million in the first quarter of 2000, compared with $1.2 million in the first quarter of 1999, reflecting an increase in annuity surrender charges. American Enterprise Life receives mortality and expense risk fees from the separate accounts. Mortality and expense risk fees increased 60% to $.8 million in the first quarter of 2000, compared with $.5 million in the first quarter of 1999, this reflects the increase in separate account assets. Net realized loss on investments was $2.4 million in the first quarter of 2000, compared with a net loss of $3.8 million in 1999. The net realized loss was primarily due to losses on the sale and writedown of fixed maturity investments. Total benefits and expenses decreased 1% to $67.5 million in the first quarter of 2000, compared with $68.3 million in 1999. The largest component of expenses, interest credited on investment contracts, decreased $3.2 million to $49.1 million for the first quarter of 2000, compared to $52.3 million in the first quarter of 1999. This reflects a decrease in fixed annuities in force and lower crediting rates. Amortization of deferred policy acquisition costs increased to $10.7 million, compared to $9.2 million in the first quarter of 1999. This increase was due primarily to increased aggregate amounts in force. Other operating expenses increased 15% to $7.7 million in the first quarter of 2000, compared to $6.7 million in the first quarter of 1999. This increase is mainly due to higher technology costs related to growth initiatives. DEC.31, 2000 COMPARED TO DEC. 31, 1999: Net income decreased 29% to $24 million in 2000, compared to $34 million in 1999. Income before income taxes totaled $38 million in 2000, compared with $51 million in 1999. The decrease was primarily the result of lower net investment income of $300 million in 2000, compared with $323 million in 1999. Total investment contract deposits received increased to $721 million in 2000, compared with $336 million in 1999. This increase is primarily due to an increase in variable annuity deposits in 2000. Total revenues decreased to $312 million in 2000, compared with $338 million in 1999. The decrease is primarily due to decreases in net investment income and net realized gains on investments. Net investment income, the largest component of revenues, decreased 7% from the prior year, reflecting a decrease in investments owned and lower investment yields. Policyholder and contractholder charges increased 13% to $6.9 million in 2000, compared with $6.1 million in 1999, reflecting an increase in annuity withdrawal charges. American Enterprise Life receives mortality and expense risk fees from the separate accounts. Mortality and expense risk fees increased 135% to $5.4 million in 2000, compared with $2.3 million in 1999, this reflects the increase in separate account assets. Net realized gain on investments was $0.5 million in 2000, compared with $6.6 million in 1999. The decrease in net realized gains was primarily due to the loss on sale and writedowns of fixed maturity investments. Total benefits and expenses decreased 5% to $274 million in 2000, compared with $287 million in 1999. The largest component of expenses, interest credited on investment contracts, decreased to $191 million, reflecting a decrease in fixed annuities in force and lower crediting rates. Amortization of deferred policy acquisition costs increased to $48 million, compared to $43 million in 1999. This increase was due primarily to increased aggregate amounts in force. Other operating expenses remained steady at $35 million in 2000. DEC.31, 1999 COMPARED TO DEC.31, 1998: Net income increased 54% to $34 million in 1999, compared to $22 million in 1998. Earnings growth resulted primarily net realized gains of $6.6 million in 1999, compared to net realized losses of $4.8 in 1998. Income before income taxes totaled $51 million in 1999, compared with $36 million in 1998. Total investment contract deposits received decreased to $336 million in 1999, compared with $348 million in 1998. This decrease is primarily due to a decrease in sales of variable annuities in 1999. -------------------------------------------------------------------------------- 60 WELLS FARGO ADVANTAGE VARIABLE ANNUITY -- PROSPECTUS Total revenues decreased to $338 million in 1999, compared with $343 million in 1998. The decrease is primarily due to decreased net investment income which was partially offset by an increase in realized gain on investments. Net investment income, the largest component of revenues, decreased 5% from the prior year, reflecting decreases in investments owned and investment yields. Contractholder charges decreased 5% to $6.1 million in 1999, compared with $6.4 million in 1998, reflecting a decrease in fixed annuities inforce. American Enterprise Life receives mortality and expense risk fees from the separate accounts. Mortality and expense risk fees increased 77% to $2.3 million in 1999, compared with $1.3 million in 1998, this reflects the increase in separate account assets. Net realized gain on investments was $6.6 million in 1999, compared to a net realized loss on investments of $4.8 million in 1998. The net realized gains were primarily due to the sale of available for sale fixed maturity investments at a gain as well as a decrease in the allowance for mortgage loan losses based on management's regular evaluation of allowance adequacy. Total benefits and expenses decreased slightly to $287 million in 1999. The largest component of expenses, interest credited on investment contracts, decreased to $209 million, reflecting a decrease in fixed annuities in force and lower interest rates. Amortization of deferred policy acquisition costs decreased to $43 million, compared to $54 million in 1998. This decrease was due primarily to decreased aggregate amounts in force, as well as the impact of changing prospective assumptions in 1998 based on actual lapse experience on certain fixed annuities. Other operating expenses increased 46% to $35 million in 1999, compared to $24 million in 1998. This increase primarily reflects technology costs related to growth initiatives. RISK MANAGEMENT The sensitivity analysis of the test of market risk discussed below estimates the effects of hypothetical sudden and sustained changes in the applicable market conditions on the ensuing year's earnings based on year-end positions. The market changes, assumed to occur as of year-end, is a 100 basis point increase in market interest rates. Computations of the prospective effects of hypothetical interest rate change based on numerous assumptions, including relative levels of market interest rates as well as the levels of assets and liabilities. The hypothetical changes and assumptions will be different from what actually occurs in the future. Furthermore, the computations do not anticipate actions that may be taken by management if the hypothetical market changes actually occurred over time. As a result, actual earnings effects in the future will differ from those quantified below. American Enterprise Life primarily invests in fixed income securities over a broad range of maturities for the purpose of providing fixed annuity clients with a competitive rate of return on their investments while minimizing risk, and to provide a dependable and targeted spread between the interest rate earned on investments and the interest rate credited to contractholders' accounts. American Enterprise Life does not invest in securities to generate trading profits. American Enterprise Life has an investment committee that holds regularly scheduled meetings and, when necessary, special meetings. At these meetings, the committee reviews models projecting different interest rate scenarios and their impact on profitability. The objective of the committee is to structure the investment security portfolio based upon the type and behavior of products in the liability portfolio so as to achieve targeted levels of profitability. Rates credited to contractholders' accounts are generally reset at shorter intervals than the maturity of underlying investments. Therefore, margins may be negatively impacted by increases in the general level of interest rates. Part of the committee's strategy includes the purchase of some types of derivatives, such as interest rate caps, swaps and floors, for hedging purposes. These derivatives protect margins by increasing investment returns if there is a sudden and severe rise in interest rates, thereby mitigating the impact of an increase in rates credited to contractholders' accounts. The negative effect on American Enterprise Life's pretax earnings of a 100 basis point increase in interest rates, which assumes repricings and customer behavior based on the application of proprietary models to the book of business at Dec. 31, 2000, would be approximately $4.6 million. LIQUIDITY AND CAPITAL RESOURCES The liquidity requirements of American Enterprise Life are met by funds provided by annuity considerations, investment income, proceeds from sales of investments as well as maturities and periodic repayments of investment principal. The primary uses of funds are policy benefits, commissions and operating expenses, policy loans, and investment purchases. American Enterprise Life has an available line of credit with AEFC aggregating $50 million. The line of credit is used strictly as a short-term source of funds. No borrowings were outstanding under the agreement at Dec. 31, 2000. At Dec. 31, 2000, outstanding reverse repurchase agreements totaled $25 million. At Dec. 31, 2000, investments in fixed maturities comprised 80% of American Enterprise Life's total invested assets. Of the fixed maturity portfolio, approximately 30% is invested in GNMA, FNMA and FHLMC mortgage-backed securities which are considered AAA/Aaa quality. -------------------------------------------------------------------------------- WELLS FARGO ADVANTAGE VARIABLE ANNUITY -- PROSPECTUS 61 At Dec. 31, 2000, approximately 15% of American Enterprise Life's investments in fixed maturities were below investment grade bonds. These investments may be subject to a higher degree of risk than the investment grade issues because of the borrower's generally greater sensitivity to adverse economic conditions, such as recession or increasing interest rates, and in certain instances, the lack of an active secondary market. Expected returns on below investment grade bonds reflect consideration of such factors. American Enterprise Life has identified those fixed maturities for which a decline in fair value is determined to be other than temporary, and has written them down to fair value with a charge to earnings. At Dec. 31, 2000, net unrealized depreciation on fixed maturities held to maturity included $10.7 million of gross unrealized appreciation and $17.8 million of gross unrealized depreciation. Net unrealized depreciation on fixed maturities available for sale included $30.2 million of gross unrealized appreciation and $125.6 million of gross unrealized depreciation. At Dec. 31, 2000, American Enterprise Life had an allowance for losses for mortgage loans totaling $3.3 million. The economy and other factors have caused a number of insurance companies to go under regulatory supervision. This circumstance has resulted in assessments by state guaranty associations to cover losses to policyholders of insolvent or rehabilitated companies. Some assessments can be partially recovered through a reduction in future premium taxes in certain states. American Enterprise Life established an asset for guaranty association assessments paid to those states allowing a reduction in future premium taxes over a reasonable period of time. The asset is being amortized as premium taxes are reduced. American Enterprise Life has also estimated the potential effect of future assessments on American Enterprise Life's financial position and results of operations and has established a reserve for such potential assessments. The National Association of Insurance Commissioners has established risk-based capital standards to determine the capital requirements of a life insurance company based upon the risks inherent in its operations. These standards require the computation of a risk-based capital amount which is then compared to a company's actual total adjusted capital. The computation involves applying factors to various statutory financial data to address four primary risks: asset default, adverse insurance experience, interest rate risk and external events. These standards provide for regulatory attention when the percentage of total adjusted capital to authorized control level risk-based capital is below certain levels. As of Dec. 31, 2000, American Enterprise Life's total adjusted capital was well in excess of the levels requiring regulatory attention. RESERVES In accordance with the insurance laws and regulations under which we operate, we are obligated to carry on our books, as liabilities, actuarially determined reserves to meet our obligations on our outstanding annuity contracts. We base our reserves for deferred annuity contracts on accumulation value and for fixed annuity contracts in a benefit status on established industry mortality tables. These reserves are computed amounts that will be sufficient to meet our policy obligations at their maturities. INVESTMENTS Of our total investments of $3,735,994 at Dec. 31, 2000, 27% was invested in mortgage-backed securities, 54% in corporate and other bonds, 19% in primary mortgage loans on real estate and less than 1% in other investments. COMPETITION We are engaged in a business that is highly competitive due to the large number of stock and mutual life insurance companies and other entities marketing insurance products. There are over 1,600 stock, mutual and other types of insurers in the life insurance business. BEST'S INSURANCE REPORTS, Life-Health edition 2000, assigned us one of its highest classifications, A+ (Superior). EMPLOYEES As of Dec. 31, 2000, we had no employees. PROPERTIES We occupy office space in Minneapolis, MN, which is leased by AEFC. We reimburse AEFC for rent based on direct and indirect allocation methods. Facilities occupied by us are believed to be adequate for the purposes for which they are used and well maintained. -------------------------------------------------------------------------------- 62 WELLS FARGO ADVANTAGE VARIABLE ANNUITY -- PROSPECTUS STATE REGULATION American Enterprise Life is subject to the laws of the State of Indiana governing insurance companies and to the regulations of the Indiana Department of Insurance. An annual statement in the prescribed form is filed with the Indiana Department of Insurance each year covering our operation for the preceding year and its financial condition at the end of such year. Regulation by the Indiana Department of Insurance includes periodic examination to determine American Enterprise's contract liabilities and reserves so that the Indiana Department of Insurance may certify that these items are correct. The Company's books and accounts are subject to review by the Indiana Department of Insurance at all times. Such regulation does not, however, involve any supervision of the account's management or the company's investment practices or policies. In addition, American Enterprise Life is subject to regulation under the insurance laws of other jurisdictions in which it operates. A full examination of American Enterprise Life's operations is conducted periodically by the National Association of Insurance Commissioners. Under insurance guaranty fund laws, in most states, insurers doing business therein can be assessed up to prescribed limits for policyholder losses incurred by insolvent companies. Most of these laws do provide however, that an assessment may be excused or deferred if it would threaten an insurer's own financial strength. DIRECTORS AND EXECUTIVE OFFICERS* The directors and principal executive officers of American Enterprise Life and the principal occupation of each during the last five years is as follows: DIRECTORS GUMER C. ALVERO Born in 1967 Director, chairman of the board and executive vice president - Annuities since January 2001; vice president - Variable Annuities, AEFC, since April 1998; executive assistant to president/CEO, AEFC, from April 1996 to April 1998. CAROL A. HOLTON Born in 1952 Director, president and chief executive officer since January 2001; vice president - Third Party Distribution, AEFC, since April 1998; director - Distributor Services, AEFC, from September 1997 to April 1998; director - Business Systems and Operations, F&G Life, from July 1996 to August 1997. PAUL S. MANNWEILER** Born in 1949 Director since 1986; Partner at Locke Reynolds Boyd & Weisell since 1980. TERESA J. RASMUSSEN Born in 1956 Director, vice president, general counsel and secretary since December 2000; vice president and assistant general counsel, AEFC, since August 2000; assistant vice president, AEFC, from October 1995 to August 2000. OFFICERS OTHER THAN DIRECTORS LORRAINE R. HART Born in 1951 Vice president - Investments since 1992; vice president - Insurance Investments, AEFC since 1998; and vice president - Investments, American Express Certificate Company since 1994. STUART A. SEDLACEK Born in 1957 Executive vice president since 1998; executive vice president - Assured Assets, 1994 to 1998; senior vice president and chief financial officer, AEFC, since 1998; vice president, AEFC, from September 1988 to 1998. PHILIP C. WENTZEL Born in 1961 Vice president and controller since 1998; director of financial reporting and analyses, AEFC, from 1992 to 1997. DAVID L. YOWAN Born in 1957 Vice president and treasurer since March 2001; senior vice president and assistant treasurer of American Express Company since January 1999; vice president and corporate treasurer, AEFC, since April 2001; senior portfolio and risk management officer for the North American Consumer Bank of Citigroup from August 1987 to January 1999. * The address for all of the directors and principal officers is: 200 AXP Financial Center, Minneapolis, MN 55474 except for Mr. Mannweiler who is an independent director. ** Mr. Mannweiler's address is: 201 No. Illinois Street, Indianapolis, IN 46204 -------------------------------------------------------------------------------- WELLS FARGO ADVANTAGE VARIABLE ANNUITY -- PROSPECTUS 63 EXECUTIVE COMPENSATION Our executive officers also may serve one or more affiliated companies. The following table reflects cash compensation paid to the five most highly compensated executive officers as a group for services rendered in the most recent year to us and our affiliates. The table also shows the total cash compensation paid to all our executive officers, as a group, who were executive officers at any time during the most recent year.
NAME OF INDIVIDUAL OR NUMBER IN GROUP POSITION HELD CASH COMPENSATION Five most highly compensated executive officers as a group: $8,138,209 Stephen W. Roszell President and Chief Executive Officer Richard W. Kling Chairman of the Board Lorraine R. Hart Vice President - Investments David M. Kuplic Assistant Vice President - Investments Stuart A. Sedlacek Executive Vice President All executive officers as a group (11) $11,289,475
SECURITY OWNERSHIP OF MANAGEMENT Our directors and officers do not beneficially own any outstanding shares of stock of the company. All of our outstanding shares of stock are beneficially owned by IDS Life. The percentage of shares of IDS Life owned by any director, and by all our directors and officers as a group, does not exceed 1% of the class outstanding. EXPERTS Ernst & Young LLP, independent auditors, have audited the financial statements of American Enterprise Life Insurance Company at Dec. 31, 2000 and 1999, and for each of the three years in the period ended Dec. 31, 2000, and the individual and combined statements of the segregated asset subaccounts of American Enterprise Variable Annuity Account as of Dec. 31, 2000 and for the periods indicated therein, as set forth in their reports. We've included our financial statements in the prospectus and elsewhere in the registration statement in reliance on Ernst & Young LLP's reports, given on their authority as experts in accounting and auditing. -------------------------------------------------------------------------------- 64 WELLS FARGO ADVANTAGE VARIABLE ANNUITY -- PROSPECTUS American Enterprise Life Insurance Company Balance sheet March 31, 2001 (unaudited) ($ thousands, except share amounts) Assets Investments: Fixed maturities: Available for sale, at fair value (amortized cost: $2,938,428) $2,983,792 Mortgage loans on real estate 715,916 Other investments 918 ------------------------------------------------------------------------------- Total investments 3,700,626 Cash and cash equivalents 78,310 Amounts due from brokers 2,244 Accounts receivable 893 Accrued investment income 48,281 Deferred policy acquisition costs 200,740 Deferred income taxes 17,815 Other assets 8,560 Separate account assets 560,199 ------------------------------------------------------------------------------- Total assets $4,617,668 =============================================================================== Liabilities and Stockholder's Equity Liabilities: Future policy benefits: Fixed annuities $3,536,944 Universal life-type insurance 8 Policy claims and other policyholders' funds 5,291 Amounts due to brokers 2,077 Other liabilities 56,813 Separate account liabilities 560,199 ------------------------------------------------------------------------------- Total liabilities 4,161,332 Stockholder's equity: Capital stock, $150 par value per share; 100,000 shares authorized, 20,000 shares issued and outstanding 3,000 Additional paid-in capital 281,872 Accumulated other comprehensive loss: Net unrealized securities losses (8,450) Net unrealized derivative losses (27,987) Retained earnings 207,901 ------------------------------------------------------------------------------- Total stockholder's equity 456,336 ------------------------------------------------------------------------------- Total liabilities and stockholder's equity $4,617,668 =============================================================================== See accompanying notes. -------------------------------------------------------------------------------- WELLS FARGO ADVANTAGE VARIABLE ANNUITY -- PROSPECTUS 65 American Enterprise Life Insurance Company Statements of income Three months ended March 31, (unaudited) ($ thousands) 2001 2000 Revenues: Policyholder and contractholder charges $ 1,746 $ 1,476 Mortality and expense risk fees 2,199 813 Net investment income 69,460 77,586 Net realized loss on investments (18,542) (2,425) -------------------------------------------------------------------------------- Total revenues 54,863 77,450 ------------------------------------------------------------------------------- Benefits and expenses: Interest credited on investment contracts 42,473 49,052 Amortization of deferred policy acquisition costs 12,155 10,745 Other operating expenses 11,859 7,675 ------------------------------------------------------------------------------- Total benefits and expenses 66,487 67,472 ------------------------------------------------------------------------------- (Loss) income before income taxes (11,624) 9,978 Income taxes (3,987) 3,646 ------------------------------------------------------------------------------- Net (loss) income $ (7,637) $ 6,332 =============================================================================== See accompanying notes. -------------------------------------------------------------------------------- 66 WELLS FARGO ADVANTAGE VARIABLE ANNUITY -- PROSPECTUS American Enterprise Life Insurance Company Statements of cash flows Three months ended March 31, (unaudited) ($ thousands) 2001 2000 Cash flows from operating activities: Net (loss) income $ (7,637) $ 6,332 Adjustments to reconcile net (loss) income to net cash provided by operating activities: Change in accrued investment income 6,660 2,481 Change in accounts receivable (26) (2) Change in other assets 2,791 (11) Change in deferred policy acquisition costs, net (2,118) 4,306 Change in policy claims and other policyholders' funds (4,004) (4,317) Deferred income tax provision (5,077) (1,883) Change in other liabilities 5,225 12,723 (Accretion of discount) amortization of premium, net (58) 641 Net realized loss on investments 18,542 2,425 Other, net 4,514 (131) ------------------------------------------------------------------------------- Net cash provided by operating activities 18,812 22,564 Cash flows from investing activities: Fixed maturities held to maturity: Maturities, sinking fund payments and calls -- 10,022 Fixed maturities available for sale: Purchases (39,196) (1,496) Maturities, sinking fund payments and calls 49,904 58,318 Sales 76,926 5,495 Other investments, excluding policy loans: Purchases (1,696) (1,388) Sales 9,789 12,779 Change in amounts due from brokers (928) -- Change in amounts due to brokers (22,310) 275 -------------------------------------------------------------------------------- Net cash provided by investing activities 72,489 84,005 Cash flows from financing activities: Activity related to universal life-type insurance and investment contracts: Considerations received 159,985 52,023 Surrenders and death benefits (250,299) (207,644) Interest credited to account balances 42,471 49,052 ------------------------------------------------------------------------------- Net cash used in financing activities (47,843) (106,569) -------------------------------------------------------------------------------- Net increase in cash and cash equivalents 43,458 -- Cash and cash equivalents at beginning of period 34,852 -- ------------------------------------------------------------------------------- Cash and cash equivalents at end of period $ 78,310 $ -- =============================================================================== See accompanying notes. -------------------------------------------------------------------------------- WELLS FARGO ADVANTAGE VARIABLE ANNUITY -- PROSPECTUS 67 American Enterprise Life Insurance Company Notes to Financial Statements (unaudited) ($ thousands) 1. GENERAL In the opinion of the management of American Enterprise Life Insurance Company (the Company), the accompanying unaudited financial statements contain all adjustments (consisting of normal recurring adjustments) necessary to present fairly its balance sheet as of March 31, 2001 and the related statements of income and cash flows for the three month periods ended March 31, 2001 and 2000. 2. NEW ACCOUNTING PRONOUNCEMENT In June 1998, the Financial Accounting Standards Board (FASB) issued, and subsequently amended, Statement of Financial Accounting Standards (SFAS) No. 133, "Accounting for Derivative Instruments and Hedging Activities," which the Company adopted on January 1, 2001. This Statement establishes accounting and reporting standards for derivative instruments, including some embedded in other contracts, and hedging activities. It requires that an entity recognize all derivatives as either assets or liabilities on the balance sheet and measure those instruments at fair value. Derivatives that are not hedges must be adjusted to fair value through income. Changes in the fair value of a derivative are recorded in income or directly to equity, depending on the instrument's designated use. For those derivative instruments that are designated and qualify as hedging instruments under SFAS 133, a company must designate the hedging instrument, based upon the exposure being hedged, as either a fair value hedge, cash flow hedge or a hedge of a net investment in a foreign operation. For derivative instruments not designated as hedging instruments per SFAS 133, changes in fair value are adjusted immediately through earnings. Currently, the Company does not carry derivatives that are designated or qualify as hedging instruments under SFAS No. 133. Because of changes to the rules for hedging investments, the transition provisions of SFAS 133, as amended, permitted held-to-maturity securities under SFAS No. 115, "Accounting for Certain Investments in Debt and Equity Securities," to be reclassified at the date of adoption to available-for-sale or trading. The Company reclassified all held-to-maturity securities to available-for-sale upon adoption. Prior to adopting SFAS No. 133, the Company's interest rate caps, floors and swaps qualified as cash flow hedges. The derivatives do not qualify for hedge accounting per SFAS No. 133. For "pre-existing" cash flow-type hedges, the transition adjustment upon adoption of SFAS No. 133 was reported in accumulated other comprehensive income (OCI) as a cumulative effect of an accounting change. This resulted in a decrease of $34,727 to other comprehensive income (OCI), net of tax. The Company estimates $7,500 of net derivative losses included in OCI will be reclassified into earnings within the next twelve months. The adoption of SFAS No. 133 did not have a significant impact on the Company's results of operations. 3. COMPREHENSIVE INCOME Total comprehensive income (loss) was $18,022 and ($4,551) for the three months ended March 31, 2001 and 2000, respectively. March 31, 2001 March 31, 2000 Net (Loss) Income $ (7,637) $ 6,332 Other comprehensive loss Unrealized gains on available-for-sale securities, net of tax 53,646 (10,883) Net unrealized loss on derivative instruments, net of tax (27,987) -- -------------------------------------------------------------------------------- Total comprehensive income $ 18,022 $ (4,551) -------------------------------------------------------------------------------- 4. INCOME TAXES The Company's effective income tax rate was 34.3% for the three months ended March 31, 2001 compared to 36.5% for the three months ended March 31, 2000. The net impact of changes in state tax rules for certain states had a favorable impact on the effective tax rate for the Company. -------------------------------------------------------------------------------- 68 WELLS FARGO ADVANTAGE VARIABLE ANNUITY -- PROSPECTUS American Enterprise Life Insurance Company ------------------------------------------------------------------------------- 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, 2000 and 1999, and the related statements of income, stockholder's equity and cash flows for each of the three years in the period ended December 31, 2000. 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, 2000 and 1999, and the results of its operations and its cash flows for each of the three years in the period ended December 31, 2000, in conformity with accounting principles generally accepted in the United States. /S/ Ernst & Young LLP Ernst & Young LLP February 8, 2001 Minneapolis, Minnesota American Enterprise Life Insurance Company ------------------------------------------------------------------------------- Balance sheets December 31, ($ thousands, except share amounts) 2000 1999 Assets Investments: Fixed maturities: Held to maturity, at amortized cost (fair value: 2000, $927,031; 1999, $984,103) $ 934,091 $1,006,349 Available for sale, at fair value (amortized cost: 2000, $2,163,906; 1999, $2,411,799) 2,068,487 2,304,487 --------- --------- 3,002,578 3,310,836 Mortgage loans on real estate 724,009 785,253 Other investments 9,407 11,470 ----- ------ Total investments 3,735,994 4,107,559 Cash and cash equivalents 34,852 -- Amounts due from brokers 1,316 -- Accounts receivable 867 316 Accrued investment income 54,941 56,676 Deferred policy acquisition costs 198,622 180,288 Deferred income taxes 26,350 37,501 Other assets 9,969 9 Separate account assets 589,310 220,994 ------- ------- Total assets $4,652,221 $4,603,343 ========== ========== Liabilities and stockholder's equi1ty Liabilities: Future policy benefits for: Fixed annuities $3,584,784 $3,921,513 Universal life-type insurance 10 -- Policy claims and other policyholders' funds 9,295 12,097 Amounts due to brokers 24,387 25,215 Other liabilities 6,326 17,436 Separate account liabilities 589,310 220,994 ------- ------- Total liabilities 4,214,112 4,197,255 Commitments and contingencies 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: Net unrealized securities losses (62,097) (69,753) Retained earnings 215,334 190,969 ------- ------- Total stockholder's equity 438,109 406,088 ------- ------- Total liabilities and stockholder's equity $4,652,221 $4,603,343 ========== ========== See accompanying notes. American Enterprise Life Insurance Company ------------------------------------------------------------------------------- Statements of income Years ended December 31, ($ thousands) 2000 1999 1998 Revenues: Net investment income $299,759 $322,746 $340,219 Policyholder and contractholder charges 6,865 6,069 6,387 Mortality and expense risk fees 5,383 2,269 1,275 Net realized gain (loss) on investments 469 6,565 (4,788) --- ----- ------ Total revenues 312,476 337,649 343,093 ------- ------- ------- Benefits and expenses: Interest credited on investment contracts 191,040 208,583 228,533 Amortization of deferred policy acquisition costs 47,676 43,257 53,663 Other operating expenses 35,308 35,147 24,476 ------ ------ ------ Total benefits and expenses 274,024 286,987 306,672 ------- ------- ------- Income before income taxes 38,452 50,662 36,421 Income taxes 14,087 16,675 14,395 ------ ------ ------ Net income $ 24,365 $ 33,987 $ 22,026 ======== ======== ======== See accompanying notes. American Enterprise Life Insurance Company -------------------------------------------------------------------------------
Statements of stockholder's equity Accumulated Other Total Additional Comprehensive Stockholder's Capital Paid-In (Loss) Income, Retained Three years ended December 31, ($ thousands) Equity Stock Capital Net of Tax Earnings Balance, January 1, 1998 $ 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 of $2,179 (4,047) -- -- (4,047) -- ------ ----- ----- ------ ----- 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 Comprehensive income: Net income 24,365 -- -- -- 24,365 Unrealized holding gains arising during the year, net of taxes of $(4,812) 8,937 -- -- 8,937 -- Reclassification adjustment for gains included in net income, net of tax of $690 (1,281) -- -- (1,281) -- ------ ----- ----- ------ ----- Other comprehensive income 7,656 -- -- 7,656 -- ----- ----- ----- ----- ----- Comprehensive income 32,021 ------ Balance, December 31, 2000 $ 438,109 $2,000 $282,872 $ (62,097) $215,334 ========= ====== ======== =========== ======== See accompanying notes.
American Enterprise Life Insurance Company -------------------------------------------------------------------------------
Statements of cash flows Years ended December 31, ($ thousands) 2000 1999 1998 Cash flows from operating activities: Net income $ 24,365 $ 33,987 $ 22,026 Adjustments to reconcile net income to net cash (used in) provided by operating activities: Change in accrued investment income 1,735 5,064 (2,152) Change in accounts receivable (551) (102) 349 Change in deferred policy acquisition costs, net (18,334) 16,191 28,022 Change in other assets (9,960) 34 74 Change in policy claims and other policyholders' funds (2,802) 4,708 (3,939) Deferred income tax provision (benefit) 7,029 711 (9,591) Change in other liabilities (11,110) (7,064) 7,595 Amortization of premium, net 2,682 2,315 122 Net realized (gain) loss on investments (469) (6,565) 4,788 Other, net (233) (1,562) 2,544 ---- ------ ----- Net cash (used in) provided by operating activities (7,648) 47,717 49,838 Cash flows from investing activities: Fixed maturities held to maturity: Maturities 65,716 65,705 73,601 Sales 5,128 8,466 31,117 Fixed maturities available for sale: Purchases (101,665) (593,888) (298,885) Maturities 171,297 248,317 335,357 Sales 176,296 469,126 48,492 Other investments: Purchases (1,388) (28,520) (161,252) Sales 65,978 57,548 78,681 Change in amounts due from brokers (1,316) -- -- Change in amounts due to brokers (828) (29,132) 19,412 ---- ------- ------ Net cash provided by investing activities 379,218 197,622 126,523 Cash flows from financing activities: Activity related to universal life type insurance and investment contracts: Considerations received 398,462 299,899 302,158 Surrenders and other benefits (926,220) (753,821) (707,052) Interest credited to account balances 191,040 208,583 228,533 ------- ------- ------- Net cash used in financing activities (336,718) (245,339) (176,361) -------- -------- -------- Net increase in cash and cash equivalents 34,852 -- -- Cash and cash equivalents at beginning of year -- -- -- ---- ---- ---- Cash and cash equivalents at end of year $ 34,852 $ -- $ -- ========= ========= ========= See accompanying notes.
American Enterprise Life Insurance Company ------------------------------------------------------------------------------- Notes to Financial Statements 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 and variable universal life are offered as well. The Company distributes its products through financial institutions and unbranded independent financial advisors. 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 and marketable equity securities 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. 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. Mortgage loans on real estate are carried at amortized cost less a reserve 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. 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 a reserve for mortgage loan losses. The reserve 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 reserve 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 reserve 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. Amounts paid or received under interest rate swap agreements are recognized as an adjustment to investment income. American Enterprise Life Insurance Company ------------------------------------------------------------------------------- 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: 2000 1999 1998 Cash paid during the year for: Income taxes $14,861 $22,007 $19,035 Interest on borrowings 1,073 2,187 5,437 Recognition of profits on annuity contracts Profits on fixed and variable deferred annuities are recognized by the Company over the lives of the contracts, using primarily the interest method. Profits on fixed annuities represent the excess of investment income earned from investment of contract considerations over interest credited to contract owners and other expenses. Profits on variable annuities represent the excess of contractholder charges over the costs of benefits provided and other expenses. The retrospective deposit method is used in accounting for fixed and variable universal life-type insurance. Under this method, profits are recognized over the lives of the policies in proportion to the estimated gross profits expected to be realized. Policyholder and contractholder charges include surrender charges and fees collected regarding the issue and administration of annuity contracts. 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 variable 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 2000, unlocking adjustments resulted in a net increase in amortization of $1.5 million. Net unlocking adjustments in 1999 were not significant. During 1998, unlocking adjustments resulted in a net increase in amortization of $11 million. Liabilities for future policy benefits Liabilities for universal-life type insurance and fixed and variable deferred annuities are accumulation values. Liabilities for fixed annuities in a benefit status are based on established industry mortality tables and interest rates ranging from 5% to 9.5%, depending on year of issue. Federal income taxes The Company's taxable income is included in the consolidated federal income tax return of American Express Company. The Company provides for income taxes on a separate return basis, except that, under an agreement between AEFC and American Express Company, tax benefit is recognized for losses to the extent they can be used on the consolidated tax return. It is the policy of AEFC and its subsidiaries that AEFC will reimburse subsidiaries for all tax benefits. Included in other liabilities at December 31, 2000 and 1999 are $9,944 and $2,147, receivable from and payable to, respectively, IDS Life for federal income taxes. Separate account business The separate account assets and liabilities represent funds held for the exclusive benefit of the variable annuity contract owners. The Company receives mortality and expense risk fees from the variable annuity separate accounts. The Company makes contractual mortality assurances to the variable annuity contract owners that the net assets of the separate accounts will not be affected by future variations in the actual life expectancy experience of the annuitants and beneficiaries from the mortality assumptions implicit in the annuity contracts. The Company makes periodic fund transfers to, or withdrawals from, the separate account assets for such actuarial adjustments for variable annuities that are in the benefit payment period. The Company also guarantees that the rates at which administrative fees are deducted from contract funds will not exceed contractual maximums. American Enterprise Life Insurance Company ------------------------------------------------------------------------------- Accounting changes In June 1998, the Financial Accounting Standards Board (FASB) issued, and subsequently amended, Statement of Financial Accounting Standards (SFAS) No. 133, "Accounting for Derivative Instruments and Hedging Activities," which the company adopted on January 1, 2001. This Statement establishes accounting and reporting standards for derivative instruments, including some embedded in other contracts, and hedging activities. It requires that an entity recognize all derivatives as either assets or liabilities on the balance sheet and measure those instruments at fair value. Changes in the fair value of a derivative will be recorded in income or directly to equity, depending on the instrument's designated use. A one-time opportunity to reclassify held-to-maturity investments to available-for-sale is allowed without tainting the remaining securities in the held-to-maturity portfolio. The Company has elected to take this opportunity to reclass its held-to-maturity investments to available-for-sale. As of January 1, 2001, the cumulative impact of applying the Statement's accounting requirements will not have a significant impact on the Company's financial position or results of operations. In September 2000, the FASB issued SFAS No. 140, "Accounting for Transfers and Servicing of Financial Assets and Extinguishments of Liabilities," superceding SFAS No. 125. The Statement is effective for transfers and servicing of financial assets and extinguishments of liabilities occurring after March 31, 2001. The Statement is effective for recognition and reclassification of collateral and for disclosures relating to securitization transactions and collateral for fiscal years ending after December 15, 2000. The company does not expect SFAS No. 140 to have a material impact on the company's financial position or results of operations. In July 2000, the FASB's Emerging Issues Task Force (EITF) issued a consensus on Issue 99-20, "Recognition of Interest Income and Impairment on Purchased Beneficial Interests in Securitized Financial Assets." The consensus must be adopted for fiscal quarters beginning after March 15, 2001, with earlier adoption permitted. Issue 99-20 prescribes new procedures for recording interest income and measuring impairment on retained and purchased beneficial interests. Application of the provisions of the consensus will not have a material impact on the Company's financial position or results of operations. Reclassifications Certain 1999 and 1998 amounts have been reclassified to conform to the 2000 presentation. 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, 2000 are as follows: Gross Gross Amortized unrealized unrealized Fair Held to maturity cost gains losses value U.S. Government agency obligations $ 6,949 $ 26 $ 55 $ 6,920 State and municipal obligations 2,101 1 -- 2,102 Corporate bonds and obligations 773,630 9,876 17,470 766,036 Mortgage-backed securities 151,411 801 239 151,973 ------- --- --- ------- $934,091 $10,704 $ 17,764 $ 927,031 ======== ======= ======== ========== Available for sale U.S. Government agency obligations $ 5,154 $ 284 $ -- $ 5,438 State and municipal obligations 2,250 5 -- 2,255 Corporate bonds and obligations 1,319,781 19,103 123,865 1,215,019 Mortgage-backed securities 836,721 10,780 1,726 845,775 ------- ------ ----- ------- $2,163,906 $30,172 $125,591 $2,068,487 ========== ======= ======== ========== American Enterprise Life Insurance Company ------------------------------------------------------------------------------- The amortized cost, gross unrealized gains and losses and fair value of investments in fixed maturities at December 31, 1999 are as follows: 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 and fair value of investments in fixed maturities at December 31, 2000 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 from one to five years $405,375 $402,691 Due from five to ten years 321,802 317,320 Due in more than ten years 55,503 55,047 Mortgage-backed securities 151,411 151,973 ------- ------- $934,091 $927,031 ======== ======== Amortized Fair Available for sale cost value Due from one to five years $ 61,851 $ 67,514 Due from five to ten years 965,579 878,853 Due in more than ten years 299,755 276,345 Mortgage-backed securities 836,721 845,775 ------- ------- $2,163,906 $2,068,487 ========== ========== During the years ended December 31, 2000, 1999 and 1998, fixed maturities classified as held to maturity were sold with amortized cost of $5,128, $8,466 and $31,117, 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 2000 with proceeds of $176,296 and gross realized gains and losses of $3,488 and $1,516 respectively. 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. At December 31, 2000, bonds carried at $3,259 were on deposit with various states as required by law. At December 31, 2000, investments in fixed maturities comprised 80 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 $463 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 2000 1999 Aaa/AAA $ 998,333 $1,168,144 Aaa/AA 1,000 -- Aa/AA 34,535 42,859 Aa/A 59,569 52,416 A/A 367,643 422,668 A/BBB 121,028 189,072 Baa/BBB 989,301 995,152 Baa/BB 67,156 64,137 Below investment grade 459,432 483,700 ------- ------- $3,097,997 $3,418,148 ========== ========== American Enterprise Life Insurance Company ------------------------------------------------------------------------------- At December 31, 2000, approximately 92 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, 2000, 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: December 31, 2000 December 31, 1999 On balance Commitments On balance Commitments Region sheet to purchase sheet to purchase South Atlantic $172,349 $-- $194,325 $ -- Middle Atlantic 106,376 -- 118,699 -- East North Central 122,354 -- 126,243 -- Mountain 100,208 -- 103,751 -- West North Central 110,669 -- 125,891 513 New England 39,877 -- 43,345 802 Pacific 38,559 -- 41,396 -- West South Central 30,172 -- 31,153 -- East South Central 6,749 -- 7,100 -- ----- ----- ----- ----- 727,313 -- 791,903 1,315 Less allowance for losses 3,304 -- 6,650 -- ----- ----- ----- ----- $724,009 $-- $785,253 $1,315 ======== === ======== ====== December 31, 2000 December 31, 1999 On balance Commitments On balance Commitments Property type sheet to purchase sheet to purchase Department/retail stores $214,927 $-- $232,449 $1,315 Apartments 152,906 -- 181,346 -- Office buildings 191,767 -- 202,132 -- Industrial buildings 80,330 -- 83,186 -- Hotels/Motels 41,977 -- 43,839 -- Medical buildings 29,173 -- 32,284 -- Nursing/retirement homes 6,471 -- 6,608 -- Mixed Use 9,762 -- 10,059 -- ----- ----- ------ ----- 727,313 -- 791,903 1,315 Less allowance for losses 3,304 -- 6,650 -- ----- ----- ----- ----- $724,009 $-- $785,253 $1,315 ======== === ======== ====== 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, 2000 and 1999, the Company's recorded investment in impaired loans was $9,014 and $5,200, respectively, with allowances of $500 and $1,250, respectively. During 2000 and 1999, the average recorded investment in impaired loans was $4,684 and $5,399, respectively. The Company recognized $221, $136 and $251 of interest income related to impaired loans for the years ended December 31, 2000, 1999 and 1998, respectively. American Enterprise Life Insurance Company ------------------------------------------------------------------------------- The following table presents changes in the allowance for investment losses related to all loans: 2000 1999 1998 Balance, January 1 $6,650 $8,500 $3,718 (Reduction) provision for investment losses (3,346) (1,850) 4,782 ------ ------ ----- Balance, December 31 $3,304 $6,650 $8,500 ====== ====== ====== At December 31, 2000 the Company had no commitments to purchase investments. Net investment income for the years ended December 31 is summarized as follows: 2000 1999 1998 Interest on fixed maturities $237,201 $265,199 $285,260 Interest on mortgage loans 59,686 63,721 65,351 Interest on cash equivalents 1,136 534 137 Other 5,693 (1,755) (2,493) ----- ------ ------ 303,716 327,699 348,255 Less investment expenses 3,957 4,953 8,036 ----- ----- ----- $299,759 $322,746 $340,219 ======== ======== ======== Net realized gain (loss) on investments for the years ended December 31 is summarized as follows: 2000 1999 1998 Fixed maturities $ (2,877) $ 4,715 $ 28 Mortgage loans 3,346 (1,650) (4,816) ----- ------ ------ $ 469 $ 3,065 $(4,788) ======== ======= ======= Changes in net unrealized appreciation (depreciation) of investments for the years ended December 31 are summarized as follows: 2000 1999 1998 Fixed maturities available for sale $11,894 $(175,458) $(8,032) 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 for the years ended December 31, consists of the following: 2000 1999 1998 Federal income taxes: Current $ 6,170 $15,531 $23,227 Deferred 7,029 711 (9,591) ----- --- ------ 13,199 16,242 13,636 State income taxes-- current 888 433 759 --- --- --- Income tax expense $14,087 $16,675 $14,395 ======= ======= =======
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: 2000 1999 1998 Provision Rate Provision Rate Provision Rate Federal income taxes based on the statutory rate $13,458 35.0% $17,731 35.0% $13,972 35.0% Increases (decreases) are attributable to : Tax-excluded interest (4) -- (14) -- (35) (0.1) State tax, net of federal benefit 578 1.5 281 0.5 493 1.2 Other, net 55 0.1 (1,323) (2.6) (35) -- -- --- ------ ---- --- --- Total income taxes $14,087 36.6% $16,675 32.9% $14,395 36.1% ======= ==== ======= ==== ======= ====
Significant components of the Company's deferred income tax assets and liabilities as of December 31 are as follows: Deferred income tax assets: 2000 1999 Policy reserves $40,242 $46,243 Unrealized losses on investments 31,441 39,678 Other 6,208 1,070 ----- ----- Total deferred income tax assets 77,891 86,991 ------ ------ Deferred income tax liabilities: Deferred policy acquisition costs 51,541 49,490 ------ ------ Total deferred income tax liabilities 51,541 49,490 ------ ------ Net deferred income tax assets $26,350 $37,501 ======= ======= American Enterprise Life Insurance Company ------------------------------------------------------------------------------- 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 $31,152 and $58,223 as of December 31, 2000 and 1999, respectively. In addition, dividends in excess of $nil would require approval by the Insurance Department of the state of Indiana. Statutory net (loss) income for the years ended December 31 and statutory capital and surplus as of December 31, are summarized as follows: 2000 1999 1998 Statutory net (loss) income $(11,928) $ 15,241 $ 37,902 Statutory capital and surplus 315,930 343,094 330,588 The National Association of Insurance Commissioners (NAIC) revised the Accounting Practices and Procedures Manual in a process referred to as Codification. The revised manual will be effective January 1, 2001. The state of Indiana has adopted the provisions of the revised manual. The revised manual has changed, to some extent, prescribed statutory accounting practices and will result in changes to the accounting practices that the Company uses to prepare their statutory-basis financial statements. Management believes these changes will not adversely impact the Company's statutory-basis capital and surplus as of January 1, 2001. 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 $6,489 and $8,258 at December 31, 2000 and 1999, 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 $45,191, $38,931 and $28,482 for the years ended December 31, 2000, 1999 and 1998, respectively. Certain of these costs are included in deferred policy acquisition costs. 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, 2000 or 1999. 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. American Enterprise Life Insurance Company ------------------------------------------------------------------------------- The Company's holdings of derivative financial instruments are as follows: Notional Carrying Fair Total credit December 31, 2000 amount amount value exposure Assets: Interest rate caps $ 500,000 $2,037 $ 414 $ 414 Interest rate floors 2,000,000 6,489 13,185 13,185 Off balance sheet: Interest rate swaps 2,000,000 -- (51,369) (51,369) --------- ------ ------- ------- $8,526 $(37,770) $(37,770) ====== ======== ======== Notional Carrying Fair Total credit December 31, 1999 amount amount value exposure 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: Interest rate swaps 2,000,000 -- 18,274 18,274 --------- ----- ------ ------ $11,470 $24,962 $24,962 ======= ======= ======= 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 2001 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.
December 31, 2000 December 31, 1999 Carrying Fair Carrying Fair Financial Assets amount value amount value Investments: Fixed maturities (Note 2): Held to maturity $ 934,091 $ 927,031 $1,006,349 $ 984,103 Available for sale 2,068,487 2,068,487 2,304,487 2,304,487 Mortgage loans on real estate (Note 2) 724,009 740,992 785,253 770,095 Derivative financial instruments (Note 7) 8,526 (37,770) 11,470 24,962 Separate account assets (Note 1) 589,310 589,310 220,994 220,994 Cash and cash equivalents 34,852 34,852 -- -- Financial Liabilities Future policy benefits for fixed annuities $3,567,085 $3,480,270 $3,905,849 $3,778,945 Separate account liabilities 589,310 567,989 220,994 209,942 ------- ------- ------- -------
At December 31, 2000 and 1999, the carrying amount and fair value of future policy benefits for fixed annuities exclude life insurance-related contracts carried at $17,699 and $15,633, respectively. The fair value of these benefits is based on the status of the annuities at December 31, 2000 and 1999. 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 2000 and 1999. 9. COMMITMENTS AND CONTINGENCIES In January 2000, AEFC reached an agreement in principle to settle three class-action lawsuits related to the sales of insurance and annuity products, anticipated to provide for approximately $215 million of benefits. The Company had been named as a co-defendant in one of these lawsuits. In September 2000, the court gave preliminary approval to the proposed settlement and AEFC has mailed notices to all of the over two million class members. A fairness hearing is scheduled for March 2001, with final approval anticipated in the second quarter, pending any legal appeals. The anticipated costs of settlement remain unchanged from 1999. The portion of the settlement allocated to the Company did not have a material impact on the Company's financial position or results of operations. The agreement 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 final court approval. TABLE OF CONTENTS OF THE STATEMENT OF ADDITIONAL INFORMATION Performance Information ............................................ 3 Calculating Annuity Payouts ........................................ 21 Rating Agencies .................................................... 22 Principal Underwriter .............................................. 22 Independent Auditors ............................................... 22 Condensed Financial Information (Unaudited) ........................ 23 Financial Statements -------------------------------------------------------------------------------- 82 WELLS FARGO ADVANTAGE VARIABLE ANNUITY -- PROSPECTUS American Enterprise Life Insurance Company (American Express logo) 829 AXP Financial Center Minneapolis, MN 55474 (800)333-3437 44223 E (7/01) PART II. INFORMATION NOT REQUIRED IN PROSPECTUS Item 13. Other Expenses of Issuance and Distribution. The expenses of the issuance and distribution of the interests in the Guarantee Period Accounts of the Contract to be registered, other than commissions on sales of the Contracts, are to be borne by the registrant. Item 14. Indemnification The By-Laws of the depositor provide that the Corporation shall have the power to indemnify a director, officer, agent or employee of the Corporation pursuant to the provisions of applicable statues or pursuant to contract. The Corporation may purchase and maintain insurance on behalf of any director, officer, agent or employee of the Corporation against any liability asserted against or incurred by the director, officer, agent or employee in such capacity or arising out of the director's, officer's, agent's or employee's status as such, whether or not the Corporation would have the power to indemnify the director, officer, agent or employee against such liability under the provisions of applicable law. The By-Laws of the depositor provide that it shall indemnify a director, officer, agent or employee of the depositor pursuant to the provisions of applicable statutes or pursuant to contract. Insofar as indemnification for liability arising under the Securities Act of 1933 may be permitted to directors, officers and controlling persons of the registrant pursuant to the foregoing provisions, or otherwise, the registrant has been advised that in the opinion of the Securities and Exchange Commission such indemnification is against public policy as expressed in the Act and is, therefore, unenforceable. In the event that a claim for indemnification against such liabilities (other than the payment by the registrant of expenses incurred or paid by a director, officer or controlling person of the registrant in the successful defense of any action, suit or proceeding) is asserted by such director, officer or controlling person in connection with the securities being registered, the registrant will, unless in the opinion of its counsel the matter has been settled by controlling precedent, submit to a court of appropriate jurisdiction the question whether such indemnification by it is against public policy as expressed in the Act and will be governed by the final adjudication of such issue. Item 15. Recent Sales of Unregistered Securities None Item 16. Exhibits and Financial Statement Schedules (a) Exhibits 1. Not applicable. 2. Not applicable. 3.1 Amendment and Restatement of Articles of Incorporation of American Enterprise Life dated July 29, 1986, filed electronically as Exhibit 6.1 to American Enterprise Life Personal Portfolio Plus 2's Initial Registration Statement No. 33-54471, filed on or about July 5, 1994, is incorporated by reference. 3.2 Amended By-laws of American Enterprise Life, filed electronically as Exhibit 6.2 to American Enterprise Life Personal Portfolio Plus 2's Initial Registration Statement No. 33-54471, filed on or about July 5, 1994, is incorporated by reference. 3.3 Consent in writing in lieu of a meeting of the Board of Directors of American Enterprise Life Insurance Company establishing the American Enterprise MVA Account dated Aug. 18, 1999, filed electronically as Exhibit 3.3 to Registrant's Initial Registration Statement No. 333-86297, filed on or about Aug. 31, 1999, is incorporated by reference. 4.1 Form of Deferred Annuity Contract for the American Express(R) Signature One Variable Annuity (form 240180), filed electronically as Exhibit 4.1 to American Enterprise Variable Annuity Account's Post-Effective Amendment No. 1 to Registration Statement No. 333-85567 on form N-4, filed on or about Dec. 7, 1999, is incorporated by reference. 4.2 Form of Deferred Annuity Contract for the Wells Fargo Advantage(SM) Variable Annuity (form 44209), filed electronically as Exhibit 4.1 to American Enterprise Variable Annuity Account's Pre-Effective Amendment No. 1 to Registration Statement No. 333-85567 on form N-4, filed on or about Nov. 4, 1999, is incorporated by reference. 4.3 Form of Deferred Annuity Contract for the Wells Fargo Advantage(SM) Builder Variable Annuity (form 44210), filed electronically as Exhibit 4.2 to American Enterprise Variable Annuity Account's Pre-Effective Amendment No. 1 to Registration Statement No. 333-85567 on form N-4, filed on or about Nov. 4, 1999, is incorporated by reference. 4.4 Form of Deferred Annuity Contract for the American Express New Solutions(SM) Variable Annuity (form 240343) filed electronically as Exhibit 4.1 to American Enterprise Variable Annuity Account's Pre-Effective Amendment No. 1 to Registration Statement No. 333-92297 on Form N-4, filed on or about Feb. 11, 2000, is incorporated by reference. 4.5 Form of Deferred Annuity Contract for American Express Signature Variable Annuity (R) (form 43431) filed electronically as Exhibit 4.1 to American Enterprise Variable Annuity Account's Pre-Effective Amendment No. 1 to Registration Statement No. 333-74865 on form N-4, filed on or about Aug. 4, 1999, is incorporated by reference. 4.6 Form of Enhanced Death Benefit Rider for the Wells Fargo Advantage(SM) Variable Annuity and the Wells Fargo Advantage(SM) Builder Variable Annuity (form 44213), filed electronically as Exhibit 4.3 to American Enterprise Variable Annuity Account's Pre-Effective Amendment No. 1 to Registration Statement No. 333-85567 on form N-4, filed on or about Nov. 4, 1999, is incorporated by reference. 4.7 Form of Guaranteed Minimum Income Benefit Rider for the American Express Signature Variable Annuity (R) and the American Express(R) Signature One Variable Annuity (6% Accumulation Benefit Base) (form 240186), filed electronically as Exhibit 4.2 to American Enterprise Variable Annuity Account's Post-Effective Amendment No. 3 to Registration Statement No. 333-85567 on form N-4, filed on or about Feb. 11, 2000, is incorporated by reference. 4.8 Form of Guaranteed Minimum Income Benefit Rider for the American Express New Solutions(SM) Variable Annuity (form 240350), filed electronically as Exhibit 4.4 to American Enterprise Variable Annuity Account's Pre-Effective Amendment No. 1 to Registration Statement No. 333-92297 on Form N-4, filed on or about Feb. 11, 2000, is incorporated by reference. 4.9 Form of Guaranteed Minimum Income Benefit Rider for the Wells Fargo Advantage(SM) Variable Annuity and the Wells Fargo Advantage(SM) Builder Variable Annuity (form 44214), filed electronically as Exhibit 4.4 to American Enterprise Variable Annuity Account's Pre-Effective Amendment No. 1 to Registration Statement No. 333-85567 on form N-4, filed on or about Nov. 4, 1999, is incorporated by reference. 4.10 Form of 5% Accumulation Death Benefit Rider for the American Express Signature Variable Annuity(R) and the American Express Signature One Variable Annuity(SM) (form 240183), filed electronically as Exhibit 4.3 to American Enterprise Variable Annuity Account's Post-Effective Amendment No. 1 to Registration Statement No. 333-85567 on form N-4, filed on or about Dec. 8, 1999, is incorporated by reference. 4.11 Form of Value Option Return of Purchase Payment Death Benefit Rider for the American Express (R) Signature One Variable Annuity (form 240182), filed electronically as Exhibit 4.11 to Registrant's Post-Effective Amendment No. 6 to Registration Statement No. 333-86297 on form S-1, filed on or about May 1, 2000, is incorporated by reference. 4.12 Form of 8% Performance Credit Rider for the American Express Signature Variable Annuity(R) and the American Express(R) Signature One Variable Annuity (form 240187), filed electronically as Exhibit 4.4 to American Enterprise Variable Annuity Account's Post-Effective Amendment No. 2 to Registration Statement No. 333-85567 on form N-4, filed on or about Dec. 30, 1999, is incorporated by reference. 4.13 Form of Performance Credit Rider for the American Express New Solutions(SM) Variable Annuity (form 240349), filed electronically as Exhibit 4.2 to American Enterprise Variable Annuity Account's Pre-Effective Amendment No. 1 to Registration Statement No. 333-92297 on Form N-4, filed on or about Feb. 11, 2000, is incorporated by reference. 4.14 Form of Roth IRA Endorsement for the Wells Fargo Advantage(SM) Variable Annuity, Wells Fargo Advantage(SM) Builder Variable Annuity, American Express Signature Variable Annuity(R), American Express(R) Signature One Variable Annuity and American Express New Solutions (SM) Variable Annuity (form 43094), filed electronically as Exhibit 4.2 to American Enterprise Variable Annuity Account's Pre-Effective Amendment No. 1 to Registration Statement No. 333-74865 on form N-4, filed on or about Aug. 4, 1999, incorporated by reference. 4.15 Form of SEP-IRA for the Wells Fargo Advantage(SM) Variable Annuity, Wells Fargo Advantage(SM) Builder Variable Annuity, and American Express (R) Signature One Variable Annuity (form 43412), filed electronically as Exhibit 4.3 to American Enterprise Variable Annuity Account's Pre-Effective Amendment No. 1 to Registration Statement No. 333-72777 on form N-4, filed on or about July 8, 1999, is incorporated by reference. 4.16 Form of SEP-IRA for the American Express Signature Variable Annuity(R) and the American Express New Solutions(SM) Variable Annuity (form 43433) filed electronically as Exhibit 4.3 to American Enterprise Variable Annuity Account's Pre-Effective Amendment No. 1 to Registration Statement No. 333-74865 on form N-4, filed on or about Aug. 4, 1999, is incorporated by reference. 4.17 Form of Disability Waiver of Withdrawal Charges Rider for the Wells Fargo Advantage(SM) Variable Annuity and the Wells Fargo Advantage(SM) Builder Variable Annuity (form 44215), filed electronically as Exhibit 4.5 to American Enterprise Variable Annuity Account's Pre-Effective Amendment No. 1 to Registration Statement No. 333-85567 on form N-4, filed on or about Nov. 4, 1999, is incorporated by reference. 4.18 Form of Unemployment Waiver of Withdrawal Charges Rider for the Wells Fargo Advantage(SM) Variable Annuity and the Wells Fargo Advantage(SM) Builder Variable Annuity (form 44216), to American Enterprise Variable Annuity Account's Pre-Effective Amendment No. 1 to Registration Statement No. 333-85567 on form N-4, filed on or about Nov. 4, 1999, is incorporated by reference. 4.19 Form of TSA Endorsement for the Wells Fargo Advantage(SM) Variable Annuity, the Wells Fargo Advantage(SM) Builder Variable Annuity and the American Express Signature Variable Annuity(R) (form 43413), filed electronically as Exhibit 4.4 to American Enterprise Variable Annuity Account's Pre-Effective Amendment No. 1 to Registration Statement No. 333-72777 on form N-4, filed on or about July 8, 1999, is incorporated by reference. 4.20 Form of Benefit Protector(SM) Death Benefit Rider for the Wells Fargo Advantage(SM) Variable Annuity, the Wells Fargo Advantage(SM) Builder Variable Annuity and the American Express New Solutions (SM) Variable Annuity (form 271155), filed electronically as Exhibit 4.15 to American Enterprise Variable Annuity Account's Post-Effective Amendment No. 6 to Registration Statement No. 333-85567 on form N-4, filed on or about March 1, 2001, is incorporated by reference. 4.21 Form of Benefit Protector(SM) Plus Death Benefit Rider for the Wells Fargo Advantage(SM) Variable Annuity, the Wells Fargo Advantage(SM) Builder Variable Annuity and the American Express New Solutions (SM) Variable Annuity (form 271156), filed electronically as Exhibit 4.16 to American Enterprise Variable Annuity Account's Post-Effective Amendment No. 6 to Registration Statement No. 333-85567 on form N-4, filed on or about March 1, 2001, is incorporated by reference. 4.22 Form of Maximum Anniversary Value Death Benefit Rider for the American Express New Solutions (SM) Variable Annuity (form 240346), filed electronically as Exhibit 4.3 to American Enterprise Variable Annuity Account's Pre-Effective Amendment No. 1 to Registration Statement No. 333-92297, filed on or about February 11, 2000, is incorporated by reference. 5. Opinion of Counsel and consent to its use as to the securities being registered for the Wells Fargo Advantage(SM) Variable Annuity, the Wells Fargo Advantage(SM) Builder Variable Annuity, the American Express (R) Signature One Variable Annuity, American Express Signature Variable Annuity(R) and American Express New Solutions (SM) Variable Annuity, filed electronically herewith. 8. Not applicable. 9. Not applicable. 10. Not applicable. 11. Not applicable. 12. Not applicable. 15. Not applicable. 16. Not applicable. 21. Not applicable. 22. Not applicable. 23. Consent of Independent Auditors, filed electronically herewith. 24. Power of Attorney to sign this Registration Statement, dated April 25, 2001, filed electronically as Exhibit 24 to Registrant's Post-Effective Amendment No. 7 to Registration Statement No. 333-86297 on form S-1, filed on or about April 26, 2001, is incorporated by reference. 25. Not applicable. 26. Not applicable. 27. None. Item 17. Undertakings Registrant hereby undertakes: (1) To file, during any period in which offers or sales are being made, a post-effective amendment to this registration statement: (i) To include any prospectus required by section 10(a)(3) of the Securities Act of 1933; (ii) To reflect in the prospectus any facts or events arising after the effective date of the registration statement (or the most recent post-effective amendment thereof) which, individually or in the aggregate, represent a fundamental change in the information set forth in the registration statement; (iii) To include any material information with respect to the plan of distribution not previously disclosed in the registration statement or any material change to such information in the registration statement. (iv) Registrant represents that it is relying upon the no-action assurance given to the American Council of Life Insurance (pub. Avail. Nov. 28, 1998). Further, Registrant represents that it has complied with the provisions of paragraphs (1) - (4) of that no-action letter. (2) That, for the purpose of determining any liability under the Securities Act of 1933, each such post-effective amendment shall be deemed a new registration statement relating to the securities offered therein, and the offering of such securities at that time shall be deemed to be the initial bona fide offering thereof. (3) To remove from registration by means of a post-effective amendment any of the securities being registered which remain unsold at the termination of the offering. SIGNATURES Pursuant to the requirements of the Securities Act of 1933, American Enterprise Life Insurance Company, on behalf of the Registrant, has duly caused this Registration Statement to be signed on its behalf by the undersigned, duly authorized in the City of Minneapolis, and State of Minnesota on the 13th day of July, 2001. American Enterprise MVA Account (Registrant) By American Enterprise Life Insurance Company By /s/ Carol A. Holton* Carol A. Holton 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 13th day of July, 2001. Signature Title /s/ Gumer C. Alvero* Director, Chairman of the Board and Gumer C. Alvero Executive Vice President - Annuities /s/ Carol A. Holton* Director, Vice President and Chief Carol A. Holton Executive Officer Paul S. Mannweiler Director /s/ Teresa J. Rasmussen* Director, Vice President, General Teresa J. Rasmussen Counsel and Secretary /s/ Stuart A. Sedlacek* Executive Vice President Stuart A. Sedlacek /s/ Philip C. Wentzel* Vice President and Controller Philip C. Wentzel /s/ David L. Yowan* Vice President and Treasurer David L. Yowan *Signed pursuant to Power of Attorney, dated April 25, 2001, filed electronically as Exhibit 24 to Registrant's Post-Effective Amendment No. 7 to Registration Statement No. 333-86297 on form S-1, filed on or about April 26, 2001, and incorporated by reference. By:/s/ Mary Ellyn Minenko Mary Ellyn Minenko