-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, JIyxZWTbbdwkjc01GWc49dNftyq8+yradhb2yP+f5estetUyR0HxKccKe24hjKSU TxbIZsFmqCuetyYiu0vdZQ== 0000820027-99-000804.txt : 20010214 0000820027-99-000804.hdr.sgml : 20010214 ACCESSION NUMBER: 0000820027-99-000804 CONFORMED SUBMISSION TYPE: N-4/A PUBLIC DOCUMENT COUNT: 15 FILED AS OF DATE: 19991104 DATE AS OF CHANGE: 20010213 FILER: COMPANY DATA: COMPANY CONFORMED NAME: AMERICAN ENTERPRISE VARIABLE ANNUITY ACCOUNT CENTRAL INDEX KEY: 0000926266 STANDARD INDUSTRIAL CLASSIFICATION: 0000 STATE OF INCORPORATION: IN FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: N-4/A SEC ACT: SEC FILE NUMBER: 333-85567 FILM NUMBER: 99740662 FILING VALUES: FORM TYPE: N-4/A SEC ACT: SEC FILE NUMBER: 811-07195 FILM NUMBER: 99740663 BUSINESS ADDRESS: STREET 1: IDS TOWER 10 CITY: MINNEAPOLIS STATE: MN ZIP: 55440 BUSINESS PHONE: 6126713288 MAIL ADDRESS: STREET 1: IDS TOWER 10 CITY: MINNEAPOLIS STATE: MN ZIP: 55440 N-4/A 1 AMERICAN ENTERPRISE VARIABLE ANNUITY ACCOUNT SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 FORM N-4 REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933 Pre-Effective Amendment No. 1 (File No. 333-85567) [X] --------- Post-Effective Amendment No. [ ] and/or REGISTRATION STATEMENT UNDER THE INVESTMENT COMPANY ACT OF 1940 Amendment No. 2 (File No. 811-7195) [X] --------- (Check appropriate box or boxes) AMERICAN ENTERPRISE VARIABLE ANNUITY ACCOUNT - - - ------------------------------------------------------------------------------ (Exact Name of Registrant) American Enterprise Life Insurance Company - - - ------------------------------------------------------------------------------ (Name of Depositor) 80 South 8th Street, P.O. Box 534, Minneapolis, MN 55440-0534 - - - ------------------------------------------------------------------------------- (Address of Depositor's Principal Executive Offices) (Zip Code) Depositor's Telephone Number, including Area Code (612) 671-3678 - - - ------------------------------------------------------------------------------- Mary Ellyn Minenko, IDS Tower 10, Minneapolis, MN 55440-0010 - - - ------------------------------------------------------------------------------- (Name and Address of Agent for Service) It is proposed that this filing will become effective: November 3, 1999 or as soon as possible. Prospectus [_____], 1999 Wells Fargo AdvantageSM 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) 80 South Eighth Street P.O. Box 534 Minneapolis, MN 55440-0534 Telephone: 800-333-3437 This prospectus contains information that you should know before investing. You also will receive the prospectuses for:
o American Express Variable Portfolio Funds o Goldman Sachs Variable Insurance Trust (VIT) o AIM Variable Insurance Funds, Inc. o MFS(R) Variable Insurance Trust SM o The Dreyfus Socially Responsible Growth Fund, Inc. o Putnam Variable Trust o Franklin Templeton Variable Insurance Products Trust o Wells Fargo Variable Trust Funds
Please read the prospectuses carefully and keep them for future reference. This contract is available for qualified and nonqualified plans. The Securities and Exchange Commission (SEC) has not approved or disapproved these securities or passed upon the adequacy or accuracy of this prospectus. Any representation to the contrary is a criminal offense. An investment in this contract is not a deposit of a bank or financial institution and is not insured or guaranteed by the Federal Deposit Insurance Corporation or any other government agency. An investment in this contract involves investment risk including the possible loss of principal. A Statement of Additional Information (SAI), dated the same date as this prospectus, is incorporated by reference into this prospectus. It is filed with the SEC and is available without charge by contacting American Enterprise Life at the telephone number above or by completing and sending the order form on the last page of this prospectus. The table of contents of the SAI is on the last page of this prospectus. Table of Contents Key Terms The Contract in Brief Expense Summary Condensed Financial Information (Unaudited) Financial Statements Performance Information The Variable Account and the Funds The Fixed Accounts Buying Your Contract Charges Valuing Your Investment Making the Most of Your Contract Withdrawals Changing Ownership Benefits in Case of Death The Annuity Payout Period Taxes Voting Rights Substitution of Investments About the Service Providers Additional Information About American Enterprise Life Directors and Executive Officers Experts American Enterprise Life Financial Information Table of Contents of the Statement of Additional Information Key Terms These terms can help you understand details about your contract. Accumulation unit -- A measure of the value of each subaccount before annuity payouts begin. Annuitant -- The person on whose life or life expectancy the annuity payouts are based. Annuity payouts -- An amount paid at regular intervals under one of several plans. Beneficiary -- The person you designate to receive annuity benefits in case of the owner's or annuitant's death while the contract is in force and before annuity payouts begin. Close of business -- When the New York Stock Exchange (NYSE) closes, normally 4 p.m. Eastern time. Contract -- An individual annuity contract or a certificate showing your interest under a group annuity contract. Contract value -- The total value of your contract before we deduct any applicable charges. Contract year -- A period of 12 months, starting on the effective date of your contract and on each anniversary of the effective date. Fixed accounts -- The one-year fixed account is an account to which you may allocate purchase payments. Amounts you allocate to this account earn interest at rates that we declare periodically. Guarantee Period Accounts are fixed accounts to which you may also allocate purchase payments. These accounts have guaranteed interest rates declared for periods ranging from two to ten years. Withdrawals from these accounts prior to the end of the term specified will receive a Market Value Adjustment, which may result in a gain or loss of principal. Funds -- Mutual funds and/or portfolios that are investment options under your contract, each with a different investment objective. You may allocate your purchase payments into subaccounts investing in shares of any or all of these funds. Guarantee Period -- The number of years that a guaranteed interest rate is credited. Market Value Adjustment (MVA) -- A positive or negative adjustment assessed if any portion of a Guarantee Period Account is withdrawn or transferred prior to the end of its Guarantee Period. Owner (you, your) -- The person who controls the contract (decides on investment allocations, transfers, payout options, etc.). Usually, but not always, the owner is also the annuitant. The owner is responsible for taxes, regardless of whether he or she receives the contract's benefits. Qualified annuity -- A contract that you purchase for one of the following retirement plans that is subject to applicable federal law and any rules of the plan itself: o Individual Retirement Annuities (IRAs), including Roth IRAs o Simplified Employee Pension (SEP) plans All other contracts are considered nonqualified annuities. Retirement date -- The date when annuity payouts are scheduled to begin. Valuation date -- Any normal business day, Monday through Friday, that the NYSE is open. Each valuation date ends at the close of business. We calculate the value of each subaccount at the close of business on each valuation date. Variable account -- Consists of separate subaccounts to which you may allocate purchase payments; each invests in shares of one fund. The value of your investment in each subaccount changes with the performance of the particular fund. Withdrawal value -- The amount you are entitled to receive if you make a full withdrawal from your contract. It is the contract value minus any applicable charges. The Contract in Brief Purpose: The purpose of the contract is to allow you to accumulate money for retirement. You do this by making one or more investments (purchase payments) that may earn returns that increase the value of the contract. The contract provides lifetime or other forms of payouts beginning at a specified date (the retirement date). Free look period: You may return your contract to our office within 10 days after it is delivered to you and receive a full refund of the contract value. 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. __) o the fixed accounts, which earn interest at rates that we adjust periodically. (p. __) Buying your contract: Your sales representative will help you complete and submit an application. Applications are subject to acceptance at our office. You may buy a nonqualified annuity or a qualified annuity. American Express Financial Advisors Inc. (AEFA) will not issue a qualified annuity or non-qualified rollover annuity due to administration system restrictions. After your initial purchase payment, you have the option of making additional purchase payments in the future. Contracts sold through AEFA are only available with a seven-year withdrawal charge schedule. o Minimum initial purchase payment -- $2,000. This minimum does not apply if you enroll in the Systematic Investment Program (SIP). The Guarantee Period Accounts require a minimum investment of $1,000. o Minimum additional purchase payment -- $100 ($50 with SIP payments). o Maximum total purchase payments (without prior approval) -- $99,999 for contracts sold through AEFA and $1,000,000 for all other contracts. (p. ___ ) Transfers: Subject to certain restrictions you currently may redistribute your money among the subaccounts and the fixed accounts without charge at any time until annuity payouts begin, and once per contract year among the subaccounts after annuity payouts begin. Transfers out of the Guarantee Period Accounts before the end of the Guarantee Period will be subject to a MVA. You may establish automated transfers among the fixed accounts and subaccounts. Fixed account transfers are subject to special restrictions. (p. __) Withdrawals: You may withdraw all or part of your contract value at any time before the retirement date. You also may establish automated partial withdrawals. Withdrawals may be subject to charges and tax penalties (including a 10% IRS penalty if you make withdrawals prior to your reaching age 59 1/2) and may have other tax consequences; also, certain restrictions apply. (p. __) Changing ownership: You may change ownership of a nonqualified annuity by written instruction, but this may have federal income tax consequences. Restrictions apply to changing ownership of a qualified annuity. (p. __) Benefits in case of death: If you or the annuitant die before annuity payouts begin, we will pay the beneficiary an amount at least equal to the contract value. (p. __) Annuity payouts: You can apply your contract value to an annuity payout plan that begins on the retirement date. You may choose from a variety of plans to make sure that payouts continue as long as you like. If you purchased a qualified annuity, the payout schedule must meet the requirements of the qualified plan. We can make payouts on a fixed or variable basis, or both. Total monthly payouts may include amounts from each subaccount and the one-year fixed account. During the annuity payout period, your choices for subaccounts may be limited. The Guarantee Period Accounts are not available during the payout period. (p. __) Taxes: Generally, your contract grows tax-deferred until you make withdrawals from it or begin to receive payouts. (Under certain circumstances, IRS penalty taxes may apply.) Even if you direct payouts to someone else, you will be taxed on the income if you are the owner. Roth IRAs, however, may grow and be distributed tax free if you meet certain distribution requirements. (p. __) Charges: o $30 annual contract administrative charge; o a 0.15% variable account administrative charge; o with a five-year withdrawal charge schedule a 1.30% mortality and expense risk fee applies; o with a seven-year withdrawal charge schedule a 1.05% mortality and expense risk fee applies; o if the Enhanced Death Benefit Rider is selected, an additional 0.20% mortality and expense risk fee; o if the Guaranteed Minimum Income Benefit Rider is selected, an annual fee based on the Guaranteed Income Benefit Base (currently at 0.30%); o withdrawal charge; o any premium taxes that may be imposed on us by state or local governments (currently, we deduct any applicable premium tax when you make a total withdrawal or when annuity payouts begin, but we reserve the right to deduct this tax at other times such as when you make purchase payments); and o the operating expenses of the funds. 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 you bear directly or indirectly for the subaccounts and funds below. Some expenses may vary as we explain under "Charges." Please see the funds' prospectuses for more information on the operating expenses of each fund. Contract owner expenses: Withdrawal charge: contingent deferred sales charge as a percentage of purchase payment withdrawn. You select either a five-year or seven-year withdrawal charge schedule* at the time of application.
Five-year schedule Seven-year schedule Years from purchase Withdrawal charge Years from purchase Withdrawal charge payment receipt percentage payment receipt percentage 1 8% 1 8% 2 8 2 8 3 6 3 7 4 4 4 6 5 2 5 5 Thereafter 0 6 4 7 2 Thereafter 0
*Contracts sold through AEFA are only available with a seven-year withdrawal charge schedule. Withdrawal charge under Annuity Payout Plan E: Payouts for a specified period. The amount equal to the difference in the present value of remaining payments using the assumed investment rate and such present value using the assumed investment rate plus 1.52% if the original contract had a seven-year withdrawal charge schedule and 1.77% if the original contract had a five-year withdrawal charge schedule. Annual contract administrative charge $30** **We will waive this charge when your contract value is $50,000 or more on the current contract anniversary. Guaranteed Minimum Income Benefit Rider fee: as a percentage of the Guaranteed Income Benefit Base charged annually. This is an optional expense. 0.30% Annual variable account expenses: as a percentage of average subaccount value. You can choose the length of your contract's withdrawal charge 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 schedule schedule - - - --------------------------------------------------------------- ------------------------- --------------------------- - - - --------------------------------------------------------------- ------------------------- --------------------------- Variable account administrative charge 0.15% 0.15% - - - --------------------------------------------------------------- ------------------------- --------------------------- - - - --------------------------------------------------------------- ------------------------- --------------------------- Mortality and expense risk fee 1.30% 1.05% - - - --------------------------------------------------------------- ------------------------- --------------------------- - - - --------------------------------------------------------------- ------------------------- --------------------------- Enhanced Death Benefit Rider fee as part of the 0.20% 0.20% ----- ----- mortality and expense risk fee (optional) - - - --------------------------------------------------------------- ------------------------- --------------------------- - - - --------------------------------------------------------------- ------------------------- --------------------------- Total annual variable account expenses without the optional 1.45% 1.20% Enhanced Death Benefit Rider fee - - - --------------------------------------------------------------- ------------------------- --------------------------- - - - --------------------------------------------------------------- ------------------------- --------------------------- Total annual variable account expenses with the optional 1.65% 1.40% Enhanced Death Benefit Rider fee - - - --------------------------------------------------------------- ------------------------- ---------------------------
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 - - - ------------------------------------------------------------------------- ----------------- ------- -------------- ----------- - - - ------------------------------------------------------------------------- ----------------- ------- -------------- ----------- - - - ------------------------------------------------------------------------- ----------------- ------- -------------- ----------- - - - ------------------------------------------------------------------------- ----------------- ------- -------------- ----------- AXPSM Variable Portfolio - Blue Chip Advantage Fund .56% .13 .26 .95%1 - - - ------------------------------------------------------------------------- ----------------- ------- -------------- ----------- - - - ------------------------------------------------------------------------- ----------------- ------- -------------- ----------- AXPSM Variable Portfolio - Capital Resource Fund .59% .13 .07 .79%2 - - - ------------------------------------------------------------------------- ----------------- ------- -------------- ----------- - - - ------------------------------------------------------------------------- ----------------- ------- -------------- ----------- AXPSM Variable Portfolio - Diversified Equity Income Fund .56% .13 .26 .95%1 - - - ------------------------------------------------------------------------- ----------------- ------- -------------- ----------- - - - ------------------------------------------------------------------------- ----------------- ------- -------------- ----------- AXPSM Variable Portfolio - Extra Income Fund .62% .13 .09 .84%2 - - - ------------------------------------------------------------------------- ----------------- ------- -------------- ----------- - - - ------------------------------------------------------------------------- ----------------- ------- -------------- ----------- AXPSM Variable Portfolio - Federal Income Fund .61% .13 .14 .88%1 - - - ------------------------------------------------------------------------- ----------------- ------- -------------- ----------- - - - ------------------------------------------------------------------------- ----------------- ------- -------------- ----------- AXPSM Variable Portfolio - New Dimensions Fund .61% .13 .06 .80%2 - - - ------------------------------------------------------------------------- ----------------- ------- -------------- ----------- - - - ------------------------------------------------------------------------- ----------------- ------- -------------- ----------- AXPSM Variable Portfolio - Small Cap Advantage Fund .79% .13 .31 1.23%1 - - - ------------------------------------------------------------------------- ----------------- ------- -------------- ----------- - - - ------------------------------------------------------------------------- ----------------- ------- -------------- ----------- - - - ------------------------------------------------------------------------- ----------------- ------- -------------- ----------- - - - ------------------------------------------------------------------------- ----------------- ------- -------------- ----------- AIM V.I. Capital Appreciation Fund .62% -- .05 .67%3 - - - ------------------------------------------------------------------------- ----------------- ------- -------------- ----------- - - - ------------------------------------------------------------------------- ----------------- ------- -------------- ----------- AIM V.I. Value Fund .61% -- .05 .66%3 - - - ------------------------------------------------------------------------- ----------------- ------- -------------- ----------- - - - ------------------------------------------------------------------------- ----------------- ------- -------------- ----------- - - - ------------------------------------------------------------------------- ----------------- ------- -------------- ----------- - - - ------------------------------------------------------------------------- ----------------- ------- -------------- ----------- The Dreyfus Socially Responsible Growth Fund, Inc. .75% -- .05 .80% - - - ------------------------------------------------------------------------- ----------------- ------- -------------- ----------- - - - ------------------------------------------------------------------------- ----------------- ------- -------------- ----------- - - - ------------------------------------------------------------------------- ----------------- ------- -------------- ----------- - - - ------------------------------------------------------------------------- ----------------- ------- -------------- ----------- FT VIP Franklin Income Securities Fund - Class 2 .47% .25 .02 .74%4 - - - ------------------------------------------------------------------------- ----------------- ------- -------------- ----------- - - - ------------------------------------------------------------------------- ----------------- ------- -------------- ----------- FT VIP Mutual Shares Securities Fund - Class 2 .74% .25 .03 1.02%4 - - - ------------------------------------------------------------------------- ----------------- ------- -------------- ----------- - - - ------------------------------------------------------------------------- ----------------- ------- -------------- ----------- FT VIP Franklin Real Estate Fund - Class 2 .52% .25 .02 .79%4 - - - ------------------------------------------------------------------------- ----------------- ------- -------------- ----------- - - - ------------------------------------------------------------------------- ----------------- ------- -------------- ----------- FT VIP Franklin Small Cap Fund Class - 2 .75% .25 .02 1.02%4 - - - ------------------------------------------------------------------------- ----------------- ------- -------------- ----------- - - - ------------------------------------------------------------------------- ----------------- ------- -------------- ----------- - - - ------------------------------------------------------------------------- ----------------- ------- -------------- ----------- - - - ------------------------------------------------------------------------- ----------------- ------- -------------- ----------- Goldman Sachs VIT CORESM U.S. Equity Fund .70% -- .10 .80%5 - - - ------------------------------------------------------------------------- ----------------- ------- -------------- ----------- - - - ------------------------------------------------------------------------- ----------------- ------- -------------- ----------- Goldman Sachs VIT Global Income Fund .90% -- .15 1.05%5 - - - ------------------------------------------------------------------------- ----------------- ------- -------------- ----------- - - - ------------------------------------------------------------------------- ----------------- ------- -------------- ----------- Goldman Sachs VIT Mid Cap Value Fund .80% -- .15 .95%6 - - - ------------------------------------------------------------------------- ----------------- ------- -------------- ----------- - - - ------------------------------------------------------------------------- ----------------- ------- -------------- ----------- - - - ------------------------------------------------------------------------- ----------------- ------- -------------- ----------- - - - ------------------------------------------------------------------------- ----------------- ------- -------------- ----------- MFS(R)Growth with Income Series .75% -- .13 .88%7 - - - ------------------------------------------------------------------------- ----------------- ------- -------------- ----------- - - - ------------------------------------------------------------------------- ----------------- ------- -------------- ----------- MFS(R)Utilities Series .75% -- .26 1.01%7 - - - ------------------------------------------------------------------------- ----------------- ------- -------------- ----------- - - - ------------------------------------------------------------------------- ----------------- ------- -------------- ----------- - - - ------------------------------------------------------------------------- ----------------- ------- -------------- ----------- - - - ------------------------------------------------------------------------- ----------------- ------- -------------- ----------- Putnam VT International Growth Fund - Class IB Shares .80% .15 .27 1.22% - - - ------------------------------------------------------------------------- ----------------- ------- -------------- ----------- - - - ------------------------------------------------------------------------- ----------------- ------- -------------- ----------- Putnam VT Vista Fund - Class IB Shares .65% .15 .12 .92% - - - ------------------------------------------------------------------------- ----------------- ------- -------------- ----------- - - - ------------------------------------------------------------------------- ----------------- ------- -------------- ----------- - - - ------------------------------------------------------------------------- ----------------- ------- -------------- ----------- - - - ------------------------------------------------------------------------- ----------------- ------- -------------- ----------- Wells Fargo VT Asset Allocation Fund .42% .25 .33 1.00%8 - - - ------------------------------------------------------------------------- ----------------- ------- -------------- ----------- - - - ------------------------------------------------------------------------- ----------------- ------- -------------- ----------- Wells Fargo VT Corporate Bond Fund .10% .25 .55 .90%8 - - - ------------------------------------------------------------------------- ----------------- ------- -------------- ----------- - - - ------------------------------------------------------------------------- ----------------- ------- -------------- ----------- Wells Fargo VT Equity Income Fund .38% .25 .37 1.00%8 - - - ------------------------------------------------------------------------- ----------------- ------- -------------- ----------- - - - ------------------------------------------------------------------------- ----------------- ------- -------------- ----------- Wells Fargo VT Equity Value Fund -- % .25 .75 1.00%8 - - - ------------------------------------------------------------------------- ----------------- ------- -------------- ----------- - - - ------------------------------------------------------------------------- ----------------- ------- -------------- ----------- Wells Fargo VT Growth Fund .32% .25 .43 1.00%8 - - - ------------------------------------------------------------------------- ----------------- ------- -------------- ----------- - - - ------------------------------------------------------------------------- ----------------- ------- -------------- ----------- Wells Fargo VT Large Company Growth Fund .12% .25 .63 1.00%8 - - - ------------------------------------------------------------------------- ----------------- ------- -------------- ----------- - - - ------------------------------------------------------------------------- ----------------- ------- -------------- ----------- Wells Fargo VT Money Market Fund .10% .25 .50 .85%8 - - - ------------------------------------------------------------------------- ----------------- ------- -------------- ----------- - - - ------------------------------------------------------------------------- ----------------- ------- -------------- ----------- Wells Fargo VT Small Cap Growth Fund -- % .25 .95 1.20%8 - - - ------------------------------------------------------------------------- ----------------- ------- -------------- -----------
1Based on estimated expenses after fee waivers and expense reimbursements. Without fee waivers and expense reimbursements "Other Expenses" and "Total" would be: 0.39% and 1.08% for AXPSM Variable Portfolio - Blue Chip Advantage and AXPSM Variable Portfolio - Diversified Equity Income Funds, 0.26% and 1.00% for AXPSM Variable Portfolio - Federal Income Fund and 0.43% and 1.35% for AXPSM Variable Portfolio - Small Cap Advantage Fund. 2Annualized operating expenses of funds at Dec. 31, 1998. 3Figures in "Management Fees," "Other Expenses" and "Total" are based on actual expenses for the fiscal year ended Dec. 31, 1998. 4Because no Class 2 shares were issued as of Dec. 31, 1998, figures (other than Rule 12b-1 fees) are based on the Portfolio's Class 1 actual expenses for the fiscal year ended Dec. 31, 1998 plus Class 2's annual Rule 12b-1 fee of 0.25%. (While the maximum amount payable under each Portfolio's Class 2 Rule 12b-1 plan is 0.35% per year of the Portfolio's average daily net assets, the Board of Trustees of Franklin Templeton Variable Insurance Products Trust has set the current rate at 0.25% per year). The figure shown under Management Fees, combines both the Management and Portfolio Administration Fees. The Portfolio Administration Fee is a direct expense for the Mutual Share Securities Fund; the Franklin Income Securities Fund, and the Franklin Real Estate Fund and the Franklin Small Cap Fund pays for similar services indirectly through the Management Fee. 5The Goldman Sachs VIT CORESM U.S. Equity Fund and Goldman Sachs VIT Global Income Fund expenses are based on actual expenses for fiscal year ended Dec. 31, 1998. The Investment Advisor to the Goldman Sachs VIT CORESM U.S. Equity Fund and Goldman Sachs VIT Global Income Fund have voluntarily agreed to reduce or limit certain "Other Expenses" of such funds (excluding management fees, taxes, interest and brokerage fees, litigation, indemnification and other extraordinary expenses) to the extent such expenses exceed 0.10% and 0.15% per annum of such funds' average daily net assets, respectively. The expenses shown include this reimbursement. If not included, the "Other Expenses" and "Total" for the Goldman Sachs VIT CORESM U.S. Equity Fund and Goldman Sachs VIT Global Income Fund would be 2.13% and 2.83% and 2.40% and 3.30%, respectively. The reductions or limits may be discontinued or modified by the investment adviser in their discretion at any time. 6The Goldman Sachs VIT Mid Cap Value Fund's expenses are estimated due to the fund being in existence for less than ten months. The Investment Advisor to the Goldman Sachs VIT Mid Cap Value Fund has voluntarily agreed to reduce or limit certain "Other Expenses" of such funds (excluding management fees, taxes, interest and brokerage fees, litigation, indemnification and other extraordinary expenses) to the extent such expenses exceed 0.15% per annum of such funds' average daily net assets, respectively. The expenses shown include this reimbursement. If not included, the "Other Expenses" and "Total" for the Goldman Sachs VIT Mid Cap Value Fund would be 0.57% and 1.37%, respectively. The reductions or limits may be discontinued or modified by the investment advisor in their discretion at any time. 7Each series has an expense offset arrangement which reduces the series' custodian fee based upon the amount of cash maintained by the series with its custodian and dividend disbursing agent. Each series may enter into other such arrangements and directed brokerage arrangements, which would also have the effect of reducing the series' expenses. Expenses do not take into account these expense reductions, and are therefore higher than the actual expenses of the series. 8The Funds' annualized expenses are anticipated for the period Sept. 20, 1999 - Dec. 31, 1999. Examples: * You would pay the following expenses on a $1,000 investment if you selected a five-year withdrawal charge schedule without any optional riders and assuming a 5% annual return and...
- - - ----------------------------------------------------------------------------------------------------------------------------- a total withdrawal at no withdrawal or the end of each time selection of an annuity period payout plan at the end of each time period - - - ----------------------------------------------------------------------------------------------------------------------------- - - - ----------------------------------------------------------------------------------------------------------------------------- 1 year 3 years 1 year 3 years - - - ----------------------------------------------------------------------------------------------------------------------------- - - - ----------------------------------------------------------------------------------------------------------------------------- - - - ----------------------------------------------------------------------------------------------------------------------------- - - - ----------------------------------------------------------------------------------------------------------------------------- AXPSM Variable Portfolio - Blue Chip Advantage Fund $105.07 $137.11 $25.07 $77.11 - - - ----------------------------------------------------------------------------------------------------------------------------- - - - ----------------------------------------------------------------------------------------------------------------------------- AXPSM Variable Portfolio - Capital Resource Fund 103.43 132.18 23.43 72.18 - - - ----------------------------------------------------------------------------------------------------------------------------- - - - ----------------------------------------------------------------------------------------------------------------------------- AXPSM Variable Portfolio - Diversified Equity Income Fund 105.07 137.11 25.07 77.11 - - - ----------------------------------------------------------------------------------------------------------------------------- - - - ----------------------------------------------------------------------------------------------------------------------------- AXPSM Variable Portfolio - Extra Income Fund 103.94 133.72 23.94 73.72 - - - ----------------------------------------------------------------------------------------------------------------------------- - - - ----------------------------------------------------------------------------------------------------------------------------- AXPSM Variable Portfolio - Federal Income Fund 104.35 134.95 24.35 74.95 - - - ----------------------------------------------------------------------------------------------------------------------------- - - - ----------------------------------------------------------------------------------------------------------------------------- AXPSM Variable Portfolio - New Dimensions Fund 103.53 132.49 23.53 72.49 - - - ----------------------------------------------------------------------------------------------------------------------------- - - - ----------------------------------------------------------------------------------------------------------------------------- AXPSM Variable Portfolio - Small Cap Advantage Fund 107.94 145.69 27.94 85.69 - - - ----------------------------------------------------------------------------------------------------------------------------- - - - ----------------------------------------------------------------------------------------------------------------------------- - - - ----------------------------------------------------------------------------------------------------------------------------- - - - ----------------------------------------------------------------------------------------------------------------------------- AIM V.I. Capital Appreciation Fund 102.25 128.63 22.25 68.63 - - - ----------------------------------------------------------------------------------------------------------------------------- - - - ----------------------------------------------------------------------------------------------------------------------------- AIM V.I. Value Fund 102.15 128.32 22.15 68.32 - - - ----------------------------------------------------------------------------------------------------------------------------- - - - ----------------------------------------------------------------------------------------------------------------------------- - - - ----------------------------------------------------------------------------------------------------------------------------- - - - ----------------------------------------------------------------------------------------------------------------------------- The Dreyfus Socially Responsible Growth Fund, Inc. 103.59 132.64 23.59 72.64 - - - ----------------------------------------------------------------------------------------------------------------------------- - - - ----------------------------------------------------------------------------------------------------------------------------- - - - ----------------------------------------------------------------------------------------------------------------------------- - - - ----------------------------------------------------------------------------------------------------------------------------- FT VIP Franklin Income Securities Fund - Class 2 102.97 130.79 22.97 70.79 - - - ----------------------------------------------------------------------------------------------------------------------------- - - - ----------------------------------------------------------------------------------------------------------------------------- FT VIP Mutual Shares Securities Fund - Class 2 105.84 139.41 25.84 79.41 - - - ----------------------------------------------------------------------------------------------------------------------------- - - - ----------------------------------------------------------------------------------------------------------------------------- FT VIP Franklin Real Estate Fund - Class 2 103.48 132.33 23.48 72.33 - - - ----------------------------------------------------------------------------------------------------------------------------- - - - ----------------------------------------------------------------------------------------------------------------------------- FT VIP Franklin Small Cap Fund Class - 2 105.84 139.41 25.84 79.41 - - - ----------------------------------------------------------------------------------------------------------------------------- - - - ----------------------------------------------------------------------------------------------------------------------------- - - - ----------------------------------------------------------------------------------------------------------------------------- - - - ----------------------------------------------------------------------------------------------------------------------------- Goldman Sachs VIT CORESM U.S. Equity Fund 103.59 132.64 23.59 72.64 - - - ----------------------------------------------------------------------------------------------------------------------------- - - - ----------------------------------------------------------------------------------------------------------------------------- Goldman Sachs VIT Global Income Fund 106.15 140.33 26.15 80.33 - - - ----------------------------------------------------------------------------------------------------------------------------- - - - ----------------------------------------------------------------------------------------------------------------------------- Goldman Sachs VIT Mid Cap Value Fund 105.12 137.26 25.12 77.26 - - - ----------------------------------------------------------------------------------------------------------------------------- - - - ----------------------------------------------------------------------------------------------------------------------------- - - - ----------------------------------------------------------------------------------------------------------------------------- - - - ----------------------------------------------------------------------------------------------------------------------------- MFS(R)Growth with Income Series 104.41 135.11 24.41 75.11 - - - ----------------------------------------------------------------------------------------------------------------------------- - - - ----------------------------------------------------------------------------------------------------------------------------- MFS(R)Utilities Series 105.74 139.10 25.74 79.10 - - - ----------------------------------------------------------------------------------------------------------------------------- - - - ----------------------------------------------------------------------------------------------------------------------------- - - - ----------------------------------------------------------------------------------------------------------------------------- - - - ----------------------------------------------------------------------------------------------------------------------------- Putnam VT International Growth Fund - Class IB Shares 107.89 145.53 27.89 85.53 - - - ----------------------------------------------------------------------------------------------------------------------------- - - - ----------------------------------------------------------------------------------------------------------------------------- Putnam VT Vista Fund - Class IB Shares 104.82 136.34 24.82 76.34 - - - ----------------------------------------------------------------------------------------------------------------------------- - - - ----------------------------------------------------------------------------------------------------------------------------- - - - ----------------------------------------------------------------------------------------------------------------------------- - - - ----------------------------------------------------------------------------------------------------------------------------- Wells Fargo VT Asset Allocation Fund 105.64 138.79 25.64 78.79 - - - ----------------------------------------------------------------------------------------------------------------------------- - - - ----------------------------------------------------------------------------------------------------------------------------- Wells Fargo VT Corporate Bond Fund 104.61 135.72 24.61 75.72 - - - ----------------------------------------------------------------------------------------------------------------------------- - - - ----------------------------------------------------------------------------------------------------------------------------- Wells Fargo VT Equity Income Fund 105.64 138.79 25.64 78.79 - - - ----------------------------------------------------------------------------------------------------------------------------- - - - ----------------------------------------------------------------------------------------------------------------------------- Wells Fargo VT Equity Value Fund 105.64 138.79 25.64 78.79 - - - ----------------------------------------------------------------------------------------------------------------------------- - - - ----------------------------------------------------------------------------------------------------------------------------- Wells Fargo VT Growth Fund 105.64 138.79 25.64 78.79 - - - ----------------------------------------------------------------------------------------------------------------------------- - - - ----------------------------------------------------------------------------------------------------------------------------- Wells Fargo VT Large Company Growth Fund 105.64 138.79 25.64 78.79 - - - ----------------------------------------------------------------------------------------------------------------------------- - - - ----------------------------------------------------------------------------------------------------------------------------- Wells Fargo VT Money Market Fund 104.10 134.18 24.10 74.18 - - - ----------------------------------------------------------------------------------------------------------------------------- - - - ----------------------------------------------------------------------------------------------------------------------------- Wells Fargo VT Small Cap Growth Fund 107.69 144.92 27.69 84.92 - - - -----------------------------------------------------------------------------------------------------------------------------
You would pay the following expenses on a $1,000 investment if you selected a five-year withdrawal charge schedule with the optional 0.20% Enhanced Death Benefit Rider and the 0.30% Guaranteed Minimum Income Benefit Rider and assuming a 5% annual return and...
- - - ----------------------------------------------------------------------------------------------------------------------------- a total withdrawal at no withdrawal or the end of each time selection of an annuity period payout plan at the end of each time period - - - ----------------------------------------------------------------------------------------------------------------------------- - - - ----------------------------------------------------------------------------------------------------------------------------- 1 year 3 years 1 year 3 years - - - ----------------------------------------------------------------------------------------------------------------------------- - - - ----------------------------------------------------------------------------------------------------------------------------- - - - ----------------------------------------------------------------------------------------------------------------------------- - - - ----------------------------------------------------------------------------------------------------------------------------- AXPSM Variable Portfolio - Blue Chip Advantage Fund $110.27 $153.17 $30.27 $93.17 - - - ----------------------------------------------------------------------------------------------------------------------------- - - - ----------------------------------------------------------------------------------------------------------------------------- AXPSM Variable Portfolio - Capital Resource Fund 108.63 148.26 28.63 88.26 - - - ----------------------------------------------------------------------------------------------------------------------------- - - - ----------------------------------------------------------------------------------------------------------------------------- AXPSM Variable Portfolio - Diversified Equity Income Fund 110.27 153.17 30.27 93.17 - - - ----------------------------------------------------------------------------------------------------------------------------- - - - ----------------------------------------------------------------------------------------------------------------------------- AXPSM Variable Portfolio - Extra Income Fund 109.14 149.80 29.14 89.80 - - - ----------------------------------------------------------------------------------------------------------------------------- - - - ----------------------------------------------------------------------------------------------------------------------------- AXPSM Variable Portfolio - Federal Income Fund 109.55 151.03 29.55 91.03 - - - ----------------------------------------------------------------------------------------------------------------------------- - - - ----------------------------------------------------------------------------------------------------------------------------- AXPSM Variable Portfolio - New Dimensions Fund 108.73 148.57 28.73 88.57 - - - ----------------------------------------------------------------------------------------------------------------------------- - - - ----------------------------------------------------------------------------------------------------------------------------- AXPSM Variable Portfolio - Small Cap Advantage Fund 113.14 161.72 33.14 101.72 - - - ----------------------------------------------------------------------------------------------------------------------------- - - - ----------------------------------------------------------------------------------------------------------------------------- - - - ----------------------------------------------------------------------------------------------------------------------------- - - - ----------------------------------------------------------------------------------------------------------------------------- AIM V.I. Capital Appreciation Fund 107.45 144.73 27.45 84.73 - - - ----------------------------------------------------------------------------------------------------------------------------- - - - ----------------------------------------------------------------------------------------------------------------------------- AIM V.I. Value Fund 107.35 144.42 27.35 84.42 - - - ----------------------------------------------------------------------------------------------------------------------------- - - - ----------------------------------------------------------------------------------------------------------------------------- - - - ----------------------------------------------------------------------------------------------------------------------------- - - - ----------------------------------------------------------------------------------------------------------------------------- The Dreyfus Socially Responsible Growth Fund, Inc. 108.79 148.73 28.79 88.73 - - - ----------------------------------------------------------------------------------------------------------------------------- - - - ----------------------------------------------------------------------------------------------------------------------------- - - - ----------------------------------------------------------------------------------------------------------------------------- - - - ----------------------------------------------------------------------------------------------------------------------------- FT VIP Franklin Income Securities Fund - Class 2 108.17 146.88 28.17 86.88 - - - ----------------------------------------------------------------------------------------------------------------------------- - - - ----------------------------------------------------------------------------------------------------------------------------- FT VIP Mutual Shares Securities Fund - Class 2 111.04 155.46 31.04 95.46 - - - ----------------------------------------------------------------------------------------------------------------------------- - - - ----------------------------------------------------------------------------------------------------------------------------- FT VIP Franklin Real Estate Fund - Class 2 108.68 148.42 28.68 88.42 - - - ----------------------------------------------------------------------------------------------------------------------------- - - - ----------------------------------------------------------------------------------------------------------------------------- FT VIP Franklin Small Cap Fund Class - 2 111.04 155.46 31.04 95.46 - - - ----------------------------------------------------------------------------------------------------------------------------- - - - ----------------------------------------------------------------------------------------------------------------------------- - - - ----------------------------------------------------------------------------------------------------------------------------- - - - ----------------------------------------------------------------------------------------------------------------------------- Goldman Sachs VIT CORESM U.S. Equity Fund 108.79 148.73 28.79 88.73 - - - ----------------------------------------------------------------------------------------------------------------------------- - - - ----------------------------------------------------------------------------------------------------------------------------- Goldman Sachs VIT Global Income Fund 111.35 156.38 31.35 96.38 - - - ----------------------------------------------------------------------------------------------------------------------------- - - - ----------------------------------------------------------------------------------------------------------------------------- Goldman Sachs VIT Mid Cap Value Fund 110.32 153.32 30.32 93.32 - - - ----------------------------------------------------------------------------------------------------------------------------- - - - ----------------------------------------------------------------------------------------------------------------------------- - - - ----------------------------------------------------------------------------------------------------------------------------- - - - ----------------------------------------------------------------------------------------------------------------------------- MFS(R)Growth with Income Series 109.61 151.18 29.61 91.18 - - - ----------------------------------------------------------------------------------------------------------------------------- - - - ----------------------------------------------------------------------------------------------------------------------------- MFS(R)Utilities Series 110.94 155.16 30.94 95.16 - - - ----------------------------------------------------------------------------------------------------------------------------- - - - ----------------------------------------------------------------------------------------------------------------------------- - - - ----------------------------------------------------------------------------------------------------------------------------- - - - ----------------------------------------------------------------------------------------------------------------------------- Putnam VT International Growth Fund - Class IB Shares 113.09 161.56 33.09 101.56 - - - ----------------------------------------------------------------------------------------------------------------------------- - - - ----------------------------------------------------------------------------------------------------------------------------- Putnam VT Vista Fund - Class IB Shares 110.02 152.41 30.02 92.41 - - - ----------------------------------------------------------------------------------------------------------------------------- - - - ----------------------------------------------------------------------------------------------------------------------------- - - - ----------------------------------------------------------------------------------------------------------------------------- - - - ----------------------------------------------------------------------------------------------------------------------------- Wells Fargo VT Asset Allocation Fund 110.84 154.85 30.84 94.85 - - - ----------------------------------------------------------------------------------------------------------------------------- - - - ----------------------------------------------------------------------------------------------------------------------------- Wells Fargo VT Corporate Bond Fund 109.81 151.79 29.81 91.79 - - - ----------------------------------------------------------------------------------------------------------------------------- - - - ----------------------------------------------------------------------------------------------------------------------------- Wells Fargo VT Equity Income Fund 110.84 154.85 30.84 94.85 - - - ----------------------------------------------------------------------------------------------------------------------------- - - - ----------------------------------------------------------------------------------------------------------------------------- Wells Fargo VT Equity Value Fund 110.84 154.85 30.84 94.85 - - - ----------------------------------------------------------------------------------------------------------------------------- - - - ----------------------------------------------------------------------------------------------------------------------------- Wells Fargo VT Growth Fund 110.84 154.85 30.84 94.85 - - - ----------------------------------------------------------------------------------------------------------------------------- - - - ----------------------------------------------------------------------------------------------------------------------------- Wells Fargo VT Large Company Growth Fund 110.84 154.85 30.84 94.85 - - - ----------------------------------------------------------------------------------------------------------------------------- - - - ----------------------------------------------------------------------------------------------------------------------------- Wells Fargo VT Money Market Fund 109.30 150.26 29.30 90.26 - - - ----------------------------------------------------------------------------------------------------------------------------- - - - ----------------------------------------------------------------------------------------------------------------------------- Wells Fargo VT Small Cap Growth Fund 112.89 160.96 32.89 100.96 - - - -----------------------------------------------------------------------------------------------------------------------------
You would pay the following expenses on a $1,000 investment if you selected a seven-year withdrawal charge schedule without any optional riders and assuming a 5% annual return and...
- - - ----------------------------------------------------------------------------------------------------------------------------- a total withdrawal at no withdrawal or the end of each time selection of an annuity period payout plan at the end of each time period - - - ----------------------------------------------------------------------------------------------------------------------------- - - - ----------------------------------------------------------------------------------------------------------------------------- 1 year 3 years 1 year 3 years - - - ----------------------------------------------------------------------------------------------------------------------------- - - - ----------------------------------------------------------------------------------------------------------------------------- - - - ----------------------------------------------------------------------------------------------------------------------------- - - - ----------------------------------------------------------------------------------------------------------------------------- AXPSM Variable Portfolio - Blue Chip Advantage Fund $102.51 $139.40 $22.51 $69.40 - - - ----------------------------------------------------------------------------------------------------------------------------- - - - ----------------------------------------------------------------------------------------------------------------------------- AXPSM Variable Portfolio - Capital Resource Fund 100.87 134.45 20.87 64.45 - - - ----------------------------------------------------------------------------------------------------------------------------- - - - ----------------------------------------------------------------------------------------------------------------------------- AXPSM Variable Portfolio - Diversified Equity Income Fund 102.51 139.40 22.51 69.40 - - - ----------------------------------------------------------------------------------------------------------------------------- - - - ----------------------------------------------------------------------------------------------------------------------------- AXPSM Variable Portfolio - Extra Income Fund 101.38 136.00 21.38 66.00 - - - ----------------------------------------------------------------------------------------------------------------------------- - - - ----------------------------------------------------------------------------------------------------------------------------- AXPSM Variable Portfolio - Federal Income Fund 101.79 137.24 21.79 67.24 - - - ----------------------------------------------------------------------------------------------------------------------------- - - - ----------------------------------------------------------------------------------------------------------------------------- AXPSM Variable Portfolio - New Dimensions Fund 100.97 134.76 20.97 64.76 - - - ----------------------------------------------------------------------------------------------------------------------------- - - - ----------------------------------------------------------------------------------------------------------------------------- AXPSM Variable Portfolio - Small Cap Advantage Fund 105.38 148.03 25.38 78.03 - - - ----------------------------------------------------------------------------------------------------------------------------- - - - ----------------------------------------------------------------------------------------------------------------------------- - - - ----------------------------------------------------------------------------------------------------------------------------- - - - ----------------------------------------------------------------------------------------------------------------------------- AIM V.I. Capital Appreciation Fund 99.69 130.88 19.69 60.88 - - - ----------------------------------------------------------------------------------------------------------------------------- - - - ----------------------------------------------------------------------------------------------------------------------------- AIM V.I. Value Fund 99.59 130.57 19.59 60.57 - - - ----------------------------------------------------------------------------------------------------------------------------- - - - ----------------------------------------------------------------------------------------------------------------------------- - - - ----------------------------------------------------------------------------------------------------------------------------- - - - ----------------------------------------------------------------------------------------------------------------------------- The Dreyfus Socially Responsible Growth Fund, Inc. 101.02 134.91 21.02 64.91 - - - ----------------------------------------------------------------------------------------------------------------------------- - - - ----------------------------------------------------------------------------------------------------------------------------- - - - ----------------------------------------------------------------------------------------------------------------------------- - - - ----------------------------------------------------------------------------------------------------------------------------- FT VIP Franklin Income Securities Fund - Class 2 100.41 133.05 20.41 63.05 - - - ----------------------------------------------------------------------------------------------------------------------------- - - - ----------------------------------------------------------------------------------------------------------------------------- FT VIP Mutual Shares Securities Fund - Class 2 103.28 141.72 23.28 71.72 - - - ----------------------------------------------------------------------------------------------------------------------------- - - - ----------------------------------------------------------------------------------------------------------------------------- FT VIP Franklin Real Estate Fund - Class 2 100.92 134.60 20.92 64.60 - - - ----------------------------------------------------------------------------------------------------------------------------- - - - ----------------------------------------------------------------------------------------------------------------------------- FT VIP Franklin Small Cap Fund Class - 2 103.28 141.72 23.28 71.72 - - - ----------------------------------------------------------------------------------------------------------------------------- - - - ----------------------------------------------------------------------------------------------------------------------------- - - - ----------------------------------------------------------------------------------------------------------------------------- - - - ----------------------------------------------------------------------------------------------------------------------------- Goldman Sachs VIT CORESM U.S. Equity Fund 101.02 134.91 21.02 64.91 - - - ----------------------------------------------------------------------------------------------------------------------------- - - - ----------------------------------------------------------------------------------------------------------------------------- Goldman Sachs VIT Global Income Fund 103.59 142.64 23.59 72.64 - - - ----------------------------------------------------------------------------------------------------------------------------- - - - ----------------------------------------------------------------------------------------------------------------------------- Goldman Sachs VIT Mid Cap Value Fund 102.56 139.55 22.56 69.55 - - - ----------------------------------------------------------------------------------------------------------------------------- - - - ----------------------------------------------------------------------------------------------------------------------------- - - - ----------------------------------------------------------------------------------------------------------------------------- - - - ----------------------------------------------------------------------------------------------------------------------------- MFS(R)Growth with Income Series 101.84 137.39 21.84 67.39 - - - ----------------------------------------------------------------------------------------------------------------------------- - - - ----------------------------------------------------------------------------------------------------------------------------- MFS(R)Utilities Series 103.18 141.41 23.18 71.41 - - - ----------------------------------------------------------------------------------------------------------------------------- - - - ----------------------------------------------------------------------------------------------------------------------------- - - - ----------------------------------------------------------------------------------------------------------------------------- - - - ----------------------------------------------------------------------------------------------------------------------------- Putnam VT International Growth Fund - Class IB Shares 105.33 147.87 25.33 77.87 - - - ----------------------------------------------------------------------------------------------------------------------------- - - - ----------------------------------------------------------------------------------------------------------------------------- Putnam VT Vista Fund - Class IB Shares 102.25 138.63 22.25 68.63 - - - ----------------------------------------------------------------------------------------------------------------------------- - - - ----------------------------------------------------------------------------------------------------------------------------- - - - ----------------------------------------------------------------------------------------------------------------------------- - - - ----------------------------------------------------------------------------------------------------------------------------- Wells Fargo VT Asset Allocation Fund 103.07 141.10 23.07 71.10 - - - ----------------------------------------------------------------------------------------------------------------------------- - - - ----------------------------------------------------------------------------------------------------------------------------- Wells Fargo VT Corporate Bond Fund 102.05 138.01 22.05 68.01 - - - ----------------------------------------------------------------------------------------------------------------------------- - - - ----------------------------------------------------------------------------------------------------------------------------- Wells Fargo VT Equity Income Fund 103.07 141.10 23.07 71.10 - - - ----------------------------------------------------------------------------------------------------------------------------- - - - ----------------------------------------------------------------------------------------------------------------------------- Wells Fargo VT Equity Value Fund 103.07 141.10 23.07 71.10 - - - ----------------------------------------------------------------------------------------------------------------------------- - - - ----------------------------------------------------------------------------------------------------------------------------- Wells Fargo VT Growth Fund 103.07 141.10 23.07 71.10 - - - ----------------------------------------------------------------------------------------------------------------------------- - - - ----------------------------------------------------------------------------------------------------------------------------- Wells Fargo VT Large Company Growth Fund 103.07 141.10 23.07 71.10 - - - ----------------------------------------------------------------------------------------------------------------------------- - - - ----------------------------------------------------------------------------------------------------------------------------- Wells Fargo VT Money Market Fund 101.54 136.46 21.54 66.46 - - - ----------------------------------------------------------------------------------------------------------------------------- - - - ----------------------------------------------------------------------------------------------------------------------------- Wells Fargo VT Small Cap Growth Fund 105.12 147.26 25.12 77.26 - - - -----------------------------------------------------------------------------------------------------------------------------
You would pay the following expenses on a $1,000 investment if you selected a seven-year withdrawal charge schedule with the optional 0.20% Enhanced Death Benefit Rider and 0.30% Guaranteed Minimum Income Benefit Rider 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 - - - ------------------------------------------------------------------------------------------------------------------------------- - - - ------------------------------------------------------------------------------------------------------------------------------- - - - ------------------------------------------------------------------------------------------------------------------------------- - - - ------------------------------------------------------------------------------------------------------------------------------- AXPSM Variable Portfolio - Blue Chip Advantage Fund $107.71 $155.50 $-- $-- - - - ------------------------------------------------------------------------------------------------------------------------------- - - - ------------------------------------------------------------------------------------------------------------------------------- AXPSM Variable Portfolio - Capital Resource Fund 106.07 150.57 188.38 298.86 - - - ------------------------------------------------------------------------------------------------------------------------------- - - - ------------------------------------------------------------------------------------------------------------------------------- AXPSM Variable Portfolio - Diversified Equity Income Fund 107.71 155.50 -- -- - - - ------------------------------------------------------------------------------------------------------------------------------- - - - ------------------------------------------------------------------------------------------------------------------------------- AXPSM Variable Portfolio - Extra Income Fund 106.58 152.11 -- -- - - - ------------------------------------------------------------------------------------------------------------------------------- - - - ------------------------------------------------------------------------------------------------------------------------------- AXPSM Variable Portfolio - Federal Income Fund 106.99 153.34 -- -- - - - ------------------------------------------------------------------------------------------------------------------------------- - - - ------------------------------------------------------------------------------------------------------------------------------- AXPSM Variable Portfolio - New Dimensions Fund 106.17 150.87 188.89 299.89 - - - ------------------------------------------------------------------------------------------------------------------------------- - - - ------------------------------------------------------------------------------------------------------------------------------- AXPSM Variable Portfolio - Small Cap Advantage Fund 110.58 164.09 -- -- - - - ------------------------------------------------------------------------------------------------------------------------------- - - - ------------------------------------------------------------------------------------------------------------------------------- - - - ------------------------------------------------------------------------------------------------------------------------------- - - - ------------------------------------------------------------------------------------------------------------------------------- AIM V.I. Capital Appreciation Fund 104.89 147.01 -- -- - - - ------------------------------------------------------------------------------------------------------------------------------- - - - ------------------------------------------------------------------------------------------------------------------------------- AIM V.I. Value Fund 104.79 146.70 181.91 285.81 - - - ------------------------------------------------------------------------------------------------------------------------------- - - - ------------------------------------------------------------------------------------------------------------------------------- - - - ------------------------------------------------------------------------------------------------------------------------------- - - - ------------------------------------------------------------------------------------------------------------------------------- The Dreyfus Socially Responsible Growth Fund, Inc. 106.22 151.03 -- -- - - - ------------------------------------------------------------------------------------------------------------------------------- - - - ------------------------------------------------------------------------------------------------------------------------------- - - - ------------------------------------------------------------------------------------------------------------------------------- - - - ------------------------------------------------------------------------------------------------------------------------------- FT VIP Franklin Income Securities Fund - Class 2 105.61 149.18 -- -- - - - ------------------------------------------------------------------------------------------------------------------------------- - - - ------------------------------------------------------------------------------------------------------------------------------- FT VIP Mutual Shares Securities Fund - Class 2 108.48 157.80 -- -- - - - ------------------------------------------------------------------------------------------------------------------------------- - - - ------------------------------------------------------------------------------------------------------------------------------- FT VIP Franklin Real Estate Fund - Class 2 106.12 150.72 -- -- - - - ------------------------------------------------------------------------------------------------------------------------------- - - - ------------------------------------------------------------------------------------------------------------------------------- FT VIP Franklin Small Cap Fund Class - 2 108.48 157.80 -- -- - - - ------------------------------------------------------------------------------------------------------------------------------- - - - ------------------------------------------------------------------------------------------------------------------------------- - - - ------------------------------------------------------------------------------------------------------------------------------- - - - ------------------------------------------------------------------------------------------------------------------------------- Goldman Sachs VIT CORESM U.S. Equity Fund 106.22 151.03 -- -- - - - ------------------------------------------------------------------------------------------------------------------------------- - - - ------------------------------------------------------------------------------------------------------------------------------- Goldman Sachs VIT Global Income Fund 108.79 158.73 -- -- - - - ------------------------------------------------------------------------------------------------------------------------------- - - - ------------------------------------------------------------------------------------------------------------------------------- Goldman Sachs VIT Mid Cap Value Fund 107.76 155.65 -- -- - - - ------------------------------------------------------------------------------------------------------------------------------- - - - ------------------------------------------------------------------------------------------------------------------------------- - - - ------------------------------------------------------------------------------------------------------------------------------- - - - ------------------------------------------------------------------------------------------------------------------------------- MFS(R)Growth with Income Series 107.04 153.50 -- -- - - - ------------------------------------------------------------------------------------------------------------------------------- - - - ------------------------------------------------------------------------------------------------------------------------------- MFS(R)Utilities Series 108.38 157.50 -- -- - - - ------------------------------------------------------------------------------------------------------------------------------- - - - ------------------------------------------------------------------------------------------------------------------------------- - - - ------------------------------------------------------------------------------------------------------------------------------- - - - ------------------------------------------------------------------------------------------------------------------------------- Putnam VT International Growth Fund - Class IB Shares 110.53 163.94 -- -- - - - ------------------------------------------------------------------------------------------------------------------------------- - - - ------------------------------------------------------------------------------------------------------------------------------- Putnam VT Vista Fund - Class IB Shares 107.45 154.73 -- -- - - - ------------------------------------------------------------------------------------------------------------------------------- - - - ------------------------------------------------------------------------------------------------------------------------------- - - - ------------------------------------------------------------------------------------------------------------------------------- - - - ------------------------------------------------------------------------------------------------------------------------------- Wells Fargo VT Asset Allocation Fund 108.27 157.19 -- -- - - - ------------------------------------------------------------------------------------------------------------------------------- - - - ------------------------------------------------------------------------------------------------------------------------------- Wells Fargo VT Corporate Bond Fund 107.25 154.11 -- -- - - - ------------------------------------------------------------------------------------------------------------------------------- - - - ------------------------------------------------------------------------------------------------------------------------------- Wells Fargo VT Equity Income Fund 108.27 157.19 -- -- - - - ------------------------------------------------------------------------------------------------------------------------------- - - - ------------------------------------------------------------------------------------------------------------------------------- Wells Fargo VT Equity Value Fund 108.27 157.19 -- -- - - - ------------------------------------------------------------------------------------------------------------------------------- - - - ------------------------------------------------------------------------------------------------------------------------------- Wells Fargo VT Growth Fund 108.27 157.19 -- -- - - - ------------------------------------------------------------------------------------------------------------------------------- - - - ------------------------------------------------------------------------------------------------------------------------------- Wells Fargo VT Large Company Growth Fund 108.27 157.19 -- -- - - - ------------------------------------------------------------------------------------------------------------------------------- - - - ------------------------------------------------------------------------------------------------------------------------------- Wells Fargo VT Money Market Fund 106.74 152.57 -- -- - - - ------------------------------------------------------------------------------------------------------------------------------- - - - ------------------------------------------------------------------------------------------------------------------------------- Wells Fargo VT Small Cap Growth Fund 110.32 163.32 -- -- - - - -------------------------------------------------------------------------------------------------------------------------------
You would pay the following expenses on a $1,000 investment if you selected a seven-year withdrawal charge schedule with the optional 0.20% Enhanced Death Benefit Rider and 0.30% Guaranteed Minimum Income Benefit Rider and assuming a 5% annual return and no withdrawal or selection of an annuity payout plan at the end of each time period.
- - - ------------------------------------------------------------------------------------------------------------------------------- 1 year 3 years 5 years 10 years - - - ------------------------------------------------------------------------------------------------------------------------------- - - - ------------------------------------------------------------------------------------------------------------------------------- - - - ------------------------------------------------------------------------------------------------------------------------------- - - - ------------------------------------------------------------------------------------------------------------------------------- AXPSM Variable Portfolio - Blue Chip Advantage Fund $27.71 $85.50 $-- $-- - - - ------------------------------------------------------------------------------------------------------------------------------- - - - ------------------------------------------------------------------------------------------------------------------------------- AXPSM Variable Portfolio - Capital Resource Fund 26.07 80.57 138.38 298.86 - - - ------------------------------------------------------------------------------------------------------------------------------- - - - ------------------------------------------------------------------------------------------------------------------------------- AXPSM Variable Portfolio - Diversified Equity Income Fund 27.71 85.50 -- -- - - - ------------------------------------------------------------------------------------------------------------------------------- - - - ------------------------------------------------------------------------------------------------------------------------------- AXPSM Variable Portfolio - Extra Income Fund 26.58 82.11 -- -- - - - ------------------------------------------------------------------------------------------------------------------------------- - - - ------------------------------------------------------------------------------------------------------------------------------- AXPSM Variable Portfolio - Federal Income Fund 26.99 83.34 -- -- - - - ------------------------------------------------------------------------------------------------------------------------------- - - - ------------------------------------------------------------------------------------------------------------------------------- AXPSM Variable Portfolio - New Dimensions Fund 26.17 80.87 138.89 299.89 - - - ------------------------------------------------------------------------------------------------------------------------------- - - - ------------------------------------------------------------------------------------------------------------------------------- AXPSM Variable Portfolio - Small Cap Advantage Fund 30.58 94.09 -- -- - - - ------------------------------------------------------------------------------------------------------------------------------- - - - ------------------------------------------------------------------------------------------------------------------------------- - - - ------------------------------------------------------------------------------------------------------------------------------- - - - ------------------------------------------------------------------------------------------------------------------------------- AIM V.I. Capital Appreciation Fund 24.89 77.01 -- -- - - - ------------------------------------------------------------------------------------------------------------------------------- - - - ------------------------------------------------------------------------------------------------------------------------------- AIM V.I. Value Fund 24.79 76.70 131.91 285.81 - - - ------------------------------------------------------------------------------------------------------------------------------- - - - ------------------------------------------------------------------------------------------------------------------------------- - - - ------------------------------------------------------------------------------------------------------------------------------- - - - ------------------------------------------------------------------------------------------------------------------------------- The Dreyfus Socially Responsible Growth Fund, Inc. 26.22 81.03 -- -- - - - ------------------------------------------------------------------------------------------------------------------------------- - - - ------------------------------------------------------------------------------------------------------------------------------- - - - ------------------------------------------------------------------------------------------------------------------------------- - - - ------------------------------------------------------------------------------------------------------------------------------- FT VIP Franklin Income Securities Fund - Class 2 25.61 79.18 -- -- - - - ------------------------------------------------------------------------------------------------------------------------------- - - - ------------------------------------------------------------------------------------------------------------------------------- FT VIP Mutual Shares Securities Fund - Class 2 28.48 87.80 -- -- - - - ------------------------------------------------------------------------------------------------------------------------------- - - - ------------------------------------------------------------------------------------------------------------------------------- FT VIP Franklin Real Estate Fund - Class 2 26.12 80.72 -- -- - - - ------------------------------------------------------------------------------------------------------------------------------- - - - ------------------------------------------------------------------------------------------------------------------------------- FT VIP Franklin Small Cap Fund Class - 2 28.48 87.80 -- -- - - - ------------------------------------------------------------------------------------------------------------------------------- - - - ------------------------------------------------------------------------------------------------------------------------------- - - - ------------------------------------------------------------------------------------------------------------------------------- - - - ------------------------------------------------------------------------------------------------------------------------------- Goldman Sachs VIT CORESM U.S. Equity Fund 26.22 81.03 -- -- - - - ------------------------------------------------------------------------------------------------------------------------------- - - - ------------------------------------------------------------------------------------------------------------------------------- Goldman Sachs VIT Global Income Fund 28.79 88.73 -- -- - - - ------------------------------------------------------------------------------------------------------------------------------- - - - ------------------------------------------------------------------------------------------------------------------------------- Goldman Sachs VIT Mid Cap Value Fund 27.76 85.65 -- -- - - - ------------------------------------------------------------------------------------------------------------------------------- - - - ------------------------------------------------------------------------------------------------------------------------------- - - - ------------------------------------------------------------------------------------------------------------------------------- - - - ------------------------------------------------------------------------------------------------------------------------------- MFS(R)Growth with Income Series 27.04 83.50 -- -- - - - ------------------------------------------------------------------------------------------------------------------------------- - - - ------------------------------------------------------------------------------------------------------------------------------- MFS(R)Utilities Series 28.38 87.50 -- -- - - - ------------------------------------------------------------------------------------------------------------------------------- - - - ------------------------------------------------------------------------------------------------------------------------------- - - - ------------------------------------------------------------------------------------------------------------------------------- - - - ------------------------------------------------------------------------------------------------------------------------------- Putnam VT International Growth Fund - Class IB Shares 30.53 93.94 -- -- - - - ------------------------------------------------------------------------------------------------------------------------------- - - - ------------------------------------------------------------------------------------------------------------------------------- Putnam VT Vista Fund - Class IB Shares 27.45 84.73 -- -- - - - ------------------------------------------------------------------------------------------------------------------------------- - - - ------------------------------------------------------------------------------------------------------------------------------- - - - ------------------------------------------------------------------------------------------------------------------------------- - - - ------------------------------------------------------------------------------------------------------------------------------- Wells Fargo VT Asset Allocation Fund 28.27 87.19 -- -- - - - ------------------------------------------------------------------------------------------------------------------------------- - - - ------------------------------------------------------------------------------------------------------------------------------- Wells Fargo VT Corporate Bond Fund 27.25 84.11 -- -- - - - ------------------------------------------------------------------------------------------------------------------------------- - - - ------------------------------------------------------------------------------------------------------------------------------- Wells Fargo VT Equity Income Fund 28.27 87.19 -- -- - - - ------------------------------------------------------------------------------------------------------------------------------- - - - ------------------------------------------------------------------------------------------------------------------------------- Wells Fargo VT Equity Value Fund 28.27 87.19 -- -- - - - ------------------------------------------------------------------------------------------------------------------------------- - - - ------------------------------------------------------------------------------------------------------------------------------- Wells Fargo VT Growth Fund 28.27 87.19 -- -- - - - ------------------------------------------------------------------------------------------------------------------------------- - - - ------------------------------------------------------------------------------------------------------------------------------- Wells Fargo VT Large Company Growth Fund 28.27 87.19 -- -- - - - ------------------------------------------------------------------------------------------------------------------------------- - - - ------------------------------------------------------------------------------------------------------------------------------- Wells Fargo VT Money Market Fund 26.74 82.57 -- -- - - - ------------------------------------------------------------------------------------------------------------------------------- - - - ------------------------------------------------------------------------------------------------------------------------------- Wells Fargo VT Small Cap Growth Fund 30.32 93.32 -- -- - - - -------------------------------------------------------------------------------------------------------------------------------
*In these examples, the $30 contract administrative charge is approximated as a .051% charge based on our estimated average contract size. Premium taxes imposed by some state and local governments are not reflected in these examples. We entered into certain arrangements under which we are compensated by the funds' advisors and/or distributors for the administrative services we provide to the funds. You should not consider these examples as representations of past or future expenses. Actual expenses may be more or less than those shown. Condensed Financial Information (Unaudited) The following tables give per-unit information about the financial history of each subaccount. We have not provided this information for some subaccounts because they are new and do not have any history.
Year ended Dec. 31, 1998 1997 1996 1995 Subaccount ECR1 (Investing in shares of AXPSM Variable Portfolio - Capital Resource Fund) Accumulation unit value at beginning of period $1.56 $1.27 $1.20 $1.00 Accumulation unit value at end of period $1.91 $1.56 $1.27 $1.20 Number of accumulation units outstanding at end of period 5,163 3,813 2,350 818 (000 omitted) Ratio of operating expense to average net assets 1.40% 1.40% 1.50% 1.50% Subaccount EGD2 (Investing in shares of AXPSM Variable Portfolio - New Dimensions Fund) Accumulation unit value at beginning of period $1.05 $1.00 -- -- Accumulation unit value at end of period $1.32 $1.05 -- -- Number of accumulation units outstanding at end of period 1,108 69 -- -- (000 omitted) Ratio of operating expense to average net assets 1.40% 1.40% -- -- Subaccount EVA2 (Investing in shares of AIM V.I. Value Fund) Accumulation unit value at beginning of period $1.03 $1.00 -- -- Accumulation unit value at end of period $1.34 $1.03 -- -- Number of accumulation units outstanding at end of period 1,779 66 -- -- (000 omitted) Ratio of operating expense to average net assets 1.40% 1.40% -- -- 1Operations commenced on Feb. 21, 1995. 2Operations commenced on Oct. 30, 1997.
Financial Statements You can find the audited financial statements of the subaccounts with financial history in the SAI. The SAI does not include the audited financial statements for some of the subaccounts because they are new and do not have any assets. You can find our audited financial statements later in this prospectus. Performance Information Performance information for the subaccounts may appear from time to time in advertisements or sales literature. This information reflects the performance of a hypothetical investment in a particular subaccount during a specified time period. We show actual performance from the date the subaccounts began investing in the funds. For some subaccounts, we do not provide any performance information because they are new and have not had any activity to date. We also show performance from the commencement date of the funds as if the contract existed at that time, which it did not. Although we base performance figures on historical earnings, past performance does not guarantee future results. We include non-recurring charges (such as withdrawal charges) in total return figures, but not in yield quotations. Excluding non-recurring charges in yield calculations increases the reported value. Total return figures reflect deduction of all applicable charges, including: o the contract administrative charge, o the variable account administrative charge, o the Enhanced Death Benefit Rider fee, o the Guaranteed Minimum Income Benefit Rider fee, o mortality and expense risk fee, and o withdrawal charge (assuming a withdrawal at the end of the illustrated period). We also may make optional total return quotations that do not reflect deduction of the withdrawal charge (assuming no withdrawal), the Enhanced Death Benefit Rider fee and the Guaranteed Minimum Income Benefit Rider fee. Total return quotations may be shown by means of schedules, charts or graphs. Average annual total return is the average annual compounded rate of return of the investment over a period of one, five and ten years (or up to the life of the subaccount if it is less than ten years old). Cumulative total return is the cumulative change in the value of an investment over a specified time period. We assume that income earned by the investment is reinvested. Cumulative total return generally will be higher than average annual total return. Seven-day simple yield (for subaccounts investing in money market funds) is the income generated by the investment over a given seven-day period. We show this as a percentage of the investment. Annualized yield (for subaccounts investing in income funds) divides the net investment income (income less expenses) for each accumulation unit during a given 30-day period by the value of the unit on the last day of the period. We then convert the result to an annual percentage. You should consider performance information in light of the investment objectives, policies, characteristics and quality of the fund in which the subaccount invests and the market conditions during the specified time period. Advertised yields and total return figures include charges that reduce advertised performance. Therefore, you should not compare subaccount performance to that of mutual funds that sell their shares directly to the public. (See the SAI for a further description of methods used to determine total return and yield.) If you would like additional information about actual performance, please contact us at the address or telephone number on the first page of this prospectus. The Variable Account and the Funds You may allocate payments to any or all the subaccounts of the variable account that invest in shares of the following funds:
- - - --------------------------------------------------------------------------------------------------------------------------------- Subaccount Investing In Investment Objectives and Policies Investment Advisor or Manager - - - --------------------------------------------------------------------------------------------------------------------------------- - - - --------------------------------------------------------------------------------------------------------------------------------- WBCA 2 AXPSM Variable Portfolio - Objective: long-term total return exceeding that of IDS Life Insurance Company WBCA 4 Blue Chip Advantage Fund the U.S. stock market. Invests primarily in common (IDS Life), investment WBCA 5 stocks of companies included in the unmanaged S&P 500 manager; American Express WBCA 7 Index. Financial Corporation (AEFC), investment advisor. - - - --------------------------------------------------------------------------------------------------------------------------------- - - - --------------------------------------------------------------------------------------------------------------------------------- ECR AXPSM Variable Portfolio - Objective: capital appreciation. Invests primarily in IDS Life, investment WCAR 2 Capital Resource Fund U.S. common stocks. manager; AEFC, investment WCAR 4 advisor. WCAR 7 - - - --------------------------------------------------------------------------------------------------------------------------------- - - - --------------------------------------------------------------------------------------------------------------------------------- WDEI 2 AXPSM Variable Portfolio - Objective: a high level of current income and, as a IDS Life, investment WDEI 4 Diversified Equity Income secondary goal, steady growth of capital. Invests manager; AEFC, investment WDEI 5 Fund primarily in dividend-paying common and preferred advisor. WDEI 7 stocks. - - - --------------------------------------------------------------------------------------------------------------------------------- - - - --------------------------------------------------------------------------------------------------------------------------------- EIA AXPSM Variable Portfolio - Objective: high current income, with capital growth IDS Life, investment WEXI 2 Extra Income Fund as a secondary objective. Invests primarily in manager; AEFC, investment WEXI 4 long-term, high-yielding, high-risk debt securities advisor. WEXI 7 below investment grade issued by U.S. and foreign corporations. - - - --------------------------------------------------------------------------------------------------------------------------------- - - - --------------------------------------------------------------------------------------------------------------------------------- WFDI 2 AXPSM Variable Portfolio - Objective: a high level of current income and safety IDS Life, investment WFDI 4 Federal Income Fund of principal consistent with an investment in U.S. manager; AEFC, investment WFDI 5 government and government agency securities. Invests advisor. WFDI 7 primarily in debt obligations issued or guaranteed as to principal and interest by the U.S. government, its agencies or instrumentalities. - - - --------------------------------------------------------------------------------------------------------------------------------- - - - --------------------------------------------------------------------------------------------------------------------------------- EGD AXPSM Variable Portfolio - Objective: long-term growth of capital. Invests IDS Life, investment WNDM 2 New Dimensions Fund primarily in common stocks of U.S. and foreign manager; AEFC, investment WNDM 4 companies showing potential for significant growth. advisor. WNDM 7 - - - --------------------------------------------------------------------------------------------------------------------------------- - - - --------------------------------------------------------------------------------------------------------------------------------- WSCA 2 AXPSM Variable Portfolio - Objective: long-term capital growth. Invests IDS Life, investment WSCA 4 Small Cap Advantage Fund primarily in equity stocks of small companies that manager; AEFC, investment WSCA 5 are often included in the S&P SmallCap 600 Index or advisor; Kenwood Capital WSCA 7 the Russell 2000 Index. Management LLC, sub-investment advisor. - - - --------------------------------------------------------------------------------------------------------------------------------- - - - --------------------------------------------------------------------------------------------------------------------------------- ECA AIM V.I. Capital Objective: growth of capital. Invests primarily in A I M Advisors, Inc. WCAP 2 Appreciation Fund common stocks, with emphasis on medium- and WCAP 4 small-sized growth companies. WCAP 7 - - - --------------------------------------------------------------------------------------------------------------------------------- - - - --------------------------------------------------------------------------------------------------------------------------------- EVA AIM V.I. Value Fund Objective: long-term growth of capital with income as A I M Advisors, Inc. WVAL 2 a secondary objective. Invests primarily in equity WVAL 4 securities judged to be undervalued relative to the WVAL 7 investment advisor's appraisal of the current or projected earnings of the companies issuing the securities, or relative to current market values of assets owned by the companies issuing the securities, or relative to the equity market generally. - - - --------------------------------------------------------------------------------------------------------------------------------- ESR The Dreyfus Socially Objective: capital growth, with current income as a The Dreyfus Corporation, WSRG 2 Responsible Growth Fund, secondary objective. Invests primarily in the common investment advisor; NCM WSRG 4 Inc. stock of companies that, in the opinion of the fund's Capital Management Group, WSRG 7 management, meet traditional investment standards and Inc., sub-investment advisor. conduct their business in a manner that contributes to the enhancement of the quality of life in America. - - - --------------------------------------------------------------------------------------------------------------------------------- - - - --------------------------------------------------------------------------------------------------------------------------------- WISE 2 Franklin Templeton VIP Objective: maximize income while maintaining Franklin Advisers, Inc. WISE 4 Trust Franklin Income prospects for capital appreciation. Invests primarily WISE 5 Securities Fund in a diversified portfolio of debt and equity WISE 7 securities, including high yield, lower-rated "junk bonds." - - - --------------------------------------------------------------------------------------------------------------------------------- - - - --------------------------------------------------------------------------------------------------------------------------------- EMU Franklin Templeton VIP Objective: capital appreciation with income as a Franklin Mutual Advisers, LLC WMSI 2 Trust Mutual Shares secondary goal. Invests primarily in equity WMSI 4 Securities Fund securities of companies that the manager believes are WMSI 7 available at market prices less than their actual value based on certain recognized or objective criteria (intrinsic value). - - - --------------------------------------------------------------------------------------------------------------------------------- - - - --------------------------------------------------------------------------------------------------------------------------------- ERE Franklin Templeton VIP Objective: capital appreciation with a secondary goal Franklin Advisers, Inc. WRES 2 Trust Franklin Real Estate to earn current income. Invests primarily in WRES 4 Fund securities of companies operating in the real estate WRES 7 industry, primarily equity real estate investment trusts (REITS). - - - --------------------------------------------------------------------------------------------------------------------------------- - - - --------------------------------------------------------------------------------------------------------------------------------- WSMC 2 Franklin Templeton VIP Objective: long-term capital growth. Invests Franklin Advisers, Inc. WSMC 4 Trust Franklin Small Cap primarily in equity securities of U.S. small WSMC 5 Fund capitalization (small cap) growth companies. WSMC 7 - - - --------------------------------------------------------------------------------------------------------------------------------- - - - --------------------------------------------------------------------------------------------------------------------------------- JUS Goldman Sachs VIT Objective: long-term growth of capital and dividend Goldman Sachs Asset WUSE 2 CORE SM U.S. Equity Fund income. Primarily invests in a broadly diversified Management WUSE 4 portfolio of large-cap and blue chip equity WUSE 7 securities representing all major sectors of the U.S. economy. - - - --------------------------------------------------------------------------------------------------------------------------------- - - - --------------------------------------------------------------------------------------------------------------------------------- JGL Goldman Sachs VIT Global Objective: high total return, emphasizing current Goldman Sachs Asset WGLI 2 Income Fund income, and, to a lesser extent, providing Management International WGLI 4 opportunities for capital appreciation. Invests WGLI 7 primarily in a portfolio of high quality fixed-income securities of U.S. and foreign issuers and enters into transactions in foreign currencies. - - - --------------------------------------------------------------------------------------------------------------------------------- - - - --------------------------------------------------------------------------------------------------------------------------------- JMC Goldman Sachs VIT Mid Cap Objective: long-term capital appreciation. Invests Goldman Sachs Asset WMCE 2 Value Fund primarily in mid-capitalization U.S. stocks that are Management WMCE 4 believed to be undervalued or undiscovered by the WMCE 7 marketplace. - - - --------------------------------------------------------------------------------------------------------------------------------- - - - --------------------------------------------------------------------------------------------------------------------------------- WGIS 2 MFS(R)Growth with Income Objective: reasonable current income and long-term MFS Investment Management(R) WGIS 4 Series growth of capital and income. Invests primarily in WGIS 5 common stocks and related securities, such as WGIS 7 preferred stocks, convertible securities and depositary receipts for those securities. - - - --------------------------------------------------------------------------------------------------------------------------------- - - - --------------------------------------------------------------------------------------------------------------------------------- EUT MFS(R) Utilities Series Objective: capital growth and current income. Invests MFS Investment Management(R) WUTS 2 primarily in equity and debt securities of domestic WUTS 4 and foreign companies in the utilities industry. WUTS 7 - - - --------------------------------------------------------------------------------------------------------------------------------- - - - --------------------------------------------------------------------------------------------------------------------------------- EPL Putnam VT International Objective: long-term capital appreciation. Invests Putnam Investment WIGR 2 Growth Fund - Class IB primarily in equity securities of companies located Management, Inc. WIGR 4 Shares in a country other than the U.S. WIGR 7 - - - --------------------------------------------------------------------------------------------------------------------------------- - - - --------------------------------------------------------------------------------------------------------------------------------- EPT Putnam VT Vista Fund - Objective: capital appreciation. Invests primarily in Putnam Investment WVIS 2 Class IB Shares a diversified portfolio of common stocks that Putnam Management, Inc. WVIS 4 Management believes have above-average potential for WVIS 7 capital appreciation. - - - --------------------------------------------------------------------------------------------------------------------------------- - - - --------------------------------------------------------------------------------------------------------------------------------- WAAL 2 Wells Fargo VT Asset Objective: long-term total return, consistent with Wells Fargo Bank, N.A., WAAL 4 Allocation Fund reasonable risk. Invests primarily in the securities advisor; Barclays Global WAAL 5 of various indexes to replicate the total return of Fund Advisors, sub-advisor. WAAL 7 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. - - - --------------------------------------------------------------------------------------------------------------------------------- - - - --------------------------------------------------------------------------------------------------------------------------------- WCBD 2 Wells Fargo VT Corporate Objective: high level of current income consistent Wells Fargo Bank, N.A., WCBD 4 Bond Fund with reasonable risk. Invests primarily in corporate advisor; Wells Capital WCBD 5 debt securities of any maturity. Management Incorporated, WCBD 7 sub- advisor. - - - --------------------------------------------------------------------------------------------------------------------------------- - - - --------------------------------------------------------------------------------------------------------------------------------- WEQI 2 Wells Fargo VT Equity Objective: long-term capital appreciation and Wells Fargo Bank, N.A., WEQI 4 Income Fund above-average dividend income. Invests primarily in advisor; Wells Capital WEQI 5 common stocks of large, high-quality domestic Management Incorporated, WEQI 7 companies with above-average return potential and sub- advisor. above-average dividend income. - - - --------------------------------------------------------------------------------------------------------------------------------- - - - --------------------------------------------------------------------------------------------------------------------------------- WEQV 2 Wells Fargo VT Equity Objective: long-term capital appreciation. Invests Wells Fargo Bank, N.A., WEQV 4 Value Fund primarily in equity securities that we believe are advisor; Wells Capital WEQV 5 undervalued in relation to the overall stock markets. Management Incorporated, WEQV 7 sub- advisor. - - - --------------------------------------------------------------------------------------------------------------------------------- - - - --------------------------------------------------------------------------------------------------------------------------------- WGRO 2 Wells Fargo VT Growth Fund Objective: long-term capital appreciation. Invests Wells Fargo Bank, N.A., WGRO 4 primarily in common stocks and other equity advisor; Wells Capital WGRO 5 securities of domestic and foreign companies whose Management Incorporated, WGRO 7 market capitalization falls within the range of the sub- advisor. Russell 1000 Index, which is considered a mid- to large- capitalization index. - - - --------------------------------------------------------------------------------------------------------------------------------- - - - --------------------------------------------------------------------------------------------------------------------------------- WLCG 2 Wells Fargo VT Large Objective: long-term capital appreciation. Invests Wells Fargo Bank, N.A., WLCG 4 Company Growth Fund primarily in common stock of large, high-quality advisor; Peregrine Capital WLCG 5 domestic companies that have superior growth Management, Inc., WLCG 7 potential. sub-advisor. - - - --------------------------------------------------------------------------------------------------------------------------------- - - - --------------------------------------------------------------------------------------------------------------------------------- WMMK 2 Wells Fargo VT Money Objective: current income, while preserving capital Wells Fargo Bank, N.A., WMMK 4 Market Fund and liquidity. Invests primarily in high-quality, advisor; Wells Capital WMMK 5 U.S. dollar-denominated money market instruments, Management Incorporated, WMMK 7 including debt obligations. sub- advisor. - - - --------------------------------------------------------------------------------------------------------------------------------- - - - --------------------------------------------------------------------------------------------------------------------------------- WSCG 2 Wells Fargo VT Small Cap Objective: long-term capital appreciation. Invests Wells Fargo Bank, N.A., WSCG 4 Growth Fund primarily in common stocks issued by companies whose advisor; Wells Capital WSCG 5 market capitalization falls within the range of the Management Incorporated, WSCG 7 Russell 2000 Index, which is considered a small sub- advisor. capitalization index. - - - ---------------------------------------------------------------------------------------------------------------------------------
The investment objectives and policies of some of the funds are similar to the investment objectives and policies of other mutual funds that an investment advisor or its affiliates manage. Although the objectives and policies may be similar, each fund will have its own portfolio holdings and its own fees and expenses. Accordingly, each fund will have its own investment results. The investment managers and advisors cannot guarantee that the funds will meet their investment objectives. Please read the funds' prospectuses for facts you should know before investing. These prospectuses also are available by contacting us at the address or telephone number on the first page of this prospectus. All funds are available to serve as the underlying investments for variable annuities. Some funds also are available to serve as investment options for variable life insurance policies and qualified plans. It is possible that in the future, it may be disadvantageous for variable annuity accounts and variable life insurance accounts and/or qualified 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 qualified 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 qualified plan accounts, you would not bear any expenses associated with establishing separate funds. Please refer to the fund prospectuses for risk disclosure regarding simultaneous investments by variable annuity, variable life insurance and qualified plan accounts. The IRS issued final regulations relating to the diversification requirements under Section 817(h) of the Internal Revenue Code of 1986, as amended (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 Internal Revenue Service (IRS) indicated that they may provide additional guidance on investment control. This concerns how many variable subaccounts an insurance company may offer and how many exchanges among subaccounts it may allow before the contract owner would be currently taxed on income earned within subaccount assets. At this time, we do not know what the additional guidance will be or when action will be taken. We reserve the right to modify the contract, as necessary, so that the owner will not be subject to current taxation as the owner of the subaccount assets. We intend to comply with all federal tax laws so that the contract continues to qualify as an annuity for federal income tax purposes. We reserve the right to modify the contract as necessary to comply with any new tax laws. The Fixed Accounts Guarantee Period Accounts You may also allocate purchase payments to one or more of the Guarantee Period Accounts with Guarantee Periods ranging from two to ten years. The minimum required investment in each Guarantee Period Account is $1,000. Each Guarantee Period Account pays an interest rate that is declared when you allocate money to that account. That interest rate is then fixed for the Guarantee Period that you chose. We will periodically change the declared interest rate for any future allocations to these accounts, but we will not change the rate paid on money currently in a Guarantee Period Account. We have no specific formula for determining the rate of interest that we declare as future interest rates on the Guarantee Period Accounts. We will declare the interest rates from time to time based on our analysis of current market conditions. In addition, we also may consider various other factors in determining the interest rates for a given Guarantee Period including regulatory and tax requirements; sales commissions and administrative expenses we bear; general economic trends; and competitive factors. You may transfer money out of the Guarantee Period Accounts within 30 days before the end of the Guarantee Period without receiving a MVA (see "Market Value Adjustment (MVA)" below.) At that time you may choose to start a new Guarantee Period of the same length, transfer the money to another Guarantee Period Account, transfer the money to any of the subaccounts, or withdraw the money from the contract (subject to applicable withdrawal provisions). If we do not receive any instructions at the end of your Guarantee Period, we will automatically transfer the money into the one-year fixed account. These accounts are not available in all states and are not offered after annuity payouts begin. We hold amounts you allocate to the Guarantee Period Accounts in a "nonunitized" separate account we have established under the Indiana Insurance Code. This separate account provides an additional measure of assurance that we will make full payment of amounts due under the Guarantee Period Accounts. State insurance law prohibits us from charging this separate account with liabilities of any other separate account or of our general business. We own the assets of this separate account as well as any favorable investment performance of those assets. You do not participate in the performance of the assets held in this separate account. We guarantee all benefits relating to your value in the Guarantee Period Accounts. We intend to construct and manage the investment portfolio relating to the separate account using a strategy known as "immunization." Immunization seeks to lock in a defined return on the pool of assets versus the pool of liabilities over a specified time horizon. Since the return on the assets versus the liabilities is locked in, it is "immune" to any potential fluctuations in interest rates during the given time. We achieve immunization by constructing a portfolio of assets with a price sensitivity to interest rate changes (i.e., price duration) that is essentially equal to the price duration of the corresponding portfolio of liabilities. Portfolio immunization provides us with flexibility and efficiency in creating and managing the asset portfolio, while still assuring safety and soundness for funding liability obligations. We must invest this portfolio of assets in accordance with requirements established by applicable state laws regarding the nature and quality of investments that life insurance companies may make and the percentage of their assets that they may commit to any particular type of investment. Our investment strategy will incorporate the use of a variety of debt instruments having price durations tending to match the applicable Guarantee Periods. These instruments include, but are not necessarily limited to, the following: o Securities issued by the U.S. government or its agencies or instrumentalities, which issues may or may not be guaranteed by the U.S. government; o Debt securities that have an investment grade, at the time of purchase, within the four highest grades assigned by any of three nationally recognized rating agencies - Standard & Poor's, Moody's Investors Service or Duff and Phelp's - or are rated in the two highest grades by the National Association of Insurance Commissioners; o Other debt instruments which are unrated or rated below investment grade, limited to 10% of assets at the time of purchase; and o Real estate mortgages, limited to 45% of portfolio assets at the time of acquisition. In addition, options and futures contracts on fixed income securities will be used from time to time to achieve and maintain appropriate investment and liquidity characteristics on the overall asset portfolio. While this information generally describes our investment strategy, we are not obligated to follow any particular strategy except as may be required by federal law and Indiana and other state insurance laws. Market Value Adjustment (MVA) You may choose to transfer or withdraw money out of the Guarantee Period Accounts prior to the end of the Guarantee Period. The amount transferred or withdrawn will receive a MVA which will increase or decrease the actual amount transferred or withdrawn. We calculate the MVA using the formula shown below and we base it on the current level of interest rates compared to the rate of your Guarantee Period Account. Amount transferred x ( l + i ) n/12 -------------------- ( l + j + .001 ) Where: i = rate earned in the account from which funds are being transferred j = current rate for a new Guarantee Period equal to the remaining term in the current Guarantee Period n = number of months remaining in the current Guarantee Period (rounded up) We will not make MVAs for amounts withdrawn for withdrawal charges, the annual contract administrative charge or paid out as a death claim. We also will not make MVAs on automatic transfers in the Guarantee Period Account. We determine any applicable withdrawal charges based on the market value adjusted withdrawals. In some states, the MVA is limited. The one-year fixed account You may allocate purchase payments to the one-year fixed account. We back the principal and interest guarantees relating to the one-year fixed account. The value of the one-year fixed account increases as we credit interest to the account. Purchase payments and transfers to the one-year fixed account become part of our general account. We credit interest daily and compound it annually. We will change the interest rates from time to time at our discretion. Interest in the one-year fixed account is not required to be registered with the SEC. However, the Market Value Adjustment interests under the contracts are registered with the SEC. The SEC staff does not review the disclosures in this prospectus on the one-year fixed account (but the SEC does review the disclosures in this prospectus on the Market Value Adjustment interests). Disclosures regarding the one-year fixed account, however, may be subject to certain generally applicable provisions of the federal securities laws relating to the accuracy and completeness of statements made in prospectuses. (See "Making the Most of Your Contract -- Transfer policies" for restrictions on transfers involving the one-year fixed account.) Buying Your Contract You or your sales representative will send an application along with your initial purchase payment to our office. As the owner, you have all rights and may receive all benefits under the contract. You can own a nonqualified annuity in joint tenancy with rights of survivorship only in spousal situations. You cannot own a qualified annuity in joint tenancy. AEFA will not issue a qualified annuity or non-qualified rollover annuity due to administration system restrictions. You can buy a contract or become an annuitant if you are 85 or younger. (The age limit may be younger for qualified annuities in some states.) When you apply, you may select: o the length of the withdrawal charge period (five or seven years)*; o the optional Enhanced Death Benefit Rider; o the optional Guaranteed Minimum Income Benefit Rider; o the one-year fixed account, Guarantee Period Accounts and/or subaccounts in which you want to invest; o how you want to make purchase payments; and o a beneficiary. *Contracts sold through AEFA are only available with a seven-year withdrawal charge schedule. 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 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 60th day after the contract's effective date; and o no later than the annuitant's 85th birthday or the tenth contract anniversary, if purchased after age 75. For qualified annuities (except Roth IRAs), to avoid IRS penalty taxes, the retirement date generally must be: o on or after the date the annuitant reaches age 59 1/2; and o for IRAs and SEPs, by April 1 of the year following the calendar year when the annuitant reaches age 70 1/2. If you take the minimum IRA distribution as required by the Code from another tax-qualified investment, or in the form of partial withdrawals from this contract, annuity payouts can start as late as the annuitant's 85th birthday or the tenth contract anniversary, if later. Beneficiary We will pay your named beneficiary the death benefit if it becomes payable before the retirement date (while the contract is in force and before annuity payouts begin). If there is no named beneficiary, then you or your estate will be the beneficiary. (See "Benefits in Case of Death" for more about beneficiaries.) Purchase payments Minimum intial purchase payment: $2,000 Minimum additional purchase payments: If paying by SIP*: If paying by any other method**: $50 $100 * Payments made using SIP must total $2,000 before you can make partial withdrawals. ** The Guarantee Period Accounts require a minimum $1,000 initial payment.
Maximum total allowable purchase payments*** (without prior approval): $99,999 for contracts sold through AEFA ---------------------------------------------------------------------- $1,000,000 for all other contracts
*** This limit applies in total to all American Enterprise Life annuities you own. We reserve the right to increase the maximum limit. For qualified annuities, the qualified 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: Regular mail: American Enterprise Life Insurance Company 80 South Eighth Street P.O. Box 534 Minneapolis, MN 55440-0534 Express mail: American Enterprise Life Insurance Company Attention: Unit 829 733 Marquette Avenue Minneapolis, MN 55402 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 the charge at the time of withdrawal regardless of the contract value or purchase payments made. We cannot increase the annual contract administrative charge and it does not apply after annuity payouts begin or when we pay death benefits. Variable account administrative charge We apply this charge daily to the subaccounts. It is reflected in the unit values of the subaccounts and it totals 0.15% of their average daily net assets on an annual basis. It covers certain administrative and operating expenses of the subaccounts such as accounting, legal and data processing fees and expenses involved in the preparation and distribution of reports and prospectuses. We cannot increase the variable account administrative charge. Mortality and expense risk fee We charge this fee daily to the subaccounts. The unit values of your subaccounts reflect this fee. For contracts with a five-year withdrawal charge schedule, this fee totals 1.30% of their average daily net assets on an annual basis. For contracts with a seven-year withdrawal charge schedule, this fee totals 1.05% of their average daily net assets on an annual basis. This fee covers the mortality and expense risk that we assume. Approximately two-thirds of this amount is for our assumption of mortality risk, and one-third is for our assumption of expense risk. If you choose the optional Enhanced Death Benefit Rider, we will charge an additional 0.20% of the average daily net assets on annual basis (see "Enhanced Death Benefit Rider fee" below.) These fees do not apply to the fixed accounts. We cannot increase these fees. Mortality risk arises because of our guarantee to pay a death benefit and our guarantee to make annuity payouts according to the terms of the contract, no matter how long a specific annuitant lives and no matter how long our entire group of annuitants live. If, as a group, annuitants outlive the life expectancy we assumed in our actuarial tables, then we must take money from our general assets to meet our obligations. If, as a group, annuitants do not live as long as expected, we could profit from the mortality risk fee. Expense risk arises because we cannot increase the contract administrative charge or the variable account administrative charge and these charges may not cover our expenses. We would have to make up any deficit from our general assets. The subaccounts pay us the mortality and expense risk fee they accrued as follows: o first, to the extent possible, the subaccounts pay this fee from any dividends distributed from the funds in which they invest; o then, if necessary, the funds redeem shares to cover any remaining fees payable. We may use any profits we realize from the subaccounts' payment to us of the mortality and expense risk fee for any proper corporate purpose, including, among others, payment of distribution (selling) expenses. We do not expect that the withdrawal charge, discussed in the following paragraphs, will cover sales and distribution expenses. Enhanced Death Benefit Rider fee We charge a fee for this optional feature only if you choose this option. If selected, we apply this fee daily to the subaccounts as part of the mortality and expense risk fee. It is reflected in the unit values of the subaccounts and it totals 0.20% of their average daily net assets on an annual basis. We cannot increase the Enhanced Death Benefit Rider fee. Guaranteed Minimum Income Benefit Rider fee We charge a fee for this optional feature only if you choose this option. If selected, we deduct the fee (currently 0.30%) from the contract value on your contract anniversary at the end of each contract year. We prorate this fee among the subaccounts and fixed accounts in the same proportion your interest in each account bears to your total contract value. We apply the fee on an adjusted benefit base calculated as the result of (a) + (b) - (c), where: (a) is the Guaranteed Income Benefit Base, (b) is the adjusted transfers from the subaccounts to the fixed accounts made in the last six months, and (c) is the total contract value in the fixed accounts. The result of (b) minus (c) cannot be greater than zero. It allows us to base the charge largely on the subaccounts, and not on the fixed accounts. We will deduct the fee, adjusted for the number of calendar days coverage was in place, if the contract is terminated for any reason or when annuity payouts begin. We cannot increase the Guaranteed Minimum Income Benefit Rider fee after the rider effective date and it does not apply after annuity payouts begin. We can increase the Guaranteed Minimum Income Benefit Rider fee on new contracts up to a maximum of 0.75%. Withdrawal charge If you withdraw all or part of your contract, you may be subject to a withdrawal charge. A withdrawal charge applies if all or part of the withdrawal amount is from purchase payments we received within five or seven years before withdrawal. You select the withdrawal charge period at the time of your application for the contract. The withdrawal charge percentages that apply to you are shown in your contract. In addition, amounts withdrawn from a Guarantee Period Account prior to the end of the applicable Guarantee Period will be subject to a MVA. (See "The Fixed Accounts - Market Value Adjustment (MVA)".) For purposes of calculating any withdrawal charge, we treat amounts withdrawn from your contract value in the following order: 1. First, in each contract year, we withdraw amounts totaling up to 15% of your prior anniversary contract value. (Your initial purchase payment is considered the prior anniversary contract value during the first contract year.) We do not assess a withdrawal charge on this amount. 2. Next, we withdraw contract earnings, if any, that are greater than the annual 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 payment Withdrawal charge Years from purchase Withdrawal charge 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
Withdrawal charge calculation example: The following is an example of the calculation we would make to determine the withdrawal charge on a contract with a seven-year withdrawal charge schedule with this history: o The contract date is Nov. 1, 1999 with a contract year of Nov. 1 through Oct. 30 and with an anniversary date of Nov. 1 each year; and o We received these payments - $10,000 Nov. 1, 1999; - $8,000 Dec. 31, 2005; and - $6,000 Feb. 20, 2007; and o The owner withdraws the contract for its total withdrawal value of $38,101 on Aug. 5, 2009 and had not made any other withdrawals during that contract year; and o The prior anniversary Nov. 1, 2008 contract value was $38,488.
Withdrawal Charge Explanation $ 0 $5,773.20 is 15% of the prior anniversary contract value withdrawn without withdrawal charge; and $ 0 $8,327.80 is contract earnings in excess of the 15% free withdrawal amount withdrawn without withdrawal charge; and $ 0 $10,000 Nov. 1, 1999 payment was received eight or more years before withdrawal and is withdrawn without withdrawal charge; and $480 $8,000 Dec. 31, 2005 payment is in its fourth year from receipt, withdrawn with a 6% withdrawal charge; and $420 $6,000 Feb. 20, 2007 payment is in its third year from receipt withdrawn with a 7% withdrawal charge. $900
For a partial withdrawal that is subject to a withdrawal charge, the amount we actually withdraw from your contract will be the amount you request plus any applicable withdrawal charge. We apply the withdrawal charge to this total amount. We pay you the amount you requested. If you make a full withdrawal of your contract, we also will deduct the $30 contract administrative charge. Waiver of withdrawal charges We do not assess withdrawal charges for: o withdrawals of any contract earnings; o amounts totaling up to 15% of your prior contract anniversary contract value to the extent it exceeds contract earnings; o required minimum distributions from a qualified annuity (for those amounts required to be distributed from the contract described in this prospectus); o contracts settled using an annuity payout plan; o withdrawals made as a result of one of the "Contingent events" described below to the extent permitted by state law (see your contract for additional conditions and restrictions); o amounts we refund to you during the free look period; and o death benefits. Contingent events o Withdrawals you make if you or the annuitant are confined to a hospital or nursing home and have been for the prior 60 days. Your contract will include this provision when the owner and annuitant are under age 76 on the date we issue the contract. You must provide proof satisfactory to us of the confinement as of the date you request the withdrawal. o Withdrawals you make if you or the annuitant are diagnosed in the second or later contract years as disabled with a medical condition that with reasonable medical certainty will result in death within 12 months or less from the date of the licensed physician's statement. You must provide us with a licensed physician's statement containing the terminal illness diagnosis and the date the terminal illness was initially diagnosed. o Withdrawals you make if you or the annuitant become disabled within the meaning of IRC Section 72(m)(7) after your contract date. The disabled person must also be receiving Social Security disability or state long term disability benefits. The disabled person must be age 70 or younger at the time of withdrawal. You must provide us with a signed letter from the disabled person stating that he or she meets the above criteria, a legible photocopy of Social Security disability or state long term disability benefit payments and the application for such payments. o Withdrawals you make once a year if you or the annuitant become unemployed at least one year after your contract's date, up to the following amounts each year: (a) 25% of your prior anniversary contract value (or $10,000 if greater) if the unemployment condition is met for at least 30 straight days; or (b) 50% of your prior anniversary contract value (or $10,000 if greater) if the unemployment condition is met for at least 180 straight days. The unemployment condition is met if the unemployed person is currently receiving unemployment compensation from a government unit of the United States, whether federal or state. You must provide us with a signed letter from the unemployed person stating that he or she meets the above criteria and a legible photocopy of the unemployment payment benefits meeting the above criteria with regard to dates. 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 5.02% if the assumed investment rate is 3.5% and 6.97% if the assumed investment rate is 5%. The withdrawal charge is equal to the difference in discount values using the above discount rates and the assumed investment rate. 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 (up to 3.5%). These taxes depend upon your state of residence or the state in which the contract was sold. We deduct premium taxes when you make a full withdrawal from your contract or when annuity payouts begin. We reserve the right to deduct this tax at other times such as when you make purchase payments. Valuing Your Investment We value your fixed accounts and subaccounts as follows: Fixed accounts: We value the amounts you allocated to the fixed accounts directly in dollars. The value of a fixed account equals: o the sum of your purchase payments and transfer amounts allocated to the one-year fixed account and the Guarantee Period Accounts; o plus 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; and o minus any prorated portion of the Guaranteed Minimum Income Benefit Rider fee (if applicable). Subaccounts: We convert amounts you allocated to the subaccounts into accumulation units. Each time you make a purchase payment or transfer amounts into one of the subaccounts, we credit a certain number of accumulation units to your contract for that subaccount. Conversely, each time you take a partial withdrawal, transfer amounts out of a subaccount, or we assess a contract administrative charge or the Guaranteed Minimum Income Benefit Rider fee, we subtract a certain number of accumulation units from your contract. The accumulation units are the true measure of investment value in each subaccount during the accumulation period. They are related to, but not the same as, the net asset value of the fund in which the subaccount invests. The dollar value of each accumulation unit can rise or fall daily depending on the variable account expenses, performance of the fund and on certain fund expenses. Here is how we calculate accumulation unit values: Number of units To calculate the number of accumulation units for a particular subaccount, we divide your investment by the current accumulation unit value. Accumulation unit value The current accumulation unit value for each subaccount equals the last value times the subaccount's current net investment factor. Net investment factor We determine the net investment factor by: o adding the fund's current net asset value per share, plus the per share amount of any accrued income or capital gain dividends to obtain a current adjusted net asset value per share; then o dividing that sum by the previous adjusted net asset value per share; and o subtracting the percentage factor representing the mortality and expense risk fee, the variable account administrative charge and the Enhanced Death Benefit Rider fee (if selected) from the result. Because the net asset value of the fund may fluctuate, the accumulation unit value may increase or decrease. You bear all the investment risk in a subaccount. Factors that affect subaccount accumulation units Accumulation units may change in two ways: in number and in value. Here are the factors that influence those changes: The number of accumulation units you own may fluctuate due to: o additional purchase payments you allocate to the subaccounts; o transfers into or out of the subaccounts; o partial withdrawals; o withdrawal charges; o prorated portions of the contract administrative charge; and/or o prorated portions of the Guaranteed Minimum Income Benefit Rider fee (if selected). Accumulation unit values will fluctuate due to: o changes in funds' net asset value; o dividends distributed to the subaccounts; o capital gains or losses of funds; o fund operating expenses; and/or o mortality and expense risk fee, the variable account administrative charge and the Enhanced Death Benefit Rider fee (if selected). 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 Guarantee Period Accounts (two year only) to one or more subaccounts. The three to ten year Guarantee Period Accounts are not available for automated transfers. You also can obtain the benefits of dollar-cost averaging by setting up regular automatic SIP payments. There is no charge for dollar-cost averaging. This systematic approach can help you benefit from fluctuations in accumulation unit values caused by fluctuations in the market values of the funds. Since you invest the same amount each period, you automatically acquire more units when the market value falls and fewer units when it rises. The potential effect is to lower your average cost per unit.
How dollar-cost averaging works By investing an Amount Accumulation unit Number of units equal number of Month invested value purchased dollars each month... Jan $100 $20 5.00 Feb 100 18 5.56 you automatically buy Mar 100 17 5.88 more units when the Apr 100 15 6.67 per unit market price May 100 16 6.25 is low... Jun 100 18 5.56 Jul 100 17 5.88 and fewer units when Aug 100 19 5.26 the per unit market Sept 100 21 4.76 price is high. Oct 100 20 5.00 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 with this strategy will depend upon your willingness to continue to invest regularly through periods of low price levels. Dollar-cost averaging can be an effective way to help meet your long-term goals. For specific features contact us. Asset Rebalancing You can ask us in writing to automatically rebalance the subaccount portion of your contract value either quarterly, semi-annually or annually. The period you select will start to run on the date we record your request. On the first valuation date of each of these periods, we automatically will rebalance your contract value so that the value in each subaccount matches your current subaccount percentage allocations. These percentage allocations must be in whole numbers. Asset rebalancing does not apply to the fixed accounts. There is no charge for asset rebalancing. The contract value must be at least $2,000. You can change your percentage allocations or your rebalancing period at any time by contacting us in writing. We will restart the rebalancing period you selected as of the date we record your change. You also can ask us in writing to stop rebalancing your contract value. You must allow 30 days for us to change any instructions that currently are in place. For more information on asset rebalancing, contact your sales representative. Transferring money between accounts You may transfer money from any one subaccount, or the fixed accounts, to another subaccount before annuity payouts begin. (Certain restrictions apply to transfers involving the one-year fixed account.) We will process your transfer on the valuation date we receive your request. We will value your transfer at the next accumulation unit value calculated after we receive your request. There is no charge for transfers. Before making a transfer, you should consider the risks involved in switching investments. Transfers out of the Guarantee Period Accounts will be subject to a MVA if done more than 30 days before the end of the Guarantee Period. We may suspend or modify transfer privileges at any time. Excessive trading activity can disrupt fund management strategy and increase expenses, which are borne by all contract owners who allocated purchase payments to the fund regardless of their transfer activity. We may apply modifications or restrictions in any reasonable manner to prevent transfers we believe will disadvantage other contract owners. (For information on transfers after annuity payouts begin, see "Transfer policies" below.) Transfer policies o Before annuity payouts begin, you may transfer contract values between the subaccounts, or from the subaccounts to the fixed accounts at any time. However, if you made a transfer from the one-year fixed account to the subaccounts, you may not make a transfer from any subaccount back to the one-year fixed account for six months following that transfer. o You may transfer contract values from the one-year fixed account to the subaccounts or the Guarantee Period Accounts once a year on or within 30 days before or after the contract anniversary (except for automated transfers, which can be set up at any time for certain transfer periods subject to certain minimums). Transfers from the one-year fixed account are not subject to a MVA. o You may transfer contract values from the Guarantee Period Accounts at any time. Transfers made before the end of the Guarantee Period will receive a MVA, which may result in a gain or loss of contract value. o If we receive your request on or within 30 days before or after the contract anniversary date, the transfer from the one-year fixed account to the subaccounts or the Guarantee Period Accounts will be effective on the valuation date we receive it. o We will not accept requests for transfers from the one-year fixed account at any other time. o Once annuity payouts begin, you may not make transfers to or from the one-year fixed account, but you may make transfers once per contract year among the subaccounts. During the annuity payout period, your choices of subaccounts may be limited. o Once annuity payouts begin, you may not make any transfers to the Guarantee Period Accounts. How to request a transfer or withdrawal 1 Send your name, contract number, Social Security Number By letter: or Taxpayer Identification Number and signed request for a transfer or withdrawal to: Regular mail: American Enterprise Life Insurance Company 80 South Eighth Street P.O. Box 534 Minneapolis, MN 55440-0534 Express mail: American Enterprise Life Insurance Company Attention: Unit 829 733 Marquette Avenue Minneapolis, MN 55402 Minimum amount Transfers or withdrawals: $500 or entire account balance Maximum amount Transfers or withdrawals: Contract value 2 By automated transfers and automated partial withdrawals: Your sales representative can help you set up automated transfers or partial withdrawals among your subaccounts or fixed accounts. You can start or stop this service by written request or other method acceptable to us. You must allow 30 days for us to change any instructions that are currently in place. o Automated transfers from the one-year fixed account to any one of the subaccounts may not exceed an amount that, if continued, would deplete the one-year fixed account within 12 months. o Automated withdrawals may be restricted by applicable law under some contracts. o You may not make additional purchase payments if automated partial withdrawals are in effect. o Automated partial withdrawals may result in IRS taxes and penalties on all or part of the amount withdrawn. Minimum amount Transfers or withdrawals: $100 monthly $250 quarterly, semi-annually or annually 3 Call between 7 a.m. and 6 p.m. Central time: By phone: 800-333-3437 or (612) 671-7700 (Minneapolis/St. Paul area) Minimum amount Transfers or withdrawals: $500 or entire account balance Maximum amount Transfers: Contract value 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 total withdrawals, we will compute the value of your contract at the next accumulation unit value calculated after we receive your request. We may ask you to return the contract. You may have to pay charges (see "Charges") and IRS taxes and penalties (see "Taxes"). You cannot make withdrawals after annuity payouts begin except under Plan E (see "The Annuity Payout Period - Annuity payout plans"). Withdrawal policies If you have a balance in more than one account and you request a partial withdrawal, we will withdraw money from all your subaccounts and/or the fixed accounts in the same proportion as your value in each account correlates to your total contract value, unless you request otherwise. Receiving payment By regular or express mail: o payable to owner; o mailed to address of record. NOTE: We will charge you a fee if you request express mail delivery. Normally, we will send the payment within seven days after receiving your request. However, we may postpone the payment if: - - - -- the withdrawal amount includes a purchase payment check that has not cleared; - - - -- the NYSE is closed, except for normal holiday and weekend closings; - - - -- trading on the NYSE is restricted, according to SEC rules; - - - -- an emergency, as defined by SEC rules, makes it impractical to sell securities or value the net assets of the accounts; or - - - -- the SEC permits us to delay payment for the protection of security holders. Changing Ownership You may change ownership of your nonqualified annuity at any time by completing a change of ownership form we approve and sending it to our office. The change will become binding upon us when we receive and record it. We will honor any change of ownership request that we believe is authentic and we will use reasonable procedures to confirm authenticity. If we follow these procedures, we will not take any responsibility for the validity of the change. If you have a nonqualified annuity, you may incur income tax liability by transferring, assigning or pledging any part of it. (See "Taxes.") If you have a qualified annuity, you may not sell, assign, transfer, discount or pledge your contract as collateral for a loan, or as security for the performance of an obligation or for any other purpose except as required or permitted by the Code. However, if the owner is a trust or custodian, or an employer acting in a similar capacity, ownership of a contract may be transferred to the annuitant. 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. The benefit paid will be based on the death benefit coverage you select when you purchased the contract. If a contract has more than one person as the owner, we will pay benefits upon the first to die of any owner or the annuitant. If you or the annuitant die before annuity payouts begin while this contract is in force, we will pay the beneficiary the greatest of: 1. the contract value; or 2. the total purchase payments paid less any "adjusted partial withdrawals"; or 3. the "maximum anniversary value" immediately preceding the date of death plus the dollar amount of any payments since that anniversary and minus any "adjusted partial withdrawals" since that anniversary. If you own the contract in joint tenancy with rights of survivorship, we will pay benefits upon the first to die of either you or the annuitant. Adjusted partial withdrawals: We calculate an "adjusted partial withdrawal " for each partial withdrawal as the product of (a) times (b) where: (a) is the ratio of the amount of the partial withdrawal (including any applicable withdrawal charge) to the contract value on the date of (but prior to) the partial withdrawal; and (b) is the death benefit on the date of (but prior to) the partial withdrawal. Maximum anniversary value: Each contract anniversary prior to the earlier of your or the annuitant's 81st birthday, we calculate the anniversary value which is the greater of: (a) the contract value on that anniversary; or (b) total purchase payments made to the contract minus any "adjusted partial withdrawals". The "maximum anniversary value" is equal to the greatest of these anniversary values. After your or the annuitant's 81st birthday, the death benefit continues to be the death benefit value as of that date, plus any subsequent payments and minus any "adjusted partial withdrawals". Example: o The contract is purchased with a payment of $20,000 on Jan. 1, 1999. o On Jan. 1, 2000 (the first contract anniversary) the contract value has grown to $24,000. o On March 1, 2000 the contract value has fallen to $22,000, at which point the owner takes a $1,500 partial withdrawal, leaving a contract value of $20,500. The death benefit on March 1, 2000 is calculated as follows: The "maximum anniversary value:" $24,000.00 (the greatest of the anniversary values which was the contract value on Jan. 1, 2000) plus any purchase payments paid since that anniversary: +0.00 minus any "adjusted partial withdrawal" taken since that anniversary, calculated as: 1,500 x 24,000 = -1,636.36 ---------------- --------- 22,000 for a death benefit of: $22,363.64 Enhanced Death Benefit Rider If this rider is available in your state and both you and the annuitant are age 79 or younger on the contract date, you may choose to add this benefit to you contract. This rider provides that if you or the annuitant die before annuity payouts begin while this contract is in force, we will pay the beneficiary the greatest of: 1. the contract value; or 2. the total purchase payments paid less any "adjusted partial withdrawals"; or 3. the "maximum anniversary value" immediately preceding the date of death plus the dollar amount of any payments since that anniversary and minus any "adjusted partial withdrawals" since that anniversary; or 4. the Variable Account 5% Floor The Variable Account 5% Floor On or before the contract anniversary after the earlier of your or the annuitant's 81st birthday, the Variable Account 5% Floor is the sum of the value in the fixed accounts plus the variable account floor. After the contract anniversary immediately following either your or the annuitant's 81st birthday, the Variable Account 5% Floor is the floor on that anniversary increased by additional purchase payments made since that anniversary and reduced by any "adjusted partial withdrawals" since that anniversary. On each contract anniversary prior to the earlier of your or the annuitant's 81st birthday, we increase the variable account floor by accumulating the prior anniversary's floor at 5%. On the first contract anniversary, the floor is increased by 5% of the accumulated initial purchase payments allocated to the subaccounts. On any day that you allocate additional amounts to, or withdraw or transfer from the subaccounts, we adjust the floor by adding the additional amounts and subtracting the "adjusted partial withdrawals" or adjusted transfers. For the Variable Account 5% Floor, we calculate the "adjusted partial withdrawals" or transfer as the result of (a) times (b) where (a) is the ratio of the amount of withdrawal (including any withdrawal charges) or transfer from the subaccounts to the total value in the subaccounts on the date of (but prior to) the withdrawal or transfer. (b) is the variable account floor on the date of (but prior to) the withdrawal or transfer. Example: o The contract is purchased with a payment of $20,000 on Jan. 1, 1999 with $5,000 allocated to the one-year fixed account and $15,000 allocated to the subaccounts. o On Jan. 1, 2000 (the first contract anniversary), the one-year fixed account value is $5,200 and the subaccount value is $12,000. Total contract value is $17, 200. o On March 1, 2000, the one-year fixed account value is $5,300 and the subaccount value is $14,000. Total contract value is $19,300. The owner takes a $1,500 partial withdrawal all from the subaccounts, leaving the contract value at $17,800.
The death benefit on March 1, 2000 is calculated as follows: The "maximum anniversary value" (the purchase payment): $ 20,000.00 plus any purchase payment paid since that anniversary: + 0.00 Minus any "adjusted partial withdrawal" taken since that anniversary, Calculated as: 1,500 x 20,000 = ------------------ 19,300 - 1,554.40 ---------- Maximum Anniversary Value Benefit $ 18,445.60 =========== The variable account floor on Jan. 1, 2000, calculated as: 1.05 x 15,000 = $ 15,750.00 plus any purchase payments paid since that anniversary: + 0.00 minus any "adjusted partial withdrawals" from the subaccounts, calculated as: 1,500 x 15,750 = ------------------ 14,000 -$ 1,687.50 ----------- Variable Account Floor Benefit $ 14,062.50 plus the one year fixed account value + 5,300.00 ---------- Variable Account 5% Floor, calculated as the one-year fixed account plus the Variable Account Floor Benefit $ 19,362.50 =========== Enhanced Death Benefit, calculated as the greater of the Maximum Anniversary Value Benefit and the Variable Account 5% Floor $ 19,362.50
If your spouse is sole beneficiary under a nonqualified annuity and you die before the retirement date, your spouse may keep the contract as owner with the contract value equal to the death benefit that would have otherwise been paid. To do this your spouse must, within 60 days after we receive proof of death, give us written instructions to keep the contract in force. There will be no withdrawal charges on the contract from that point forward unless additional purchase payments are made. The Guaranteed Minimum Income Benefit Rider, if selected, is then terminated. Under a qualified annuity, if the annuitant dies before the Code requires distributions to begin, and the spouse is the only beneficiary, the spouse may keep the contract as owner until the date on which the annuitant would have reached age 70 1/2 or any other date permitted by the Code. To do this, the spouse must give us written instructions within 60 days after we receive proof of death. The contract value is 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, if selected, is then terminated. Payments: Under a nonqualified annuity, we will pay the beneficiary in a single sum unless you give us other written instructions. We must fully distribute the death benefit within five years of your death. However, the beneficiary may receive payouts under any annuity payout plan available under this contract if: o the beneficiary asks us in writing within 60 days after we receive proof of death; and o payouts begin no later than one year after your death, or other date as permitted by the Code; and o the payout period does not extend beyond the beneficiary's life or life expectancy. When paying the beneficiary, we will process the death claim on the valuation date our death claim requirements are fulfilled. We will determine the contract's value at the next accumulation unit value calculated after our death claim requirements are fulfilled. We pay interest, if any, from the date of death at a rate no less than required by law. We will mail payment to the beneficiary within seven days after our death claim requirements are fulfilled. Other rules may apply to qualified annuities. (See "Taxes"). Guaranteed Minimum Income Benefit Rider An optional Guaranteed Minimum Income Benefit Rider may be available in many jurisdictions for a separate annual charge, (see "Charges - Guaranteed Minimum Income Rider fee"). The rider guarantees a minimum amount of fixed annuity lifetime income during the annuity payout period if your contract has been in force for at least ten years, subject to the conditions described below. The rider also provides you the option of variable annuity payouts, with a guaranteed minimum initial payment. This rider is only available at the time you purchase your contract if you also select the Enhanced Death Benefit Rider option. In some instances, we may allow you to add this rider if it was not available when you initially purchased your contract. In these instances, we would add this rider at the next contract anniversary and all conditions of the rider would use this date as the effective date. This rider does not create contract value or guarantee the performance of any investment option. Fixed annuity payouts under the terms of this rider will occur at the guaranteed annuity purchase rates stated in the contract. We base first year payments from the variable annuity payout option offered under this rider on the same factors as the fixed annuity payout option. We base subsequent payments on the initial payment and an assumed annual return of 5%. Because this rider is based on guaranteed actuarial factors for the fixed option, the level of fixed lifetime income it guarantees may be less than the level that would be provided by applying the then current annuity factors. Likewise, for the variable annuity payout option, we base the rider on more conservative factors resulting in a lower initial payment and lower lifetime payments than those provided otherwise if the same benefit base were used. However, the Guaranteed Income Benefit Base described below establishes a floor, which when higher than the contract value, can result in a higher annuity payout level. Thus, the rider is a guarantee of a minimum amount of annuity income. The Guaranteed Income Benefit Base is equal to the Enhanced Death Benefit if: o the Guaranteed Minimum Income Rider became effective on the contract date, and o all payments are recognized in the benefit base. The Guaranteed Income Benefit Base, less any applicable premium tax, is the value that will be used to determine minimum annuity payouts if the rider is exercised. We reserve the right to exclude subsequent payments and purchase payment credits paid in the last five years before exercise of the benefit, in the calculation of the Guaranteed Income Benefit Base. If we exclude such payments and credits, the Guaranteed Minimum Income Benefit Base would be calculated as the greatest of: (a) contract value less "market value adjusted prior 5 years of payments and purchase payment credit"; (b) total payments and purchase payment credits less prior 5 years of payments and purchase payment credits, less adjusted partial withdrawals; (c) Maximum Anniversary Value immediately preceding the date of settlement, plus payments and minus adjusted partial withdrawals since that anniversary, less the "market value adjusted prior 5 years of payments and purchase payment credits"; or (d) the Variable Account 5% Floor, less the 5% adjusted prior 5 years of payments and purchase payment credits. "Market value adjusted prior 5 years of payments and purchase payment credits" are calculated as the sum of each such payment or credit, multiplied by the ratio of the current contract value over the estimated contract value on the anniversary prior to such payment or credit. The estimated contract value at such anniversary is calculated by assuming that payments, credits and partial withdrawals occurring in a contract year take place at the beginning of the year for that anniversary and every year after that to the current contract year. "5% Adjusted prior 5 years of payments and purchase payment credits" are calculated as the sum of each payment or payment credit accumulated at 5% for the number of full contract years they have been in the contract. Conditions on election of the rider: The following conditions apply to the election of the rider: o you must elect the rider at the time you purchase your contract along with the Enhanced Death Benefit Rider option, and o the annuitant must be age 75 or younger on the contract date. Fund selection to continue the rider: You may allocate your purchase payments to any of the subaccounts or the fixed accounts. However, we reserve the right to limit the amount in the Wells Fargo Money Market Fund to 10% of the total amount in the subaccounts. If we are required to activate this restriction, and you have more than 10% of your subaccount value in this fund, we will send you notice and ask that you reallocate your contract value so that the limitation is satisfied within 60 days. If after 60 days the limitation is not satisfied, the rider will be terminated. Exercising the rider: The following conditions apply to the exercise of the rider: o you may only exercise the rider within 30 days after any contract anniversary following the expiration of a ten-year waiting period from the effective date of the rider, and o the annuitant on the retirement date must be between 50 and 86 years old, and o you can only take an annuity payout in one of the following annuity payout plans: - Plan A -- Life Annuity - no refund - Plan B -- Life Annuity with ten years certain - Plan D -- Joint and last survivor life annuity - no refund Contingent event benefits: If the annuitant satisfies the conditions for the waiver of withdrawal charges in the event of disability, terminal illness or a confinement in a nursing home or hospital (see "Charges- Waiver of withdrawal charges") you can exercise the rider at any time. In this event, you can take up to 50% of the Guaranteed Income Benefit Base in cash. You can use the balance of the Guaranteed Income Benefit Base for annuity payouts under the terms above with regard to annuitant age at retirement date, the annuity payout plans and the more conservative annuity factors. You can also change the annuitant for the payouts. Terminating the rider: The following conditions apply to the termination of the rider: o you may terminate the rider within 30 days after the first and fifth anniversary of the effective date of the rider. o you may terminate the rider any time after the 10th anniversary of the effective date of the rider. o the rider will terminate on the date you make a full withdrawal from the contract, or annuity payouts begin, or on the date that a death benefit is payable. o the rider will terminate on the contract anniversary after the annuitant's 86th birthday. Example: o The contract is purchased with a payment of $100,000 on Jan. 1, 2000. o There are no additional purchase payments and no partial withdrawals. o The money is fully allocated to the subaccounts. o The annuitant is male and age 55 on the contract date. For the joint and last survivor option (annuity payout Plan D), the joint annuitant is female and age 55 on the contract date. o The Guaranteed Income Benefit Base is based on the Variable Account 5% Floor. o The contract is within 30 days after contract anniversary. If the Guaranteed Minimum Income Benefit Rider is exercised, the minimum fixed annuity monthly payout or the first year variable annuity monthly payout would be:
Fixed Annuity Payout Options Minimum Guaranteed Annual Income Contract Anniversary At Minimum Guaranteed Benefit Plan A -- Plan B -- Plan D -- Exercise Base Life Annuity Life Annuity Joint and last - no refund with ten years survivor life certain annuity - no refund 10 $162,889 $848.65 $825.85 $675.99 15 $207,893 $1,239.04 $1,180.83 $958.38
After the first year payments, lifetime income payments on a variable annuity payout option will depend on the investment performance of the subaccounts you select. The payments will be higher if investment performance is greater than a 5% annual return and lower if investment performance is less than a 5% annual return. 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. The amount available for payouts under the plan you select is the contract value on your retirement date (less any applicable premium tax). We do not deduct any withdrawal charges under the payout plans listed below. You also decide whether we will make annuity payouts on a fixed or variable basis, or a combination of fixed and variable. The amounts available to purchase payouts under the plan you select is the contract value on your retirement date (less any applicable premium tax). You may reallocate this contract value to the one-year fixed account to provide fixed dollar payouts and/or among the subaccounts to provide variable annuity payouts. During the annuity payout period, we reserve the right to limit the number of subaccounts in which you may invest. The Guarantee Period Accounts are not available during this payout period. Amounts of fixed and variable payouts depend on: o the annuity payout plan you select; o the annuitant's age and, in most cases, sex; o the annuity table in the contract; and o the amounts you allocated to the accounts at settlement. In addition, for variable payouts only, amounts depend on the investment performance of the subaccounts you select. These payouts will vary from month to month because the performance of the funds will fluctuate. (In the case of fixed annuities, payouts remain the same from month to month.) For information with respect to transfers between accounts after annuity payouts begin, see "Making the Most of Your Contract -- Transfer policies." Annuity table The annuity table in your contract shows the amount of the first monthly payment for each $1,000 of contract value according to the age and, when applicable, the sex of the annuitant. (Where required by law, we will use a unisex table of settlement rates.) The table assumes that the contract value is invested at the beginning of the annuity payout period and earns a 5% rate of return, which is reinvested and helps to support future payouts. Substitution of 3.5% table If you ask us at least 30 days before the retirement date, we will substitute an annuity table based on an assumed 3.5% investment rate for the 5% table in the contract. The assumed investment rate affects both the amount of the first payout and the extent to which subsequent payouts increase or decrease. Using the 5% table results in a higher initial payment, but later payouts will increase more slowly when annuity unit values rise and decrease more rapidly when they decline. Annuity payout plans You may choose any one of these annuity payout plans by giving us written instructions at least 30 days before contract values are used to purchase the payout plan: o Plan A -- Life annuity - no refund: We make monthly payouts until the annuitant's death. Payouts end with the last payout before the annuitant's death. We will not make any further payouts. This means that if the annuitant dies after we have 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. The discount rate we use in the calculation will vary between 5.02% and 6.97% 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 or if the period you chose is less than your life expectancy as specified by tax law. Restrictions for some qualified plans: If you purchased a qualified annuity, you may be required to select a payout plan that provides for payouts: o over the life of the annuitant; o over the joint lives of the annuitant and a designated beneficiary; o for a period not exceeding the life expectancy of the annuitant; or o for a period not exceeding the joint life expectancies of the annuitant and a designated beneficiary. You have the responsibility for electing a payout plan that complies with your contract and with applicable law. If we do not receive instructions: You must give us written instructions for the annuity payouts at least 30 days before the annuitant's retirement date. If you do not, we will make payouts under Plan B, with 120 monthly payouts guaranteed. Contract values that you allocated to the one-year fixed account will provide fixed dollar payouts and contract values that you allocated among the subaccounts will provide variable annuity payouts. If monthly payouts would be less than $20: We will calculate the amount of monthly payouts at the time the contract value is used to purchase a payout plan. If the calculations show that monthly payouts would be less than $20, we have the right to pay the contract value to you in a lump sum or to change the frequency of the payouts. Death after annuity payouts begin If you or the annuitant die after annuity payouts begin, we will pay any amount payable to the beneficiary as provided in the annuity payout plan in effect. Taxes Generally, under current law, any increase in your contract value is taxable to you only when you receive a payout or withdrawal (see detailed discussion below). Any portion of the annuity payouts and any withdrawals you request that represent ordinary income are normally taxable. We will send you a tax information reporting form for any year in which we made a taxable distribution according to our records. Roth IRAs may grow and be distributed tax free if you meet certain distribution requirements. Qualified annuities: We designed this contract for use with qualified retirement plans. Special rules apply to these retirement plans. Your rights to benefits may be subject to the terms and conditions of these retirement plans regardless of the terms of the contract. Adverse tax consequences may result if you do not ensure that contributions, distributions and other transactions under the contract comply with the law. Qualified annuities have minimum distribution rules that govern the timing and amount of distributions during your life (except for Roth IRAs) and after your death. You should refer to your retirement plan or adoption agreement or consult a tax advisor for more information about your distribution rules. Annuity payouts under nonqualified annuities: A portion of each payout will be ordinary income and subject to tax, and a portion of each payout will be considered a return of part of your investment and will not be taxed. All amounts you receive after your investment in the contract is fully recovered will be subject to tax. Tax law requires that all nonqualified deferred annuities issued by the same company (and possibly its affiliates) to the same owner during a calendar year be taxed as a single, unified contract when you take distributions from any one of those contracts. Annuity payouts under qualified annuities (except Roth IRAs): Under a qualified annuity, the entire payout generally is includable as ordinary income and is subject to tax except to the extent that contributions were made with after-tax dollars. If you or your employer invested in your contract with deductible or pre-tax dollars as part of a qualified retirement plan, such amounts are not considered to be part of your investment in the contract and will be taxed when paid to you. Withdrawals: If you withdraw part or all of your contract before your annuity payouts begin, your withdrawal payment will be taxed to the extent that the value of your contract immediately before the withdrawal exceeds your investment. You also may have to pay a 10% IRS penalty for withdrawals you make before reaching age 59 1/2 unless certain exceptions apply. For qualified annuities, other penalties may apply if you withdraw your contract before your plan specifies that you can receive payouts. Death benefits to beneficiaries: The death benefit under a contract (except a Roth IRA) is not tax-exempt. Any amount your beneficiary receives that represents previously deferred earnings within the contract is taxable as ordinary income to the beneficiary in the years he or she receives the payments. The death benefit under a Roth IRA generally is not taxable as ordinary income to the beneficiary if certain distribution requirements are met. Annuities owned by corporations, partnerships or trusts: For nonqualified annuities any annual increase in the value of annuities held by such entities generally will be treated as ordinary income received during that year. This provision is effective for purchase payments made after Feb. 28, 1986. However, if the trust was set up for the benefit of a natural person only, the income will remain tax-deferred. Penalties: If you receive amounts from your contract before reaching age 59 1/2, you may have to pay a 10% IRS penalty on the amount includable in your ordinary income. However, this penalty will not apply to any amount received by you or your beneficiary: o because of your death; o because you become disabled (as defined in the Code); o if the distribution is part of a series of substantially equal periodic payments, made at least annually, over your life or life expectancy (or joint lives or life expectancies of you and your beneficiary); or o if it is allocable to an investment before Aug. 14, 1982 (except for qualified annuities). For a qualified annuity, other penalties or exceptions may apply if you make withdrawals from your contract before your plan specifies that payouts can be made. Withholding, generally: If you receive all or part of the contract value, we may deduct withholding against the taxable income portion of the payment. Any withholding represents a prepayment of your tax due for the year. You take credit for these amounts on your annual tax return. If the payment is part of an annuity payout plan, we generally compute the amount of withholding using payroll tables. You may provide us with a statement of how many exemptions to use in calculating the withholding. As long as you've provided us with a valid Social Security Number or Taxpayer Identification Number, you can elect not to have any withholding occur. If the distribution is any other type of payment (such as a partial or full withdrawal), we compute withholding using 10% of the taxable portion. Similar to above, as long as you have provided us with a valid Social Security Number or Taxpayer Identification Number, you can elect not to have this withholding occur. Some states also impose withholding requirements similar to the federal withholding described above. If this should be the case, we may deduct state withholding from any payment from which we deduct federal withholding. The withholding requirements may differ if we are making payment to a non-U.S. citizen or if we deliver the payment outside the United States. Transfer of ownership of a nonqualified annuity: If you transfer a nonqualified annuity without receiving adequate consideration, the transfer is a gift and also may be a withdrawal for federal income tax purposes. If the gift is a currently taxable event for income tax purposes, the original owner will be taxed on the amount of deferred earnings at the time of the transfer and also may be subject to the 10% IRS penalty discussed earlier. In this case, the new owner's investment in the contract will be the value of the contract at the time of the transfer. Collateral assignment of a nonqualified annuity: If you collaterally assign or pledge your contract, earnings on purchase payments you made after Aug. 13, 1982 will be taxed to you like a withdrawal. Important: Our discussion of federal tax laws is based upon our understanding of current interpretations of these laws. Federal tax laws or current interpretations of them may change. For this reason and because tax consequences are complex and highly individual and cannot always be anticipated, you should consult a tax advisor if you have any questions about taxation of your contract. Tax qualification: We intend that the contract qualify as an annuity for federal income tax purposes. To that end, the provisions of the contract are to be interpreted to ensure or maintain such tax qualification, in spite of any other provisions of the contract. We reserve the right to amend the contract to reflect any clarifications that may be needed or are appropriate to maintain such qualification or to conform the contract to any applicable changes in the tax qualification requirements. We will send you a copy of any amendments. Voting Rights As a contract owner with investments in the subaccounts, you may vote on important fund policies until annuity payouts begin. Once they begin, the person receiving them has voting rights. We will vote fund shares according to the instructions of the person with voting rights. Before annuity payouts begin, the number of votes you have is determined by applying your percentage interest in each subaccount to the total number of votes allowed to the subaccount. After annuity payouts begin, the number of votes you have is equal to: o the reserve held in each subaccount for your contract; o divided by the net asset value of one share of the applicable fund. As we make annuity payouts, the reserve for the contract decreases; therefore, the number of votes also will decrease. We calculate votes separately for each subaccount. We will send notice of shareholders' meetings, proxy materials and a statement of the number of votes to which the voter is entitled. We will vote shares for which we have not received instructions in the same proportion as the votes for which we received instructions. We also will vote the shares for which we have voting rights in the same proportion as the votes for which we received instructions. Substitution of Investments We may substitute the funds in which the subaccounts invest if: o laws or regulations change, o existing funds become unavailable, or o in our judgment, the funds no longer are suitable for the subaccounts. If any of these situations occur and if we believe it is in the best interest of persons having voting rights under the contract, we have the right to substitute funds other than those currently listed in this prospectus for other funds. We may also: o add new subaccounts; o combine any two or more subaccounts; o add subaccounts investing in additional funds; o transfer assets to and from the subaccounts or the variable account; and o eliminate or close any subaccounts. In the event of substitution or any of these changes, we may amend the contract and take whatever action is necessary and appropriate without your consent or approval. However, we will not make any substitution or change without the necessary approval of the SEC and state insurance departments. We will notify you of any substitution or change. About the Service Providers Principal Underwriter American Express Financial Advisors Inc. (AEFA) serves as the principal underwriter for the contract. Its office are located at IDS Tower 10, Minneapolis, MN 55440. AEFA is a wholly-owned subsidiary of American Express Financial Corporation (AEFC) which is a wholly-owned subsidiary of American Express Company. The contracts will be distributed by broker-dealers which have entered into distribution agreements with AEFA and American Enterprise Life. We will pay commissions for sales of the contracts of up to 7% of purchase payments to insurance agencies or broker-dealers that are also insurance agencies. Sometimes we pay the commissions as a combination of a certain amount of the commission at the time of sale and a trail commission (which, when totaled, could exceed 7% of purchase payments). In addition, we may pay certain sellers additional compensation for selling and distribution activities under certain circumstances. From time to time, we will pay or permit other promotional incentives, in cash or credit or other compensation. Issuer American Enterprise Life issues the annuities. American Enterprise Life is a wholly-owned subsidiary of IDS Life, which is a wholly-owned subsidiary of AEFC. AEFC is a wholly-owned subsidiary of American Express Company. American Express Company is a financial services company principally engaged through subsidiaries (in addition to AEFC) in travel related services, investment services and international banking services. American Enterprise Life is a stock life insurance company organized in 1981 under the laws of the state of Indiana. Its administrative offices are located at 80 South Eighth Street, Minneapolis, MN 55402. Its statutory address is 100 Capitol Center South, 201 North Illinois Street, Indianapolis, IN 46204. American Enterprise Life conducts a conventional life insurance business. Legal proceedings A number of lawsuits have been filed against life and health insurers in jurisdictions in which American Enterprise Life and AEFC do business involving insurers' sales practices, alleged agent misconduct, failure to properly supervise agents and other matters. American Enterprise Life and AEFC, like other life and health insurers, from time to time are involved in such litigation. On October 13, 1998, an action entitled Richard W. and Elizabeth J. Thoresen vs. American Express Financial Corporation, American Centurion Life Assurance Company, American Enterprise Life Insurance Company, American Partners Life Insurance Company, IDS Life Insurance Company and IDS Life Insurance Company of New York was commenced in Minnesota State Court. The action was brought by individuals who purchased an annuity in a qualified plan. They allege that the sale of annuities in tax-deferred contributory retirement investment plans (e.g., IRAs) is never appropriate. The plaintiffs purport to represent a class consisting of all persons who made similar purchases. The plaintiffs seek damages in an unspecified amount. American Enterprise Life also is a defendant in various other lawsuits. In American Enterprise Life's opinion, none of these lawsuits will have a material adverse effect on our financial condition. 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.
Years ended Dec. 31, (thousands) 1998 1997 1996 1995 1994 Net investment income $ 340,219 $ 332,268 $ 271,719 $ 223,706 $ 162,201 Net loss on investments (4,788) (509) (5,258) (1,154) (1,190) Other 7,662 6,329 5,753 4,214 2,753 --------- -------------- -------------- -------------- -------------- Total revenues $ 343,093 $ 338,088 $ 272,214 $ 226,766 $ 163,764 =========== =========== =========== =========== =========== Income before income taxes $ 36,421 $ 44,958 $ 35,735 $ 33,440 $ 30,212 ============ ============ ============ ============ ============ Net income $ 22,026 $ 28,313 $ 22,823 $ 21,748 $ 19,638 ============ ============ ============ ============ ============ Total assets $ 4,885,621 $ 4,973,413 $ 4,425,837 $ 3,570,960 $ 2,712,286 ========== ========== ========== ========== ==========
Management's discussion and analysis of financial condition and results of operations 1998 Compared to 1997: Net income decreased 22 percent to $22 million in 1998, compared to $28 million in 1997. An increase in revenues, resulting primarily from an increase in net investment income was more than offset by an increase in benefits and expenses, resulting primarily from an increase in amortization of deferred policy acquisition costs. Total revenues increased to $343 million in 1998, compared with $338 million in 1997. The increase is primarily due to increases in net investment income and contractholder charges, partially offset by an increase in net realized loss on investments. Net investment income, the largest component of revenues, increased primarily as a result of an increase in investment yields. Contractholder charges, which consist primarily of charges on annuity contracts, increased 12 percent to $6.4 million in 1998, compared with $5.7 million in 1997. This increase is primarily the result of an increase in surrender charges. Net realized loss on investments increased to $4.8 million in 1998, compared to $0.5 million in 1997. The Company incurs realized losses when investments are sold at a loss and when a decline in the fair value of a fixed maturity investment is determined to be other than temporary and it is written down to fair value. Total benefits and expenses increased 4.6 percent to $307 million in 1998. The largest component of expenses, interest credited on investment contracts, decreased to $229 million, reflecting a decrease in annuities in force and lower interest rates. Amortization of deferred policy acquisition costs increased to $54 million, compared to $37 million in 1997. This increase was due primarily to accelerating amortization to reflect actual lapse experience on certain fixed annuities. 1997 Compared to 1996: Net income increased 24 percent to $28 million in 1997, compared to $23 million in 1996. This growth resulted primarily from an increase in net investment income, partially offset by an increase in interest credited on investment contracts. Total revenues increased to $338 million in 1997, compared with $272 million in 1996. The increase is primarily due to an increase in net investment and a decrease in net realized loss on investments. Net investment income, the largest component of revenues, increased primarily as a result of an increase in investments owned and a slight increase investment yields. Contractholder charges, which consist primarily of charges on annuity contracts, increased 3.6 percent to $5.7 million in 1997, compared with $5.5 million in 1996. This increase is primarily the result of an increase in surrender charges. Net realized loss on investments decreased to $0.5 million in 1997, compared to $5.3 million in 1996. The Company incurs realized losses when investments are sold at a loss and when a decline in the fair value of a fixed maturity investment is determined to be other than temporary and it is written down to fair value. Total benefits and expenses increased to $293 million in 1997. The largest component of expenses, interest credited on investment contracts, increased 21 percent to 231 million compared to $192 million in 1996. Amortization of deferred policy acquisition costs increased to $37 million compared to $31 million in 1996. These increases were due primarily to increased aggregate amounts in force. Risk Management The sensitivity analysis discussed below estimates the effects of hypothetical sudden and sustained change in the applicable market conditions on the ensuing year's earnings based on year-end positions. The market change, assumed to occur as of year-end, is a 100 basis point increase in market interest rates. Computations of the prospective effect of the hypothetical interest rate change is based on numerous assumptions, including relative levels of market interest rates, as well as the levels of assets and liabilities. The hypothetical change 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 change actually occurred over time. As a result, actual earnings effects in the future will differ from those quantified below. The Company primarily invests in fixed income securities over a broad range of maturities for the purpose of providing fixed annuity clients with a competitive rate of return on their investments while minimizing risk, and to provide a dependable and targeted spread between the interest rate earned on investments and the interest rate credited to contractholders' accounts. The Company does not invest in securities to generate trading profits. The Company has an investment committee that holds regularly scheduled meetings and, when necessary, special meetings. At these meetings, the committee reviews models projecting different interest rate scenarios and their impact on profitability. The objective of the committee is to structure the investment security portfolio based upon the type and behavior of products in the liability portfolio so as to achieve targeted levels of profitability. Rates credited to contractholders' accounts are generally reset at shorter intervals than the maturity of underlying investments. Therefore, margins may be negatively impacted by increases in the general level of interest rates. Part of the committee's strategy includes the purchase of some types of derivatives, such as interest rate caps, swaps and floors, for hedging purposes. These derivatives protect margins by increasing investment returns if there is a sudden and severe rise in interest rates, thereby mitigating the impact of an increase in rates credited to contractholders' accounts. The negative effect on the Company's pretax earnings of a 100 basis point increase in interest rates, which assumes repricings and customer behavior based on the application of proprietary models to the book of business at December 31, 1998, would be appoximately $3 million. Liquidity and Capital Resources The liquidity requirements of the Company are met by funds provided by premiums, 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 and investment purchases. The Company has an available line of credit with American Express Financial Corporation aggregating $50 million. The line of credit is used strictly as short-term sources of funds. No borrowings were outstanding under the agreement at December 31, 1998. At December 31, 1998, outstanding reverse repurchase agreements totaled $51 million. At December 31, 1998, investments in fixed maturities comprised 82 percent of the Company's total invested assets. Of the fixed maturity portfolio, approximately 32 percent is invested in GNMA, FNMA and FHLMC mortgage-backed securities which are considered AAA/Aaa quality. At December 31, 1998, approximately 14 percent of the Company's investments in fixed maturities were below investment grade bonds. These investments may be subject to a higher degree of risk than the investment grade issues because of the borrower's generally greater sensitivity to adverse economic conditions, such as recession or increasing interest rates, and in certain instances, the lack of an active secondary market. Expected returns on below investment grade bonds reflect consideration of such factors. The Company has identified those fixed maturities for which a decline in fair value is determined to be other than temporary, and has written them down to fair value with a charge to earnings. At December 31, 1998, net unrealized appreciation on fixed maturities held to maturity included $52 million of gross unrealized appreciation and $7 million of gross unrealized depreciation. Net unrealized appreciation on fixed maturities available for sale included $102 million of gross unrealized appreciation and $34 million of gross unrealized depreciation. At December 31, 1998, the Company had an allowance for losses on mortgage loans totaling $8.5 million. The National Association of Insurance Commissioners has established risk-based capital standards to determine the capital requirements of a life insurance company based upon the risks inherent in its operations. These standards require the computation of a risk-based capital amount which is then compared to a company's actual total adjusted capital. The computation involves applying factors to various statutory financial data to address four primary risks: asset default, adverse insurance experience, interest rate risk and external events. These standards provide for regulatory attention when the percentage of total adjusted capital to authorized control level risk-based capital is below certain levels. As of December 31, 1998, the Company's total adjusted capital was well in excess of the levels requiring regulatory attention. Year 2000 Issue The Company is a wholly owned subsidiary of American Express Financial Corporation (AEFC), which is a wholly owned subsidiary of American Express Company (American Express). All of the major systems used by the Company are maintained by AEFC and are utilized by multiple subsidiaries and affiliates of AEFC. American Express is coordinating Year 2000 (Year 2000) efforts on behalf of all of its businesses and subsidiaries. Representatives of AEFC are participating in these efforts. American Express' and AEFC's Year 2000 compliance effort is divided into two initiatives. The first, known as "Millenniax," relates to mainframe and other technological systems maintained by the American Express Technologies organization. The second, known as "Business T," relates to the technological assets that are owned, managed or maintained by American Express' individual business and staff units, including AEFC. American Express' and AEFC's plans for remediation of theYear 2000 issue include the following program phases: (i) employee awareness and mobilization, (ii) inventory collection and assessment, (iii) impact analysis, (iv) remediation/decommission, (v) testing and (vi) implementation.With respect to systems maintained by American Express and AEFC, the first three phases referred to above have largely been completed for both Millenniax and Business T. In addition, the remediation/decommission phase for critical systems is nearly complete. As of June 30, 1999, for Millenniax for American Express, the remediation/decommission, testing and implementation phases for critical and non-critical systems in total are 91%, 85% and 74% complete, respectively. For Millenniax for AEFC, such phases are 99%, 98% and 97% complete, respectively. For Business T for American Express, such phases are 94%, 85% and 84% complete, respectively. For Business T for AEFC, such phases are 85%, 80% and 80% complete, respectively. American Express' cumulative costs since inception of the Year 2000 initiatives were $427 million through March 31, 1999 and are estimated to be in the range of $90 - $116 million for the remainder through 2000.* AEFC's cumulative costs since inception of the Year 2000 initiatives were $59 million through June 30, 1999 and are estimated to be in the range of $12 - $13 million for the remainder through 2000.* These costs, which are expensed as incurred, relate to both Millenniax and Business T, and have not had, nor are they expected to have, a material adverse impact on American Express', AEFC's, or the Company's results of operations or financial condition.* American Express' and AEFC's major businesses are heavily dependent upon internal computer systems, and all have significant interaction with systems of third parties, both domestically and internationally. American Express and AEFC are working with key external parties, including merchants, clients, counterparties, vendors, exchanges, utilities, suppliers, agents and regulatory agencies to mitigate the potential risks to American Express and AEFC of Year 2000. The failure of external parties to resolve their own Year 2000 issues in a timely manner could result in a material financial risk to American Express, AEFC or the Company. As part of their overall compliance program, American Express and AEFC are actively communicating with third parties through face-to-face meetings and correspondence, on an ongoing basis, to ascertain their state of readiness. Although numerous third parties have indicated to American Express and AEFC in writing that they are addressing their Year 2000 issues on a timely basis, the readiness of third parties overall varies across the spectrum. Because American Express' and AEFC's Year 2000 compliance is dependent on key third parties being compliant on a timely basis, there can be no assurances that American Express' and AEFC's efforts alone will resolve all Year 2000 issues. At this point, with remediation and testing of individual internal systems substantially complete, American Express' and AEFC's primary focus is on testing of systems on an integrated basis, independent validation of such testing and completing Year 2000 contingency plans. The contingency planning effort is a full-scale initiative that includes both internal and external experts under the guidance of an American Express-wide steering committee. The contingency plans, which are based in part on an assessment of the magnitude and probability of potential risks, primarily focus on proactive steps to prevent Year 2000-related failures from occurring, or if they should occur, detecting them quickly, minimizing their impact and expediting their repair. The Year 2000 contingency plans supplement disaster recovery and business continuity plans already in place, and include measures such as selecting alternative suppliers and channels of distribution and developing American Express' and AEFC's own technology infrastructure in lieu of those provided by third parties. Such plans encompass the creation of both remediation and business resumption contingency plans, in accordance with guidelines established by the Federal Financial Institutions Examination Council (FFIEC). For critical systems that are not yet Year 2000 compliant, American Express and AEFC are on track to achieve remediation by the second quarter of 1999*; to the extent that unforeseen circumstances arise that result in non-compliance of any such systems, remediation contingency plans are also being developed to mitigate such risk. American Express' and AEFC's business resumption contingency planning effort is divided into four phases, also in line with FFIEC guidelines: (i) establishing organizational planning guidelines; (ii) completing a business impact analysis; (iii) developing the business resumption contingency plans and (iv) validating and verifying the business resumption contingency plans. The first two of these phases have essentially been completed, and have identified and assessed the need for Year 2000 business resumption contingency plans for American Express' and AEFC's most critical core business processes. The contingency plans also address third party systems that American Express' and AEFC's businesses interface with and rely upon. American Express and AEFC expect that the development phase of their business resumption contingency plans will be substantially complete by the second quarter of 1999.* The final phase, which will include independent validation and verification of these plans, will take place during the third quarter of 1999.* American Express and AEFC will continue to refine their contingency planning activities throughout 1999 as additional information related to their exposures is gathered.* To the extent that there are Year 2000 failures that affect major internal processes or third party systems that American Express or AEFC relies upon, such failures could have a material impact on American Express and its businesses or subsidiaries, including American Enterprise Life, through business interruption or shutdown, financial loss, reputational damage and legal liability to third parties. *Statements in this Year 2000 discussion marked with an asterisk are forward-looking statements which are subject to risks and uncertainties. Important factors that could cause results to differ materially from these forward-looking statements include, among other things, the ability of American Express or AEFC to successfully identify all systems containing two-digit codes, the nature and amount of programming required to fix the affected systems, the costs of labor and consultants related to such efforts, the continued availability of such resources, and the ability of third parties that interface with American Express or AEFC to successfully address their Year 2000 issues. 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 $4,503,960,000 at Dec. 31, 1998, 28% was invested in mortgage-backed securities, 53% in corporate and other bonds, 18% in primary mortgage loans on real estate and the remaining 1% in other investments. Competition We are engaged in a business that is highly competitive due to the large number of stock and mutual life insurance companies and other entities marketing insurance products. There are over 1,600 stock, mutual and other types of insurers in the life insurance business. Best's Insurance Reports, Life-Health edition 1998, assigned us one of its highest classifications, A+ (Superior). Employees As of Dec. 31, 1998, we had no employees. Properties We occupy office space in Minneapolis, MN, which is rented by AEFC. We reimburse AEFC for rent based on direct and indirect allocation methods. Facilities occupied by us are believed to be adequate for the purposes for which they are used and well maintained. State Regulation American Enterprise Life is subject to the laws of the State of Indiana governing insurance companies and to the regulations of the Indiana Department of Insurance. An annual statement in the prescribed form is filed with the Indiana Department of Insurance each year covering our operation for the preceding year and its financial condition at the end of such year. Regulation by the Indiana Department of Insurance includes periodic examination to determine American Enterprise's contract liabilities and reserves so that the Indiana Department of Insurance may certify that these items are correct. The Company's books and accounts are subject to review by the Indiana Department of Insurance at all times. Such regulation does not, however, involve any supervision of the account's management or the company's investment practices or policies. In addition, American Enterprise Life is subject to regulation under the insurance laws of other jurisdictions in which it operates. A full examination of American Enterprise Life's operations is conducted periodically by the National Association of Insurance Commissioners. Under insurance guaranty fund laws, in most states, insurers doing business therein can be assessed up to prescribed limits for policyholder losses incurred by insolvent companies. Most of these laws do provide however, that an assessment may be excused or deferred if it would threaten an insurer's own financial strength. Directors and Executive Officers* The directors and principal executive officers of American Enterprise Life and the principal occupation of each during the last five years is as follows: Directors James E. Choat Born in 1947 Director, president and chief executive officer since 1996; Senior vice president - Institutional Products Group, AEFA, 1994 to 1997. Richard W. Kling Born 1940 Director and chairman of the board since March 1989. Paul S. Mannweiler** Born in 1949 Director since 1986; Partner at Locke Reynolds Boyd & Weisell since 1980. Paula R. Meyer Born in 1954 Director and executive vice president since 1998; vice president, AEFC since 1998; Piper Capital Management (PCM) President from Oct. 1997 to May 1998; PCM Director of Marketing from June 1995 to Oct. 1997; PCM Director of Retail Marketing from Dec. 1993 to June 1995. William A. Stoltzmann Born in 1948 Director since Sept. 1989; vice president, general counsel and secretary since 1985. Officers other than directors Jeffrey S. Horton Born 1961 Vice president and treasurer since Dec. 1997; vice president and corporate treasurer, AEFC, since Dec. 1997; controller, American Express Technologies - Financial Services, AEFC, from July 1997 to Dec. 1997; controller, Risk Management Products, AEFC, from May 1994 to July 1997; director of finance and analysis, Corporate Treasury, AEFC, from June 1990 to May 1994. Philip C. Wentzel Born in 1961 Vice president and controller since 1998; vice president - Finance, Risk Management Products, AEFC since 1997; and director of financial reporting and analysis from 1992 to 1997. *The address for all of the directors and principal officers is: IDS Tower 10, Minneapolis, MN 55440-0010 except for Mr. Mannweiler who is an independent director. **Mr. Mannweiler's address is: 201 No. Illinois Street, Indianapolis, IN 46204 Executive compensation Our executive officers also may serve one or more affiliated companies. The following table reflects cash compensation paid to the five most highly compensated executive officers as a group for services rendered in the most recent year to us and our affiliates. The table also shows the total cash compensation paid to all our executive officers, as a group, who were executive officers at any time during the most recent year.
Name of individual or number in group Position held Cash compensation Five most highly compensated $4,476,367 executive officers as a group: Richard W. Kling Chairman of the Board James E. Choat President and CEO Stuart A. Sedlacek Executive Vice President Lorraine R. Hart Vice President, Investments Deborah L. Pederson Assistant Vice President, Investments All executive officers as a group $7,925,328 (12)
Security ownership of management Our directors and officers do not beneficially own any outstanding shares of stock of the company. All of our outstanding shares of stock are beneficially owned by IDS Life. The percentage of shares of IDS Life owned by any director, and by all our directors and officers as a group, does not exceed 1% of the class outstanding. Experts Ernst & Young LLP, independent auditors, have audited the financial statements of American Enterprise Life Insurance Company at Dec. 31, 1998 and 1997, and for each of the three years in the period ended Dec. 31, 1998, as set forth in their report. We've included our financial statements in the prospectus and elsewhere in the registration statement in reliance on Ernst & Young LLP's report, given on their authority as experts in accounting and auditing. American Enterprise Life Financial Information
AMERICAN ENTERPRISE LIFE INSURANCE COMPANY BALANCE SHEET September 30, 1999 (unaudited) ($ thousands, except share amounts) ASSETS Investments: Fixed maturities: Held to maturity, at amortized cost (fair value: 1999, $1,023,281) $1,027,976 Available for sale, at fair value (amortized cost: 1999, $2,549,548) 2,480,649 ----------- 3,508,625 Mortgage loans on real estate 794,117 Other investments 9,148 Total investments 4,311,890 Accounts receivable 914 Accrued investment income 57,967 Deferred policy acquisition costs 186,723 Deferred income taxes 25,420 Other assets 32 Separate account assets 174,567 ------------ Total assets $4,757,513 LIABILITIES AND STOCKHOLDER'S EQUITY Liabilities: Future policy benefits for fixed annuities $4,049,397 Policy claims and other policyholders' funds 8,304 Amounts due to brokers 76,928 Other liabilities 22,069 Separate account liabilities 174,567 ----------- Total liabilities 4,331,265 Stockholder's equity: Capital stock, $100 par value per share; 100,000 shares authorized, 20,000 shares issued and outstanding 2,000 Additional paid-in capital 282,872 Accumulated other comprehensive income: Net unrealized securities (losses) gains (44,784) Retained earnings 186,160 Total stockholder's equity 426,248 Total liabilities and stockholder's equity $4,757,513 See accompanying notes.
AMERICAN ENTERPRISE LIFE INSURANCE COMPANY STATEMENTS OF INCOME Nine months ended September 30, (unaudited) ($ thousands) 1999 1998 --------- ------- Revenues: Net investment income $243,525 $258,163 Contractholder charges 4,317 5,018 Mortality and expense risk fees 1,581 872 Net realized gain (loss) on investments 4,897 (1,526) ---------- ---------- Total revenues 254,320 262,527 --------- -------- Benefits and expenses: Interest credited on investment contracts 157,155 173,709 Amortization of deferred policy acquisition costs 30,637 43,051 Other operating expenses 23,299 16,902 ---------- ----------- Total benefits and expenses 211,091 233,662 --------- -------- Income before income taxes 43,229 28,865 Income taxes 14,051 10,390 ---------- ------------ Net income $ 29,178 $ 18,475 ========= ========= See accompanying notes.
AMERICAN ENTERPRISE LIFE INSURANCE COMPANY STATEMENTS OF CASH FLOWS Nine months ended September 30, (unaudited) ($ thousands) 1999 1998 -------- ------- Cash flows from operating activities: Net income $ 29,178 $18,475 Adjustments to reconcile net income to net cash provided by (used in) operating activities: Change in accrued investment income 3,773 (1,802) Change in accounts receivable (82) 44 Change in deferred policy acquisition costs, net 9,756 23,054 Change in other assets 10 84 Change in policy claims and other policyholders' funds 915 (3,220) Deferred income tax benefit (448) (10,539) Change in other liabilities (2,430) 8,960 Amortization of premium 1,394 158 Net realized gain on investments (4,897) 1,526 Other, net (1,772) (302) --------------- ---------- Net cash provided by operating activities 35,397 36,438 Cash flows from investing activities: Fixed maturities held to maturity: Maturities 47,277 61,786 Sales 5,681 30,468 Fixed maturities available for sale: Purchases (589,946) (298,885) Maturities 216,467 239,612 Sales 359,677 43,579 Other investments: Purchases (20,766) (145,374) Sales 41,705 53,043 Change in amounts due from brokers (619) -- Change in amounts due to brokers 22,581 94,129 ---------- -------- Net cash provided by investing activities 82,057 78,358 Cash flows from financing activities: Activity related to investment contracts: Considerations received 244,670 237,037 Surrenders and other benefits (519,255) (525,542) Interest credited to account balances 157,131 173,709 ---------- ---------- Net cash used in financing activities (117,454) (114,796) ------------ ------------ Net increase (decrease) in cash and cash equivalents -- -- Cash and cash equivalents at beginning of period -- -- -------------- -------------- Cash and cash equivalents at end of year $ -- $ -- ============== ============== See accompanying notes.
AMERICAN ENTERPRISE LIFE INSURANCE COMPANY NOTES TO FINANCIAL STATEMENTS (unaudited) 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 September 30, 1999 and the related statements of income and cash flows for the nine month periods ended September 30, 1999 and 1998. 2. New Accounting Pronouncement In June 1998, the Financial Accounting Standards Board (FASB) issued Statement of Financial Accounting Standards No. 133 (FAS 133), Accounting for Derivative Instruments and Hedging Activities. In July 1999, The FASB issued FAS 137, which defers the effective date for implementation of FAS 133 by one year, making FAS 133 effective no later than January 1, 2001 for the Company's financial statements. FAS 133 establishes accounting and reporting standards for derivative instruments, including certain derivative instruments embedded in other contracts, and for hedging activities. It requires that an entity recognize all derivatives as either assets of liabilities in the balance sheet and measure those instruments at fair value. The accounting for changes in the fair value of a derivative depends on the intended use of the derivative and the resulting designation. Earlier application of all of the provisions of FAS 133 is encouraged, but is permitted only as of the beginning of any fiscal quarter that begins after issuance of FAS 133. This Statement cannot be applied retroactively. The Company has not yet determined when it will implement FAS 133. The ultimate financial impact of the new rule will be measured based on the derivatives in place at adoption and cannot be estimated at this time. Report of Independent Auditors The Board of Directors American Enterprise Life Insurance Company We have audited the accompanying balance sheets of American Enterprise Life Insurance Company (a wholly owned subsidiary of IDS Life Insurance Company) as of December 31, 1998 and 1997, and the related statements of income, stockholder's equity and cash flows for each of the three years in the period ended December 31, 1998. These financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on these financial statements based on our audits. We conducted our audits in accordance with generally accepted auditing standards. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion. In our opinion, the financial statements referred to above present fairly, in all material respects, the financial position of American Enterprise Life Insurance Company at December 31, 1998 and 1997, and the results of its operations and its cash flows for each of the three years in the period ended December 31, 1998, in conformity with generally accepted accounting principles. /s/ Ernst & Young LLP February 4, 1999 Minneapolis, Minnesota AMERICAN ENTERPRISE LIFE INSURANCE COMPANY BALANCE SHEETS December 31, ($ thousands, except share amounts)
ASSETS 1998 1997 - - - ------ ----------- ------- Investments: Fixed maturities: Held to maturity, at amortized cost (fair value: 1998, $1,126,732 ; 1997, $1,223,108) $1,081,193 $1,186,682 Available for sale, at fair value (amortized cost: 1998, $2,526,712; 1997, $2,609,621) 2,594,858 2,685,799 ----------- ----------- 3,676,051 3,872,481 Mortgage loans on real estate 815,806 738,052 Other investments 12,103 16,024 ------------- ------------- Total investments 4,503,960 4,626,557 Accounts receivable 214 563 Accrued investment income 61,740 59,588 Deferred policy acquisition costs 196,479 224,501 Other assets 43 117 Separate account assets 123,185 62,087 ------------ ------------- Total assets $4,885,621 $4,973,413 ========== ========== LIABILITIES AND STOCKHOLDER'S EQUITY Liabilities: Future policy benefits for fixed annuities $4,166,852 $4,343,213 Policy claims and other policyholders' funds 7,389 11,328 Deferred income taxes 23,199 35,601 Amounts due to brokers 54,347 34,935 Other liabilities 24,500 16,905 Separate account liabilities 123,185 62,087 ----------- ------------ Total liabilities 4,399,472 4,504,069 Stockholder's equity: Capital stock, $100 par value per share; 100,000 shares authorized, 20,000 shares issued and outstanding 2,000 2,000 Additional paid-in capital 282,872 282,872 Accumulated other comprehensive income: Net unrealized securities gains 44,295 49,516 Retained earnings 156,982 134,956 ------------ ------------ Total stockholder's equity 486,149 469,344 ------------ ------------ Total liabilities and stockholder's equity $4,885,621 $4,973,413 ========== ==========
See accompanying notes. AMERICAN ENTERPRISE LIFE INSURANCE COMPANY STATEMENTS OF INCOME Years ended December 31, ($ thousands)
1998 1997 1996 ------ ------ ----- Revenues: Net investment income $340,219 $332,268 $271,719 Contractholder charges 6,387 5,688 5,450 Mortality and expense risk fees 1,275 641 303 Net realized loss on investments (4,788) (509) (5,258) ---------- ---------- ----------- Total revenues 343,093 338,088 272,214 --------- --------- ---------- Benefits and expenses: Interest credited on investment contracts 228,533 231,437 191,672 Amortization of deferred policy acquisition costs 53,663 36,803 30,674 Other operating expenses 24,476 24,890 14,133 ---------- ---------- -------- Total benefits and expenses 306,672 293,130 236,479 --------- --------- ------- Income before income taxes 36,421 44,958 35,735 Income taxes 14,395 16,645 12,912 ---------- ---------- --------- Net income $ 22,026 $ 28,313 $ 22,823 ========= ========= ========
See accompanying notes. AMERICAN ENTERPRISE LIFE INSURANCE COMPANY STATEMENTS OF STOCKHOLDER'S EQUITY Three years ended December 31, 1998 ($ thousands)
Accumulated Other Comprehensive Total Additional Stockholder's Capital Paid-In Income, Retained Equity Stock Capital Net of Tax Earnings Balance, December 31, 1995 $296,816 $2,000 $177,872 $ 33,124 $83,820 Comprehensive income: Net income 22,823 -- -- -- 22,823 Unrealized holding losses arising during the year, net of taxes of $12,282 (22,810) -- -- (22,810) -- Reclassification adjustment for losses included in net income, net of tax of $(1,093) 2,029 -- -- 2,029 -- ------------------- ----------------- Other comprehensive loss (20,781) -- -- (20,781) -- ----------------- Comprehensive income 2,042 Capital contribution from parent 65,000 -- 65,000 -- -- --------------------------------------------------------------------------- Balance, December 31, 1996 363,858 2,000 242,872 12,343 106,643 Comprehensive income: Net income 28,313 -- -- -- 28,313 Unrealized holding gains arising during the year, net of taxes of $(19,891) 36,940 -- -- 36,940 -- Reclassification adjustment for losses included in net income, net of tax of $(126) 233 -- -- 233 -- ------------------- ----------------- Other comprehensive income 37,173 -- -- 37,173 -- ----------------- Comprehensive income 65,486 Capital contribution from parent 40,000 40,000 --------------------------------------------------------------------------- Balance, December 31, 1997 469,344 2,000 282,872 49,516 134,956 Comprehensive income: Net income 22,026 -- -- -- 22,026 Unrealized holding losses arising during the year, net of taxes of $3,400 (6,314) -- -- (6,314) -- Reclassification adjustment for losses included in net income, net of tax 1,093 of $(588) -- -- 1,093 -- ----------------- ------------------- ------------------- Other comprehensive loss (5,221) -- -- (5,221) -- ----------------- ----------------- Comprehensive income 16,805 --------------------------------------------------------------------------- Balance, December 31, 1998 $486,149 $2,000 $282,872 $44,295 $156,982 ===========================================================================
See accompanying notes. AMERICAN ENTERPRISE LIFE INSURANCE COMPANY STATEMENTS OF CASH FLOWS Years ended December 31, ($ thousands)
1998 1997 1996 -------- -------- -------- Cash flows from operating activities: Net income $ 22,026 $ 28,313 $ 22,823 Adjustments to reconcile net income to net cash provided by (used in) operating activities: Change in accrued investment income (2,152) (8,017) (9,692) Change in accounts receivable 349 9,304 -- Change in deferred policy acquisition costs, net 28,022 (21,276) (32,651) Change in other assets 74 4,840 (10,007) Change in policy claims and other policyholders' funds (3,939) (16,099) 15,786 Deferred income tax (benefit) provision (9,591) (2,485) 5,084 Change in other liabilities 7,595 1,255 8,621 Amortization of premium (accretion of discount), net 122 (2,316) (2,091) Net realized loss on investments 4,788 509 5,258 Other, net 2,544 959 (129) ------------- --------- ---------- Net cash provided by (used in) operating activities 49,838 (5,013) 3,002 Cash flows from investing activities: Fixed maturities held to maturity: Purchases -- (1,996) (16,967) Maturities 73,601 41,221 26,190 Sales 31,117 30,601 27,944 Fixed maturities available for sale: Purchases (298,885) (688,050) (921,914) Maturities 335,357 231,419 212,212 Sales 48,492 73,366 47,542 Other investments: Purchases (161,252) (199,593) (212,182) Sales 78,681 29,139 19,850 Change in amounts due to brokers 19,412 (53,796) 88,568 ---------- ----------- ---------- Net cash provided by (used in) investing activities 126,523 (537,689) (728,757) Cash flows from financing activities: Activity related to investment contracts: Considerations received 302,158 783,339 846,378 Surrenders and other benefits (707,052) (552,903) (312,362) Interest credited to account balances 228,533 231,437 191,672 Change in securities sold under repurchase agreements -- -- (67,000) Capital contribution from parent -- 40,000 65,000 --------------- ---------- --------- Net cash (used in) provided by financing activities (176,361) 501,873 723,688 ----------- --------- -------- Net decrease in cash and cash equivalents -- (40,829) (2,067) Cash and cash equivalents at beginning of year -- 40,829 42,896 --------------- ---------- --------- Cash and cash equivalents at end of year $ -- $ -- $ 40,829 ============== ============== ==========
See accompanying notes. 1. Summary of significant accounting policies Nature of business American Enterprise Life Insurance Company (the Company) is a stock life insurance company that is domiciled in Indiana and is licensed to transact insurance business in 48 states. The Company's principal product is deferred annuities, which are issued primarily to individuals. It offers single premium and annual premium deferred annuities on both a fixed and variable dollar basis. Immediate annuities are offered as well. Basis of presentation The Company is a wholly owned subsidiary of IDS Life Insurance Company (IDS Life), which is a wholly owned subsidiary of American Express Financial Corporation (AEFC). AEFC is a wholly owned subsidiary of American Express Company. The accompanying financial statements have been prepared in conformity with generally accepted accounting principles which vary in certain respects from reporting practices prescribed or permitted by the Indiana Department of Insurance (see Note 4). The preparation of financial statements in conformity with generally accepted accounting principles requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates. Investments Fixed maturities that the Company has both the positive intent and the ability to hold to maturity are classified as held to maturity and carried at amortized cost. All other fixed maturities are classified as available for sale and carried at fair value. Unrealized gains and losses on securities classified as available for sale are reported as a separate component of accumulated other comprehensive income, net of deferred income taxes. Realized investment gain or loss is determined on an identified cost basis. Prepayments are anticipated on certain investments in mortgage-backed securities in determining the constant effective yield used to recognize interest income. Prepayment estimates are based on information received from brokers who deal in mortgage-backed securities. Mortgage loans on real estate are carried at amortized cost less an allowance for mortgage loan losses. The estimated fair value of the mortgage loans is determined by a discounted cash flow analysis using mortgage interest rates currently offered for mortgages of similar maturities. 1. Summary of significant accounting policies (continued) Impairment of mortgage loans is measured as the excess of the loan's recorded investment over its present value of expected principal and interest payments discounted at the loan's effective interest rate, or the fair value of collateral. The amount of the impairment is recorded in an allowance for mortgage loan losses. The allowance for mortgage loan losses is maintained at a level that management believes is adequate to absorb estimated losses in the portfolio. The level of the allowance account is determined based on several factors, including historical experience, expected future principal and interest payments, estimated collateral values, and current and anticipated economic and political conditions. Management regularly evaluates the adequacy of the allowance for mortgage loan losses. The Company generally stops accruing interest on mortgage loans for which interest payments are delinquent more than three months. Based on management's judgment as to the ultimate collectibility of principal, interest payments received are either recognized as income or applied to the recorded investment in the loan. The cost of interest rate caps and floors is amortized to investment income over the life of the contracts and payments received as a result of these agreements are recorded as investment income when realized. The amortized cost of interest rate caps and floors is included in other investments. When evidence indicates a decline, which is other than temporary, in the underlying value or earning power of individual investments, such investments are written down to the fair value by a charge to income. Statements of cash flows The Company considers investments with a maturity at the date of their acquisition of three months or less to be cash equivalents. These securities are carried principally at amortized cost which approximates fair value. Supplementary information to the statements of cash flows for the years ended December 31, is summarized as follows: 1998 1997 1996 ---- ----- ---- Cash paid during the year for: Income taxes $19,035 $19,456 $10,317 Interest on borrowings 5,437 1,832 998 Contractholder charges Contractholder charges include surrender charges and fees collected regarding the issue and administration of annuity contracts. 1. Summary of significant accounting policies (continued) Deferred policy acquisition costs The costs of acquiring new business, principally sales compensation, policy issue costs, and certain sales expenses, have been deferred on annuity contracts. These costs are amortized using primarily the interest method. Liabilities for future policy benefits Liabilities for deferred annuities are accumulation values. Liabilities for fixed annuities in a benefit status are based on the established industry mortality tables with various interest rates ranging from 5.5 percent to 8.75 percent, depending on year of issue. Federal income taxes The Company's taxable income is included in the consolidated federal income tax return of American Express Company. The Company provides for income taxes on a separate return basis, except that, under an agreement between AEFC and American Express Company, tax benefit is recognized for losses to the extent they can be used on the consolidated tax return. It is the policy of AEFC and its subsidiaries that AEFC will reimburse subsidiaries for all tax benefits. Included in other liabilities at December 31, 1998 and 1997 are $3,504 payable to and $1,289, receivable from, respectively, IDS Life for federal income taxes. Separate account business The separate account assets and liabilities represent funds held for the exclusive benefit of the variable annuity contract owners. The Company receives mortality and expense risk fees from the variable annuity separate accounts. The Company makes contractual mortality assurances to the variable annuity contract owners that the net assets of the separate accounts will not be affected by future variations in the actual life expectancy experience of the annuitants and beneficiaries from the mortality assumptions implicit in the annuity contracts. The Company makes periodic fund transfers to, or withdrawals from, the separate account assets for such actuarial adjustments for variable annuities that are in the benefit payment period. The Company also guarantees that the rates at which administrative fees are deducted from contract funds will not exceed contractual maximums. Accounting Changes Effective January 1, 1998, the Company adopted Statement of Financial Accounting Standards (SFAS) No. 130, "Reporting Comprehensive Income." SFAS No. 130 requires the reporting and display of comprehensive income and its components. Comprehensive income is defined as the aggregate change in stockholder's equity excluding changes in ownership interests. For the Company, it is net income and the unrealized gains or losses on available-for-sale securities net of taxes and reclassification adjustment. 1. Summary of significant accounting policies (continued) In March 1998, the American Institute of Certified Public Accountants (AICPA) issued Statement of Position (SOP) 98-1, "Accounting for Costs of Computer Software Developed or obtained for Internal Use." The SOP, which is effective January 1, 1999, requires the capitalization of certain costs incurred after the date of adoption to develop or obtain software for internal use. Software utilized by the Company is owned by AEFC and will be capitalized on AEFC's financial statements. As a result, the new rule will not have a material impact on the Company's results of operations or financial condition. In December 1997, the AICPA issued SOP 97-3, "Accounting by Insurance and Other Enterprises for Insurance-Related Assessments", providing guidance for the timing of recognition of liabilities related to guaranty fund assessments. The Company will adopt the SOP on January 1, 1999. The Company has historically carried a balance in other liabilities on the balance sheet for potential guaranty fund assessment exposure. Adoption of the SOP will not have a material impact on the Company's results of operations or financial condition In June 1998, the Financial Accounting Standards Board issued SFAS No. 133, "Accounting for Derivative Instruments and Hedging Activities," which is effective January 1, 2000. This Statement establishes accounting and reporting standards for derivative instruments, including certain derivative instruments embedded in other contracts, and for hedging activities. It requires that an entity recognize all derivatives as either assets or liabilities in the balance sheet and measure those instruments at fair value. The accounting for changes in the fair value of a derivative depends on the intended use of the derivative and the resulting designation. Earlier application of all of the provisions of this Statement is encouraged, but it is permitted only as of the beginning of any fiscal quarter that begins after issuance of the Statement. This Statement cannot be applied retroactively. The ultimate financial impact of the new rule will be measured based on the derivatives in place at adoption and cannot be estimated at this time. Reclassification Certain 1997 and 1996 amounts have been reclassified to conform to the 1998 presentation. 2. Investments Fair values of investments in fixed maturities represent quoted market prices and estimated values when quoted prices are not available. Estimated values are determined by established procedures involving, among other things, review of market indices, price levels of current offerings of comparable issues, price estimates and market data from independent brokers and financial files. The amortized cost, gross unrealized gains and losses and fair value of investments in fixed maturities at December 31, 1998 are as follows:
Gross Gross Amortized Unrealized Unrealized Fair Held to maturity Cost Gains Losses Value ---------------- -------------- ------- ------ ------- U.S. Government agency obligations $ 8,652 $ 423 $ -- $ 9,075 State and municipal obligations 3,003 149 -- 3,152 Corporate bonds and obligations 877,140 48,822 6,670 919,292 Mortgage-backed securities 192,398 2,844 29 195,213 ------------ ---------- ---------- ----------- $1,081,193 $ 52,238 $ 6,699 $1,126,732 ========== ======== ======= ========== Available for sale U.S. Government agency obligations $ 2,062 $ 116 $ -- $ 2,178 Corporate bonds and obligations 1,472,814 69,990 34,103 1,508,701 Mortgage-backed securities 1,051,836 32,232 89 1,083,979 ----------- ---------- ----------- --------- $2,526,712 $102,338 $34,192 $2,594,858 ========== ======== ======= ========== The amortized cost, gross unrealized gains and losses and fair value of investments in fixed maturities at December 31, 1997 are as follows: Gross Gross Amortized Unrealized Unrealized Fair Held to maturity Cost Gains Losses Value ---------------- -------------- ------- ------ -------- U.S. Government agency obligations $ 11,120 $ 710 $ -- $ 11,830 State and municipal obligations 3,003 173 -- 3,176 Corporate bonds and obligations 970,498 38,176 2,763 1005,911 Mortgage-backed securities 202,061 1,497 1,367 202,191 -------------- ---------- -------- ------------ $1,186,682 $ 40,556 $ 4,130 $1,223,108 ========== ======== ======= ========== Available for sale U.S. Government agency obligations $ 2,077 $ 13 $ -- $ 2,090 Corporate bonds and obligations 1,273,217 52,207 8,020 1,317,404 Mortgage-backed securities 1,334,327 33,017 1,039 1,366,305 ----------- -------- ------- --------- $2,609,621 $85,237 $9,059 $2,685,799 ========== ======= ====== ==========
2. Investments (continued) The amortized cost and fair value of investments in fixed maturities at December 31, 1998 by contractual maturity are shown below. Expected maturities will differ from contractual maturities because borrowers may have the right to call or prepay obligations with or without call or prepayment penalties. Amortized Fair Held to maturity Cost Value Due in one year or less $ 33,208 $ 33,499 Due from one to five years 215,010 227,139 Due from five to ten years 539,917 562,708 Due in more than ten years 100,660 108,173 Mortgage-backed securities 192,398 195,213 ------------ ------------ $1,081,193 $1,126,732 Amortized Fair Available for sale Cost Value Due in one year or less $ 350 $ 358 Due from one to five years 96,412 101,441 Due from five to ten years 981,556 1,021,961 Due in more than ten years 396,558 387,119 Mortgage-backed securities 1,051,836 1,083,979 --------- --------- $2,526,712 $2,594,858 During the years ended December 31, 1998, 1997 and 1996, fixed maturities classified as held to maturity were sold with amortized cost of $31,117, $29,561 and $27,969, respectively. Net gains and losses on these sales were not significant. The sales of these fixed maturities were due to significant deterioration in the issuers' creditworthiness. In addition, fixed maturities available for sale were sold during 1998 with proceeds of $48,492 and gross realized gains and losses of $2,835 and $4,516, respectively. Fixed maturities available for sale were sold during 1997 with proceeds of $73,366 and gross realized gains and losses of $1,081 and $1,440, respectively.Fixed maturities available for sale were sold during 1996 with proceeds of $47,542 and gross realized gains and losses of $17 and $3,139, respectively. At December 31, 1998, bonds carried at $3,292 were on deposit with various states as required by law. 2. Investments (continued) At December 31, 1998, investments in fixed maturities comprised 82 percent of the Company's total invested assets. These securities are rated by Moody's and Standard & Poor's (S&P), except for securities carried at approximately $480 million which are rated by AEFC internal analysts using criteria similar to Moody's and S&P. A summary of investments in fixed maturities, at amortized cost, by rating on December 31 is as follows: Rating 1998 1997 ---------------------- -------- ------ Aaa/AAA $1,242,301 $1,531,588 Aa/AA 45,526 34,167 Aa/A 60,019 69,775 A/A 422,725 421,733 A/BBB 228,656 222,022 Baa/BBB 1,030,874 954,962 Baa/BB 79,687 84,053 Below investment grade 498,117 478,003 ------------ ------------ $3,607,905 $3,796,303 At December 31, 1998, approximately 94 percent of the securities rated Aaa/AAA are GNMA, FNMA and FHLMC mortgage-backed securities. No holdings of any other issuer are greater than one percent of the Company's total investments in fixed maturities. At December 31, 1998, approximately 18 percent of the Company's invested assets were mortgage loans on real estate. Summaries of mortgage loans by region of the United States and by type of real estate are as follows:
December 31, 1998 December 31, 1997 ----------------------- --------------------- On Balance Commitments On Balance Commitments Region Sheet to Purchase Sheet to Purchase ---------------------------------- ---------------------------------- South Atlantic $198,552 $ 651 $186,714 $ 9,199 Middle Atlantic 129,284 520 128,239 10,167 East North Central 134,165 2,211 125,018 6,294 Mountain 113,581 -- 94,061 11,620 West North Central 119,380 9,626 96,701 11,135 New England 46,103 -- 50,932 -- Pacific 43,706 -- 33,052 -- West South Central 32,086 -- 19,573 -- East South Central 7,449 -- 7,480 -- --------- ------------ --------- ------------ 824,306 13,008 741,770 48,415 Less allowance for losses 8,500 -- 3,718 -- ---------- ------------ ---------- ------------ $815,806 $13,008 $738,052 $48,415 ======== ======= ======== ======= 2. Investments (continued) December 31, 1998 December 31, 1997 ------------------- ------------------- On Balance Commitments On Balance Commitments Property type Sheet to Purchase Sheet to Purchase ---------------------------------- ---------------------------------- Department/retail stores $253,380 $ 781 $242,307 $ 9,683 Apartments 186,030 2,211 189,752 10,167 Office buildings 206,285 9,496 169,177 7,262 Industrial buildings 82,857 520 60,195 17,430 Hotels/Motels 45,552 -- 33,508 -- Medical buildings 33,103 -- 30,103 3,873 Nursing/retirement homes 6,731 -- 9,552 -- Mixed Use 10,368 -- 7,176 -- ---------- ------------ --------- ------------ 824,306 13,008 741,770 48,415 Less allowance for losses 8,500 -- 3,718 -- ----------- ----------- ---------- ----------- $815,806 $13,008 $738,052 $48,415 ======== ======= ======== =======
Mortgage loan fundings are restricted by state insurance regulatory authorities to 80 percent or less of the market value of the real estate at the time of origination of the loan. The Company holds the mortgage document, which gives it the right to take possession of the property if the borrower fails to perform according to the terms of the agreement. Commitments to purchase mortgages are made in the ordinary course of business. The fair value of the mortgage commitments is $nil. At December 31, 1998, the Company's recorded investment in impaired loans was $1,932 with an allowance of $500. At December 31, 1997, the Company's recorded investment in impaired loans was $4,443 with an allowance of $718. During 1998 and 1997, the average recorded investment in impaired loans was $2,736 and $6,473, respectively. The Company recognized $251, $nil and $nil of interest income related to impaired loans for the years ended December 31, 1998, 1997 and 1996, respectively. The following table presents changes in the allowance for investment losses related to all loans:
1998 1997 1996 ---- ---- ---- Balance, January 1 $3,718 $2,370 $ -- Provision for investment losses 4,782 1,805 2,370 Loan payoffs -- (457) -- ---------- ------- --------- Balance, December 31 $8,500 $3,718 $2,370 ====== ====== ====== Net investment income for the years ended December 31 is summarized as follows: 1998 1997 1996 ----- ----- ---- Interest on fixed maturities $285,260 $278,736 $230,559 Interest on mortgage loans 65,351 55,085 41,010 Interest on cash equivalents 137 704 1,402 Other (2,493) 1,544 1,194 ----------- ------------- ----------- 348,255 336,069 274,165 Less investment expenses 8,036 3,801 2,446 ----------- ----------- ----------- $340,219 $332,268 $271,719 ======== ======== ========
2. Investments (continued) Net realized gain (loss) on investments for the years ended December 31 is summarized as follows: 1998 1997 1996 ---- ---- ---- Fixed maturities $ 863 $ 1,638 $(2,888) Mortgage loans (4,816) (1,348) (2,370) Other investments (835) (799) -- -------- ------ ---------- $(4,788) $ (509) $(5,258) ======= ======= ======= Changes in net unrealized appreciation (depreciation) of investments for the years ended December 31 are summarized as follows: 1998 1997 1996 ---- ---- ---- Fixed maturities available for sale $(8,032) $57,188 $(31,970) 3. Income taxes The Company qualifies as a life insurance company for federal income tax purposes. As such, the Company is subject to the Internal Revenue Code provisions applicable to life insurance companies. The income tax expense (benefit) for the years ended December 31, consists of the following: 1998 1997 1996 ---- ---- ---- Federal income taxes: Current $ 23,227 $17,668 $7,124 Deferred (9,591) (2,485) 5,084 --------- -------- ------- 13,636 15,183 12,208 State income taxes-current 759 1,462 704 ----------- --------- -------- Income tax expense $ 14,395 $16,645 $12,912 ======== ======= ======= Increases (decreases) to the federal income tax provision applicable to pretax income based on the statutory rate, for the years ended December 31, are attributable to:
1998 1997 1996 ----------- -------- ------- Provision Rate Provision Rate Provision Rate Federal income taxes based on the statutory rate $13,972 35.0% $15,735 35.0% $12,507 35.0% Increases (decreases) are attributable to : Tax-excluded interest (35) (0.1) (41) (0.1) (53) (0.1) State tax, net of federal benefit 493 1.2 956 2.1 459 1.3 Other, net (35) -- (5) -- (1) -- ------ ------ ------- ------ ------ ------ Federal income taxes $14,395 36.1% $16,645 37.0% $12,912 36.2% ======= ==== ======= ==== ======= ====
3. Income taxes (continued) Significant components of the Company's deferred income tax assets and liabilities as of December 31 are as follows: Deferred income tax assets: 1998 1997 --------- ------- Policy reserves $51,298 $54,468 Other 2,214 1,736 --------- ------- Total deferred income tax assets 53,512 56,204 -------- ------ Deferred income tax liabilities: Deferred policy acquisition costs 52,908 63,630 Investments 23,803 28,175 -------- ------ Total deferred income tax liabilities 76,711 91,805 ------- -------- Net deferred income tax liabilities $23,199 $35,601 ======= ======= The Company is required to establish a valuation allowance for any portion of the deferred income tax assets that management believes will not be realized. In the opinion of management, it is more likely than not that the Company will realize the benefit of the deferred income tax assets and, therefore, no such valuation allowance has been established. 4. Stockholder's equity Retained earnings available for distribution as dividends to IDS Life are limited to the Company's surplus as determined in accordance with accounting practices prescribed by state insurance regulatory authorities. Statutory unassigned surplus aggregated $45,716 and $17,392 as of December 31, 1998 and 1997, respectively. In addition, dividends in excess of $37,902 would require approval by the Insurance Department of the state of Indiana. Statutory net income and stockholder's equity as of December 31, are summarized as follows: 1998 1997 1996 --------- --------- ------- Statutory net income $ 37,902 $ 23,589 $ 9,138 Statutory stockholder's equity 330,588 302,264 250,975 5. Related party transactions On December 31, 1998, the Company purchased interest rate floors from IDS Life and entered into an interest rate swap with IDS Life to manage its exposure to interest rate risk. The interest rate floors had a carrying amount of $6,651 and $8,400 at December 31, 1998 and 1997, respectively. The interest rate swap is an off balance sheet transaction. The Company has no employees. Charges by IDS Life for services and use of other joint facilities aggregated $28,482, $24,535 and $17,936 for the years ended December 31, 1998, 1997 and 1996, respectively. Certain of these costs are included in deferred policy acquisition costs. 6. Lines of credit The Company has an available line of credit with AEFC aggregating $50,000. The rate for the line of credit is the parent's cost of funds, established by reference to various indices plus 20 to 45 basis points, depending on the term. There were no borrowings outstanding under this agreement at December 31, 1998 or 1997. 7. Derivative financial instruments The Company enters into transactions involving derivative financial instruments to manage its exposure to interest rate risk, including hedging specific transactions. The Company does not hold derivative instruments for trading purposes. The Company manages risks associated with these instruments as described below. Market risk is the possibility that the value of the derivative financial instruments will change due to fluctuations in a factor from which the instrument derives its value, primarily an interest rate. The Company is not impacted by market risk related to derivatives held for non-trading purposes beyond that inherent in cash market transactions. Derivatives are largely used to manage risk and, therefore, the cash flow and income effects of the derivatives are inverse to the effects of the underlying transactions. Credit risk is the possibility that the counterparty will not fulfill the terms of the contract. The Company monitors credit risk related to derivative financial instruments through established approval procedures, including setting concentration limits by counterparty, and requiring collateral, where appropriate. A vast majority of the Company's counterparties are rated A or better by Moody's and Standard & Poor's. Credit risk related to interest rate caps and floors is measured by replacement cost of the contracts. The replacement cost represents the fair value of the instruments. The notional or contract amount of a derivative financial instrument is generally used to calculate the cash flows that are received or paid over the life of the agreement. Notional amounts are not recorded on the balance sheet. Notional amounts far exceed the related credit exposure. The Company's holdings of derivative financial instruments are as follows:
Notional Carrying Fair Total Credit December 31, 1998 Amount Amount Value Exposure ----------------- ------ ------ ----- -------- Assets: Interest rate caps $ 900,000 $ 5,452 $ 1,518 $ 1,518 Interest rate floors 1,000,000 6,651 17,798 17,798 Interest rate swaps 1,000,000 -- -- -- ------------- ------------ ------------- $12,103 $19,316 $19,316 = ======= ======= ======= 7. Derivative financial instruments (continued) Notional Carrying Fair Total Credit December 31, 1997 Amount Amount Value Exposure ----------------- ------ ------ ----- -------- Assets: Interest rate caps $ 900,000 $ 7,624 $ 5,340 $ 5,340 Interest rate floors 1,000,000 8,400 8,400 8,400 Interest rate swaps 1,000,000 -- -- -- ------------- ------------ ------------ $16,024 $13,740 $13,740 ======= ======= =======
The fair values of derivative financial instruments are based on market values, dealer quotes or pricing models. All interest rate caps, floors and swaps will expire on various dates from 2000 to 2003. Interest rate caps, floors and swaps are used to manage the Company's exposure to interest rate risk. These instruments are used primarily to protect the margin between interest rates earned on investments and the interest rates credited to related annuity contract holders. 8. Fair values of financial instruments The Company discloses fair value information for most on- and off-balance sheet financial instruments for which it is practicable to estimate that value. Fair value of life insurance obligations, receivables and all non-financial instruments, such as deferred acquisition costs are excluded. Off-balance sheet intangible assets are also excluded. Management believes the value of excluded assets and liabilities is significant. The fair value of the Company, therefore, cannot be estimated by aggregating the amounts presented.
December 31, 1998 1997 -------- -------- Carrying Fair Carrying Fair Financial Assets Amount Value Amount Value Investments: Fixed maturities (Note 2): Held to maturity $1,081,193 $1,126,732 $1,186,682 $1,223,108 Available for sale 2,594,858 2,594,858 2,685,799 2,685,799 Mortgage loans on real estate (Note 2) 815,806 874,064 738,052 775,869 Derivative financial instruments (Note 7) 12,103 19,316 16,024 13,740 Separate account assets (Note 1) 123,185 123,185 62,087 62,087 Financial Liabilities Future policy benefits for fixed annuities $4,152,059 $4,000,789 $4,330,173 $4,152,471 Separate account liabilities 123,185 115,879 62,087 58,116
At December 31, 1998 and 1997, the carrying amount and fair value of future policy benefits for fixed annuities exclude life insurance-related contracts carried at $14,793 and $13,040, respectively. The fair value of these benefits is based on the status of the annuities at December 31, 1998 and 1997. 8. Fair values of financial instruments (continued) The fair values of deferred annuities and separate account liabilities are estimated as the carrying amount less applicable surrender charges. The fair value for annuities in non-life contingent payout status is estimated as the present value of projected benefit payments at rates appropriate for contracts issued in 1998 and 1997. 9. Commitments and contingencies A number of lawsuits have been filed against life and health insurers in jurisdictions in which the Company conducts business involving insurers' sales practices, alleged agent misconduct, failure to properly supervise agents, and other matters. The Company, along with AEFC and its insurance subsidiaries, has been named as a defendant in one of these types of actions. The plaintiffs purport to represent a class consisting of all persons who purchased policies or contracts from IDS Life and its subsidiaries. The complaint puts at issue various alleged sales practices and misrepresentations, alleged breaches of fiduciary duties and alleged violations of consumer fraud statutes. IDS Life and its subsidiaries believe they have meritorious defenses to the claims raised in this lawsuit. The outcome of any litigation cannot be predicted with certainty. In the opinion of management, however, the ultimate resolution of this lawsuit should not have a material adverse effect on the Company's financial position. Table of Contents of the Statement of Additional Information Performance Information p. Calculating Annuity Payouts p. Rating Agencies p. Principal Underwriter p. Independent Auditors p. Financial Statements Please check the box to receive a copy of the Statement of Additional Information for: - - - -- Wells Fargo AdvantageSM Variable Annuity - - - -- American Express Variable Portfolio Funds - - - -- AIM Variable Insurance Funds, Inc. - - - -- The Dreyfus Socially Responsible Growth Fund, Inc. - - - -- Franklin Templeton Variable Insurance Products Trust - - - -- Goldman Sachs Variable Insurance Trust (VIT) - - - -- MFS(R) Variable Insurance TrustSM - - - -- Putnam Variable Trust - - - -- Wells Fargo Variable Trust Funds Mail your request to: American Enterprise Life Insurance Company 80 South Eighth Street P.O. Box 534 Minneapolis, MN 55440-534 We will mail your request to: Your name _____________________________________________ Address _______________________________________________ City _____________________ State _________ Zip ________ Prospectus [_____], 1999 Wells Fargo AdvantageSM Credit 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) 80 South Eighth Street P.O. Box 534 Minneapolis, MN 55440-0534 Telephone: 800-333-3437 This prospectus contains information that you should know before investing. You also will receive the prospectuses for:
o American Express Variable Portfolio Funds o Goldman Sachs Variable Insurance Trust (VIT) o AIM Variable Insurance Funds, Inc. o MFS(R) Variable Insurance Trust SM o The Dreyfus Socially Responsible Growth Fund, Inc. o Putnam Variable Trust o Franklin Templeton Variable Insurance Products Trust o Wells Fargo Variable Trust Funds
Please read the prospectuses carefully and keep them for future reference. This contract is available for qualified and nonqualified plans. The Securities and Exchange Commission (SEC) has not approved or disapproved these securities or passed upon the adequacy or accuracy of this prospectus. Any representation to the contrary is a criminal offense. An investment in this contract is not a deposit of a bank or financial institution and is not insured or guaranteed by the Federal Deposit Insurance Corporation or any other government agency. An investment in this contract involves investment risk including the possible loss of principal. A Statement of Additional Information (SAI), dated the same date as this prospectus, is incorporated by reference into this prospectus. It is filed with the SEC and is available without charge by contacting American Enterprise Life at the telephone number above or by completing and sending the order form on the last page of this prospectus. The table of contents of the SAI is on the last page of this prospectus. Table of Contents Key Terms The Contract in Brief Expense Summary Condensed Financial Information (Unaudited) Financial Statements Performance Information The Variable Account and the Funds The Fixed Accounts Buying Your Contract Charges Valuing Your Investment Making the Most of Your Contract Withdrawals Changing Ownership Benefits in Case of Death The Annuity Payout Period Taxes Voting Rights Substitution of Investments About the Service Providers Additional Information About American Enterprise Life Directors and Executive Officers Experts American Enterprise Life Financial Information Table of Contents of the Statement of Additional Information Key Terms These terms can help you understand details about your contract. Accumulation unit -- A measure of the value of each subaccount before annuity payouts begin. Annuitant -- The person on whose life or life expectancy the annuity payouts are based. Annuity payouts -- An amount paid at regular intervals under one of several plans. Beneficiary -- The person you designate to receive annuity benefits in case of the owner's or annuitant's death while the contract is in force and before annuity payouts begin. Close of business -- When the New York Stock Exchange (NYSE) closes, normally 4 p.m. Eastern time. Contract -- An individual annuity contract or a certificate showing your interest under a group annuity contract. Contract value -- The total value of your contract before we deduct any applicable charges. Contract year -- A period of 12 months, starting on the effective date of your contract and on each anniversary of the effective date. Fixed accounts -- The one-year fixed account is an account to which you may allocate purchase payments. Amounts you allocate to this account earn interest at rates that we declare periodically. Guarantee Period Accounts are fixed accounts to which you may also allocate purchase payments. These accounts have guaranteed interest rates declared for periods ranging from two to ten years. Withdrawals from these accounts prior to the end of the term specified will receive a Market Value Adjustment, which may result in a gain or loss of principal. Funds -- Mutual funds and/or portfolios that are investment options under your contract, each with a different investment objective. You may allocate your purchase payments into subaccounts investing in shares of any or all of these funds. Guarantee Period -- The number of years that a guaranteed interest rate is credited. Market Value Adjustment (MVA) -- A positive or negative adjustment assessed if any portion of a Guarantee Period Account is withdrawn or transferred prior to the end of its Guarantee Period. 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 based on your net current payment. Qualified annuity -- A contract that you purchase for one of the following retirement plans that is subject to applicable federal law and any rules of the plan itself: o Individual Retirement Annuities (IRAs), including Roth IRAs o Simplified Employee Pension (SEP) plans All other contracts are considered nonqualified annuities. Retirement date -- The date when annuity payouts are scheduled to begin. Valuation date -- Any normal business day, Monday through Friday, that the NYSE is open. Each valuation date ends at the close of business. We calculate the value of each subaccount at the close of business on each valuation date. Variable account -- Consists of separate subaccounts to which you may allocate purchase payments; each invests in shares of one fund. The value of your investment in each subaccount changes with the performance of the particular fund. Withdrawal value -- The amount you are entitled to receive if you make a full withdrawal from your contract. It is the contract value minus any applicable charges. The Contract in Brief Purpose: The purpose of the contract is to allow you to accumulate money for retirement. You do this by making one or more investments (purchase payments) that may earn returns that increase the value of the contract. The contract provides lifetime or other forms of payouts beginning at a specified date (the retirement date). Free look period: You may return your contract to our office within 10 days after it is delivered to you and receive a full refund of the contract value, less any purchase payment credits up to the maximum withdrawal charges. (See "Buying Your Contract - Purchase payment credits.") However, you bear the investment risk from the time of purchase until you return the contract; the refund amount may be more or less than the payment you made. (Exception: If the law requires, we will refund all of your purchase payments.) Accounts: Currently, you may allocate your purchase payments among any or all of: o the subaccounts, each of which invests in a fund with a particular investment objective. The value of each subaccount varies with the performance of the particular fund in which it invests. We cannot guarantee that the value at the retirement date will equal or exceed the total purchase payments you allocate to the subaccounts. (p. __) o the fixed accounts, which earn interest at rates that we adjust periodically. (p. __) Buying your contract: Your sales representative will help you complete and submit an application. Applications are subject to acceptance at our office. You may buy a nonqualified annuity or a qualified annuity. American Express Financial Advisors Inc. (AEFA) will not issue a qualified annuity or non-qualified rollover annuity due to administration restrictions. After your initial purchase payment, you have the option of making additional purchase payments in the future. Contracts sold through AEFA are only available with an eight- year withdrawal charge schedule. o Minimum initial purchase payment -- $100,000 for contracts sold through AEFA and $2,000 for all other contracts. (The $2,000 minimum does not apply if you enroll in the Systematic Investment Program.) The Guarantee Period Accounts require a minimum investment of $1,000. o Minimum additional purchase payment -- $100 ($50 with SIP payments). o Maximum total purchase payments (without prior approval) -- $1,000,000. (p.__ ) Transfers: Subject to certain restrictions you currently may redistribute your money among the subaccounts and the fixed accounts without charge at any time until annuity payouts begin, and once per contract year among the subaccounts after annuity payouts begin. Transfers out of the Guarantee Period Accounts before the end of the Guarantee Period will be subject to a MVA. You may establish automated transfers among the fixed accounts and subaccounts. Fixed account transfers are subject to special restrictions. (p. __) Withdrawals: You may withdraw all or part of your contract value at any time before the retirement date. You also may establish automated partial withdrawals. Withdrawals may be subject to charges and tax penalties (including a 10% IRS penalty if you make withdrawals prior to your reaching age 59 1/2) and may have other tax consequences; also, certain restrictions apply. (p. __) Changing ownership: You may change ownership of a nonqualified annuity by written instruction, but this may have federal income tax consequences. Restrictions apply to changing ownership of a qualified annuity. (p. __) Benefits in case of death: If you or the annuitant die before annuity payouts begin, we will pay the beneficiary an amount at least equal to the contract value. (p. __) Annuity payouts: You can apply your contract value to an annuity payout plan that begins on the retirement date. You may choose from a variety of plans to make sure that payouts continue as long as you like. If you purchased a qualified annuity, the payout schedule must meet the requirements of the qualified plan. We can make payouts on a fixed or variable basis, or both. Total monthly payouts may include amounts from each subaccount and the one-year fixed account. During the annuity payout period, your choices for subaccounts may be limited. The Guarantee Period Accounts are not available during the payout period. (p. __) Taxes: Generally, your contract grows tax-deferred until you make withdrawals from it or begin to receive payouts. (Under certain circumstances, IRS penalty taxes may apply.) Even if you direct payouts to someone else, you will be taxed on the income if you are the owner. Roth IRAs, however, may grow and be distributed tax free if you meet certain distribution requirements. (p. __) Charges: o $30 annual contract administrative charge; o a 0.15% variable account administrative charge; o with a six-year withdrawal charge schedule a 1.35% mortality and expense risk fee applies; o with an eight-year withdrawal charge schedule a 1.10% mortality and expense risk fee applies; o if the Enhanced Death Benefit Rider is selected, an additional 0.20% mortality and expense risk fee; o if the Guaranteed Minimum Income Benefit Rider is selected, an annual fee based on the Guaranteed Income Benefit Base (currently at 0.30%); o withdrawal charge; o any premium taxes that may be imposed on us by state or local governments (currently, we deduct any applicable premium tax when you make a total withdrawal or when annuity payouts begin, but we reserve the right to deduct this tax at other times such as when you make purchase payments); and o the operating expenses of the funds. 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 you bear directly or indirectly for the subaccounts and funds below. Some expenses may vary as we explain under "Charges." Please see the funds' prospectuses for more information on the operating expenses of each fund. Contract owner expenses: Withdrawal charge: contingent deferred sales charge as a percentage of purchase payment withdrawn. You select either a six-year or eight-year withdrawal charge schedule* at the time of application.
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
*Contracts sold through AEFA are only available with an eight-year withdrawal charge schedule. Withdrawal charge under Annuity Payout Plan E: Payouts for a specified period. The amount equal to the difference in the present value of remaining payments using the assumed investment rate and such present value using the assumed investment rate plus 1.57% if the original contract had an eight-year withdrawal charge schedule and 1.82% if the original contract had a six-year withdrawal charge schedule. Annual contract administrative charge $30** **We will waive this charge when your contract value is $50,000 or more on the current contract anniversary. Guaranteed Minimum Income Benefit Rider fee: as a percentage of the Guaranteed Income Benefit Base charged annually. This is an optional expense. 0.30% Annual variable account expenses: as a percentage of average subaccount value. You can choose the length of your contract's withdrawal charge 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 schedule schedule - - - --------------------------------------------------------------- ------------------------- --------------------------- - - - --------------------------------------------------------------- ------------------------- --------------------------- Variable account administrative charge 0.15% 0.15% - - - --------------------------------------------------------------- ------------------------- --------------------------- - - - --------------------------------------------------------------- ------------------------- --------------------------- Mortality and expense risk fee 1.35% 1.10% - - - --------------------------------------------------------------- ------------------------- --------------------------- - - - --------------------------------------------------------------- ------------------------- --------------------------- Enhanced Death Benefit Rider fee as part of the 0.20% 0.20% ----- ----- mortality and expense risk fee (optional) - - - --------------------------------------------------------------- ------------------------- --------------------------- - - - --------------------------------------------------------------- ------------------------- --------------------------- Total annual variable account expenses without the optional 1.50% 1.25% Enhanced Death Benefit Rider fee - - - --------------------------------------------------------------- ------------------------- --------------------------- - - - --------------------------------------------------------------- ------------------------- --------------------------- Total annual variable account expenses with the optional 1.70% 1.45% Enhanced Death Benefit Rider fee - - - --------------------------------------------------------------- ------------------------- ---------------------------
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 - - - ------------------------------------------------------------------------- ----------------- ------- -------------- ----------- - - - ------------------------------------------------------------------------- ----------------- ------- -------------- ----------- - - - ------------------------------------------------------------------------- ----------------- ------- -------------- ----------- - - - ------------------------------------------------------------------------- ----------------- ------- -------------- ----------- AXPSM Variable Portfolio - Blue Chip Advantage Fund .56% .13 .26 .95%1 - - - ------------------------------------------------------------------------- ----------------- ------- -------------- ----------- - - - ------------------------------------------------------------------------- ----------------- ------- -------------- ----------- AXPSM Variable Portfolio - Capital Resource Fund .59% .13 .07 .79%2 - - - ------------------------------------------------------------------------- ----------------- ------- -------------- ----------- - - - ------------------------------------------------------------------------- ----------------- ------- -------------- ----------- AXPSM Variable Portfolio - Diversified Equity Income Fund .56% .13 .26 .95%1 - - - ------------------------------------------------------------------------- ----------------- ------- -------------- ----------- - - - ------------------------------------------------------------------------- ----------------- ------- -------------- ----------- AXPSM Variable Portfolio - Extra Income Fund .62% .13 .09 .84%2 - - - ------------------------------------------------------------------------- ----------------- ------- -------------- ----------- - - - ------------------------------------------------------------------------- ----------------- ------- -------------- ----------- AXPSM Variable Portfolio - Federal Income Fund .61% .13 .14 .88%1 - - - ------------------------------------------------------------------------- ----------------- ------- -------------- ----------- - - - ------------------------------------------------------------------------- ----------------- ------- -------------- ----------- AXPSM Variable Portfolio - New Dimensions Fund .61% .13 .06 .80%2 - - - ------------------------------------------------------------------------- ----------------- ------- -------------- ----------- - - - ------------------------------------------------------------------------- ----------------- ------- -------------- ----------- AXPSM Variable Portfolio - Small Cap Advantage Fund .79% .13 .31 1.23%1 - - - ------------------------------------------------------------------------- ----------------- ------- -------------- ----------- - - - ------------------------------------------------------------------------- ----------------- ------- -------------- ----------- - - - ------------------------------------------------------------------------- ----------------- ------- -------------- ----------- - - - ------------------------------------------------------------------------- ----------------- ------- -------------- ----------- AIM V.I. Capital Appreciation Fund .62% -- .05 .67%3 - - - ------------------------------------------------------------------------- ----------------- ------- -------------- ----------- - - - ------------------------------------------------------------------------- ----------------- ------- -------------- ----------- AIM V.I. Value Fund .61% -- .05 .66%3 - - - ------------------------------------------------------------------------- ----------------- ------- -------------- ----------- - - - ------------------------------------------------------------------------- ----------------- ------- -------------- ----------- - - - ------------------------------------------------------------------------- ----------------- ------- -------------- ----------- - - - ------------------------------------------------------------------------- ----------------- ------- -------------- ----------- The Dreyfus Socially Responsible Growth Fund, Inc. .75% -- .05 .80% - - - ------------------------------------------------------------------------- ----------------- ------- -------------- ----------- - - - ------------------------------------------------------------------------- ----------------- ------- -------------- ----------- - - - ------------------------------------------------------------------------- ----------------- ------- -------------- ----------- - - - ------------------------------------------------------------------------- ----------------- ------- -------------- ----------- FT VIP Franklin Income Securities Fund - Class 2 .47% .25 .02 .74%4 - - - ------------------------------------------------------------------------- ----------------- ------- -------------- ----------- - - - ------------------------------------------------------------------------- ----------------- ------- -------------- ----------- FT VIP Mutual Shares Securities Fund - Class 2 .74% .25 .03 1.02%4 - - - ------------------------------------------------------------------------- ----------------- ------- -------------- ----------- - - - ------------------------------------------------------------------------- ----------------- ------- -------------- ----------- FT VIP Franklin Real Estate Fund - Class 2 .52% .25 .02 .79%4 - - - ------------------------------------------------------------------------- ----------------- ------- -------------- ----------- - - - ------------------------------------------------------------------------- ----------------- ------- -------------- ----------- FT VIP Franklin Small Cap Fund Class - 2 .75% .25 .02 1.02%4 - - - ------------------------------------------------------------------------- ----------------- ------- -------------- ----------- - - - ------------------------------------------------------------------------- ----------------- ------- -------------- ----------- - - - ------------------------------------------------------------------------- ----------------- ------- -------------- ----------- - - - ------------------------------------------------------------------------- ----------------- ------- -------------- ----------- Goldman Sachs VIT CORESM U.S. Equity Fund .70% -- .10 .80%5 - - - ------------------------------------------------------------------------- ----------------- ------- -------------- ----------- - - - ------------------------------------------------------------------------- ----------------- ------- -------------- ----------- Goldman Sachs VIT Global Income Fund .90% -- .15 1.05%5 - - - ------------------------------------------------------------------------- ----------------- ------- -------------- ----------- - - - ------------------------------------------------------------------------- ----------------- ------- -------------- ----------- Goldman Sachs VIT Mid Cap Value Fund .80% -- .15 .95%6 - - - ------------------------------------------------------------------------- ----------------- ------- -------------- ----------- - - - ------------------------------------------------------------------------- ----------------- ------- -------------- ----------- - - - ------------------------------------------------------------------------- ----------------- ------- -------------- ----------- - - - ------------------------------------------------------------------------- ----------------- ------- -------------- ----------- MFS(R)Growth with Income Series .75% -- .13 .88%7 - - - ------------------------------------------------------------------------- ----------------- ------- -------------- ----------- - - - ------------------------------------------------------------------------- ----------------- ------- -------------- ----------- MFS(R)Utilities Series .75% -- .26 1.01%7 - - - ------------------------------------------------------------------------- ----------------- ------- -------------- ----------- - - - ------------------------------------------------------------------------- ----------------- ------- -------------- ----------- - - - ------------------------------------------------------------------------- ----------------- ------- -------------- ----------- - - - ------------------------------------------------------------------------- ----------------- ------- -------------- ----------- Putnam VT International Growth Fund - Class IB Shares .80% .15 .27 1.22% - - - ------------------------------------------------------------------------- ----------------- ------- -------------- ----------- - - - ------------------------------------------------------------------------- ----------------- ------- -------------- ----------- Putnam VT Vista Fund - Class IB Shares .65% .15 .12 .92% - - - ------------------------------------------------------------------------- ----------------- ------- -------------- ----------- - - - ------------------------------------------------------------------------- ----------------- ------- -------------- ----------- - - - ------------------------------------------------------------------------- ----------------- ------- -------------- ----------- - - - ------------------------------------------------------------------------- ----------------- ------- -------------- ----------- Wells Fargo VT Asset Allocation Fund .42% .25 .33 1.00%8 - - - ------------------------------------------------------------------------- ----------------- ------- -------------- ----------- - - - ------------------------------------------------------------------------- ----------------- ------- -------------- ----------- Wells Fargo VT Corporate Bond Fund .10% .25 .55 .90%8 - - - ------------------------------------------------------------------------- ----------------- ------- -------------- ----------- - - - ------------------------------------------------------------------------- ----------------- ------- -------------- ----------- Wells Fargo VT Equity Income Fund .38% .25 .37 1.00%8 - - - ------------------------------------------------------------------------- ----------------- ------- -------------- ----------- - - - ------------------------------------------------------------------------- ----------------- ------- -------------- ----------- Wells Fargo VT Equity Value Fund --% .25 .75 1.00%8 - - - ------------------------------------------------------------------------- ----------------- ------- -------------- ----------- - - - ------------------------------------------------------------------------- ----------------- ------- -------------- ----------- Wells Fargo VT Growth Fund .32% .25 .43 1.00%8 - - - ------------------------------------------------------------------------- ----------------- ------- -------------- ----------- - - - ------------------------------------------------------------------------- ----------------- ------- -------------- ----------- Wells Fargo VT Large Company Growth Fund .12% .25 .63 1.00%8 - - - ------------------------------------------------------------------------- ----------------- ------- -------------- ----------- - - - ------------------------------------------------------------------------- ----------------- ------- -------------- ----------- Wells Fargo VT Money Market Fund .10% .25 .50 .85%8 - - - ------------------------------------------------------------------------- ----------------- ------- -------------- ----------- - - - ------------------------------------------------------------------------- ----------------- ------- -------------- ----------- Wells Fargo VT Small Cap Growth Fund --% .25 .95 1.20%8 - - - ------------------------------------------------------------------------- ----------------- ------- -------------- -----------
1Based on estimated expenses after fee waivers and expense reimbursements. Without fee waivers and expense reimbursements "Other Expenses" and "Total" would be: 0.39% and 1.08% for AXPSM Variable Portfolio - Blue Chip Advantage and AXPSM Variable Portfolio - Diversified Equity Income Funds, 0.26% and 1.00% for AXPSM Variable Portfolio - Federal Income Fund and 0.43% and 1.35% for AXPSM Variable Portfolio - Small Cap Advantage Fund. 2Annualized operating expenses of funds at Dec. 31, 1998. 3Figures in "Management Fees," "Other Expenses" and "Total" are based on actual expenses for the fiscal year ended Dec. 31, 1998. 4Because no Class 2 shares were issued as of Dec. 31, 1998, figures (other than Rule 12b-1 fees) are based on the Portfolio's Class 1 actual expenses for the fiscal year ended Dec. 31, 1998 plus Class 2's annual Rule 12b-1 fee of 0.25%. (While the maximum amount payable under each Portfolio's Class 2 Rule 12b-1 plan is 0.35% per year of the Portfolio's average daily net assets, the Board of Trustees of Franklin Templeton Variable Insurance Products Trust has set the current rate at 0.25% per year). The figure shown under Management Fees, combines both the Management and Portfolio Administration Fees. The Portfolio Administration Fee is a direct expense for the Mutual Share Securities Fund; the Franklin Income Securities Fund, and the Franklin Real Estate Fund and the Franklin Small Cap Fund pays for similar services indirectly through the Management Fee. 5The Goldman Sachs VIT CORESM U.S. Equity Fund and Goldman Sachs VIT Global Income Fund expenses are based on actual expenses for fiscal year ended Dec. 31, 1998. The Investment Advisor to the Goldman Sachs VIT CORESM U.S. Equity Fund and Goldman Sachs VIT Global Income Fund have voluntarily agreed to reduce or limit certain "Other Expenses" of such funds (excluding management fees, taxes, interest and brokerage fees, litigation, indemnification and other extraordinary expenses) to the extent such expenses exceed 0.10% and 0.15% per annum of such funds' average daily net assets, respectively. The expenses shown include this reimbursement. If not included, the "Other Expenses" and "Total" for the Goldman Sachs VIT CORESM U.S. Equity Fund and Goldman Sachs VIT Global Income Fund would be 2.13% and 2.83% and 2.40% and 3.30%, respectively. The reductions or limits may be discontinued or modified by the investment adviser in their discretion at any time. 6The Goldman Sachs VIT Mid Cap Value Fund's expenses are estimated due to the fund being in existence for less than ten months. The Investment Advisor to the Goldman Sachs VIT Mid Cap Value Fund has voluntarily agreed to reduce or limit certain "Other Expenses" of such funds (excluding management fees, taxes, interest and brokerage fees, litigation, indemnification and other extraordinary expenses) to the extent such expenses exceed 0.15% per annum of such funds' average daily net assets, respectively. The expenses shown include this reimbursement. If not included, the "Other Expenses" and "Total" for the Goldman Sachs VIT Mid Cap Value Fund would be 0.57% and 1.37%, respectively. The reductions or limits may be discontinued or modified by the investment advisor in their discretion at any time. 7Each series has an expense offset arrangement which reduces the series' custodian fee based upon the amount of cash maintained by the series with its custodian and dividend disbursing agent. Each series may enter into other such arrangements and directed brokerage arrangements, which would also have the effect of reducing the series' expenses. Expenses do not take into account these expense reductions, and are therefore higher than the actual expenses of the series. 8The Funds' annualized expenses are anticipated for the period Sept. 20, 1999 - Dec. 31, 1999. Examples: * You would pay the following expenses on a $1,000 investment if you selected a six-year withdrawal charge schedule without any optional riders and assuming a 5% annual return and....
- - - ------------------------------------------------------------------------------------------------------------------------------- a total withdrawal at no withdrawal or selection the end of each time of an annuity payout plan period at the end of each time period - - - ------------------------------------------------------------------------------------------------------------------------------- - - - ------------------------------------------------------------------------------------------------------------------------------- 1 year 3 years 1 year 3 years - - - ------------------------------------------------------------------------------------------------------------------------------- - - - ------------------------------------------------------------------------------------------------------------------------------- - - - ------------------------------------------------------------------------------------------------------------------------------- - - - ------------------------------------------------------------------------------------------------------------------------------- AXPSM Variable Portfolio - Blue Chip Advantage Fund $105.58 $158.64 $25.58 $78.64 - - - ------------------------------------------------------------------------------------------------------------------------------- - - - ------------------------------------------------------------------------------------------------------------------------------- AXPSM Variable Portfolio - Capital Resource Fund 103.94 153.72 23.94 73.72 - - - ------------------------------------------------------------------------------------------------------------------------------- - - - ------------------------------------------------------------------------------------------------------------------------------- AXPSM Variable Portfolio - Diversified Equity Income Fund 105.58 158.64 25.58 78.64 - - - ------------------------------------------------------------------------------------------------------------------------------- - - - ------------------------------------------------------------------------------------------------------------------------------- AXPSM Variable Portfolio - Extra Income Fund 104.46 155.26 24.46 75.26 - - - ------------------------------------------------------------------------------------------------------------------------------- - - - ------------------------------------------------------------------------------------------------------------------------------- AXPSM Variable Portfolio - Federal Income Fund 104.87 156.49 24.87 76.49 - - - ------------------------------------------------------------------------------------------------------------------------------- - - - ------------------------------------------------------------------------------------------------------------------------------- AXPSM Variable Portfolio - New Dimensions Fund 104.05 154.03 24.05 74.03 - - - ------------------------------------------------------------------------------------------------------------------------------- - - - ------------------------------------------------------------------------------------------------------------------------------- AXPSM Variable Portfolio - Small Cap Advantage Fund 108.45 167.21 28.45 87.21 - - - ------------------------------------------------------------------------------------------------------------------------------- - - - ------------------------------------------------------------------------------------------------------------------------------- - - - ------------------------------------------------------------------------------------------------------------------------------- - - - ------------------------------------------------------------------------------------------------------------------------------- AIM V.I. Capital Appreciation Fund 102.77 150.17 22.77 70.17 - - - ------------------------------------------------------------------------------------------------------------------------------- - - - ------------------------------------------------------------------------------------------------------------------------------- AIM V.I. Value Fund 102.66 149.86 22.66 69.86 - - - ------------------------------------------------------------------------------------------------------------------------------- - - - ------------------------------------------------------------------------------------------------------------------------------- - - - ------------------------------------------------------------------------------------------------------------------------------- - - - ------------------------------------------------------------------------------------------------------------------------------- The Dreyfus Socially Responsible Growth Fund, Inc. 104.10 154.18 24.10 74.18 - - - ------------------------------------------------------------------------------------------------------------------------------- - - - ------------------------------------------------------------------------------------------------------------------------------- - - - ------------------------------------------------------------------------------------------------------------------------------- - - - ------------------------------------------------------------------------------------------------------------------------------- FT VIP Franklin Income Securities Fund - Class 2 103.48 152.33 23.48 72.33 - - - ------------------------------------------------------------------------------------------------------------------------------- - - - ------------------------------------------------------------------------------------------------------------------------------- FT VIP Mutual Shares Securities Fund - Class 2 106.35 160.94 26.35 80.94 - - - ------------------------------------------------------------------------------------------------------------------------------- - - - ------------------------------------------------------------------------------------------------------------------------------- FT VIP Franklin Real Estate Fund - Class 2 104.00 153.87 24.00 73.87 - - - ------------------------------------------------------------------------------------------------------------------------------- - - - ------------------------------------------------------------------------------------------------------------------------------- FT VIP Franklin Small Cap Fund Class - 2 106.35 160.94 26.35 80.94 - - - ------------------------------------------------------------------------------------------------------------------------------- - - - ------------------------------------------------------------------------------------------------------------------------------- - - - ------------------------------------------------------------------------------------------------------------------------------- - - - ------------------------------------------------------------------------------------------------------------------------------- Goldman Sachs VIT CORESM U.S. Equity Fund 104.10 154.18 24.10 74.18 - - - ------------------------------------------------------------------------------------------------------------------------------- - - - ------------------------------------------------------------------------------------------------------------------------------- Goldman Sachs VIT Global Income Fund 106.66 161.86 26.66 81.86 - - - ------------------------------------------------------------------------------------------------------------------------------- - - - ------------------------------------------------------------------------------------------------------------------------------- Goldman Sachs VIT Mid Cap Value Fund 105.64 158.79 25.64 78.79 - - - ------------------------------------------------------------------------------------------------------------------------------- - - - ------------------------------------------------------------------------------------------------------------------------------- - - - ------------------------------------------------------------------------------------------------------------------------------- - - - ------------------------------------------------------------------------------------------------------------------------------- MFS(R)Growth with Income Series 104.92 156.64 24.92 76.64 - - - ------------------------------------------------------------------------------------------------------------------------------- - - - ------------------------------------------------------------------------------------------------------------------------------- MFS(R)Utilities Series 106.25 160.64 26.25 80.64 - - - ------------------------------------------------------------------------------------------------------------------------------- - - - ------------------------------------------------------------------------------------------------------------------------------- - - - ------------------------------------------------------------------------------------------------------------------------------- - - - ------------------------------------------------------------------------------------------------------------------------------- Putnam VT International Growth Fund - Class IB Shares 108.40 167.06 28.40 87.06 - - - ------------------------------------------------------------------------------------------------------------------------------- - - - ------------------------------------------------------------------------------------------------------------------------------- Putnam VT Vista Fund - Class IB Shares 105.33 157.87 25.33 77.87 - - - ------------------------------------------------------------------------------------------------------------------------------- - - - ------------------------------------------------------------------------------------------------------------------------------- - - - ------------------------------------------------------------------------------------------------------------------------------- - - - ------------------------------------------------------------------------------------------------------------------------------- Wells Fargo VT Asset Allocation Fund 106.15 160.33 26.15 80.33 - - - ------------------------------------------------------------------------------------------------------------------------------- - - - ------------------------------------------------------------------------------------------------------------------------------- Wells Fargo VT Corporate Bond Fund 105.12 157.26 25.12 77.26 - - - ------------------------------------------------------------------------------------------------------------------------------- - - - ------------------------------------------------------------------------------------------------------------------------------- Wells Fargo VT Equity Income Fund 106.15 160.33 26.15 80.33 - - - ------------------------------------------------------------------------------------------------------------------------------- - - - ------------------------------------------------------------------------------------------------------------------------------- Wells Fargo VT Equity Value Fund 106.15 160.33 26.15 80.33 - - - ------------------------------------------------------------------------------------------------------------------------------- - - - ------------------------------------------------------------------------------------------------------------------------------- Wells Fargo VT Growth Fund 106.15 160.33 26.15 80.33 - - - ------------------------------------------------------------------------------------------------------------------------------- - - - ------------------------------------------------------------------------------------------------------------------------------- Wells Fargo VT Large Company Growth Fund 106.15 160.33 26.15 80.33 - - - ------------------------------------------------------------------------------------------------------------------------------- - - - ------------------------------------------------------------------------------------------------------------------------------- Wells Fargo VT Money Market Fund 104.61 155.72 24.61 75.72 - - - ------------------------------------------------------------------------------------------------------------------------------- - - - ------------------------------------------------------------------------------------------------------------------------------- Wells Fargo VT Small Cap Growth Fund 108.20 166.45 28.20 86.45 - - - -------------------------------------------------------------------------------------------------------------------------------
You would pay the following expenses on a $1,000 investment if you selected a six-year withdrawal charge schedule with the optional 0.20% Enhanced Death Benefit Rider and the 0.30% Guaranteed Minimum Income Benefit Rider and assuming a 5% annual return and....
- - - ------------------------------------------------------------------------------------------------------------------------------- a total withdrawal at no withdrawal or selection the end of each time of an annuity payout plan period at the end of each time period - - - ------------------------------------------------------------------------------------------------------------------------------- - - - ------------------------------------------------------------------------------------------------------------------------------- 1 year 3 years 1 year 3 years - - - ------------------------------------------------------------------------------------------------------------------------------- - - - ------------------------------------------------------------------------------------------------------------------------------- - - - ------------------------------------------------------------------------------------------------------------------------------- - - - ------------------------------------------------------------------------------------------------------------------------------- AXPSM Variable Portfolio - Blue Chip Advantage Fund $110.78 $174.70 $30.78 $94.70 - - - ------------------------------------------------------------------------------------------------------------------------------- - - - ------------------------------------------------------------------------------------------------------------------------------- AXPSM Variable Portfolio - Capital Resource Fund 109.14 169.80 29.14 89.80 - - - ------------------------------------------------------------------------------------------------------------------------------- - - - ------------------------------------------------------------------------------------------------------------------------------- AXPSM Variable Portfolio - Diversified Equity Income Fund 110.78 174.70 30.78 94.70 - - - ------------------------------------------------------------------------------------------------------------------------------- - - - ------------------------------------------------------------------------------------------------------------------------------- AXPSM Variable Portfolio - Extra Income Fund 109.66 171.33 29.66 91.33 - - - ------------------------------------------------------------------------------------------------------------------------------- - - - ------------------------------------------------------------------------------------------------------------------------------- AXPSM Variable Portfolio - Federal Income Fund 110.07 172.56 30.07 92.56 - - - ------------------------------------------------------------------------------------------------------------------------------- - - - ------------------------------------------------------------------------------------------------------------------------------- AXPSM Variable Portfolio - New Dimensions Fund 109.25 170.11 29.25 90.11 - - - ------------------------------------------------------------------------------------------------------------------------------- - - - ------------------------------------------------------------------------------------------------------------------------------- AXPSM Variable Portfolio - Small Cap Advantage Fund 113.65 183.24 33.65 103.24 - - - ------------------------------------------------------------------------------------------------------------------------------- - - - ------------------------------------------------------------------------------------------------------------------------------- - - - ------------------------------------------------------------------------------------------------------------------------------- - - - ------------------------------------------------------------------------------------------------------------------------------- AIM V.I. Capital Appreciation Fund 107.97 166.27 27.97 86.27 - - - ------------------------------------------------------------------------------------------------------------------------------- - - - ------------------------------------------------------------------------------------------------------------------------------- AIM V.I. Value Fund 107.86 165.96 27.86 85.96 - - - ------------------------------------------------------------------------------------------------------------------------------- - - - ------------------------------------------------------------------------------------------------------------------------------- - - - ------------------------------------------------------------------------------------------------------------------------------- - - - ------------------------------------------------------------------------------------------------------------------------------- The Dreyfus Socially Responsible Growth Fund, Inc. 109.30 170.26 29.30 90.26 - - - ------------------------------------------------------------------------------------------------------------------------------- - - - ------------------------------------------------------------------------------------------------------------------------------- - - - ------------------------------------------------------------------------------------------------------------------------------- - - - ------------------------------------------------------------------------------------------------------------------------------- FT VIP Franklin Income Securities Fund - Class 2 108.68 168.42 28.68 88.42 - - - ------------------------------------------------------------------------------------------------------------------------------- - - - ------------------------------------------------------------------------------------------------------------------------------- FT VIP Mutual Shares Securities Fund - Class 2 111.55 176.99 31.55 96.99 - - - ------------------------------------------------------------------------------------------------------------------------------- - - - ------------------------------------------------------------------------------------------------------------------------------- FT VIP Franklin Real Estate Fund - Class 2 109.20 169.95 29.20 89.95 - - - ------------------------------------------------------------------------------------------------------------------------------- - - - ------------------------------------------------------------------------------------------------------------------------------- FT VIP Franklin Small Cap Fund Class - 2 111.55 176.99 31.55 96.99 - - - ------------------------------------------------------------------------------------------------------------------------------- - - - ------------------------------------------------------------------------------------------------------------------------------- - - - ------------------------------------------------------------------------------------------------------------------------------- - - - ------------------------------------------------------------------------------------------------------------------------------- Goldman Sachs VIT CORESM U.S. Equity Fund 109.30 170.26 29.30 90.26 - - - ------------------------------------------------------------------------------------------------------------------------------- - - - ------------------------------------------------------------------------------------------------------------------------------- Goldman Sachs VIT Global Income Fund 111.86 177.91 31.86 97.91 - - - ------------------------------------------------------------------------------------------------------------------------------- - - - ------------------------------------------------------------------------------------------------------------------------------- Goldman Sachs VIT Mid Cap Value Fund 110.84 174.85 30.84 94.85 - - - ------------------------------------------------------------------------------------------------------------------------------- - - - ------------------------------------------------------------------------------------------------------------------------------- - - - ------------------------------------------------------------------------------------------------------------------------------- - - - ------------------------------------------------------------------------------------------------------------------------------- MFS(R)Growth with Income Series 110.12 172.71 30.12 92.71 - - - ------------------------------------------------------------------------------------------------------------------------------- - - - ------------------------------------------------------------------------------------------------------------------------------- MFS(R)Utilities Series 111.45 176.69 31.45 96.69 - - - ------------------------------------------------------------------------------------------------------------------------------- - - - ------------------------------------------------------------------------------------------------------------------------------- - - - ------------------------------------------------------------------------------------------------------------------------------- - - - ------------------------------------------------------------------------------------------------------------------------------- Putnam VT International Growth Fund - Class IB Shares 113.60 183.09 33.60 103.09 - - - ------------------------------------------------------------------------------------------------------------------------------- - - - ------------------------------------------------------------------------------------------------------------------------------- Putnam VT Vista Fund - Class IB Shares 110.53 173.94 30.53 93.94 - - - ------------------------------------------------------------------------------------------------------------------------------- - - - ------------------------------------------------------------------------------------------------------------------------------- - - - ------------------------------------------------------------------------------------------------------------------------------- - - - ------------------------------------------------------------------------------------------------------------------------------- Wells Fargo VT Asset Allocation Fund 111.35 176.38 31.35 96.38 - - - ------------------------------------------------------------------------------------------------------------------------------- - - - ------------------------------------------------------------------------------------------------------------------------------- Wells Fargo VT Corporate Bond Fund 110.32 173.32 30.32 93.32 - - - ------------------------------------------------------------------------------------------------------------------------------- - - - ------------------------------------------------------------------------------------------------------------------------------- Wells Fargo VT Equity Income Fund 111.35 176.38 31.35 96.38 - - - ------------------------------------------------------------------------------------------------------------------------------- - - - ------------------------------------------------------------------------------------------------------------------------------- Wells Fargo VT Equity Value Fund 111.35 176.38 31.35 96.38 - - - ------------------------------------------------------------------------------------------------------------------------------- - - - ------------------------------------------------------------------------------------------------------------------------------- Wells Fargo VT Growth Fund 111.35 176.38 31.35 96.38 - - - ------------------------------------------------------------------------------------------------------------------------------- - - - ------------------------------------------------------------------------------------------------------------------------------- Wells Fargo VT Large Company Growth Fund 111.35 176.38 31.35 96.38 - - - ------------------------------------------------------------------------------------------------------------------------------- - - - ------------------------------------------------------------------------------------------------------------------------------- Wells Fargo VT Money Market Fund 109.81 171.79 29.81 91.79 - - - ------------------------------------------------------------------------------------------------------------------------------- - - - ------------------------------------------------------------------------------------------------------------------------------- Wells Fargo VT Small Cap Growth Fund 113.40 182.48 33.40 102.48 - - - -------------------------------------------------------------------------------------------------------------------------------
You would pay the following expenses on a $1,000 investment if you selected an eight-year withdrawal charge schedule without any optional riders and assuming a 5% annual return and....
- - - ------------------------------------------------------------------------------------------------------------------------------- a total withdrawal at no withdrawal or selection the end of each time of an annuity payout plan period at the end of each time period - - - ------------------------------------------------------------------------------------------------------------------------------- - - - ------------------------------------------------------------------------------------------------------------------------------- 1 year 3 years 1 year 3 years - - - ------------------------------------------------------------------------------------------------------------------------------- - - - ------------------------------------------------------------------------------------------------------------------------------- - - - ------------------------------------------------------------------------------------------------------------------------------- - - - ------------------------------------------------------------------------------------------------------------------------------- AXPSM Variable Portfolio - Blue Chip Advantage Fund $103.02 $150.94 $23.02 $70.94 - - - ------------------------------------------------------------------------------------------------------------------------------- - - - ------------------------------------------------------------------------------------------------------------------------------- AXPSM Variable Portfolio - Capital Resource Fund 101.38 146.00 21.38 66.00 - - - ------------------------------------------------------------------------------------------------------------------------------- - - - ------------------------------------------------------------------------------------------------------------------------------- AXPSM Variable Portfolio - Diversified Equity Income Fund 103.02 150.94 23.02 70.94 - - - ------------------------------------------------------------------------------------------------------------------------------- - - - ------------------------------------------------------------------------------------------------------------------------------- AXPSM Variable Portfolio - Extra Income Fund 101.89 147.55 21.89 67.55 - - - ------------------------------------------------------------------------------------------------------------------------------- - - - ------------------------------------------------------------------------------------------------------------------------------- AXPSM Variable Portfolio - Federal Income Fund 102.30 148.78 22.30 68.78 - - - ------------------------------------------------------------------------------------------------------------------------------- - - - ------------------------------------------------------------------------------------------------------------------------------- AXPSM Variable Portfolio - New Dimensions Fund 101.48 146.31 21.48 66.31 - - - ------------------------------------------------------------------------------------------------------------------------------- - - - ------------------------------------------------------------------------------------------------------------------------------- AXPSM Variable Portfolio - Small Cap Advantage Fund 105.89 159.56 25.89 79.56 - - - ------------------------------------------------------------------------------------------------------------------------------- - - - ------------------------------------------------------------------------------------------------------------------------------- - - - ------------------------------------------------------------------------------------------------------------------------------- - - - ------------------------------------------------------------------------------------------------------------------------------- AIM V.I. Capital Appreciation Fund 100.20 142.43 20.20 62.43 - - - ------------------------------------------------------------------------------------------------------------------------------- - - - ------------------------------------------------------------------------------------------------------------------------------- AIM V.I. Value Fund 100.10 142.12 20.10 62.12 - - - ------------------------------------------------------------------------------------------------------------------------------- - - - ------------------------------------------------------------------------------------------------------------------------------- - - - ------------------------------------------------------------------------------------------------------------------------------- - - - ------------------------------------------------------------------------------------------------------------------------------- The Dreyfus Socially Responsible Growth Fund, Inc. 101.54 146.46 21.54 66.46 - - - ------------------------------------------------------------------------------------------------------------------------------- - - - ------------------------------------------------------------------------------------------------------------------------------- - - - ------------------------------------------------------------------------------------------------------------------------------- - - - ------------------------------------------------------------------------------------------------------------------------------- FT VIP Franklin Income Securities Fund - Class 2 100.92 144.60 20.92 64.60 - - - ------------------------------------------------------------------------------------------------------------------------------- - - - ------------------------------------------------------------------------------------------------------------------------------- FT VIP Mutual Shares Securities Fund - Class 2 103.79 153.26 23.79 73.26 - - - ------------------------------------------------------------------------------------------------------------------------------- - - - ------------------------------------------------------------------------------------------------------------------------------- FT VIP Franklin Real Estate Fund - Class 2 101.43 146.15 21.43 66.15 - - - ------------------------------------------------------------------------------------------------------------------------------- - - - ------------------------------------------------------------------------------------------------------------------------------- FT VIP Franklin Small Cap Fund Class - 2 103.79 153.26 23.79 73.26 - - - ------------------------------------------------------------------------------------------------------------------------------- - - - ------------------------------------------------------------------------------------------------------------------------------- - - - ------------------------------------------------------------------------------------------------------------------------------- - - - ------------------------------------------------------------------------------------------------------------------------------- Goldman Sachs VIT CORESM U.S. Equity Fund 101.54 146.46 21.54 66.46 - - - ------------------------------------------------------------------------------------------------------------------------------- - - - ------------------------------------------------------------------------------------------------------------------------------- Goldman Sachs VIT Global Income Fund 104.10 154.18 24.10 74.18 - - - ------------------------------------------------------------------------------------------------------------------------------- - - - ------------------------------------------------------------------------------------------------------------------------------- Goldman Sachs VIT Mid Cap Value Fund 103.07 151.10 23.07 71.10 - - - ------------------------------------------------------------------------------------------------------------------------------- - - - ------------------------------------------------------------------------------------------------------------------------------- - - - ------------------------------------------------------------------------------------------------------------------------------- - - - ------------------------------------------------------------------------------------------------------------------------------- MFS(R)Growth with Income Series 102.36 148.94 22.36 68.94 - - - ------------------------------------------------------------------------------------------------------------------------------- - - - ------------------------------------------------------------------------------------------------------------------------------- MFS(R)Utilities Series 103.69 152.95 23.69 72.95 - - - ------------------------------------------------------------------------------------------------------------------------------- - - - ------------------------------------------------------------------------------------------------------------------------------- - - - ------------------------------------------------------------------------------------------------------------------------------- - - - ------------------------------------------------------------------------------------------------------------------------------- Putnam VT International Growth Fund - Class IB Shares 105.84 159.41 25.84 79.41 - - - ------------------------------------------------------------------------------------------------------------------------------- - - - ------------------------------------------------------------------------------------------------------------------------------- Putnam VT Vista Fund - Class IB Shares 102.77 150.17 22.77 70.17 - - - ------------------------------------------------------------------------------------------------------------------------------- - - - ------------------------------------------------------------------------------------------------------------------------------- - - - ------------------------------------------------------------------------------------------------------------------------------- - - - ------------------------------------------------------------------------------------------------------------------------------- Wells Fargo VT Asset Allocation Fund 103.59 152.64 23.59 72.64 - - - ------------------------------------------------------------------------------------------------------------------------------- - - - ------------------------------------------------------------------------------------------------------------------------------- Wells Fargo VT Corporate Bond Fund 102.56 149.55 22.56 69.55 - - - ------------------------------------------------------------------------------------------------------------------------------- - - - ------------------------------------------------------------------------------------------------------------------------------- Wells Fargo VT Equity Income Fund 103.59 152.64 23.59 72.64 - - - ------------------------------------------------------------------------------------------------------------------------------- - - - ------------------------------------------------------------------------------------------------------------------------------- Wells Fargo VT Equity Value Fund 103.59 152.64 23.59 72.64 - - - ------------------------------------------------------------------------------------------------------------------------------- - - - ------------------------------------------------------------------------------------------------------------------------------- Wells Fargo VT Growth Fund 103.59 152.64 23.59 72.64 - - - ------------------------------------------------------------------------------------------------------------------------------- - - - ------------------------------------------------------------------------------------------------------------------------------- Wells Fargo VT Large Company Growth Fund 103.59 152.64 23.59 72.64 - - - ------------------------------------------------------------------------------------------------------------------------------- - - - ------------------------------------------------------------------------------------------------------------------------------- Wells Fargo VT Money Market Fund 102.05 148.01 22.05 68.01 - - - ------------------------------------------------------------------------------------------------------------------------------- - - - ------------------------------------------------------------------------------------------------------------------------------- Wells Fargo VT Small Cap Growth Fund 105.64 158.79 25.64 78.79 - - - -------------------------------------------------------------------------------------------------------------------------------
You would pay the following expenses on a $1,000 investment if you selected an eight-year withdrawal charge schedule with the optional 0.20% Enhanced Death Benefit Rider and 0.30% Guaranteed Minimum Income Benefit Rider and assuming a 5% annual return and....
- - - ------------------------------------------------------------------------------------------------------------------------------- a total withdrawal at no withdrawal or selection the end of each time of an annuity payout plan period at the end of each time period - - - ------------------------------------------------------------------------------------------------------------------------------- - - - ------------------------------------------------------------------------------------------------------------------------------- 1 year 3 years 1 year 3 years - - - ------------------------------------------------------------------------------------------------------------------------------- - - - ------------------------------------------------------------------------------------------------------------------------------- - - - ------------------------------------------------------------------------------------------------------------------------------- - - - ------------------------------------------------------------------------------------------------------------------------------- AXPSM Variable Portfolio - Blue Chip Advantage Fund $108.22 $167.04 $28.22 $87.04 - - - ------------------------------------------------------------------------------------------------------------------------------- - - - ------------------------------------------------------------------------------------------------------------------------------- AXPSM Variable Portfolio - Capital Resource Fund 106.58 162.11 26.58 82.11 - - - ------------------------------------------------------------------------------------------------------------------------------- - - - ------------------------------------------------------------------------------------------------------------------------------- AXPSM Variable Portfolio - Diversified Equity Income Fund 108.22 167.04 28.22 87.04 - - - ------------------------------------------------------------------------------------------------------------------------------- - - - ------------------------------------------------------------------------------------------------------------------------------- AXPSM Variable Portfolio - Extra Income Fund 107.09 163.65 27.09 83.65 - - - ------------------------------------------------------------------------------------------------------------------------------- - - - ------------------------------------------------------------------------------------------------------------------------------- AXPSM Variable Portfolio - Federal Income Fund 107.50 164.88 27.50 84.88 - - - ------------------------------------------------------------------------------------------------------------------------------- - - - ------------------------------------------------------------------------------------------------------------------------------- AXPSM Variable Portfolio - New Dimensions Fund 106.68 162.42 26.68 82.42 - - - ------------------------------------------------------------------------------------------------------------------------------- - - - ------------------------------------------------------------------------------------------------------------------------------- AXPSM Variable Portfolio - Small Cap Advantage Fund 111.09 175.62 31.09 95.62 - - - ------------------------------------------------------------------------------------------------------------------------------- - - - ------------------------------------------------------------------------------------------------------------------------------- - - - ------------------------------------------------------------------------------------------------------------------------------- - - - ------------------------------------------------------------------------------------------------------------------------------- AIM V.I. Capital Appreciation Fund 105.40 158.56 25.40 78.56 - - - ------------------------------------------------------------------------------------------------------------------------------- - - - ------------------------------------------------------------------------------------------------------------------------------- AIM V.I. Value Fund 105.30 158.25 25.30 78.25 - - - ------------------------------------------------------------------------------------------------------------------------------- - - - ------------------------------------------------------------------------------------------------------------------------------- - - - ------------------------------------------------------------------------------------------------------------------------------- - - - ------------------------------------------------------------------------------------------------------------------------------- The Dreyfus Socially Responsible Growth Fund, Inc. 106.74 162.57 26.74 82.57 - - - ------------------------------------------------------------------------------------------------------------------------------- - - - ------------------------------------------------------------------------------------------------------------------------------- - - - ------------------------------------------------------------------------------------------------------------------------------- - - - ------------------------------------------------------------------------------------------------------------------------------- FT VIP Franklin Income Securities Fund - Class 2 106.12 160.72 26.12 80.72 - - - ------------------------------------------------------------------------------------------------------------------------------- - - - ------------------------------------------------------------------------------------------------------------------------------- FT VIP Mutual Shares Securities Fund - Class 2 108.99 169.34 28.99 89.34 - - - ------------------------------------------------------------------------------------------------------------------------------- - - - ------------------------------------------------------------------------------------------------------------------------------- FT VIP Franklin Real Estate Fund - Class 2 106.63 162.26 26.63 82.26 - - - ------------------------------------------------------------------------------------------------------------------------------- - - - ------------------------------------------------------------------------------------------------------------------------------- FT VIP Franklin Small Cap Fund Class - 2 108.99 169.34 28.99 89.34 - - - ------------------------------------------------------------------------------------------------------------------------------- - - - ------------------------------------------------------------------------------------------------------------------------------- - - - ------------------------------------------------------------------------------------------------------------------------------- - - - ------------------------------------------------------------------------------------------------------------------------------- Goldman Sachs VIT CORESM U.S. Equity Fund 106.74 162.57 26.74 82.57 - - - ------------------------------------------------------------------------------------------------------------------------------- - - - ------------------------------------------------------------------------------------------------------------------------------- Goldman Sachs VIT Global Income Fund 109.30 170.26 29.30 90.26 - - - ------------------------------------------------------------------------------------------------------------------------------- - - - ------------------------------------------------------------------------------------------------------------------------------- Goldman Sachs VIT Mid Cap Value Fund 108.27 167.19 28.27 87.19 - - - ------------------------------------------------------------------------------------------------------------------------------- - - - ------------------------------------------------------------------------------------------------------------------------------- - - - ------------------------------------------------------------------------------------------------------------------------------- - - - ------------------------------------------------------------------------------------------------------------------------------- MFS(R)Growth with Income Series 107.56 165.04 27.56 85.04 - - - ------------------------------------------------------------------------------------------------------------------------------- - - - ------------------------------------------------------------------------------------------------------------------------------- MFS(R)Utilities Series 108.89 169.03 28.89 89.03 - - - ------------------------------------------------------------------------------------------------------------------------------- - - - ------------------------------------------------------------------------------------------------------------------------------- - - - ------------------------------------------------------------------------------------------------------------------------------- - - - ------------------------------------------------------------------------------------------------------------------------------- Putnam VT International Growth Fund - Class IB Shares 111.04 175.46 31.04 95.46 - - - ------------------------------------------------------------------------------------------------------------------------------- - - - ------------------------------------------------------------------------------------------------------------------------------- Putnam VT Vista Fund - Class IB Shares 107.97 166.27 27.97 86.27 - - - ------------------------------------------------------------------------------------------------------------------------------- - - - ------------------------------------------------------------------------------------------------------------------------------- - - - ------------------------------------------------------------------------------------------------------------------------------- - - - ------------------------------------------------------------------------------------------------------------------------------- Wells Fargo VT Asset Allocation Fund 108.79 168.73 28.79 88.73 - - - ------------------------------------------------------------------------------------------------------------------------------- - - - ------------------------------------------------------------------------------------------------------------------------------- Wells Fargo VT Corporate Bond Fund 107.76 165.65 27.76 85.65 - - - ------------------------------------------------------------------------------------------------------------------------------- - - - ------------------------------------------------------------------------------------------------------------------------------- Wells Fargo VT Equity Income Fund 108.79 168.73 28.79 88.73 - - - ------------------------------------------------------------------------------------------------------------------------------- - - - ------------------------------------------------------------------------------------------------------------------------------- Wells Fargo VT Equity Value Fund 108.79 168.73 28.79 88.73 - - - ------------------------------------------------------------------------------------------------------------------------------- - - - ------------------------------------------------------------------------------------------------------------------------------- Wells Fargo VT Growth Fund 108.79 168.73 28.79 88.73 - - - ------------------------------------------------------------------------------------------------------------------------------- - - - ------------------------------------------------------------------------------------------------------------------------------- Wells Fargo VT Large Company Growth Fund 108.79 168.73 28.79 88.73 - - - ------------------------------------------------------------------------------------------------------------------------------- - - - ------------------------------------------------------------------------------------------------------------------------------- Wells Fargo VT Money Market Fund 107.25 164.11 27.25 84.11 - - - ------------------------------------------------------------------------------------------------------------------------------- - - - ------------------------------------------------------------------------------------------------------------------------------- Wells Fargo VT Small Cap Growth Fund 110.84 174.85 30.84 94.85 - - - -------------------------------------------------------------------------------------------------------------------------------
*In these examples, the $30 contract administrative charge is approximated as a .051% charge based on our estimated average contract size. Premium taxes imposed by some state and local governments are not reflected in these examples. We entered into certain arrangements under which we are compensated by the funds' advisors and/or distributors for the administrative services we provide to the funds. You should not consider these examples as representations of past or future expenses. Actual expenses may be more or less than those shown. Condensed Financial Information (Unaudited) We have not provided any condensed financial information for the subaccounts because they are new and do not have any history. Financial Statements You can find our audited financial statements later in this prospectus. The SAI does not include the audited financial statements of the subaccounts because they are new and do not have any assets. Performance Information Performance information for the subaccounts may appear from time to time in advertisements or sales literature. This information reflects the performance of a hypothetical investment in a particular subaccount during a specified time period. We show actual performance from the date the subaccounts began investing in the funds. Currently, we do not provide any performance information because they are new and have not had any activity to date. However, we show performance from the commencement date of the funds as if the contract existed at that time, which it did not. Although we base performance figures on historical earnings, past performance does not guarantee future results. We include non-recurring charges (such as withdrawal charges) in total return figures, but not in yield quotations. Excluding non-recurring charges in yield calculations increases the reported value. Total return figures reflect deduction of all applicable charges, including: o the contract administrative charge, o the variable account administrative charge, o the Enhanced Death Benefit Rider fee, o the Guaranteed Minimum Income Benefit Rider fee, o mortality and expense risk fee, and o withdrawal charge (assuming a withdrawal at the end of the illustrated period). We also may make optional total return quotations that do not reflect deduction of the withdrawal charge (assuming no withdrawal), the Enhanced Death Benefit Rider fee and the Guaranteed Minimum Income Benefit Rider fee. Total return quotations may be shown by means of schedules, charts or graphs. Average annual total return is the average annual compounded rate of return of the investment over a period of one, five and ten years (or up to the life of the subaccount if it is less than ten years old). Cumulative total return is the cumulative change in the value of an investment over a specified time period. We assume that income earned by the investment is reinvested. Cumulative total return generally will be higher than average annual total return. Seven-day simple yield (for subaccounts investing in money market funds) is the income generated by the investment over a given seven-day period. We show this as a percentage of the investment. Annualized yield (for subaccounts investing in income funds) divides the net investment income (income less expenses) for each accumulation unit during a given 30-day period by the value of the unit on the last day of the period. We then convert the result to an annual percentage. You should consider performance information in light of the investment objectives, policies, characteristics and quality of the fund in which the subaccount invests and the market conditions during the specified time period. Advertised yields and total return figures include charges that reduce advertised performance. Therefore, you should not compare subaccount performance to that of mutual funds that sell their shares directly to the public. (See the SAI for a further description of methods used to determine total return and yield.) If you would like additional information about actual performance, please contact us at the address or telephone number on the first page of this prospectus. The Variable Account and the Funds You may allocate payments to any or all the subaccounts of the variable account that invest in shares of the following funds:
- - - --------------------------------------------------------------------------------------------------------------------------------- Subaccount Investing In Investment Objectives and Policies Investment Advisor or Manager - - - --------------------------------------------------------------------------------------------------------------------------------- - - - --------------------------------------------------------------------------------------------------------------------------------- PBCA 1 AXPSM Variable Portfolio - Objective: long-term total return exceeding that of IDS Life Insurance Company WBCA 1 Blue Chip Advantage Fund the U.S. stock market. Invests primarily in common (IDS Life), investment WBCA 3 stocks of companies included in the unmanaged S&P 500 manager; American Express WBCA 4 Index. Financial Corporation (AEFC), investment advisor. - - - --------------------------------------------------------------------------------------------------------------------------------- - - - --------------------------------------------------------------------------------------------------------------------------------- WCAR 1 AXPSM Variable Portfolio - Objective: capital appreciation. Invests primarily in IDS Life, investment WCAR 3 Capital Resource Fund U.S. common stocks. manager; AEFC, investment WCAR 4 advisor. WCAR 6 - - - --------------------------------------------------------------------------------------------------------------------------------- - - - --------------------------------------------------------------------------------------------------------------------------------- PDEI 1 AXPSM Variable Portfolio - Objective: a high level of current income and, as a IDS Life, investment WDEI 1 Diversified Equity Income secondary goal, steady growth of capital. Invests manager; AEFC, investment WDEI 3 Fund primarily in dividend-paying common and preferred advisor. WDEI 4 stocks. - - - --------------------------------------------------------------------------------------------------------------------------------- - - - --------------------------------------------------------------------------------------------------------------------------------- PEXI 1 AXPSM Variable Portfolio - Objective: high current income, with capital growth IDS Life, investment WEXI 1 Extra Income Fund as a secondary objective. Invests primarily in manager; AEFC, investment WEXI 3 long-term, high-yielding, high-risk debt securities advisor. WEXI 4 below investment grade issued by U.S. and foreign corporations. - - - --------------------------------------------------------------------------------------------------------------------------------- - - - --------------------------------------------------------------------------------------------------------------------------------- WFDI 1 AXPSM Variable Portfolio - Objective: a high level of current income and safety IDS Life, investment WFDI 3 Federal Income Fund of principal consistent with an investment in U.S. manager; AEFC, investment WFDI 4 government and government agency securities. Invests advisor. WFDI 6 primarily in debt obligations issued or guaranteed as to principal and interest by the U.S. government, its agencies or instrumentalities. - - - --------------------------------------------------------------------------------------------------------------------------------- - - - --------------------------------------------------------------------------------------------------------------------------------- PNDM 1 AXPSM Variable Portfolio - Objective: long-term growth of capital. Invests IDS Life, investment WNDM 1 New Dimensions Fund primarily in common stocks of U.S. and foreign manager; AEFC, investment WNDM 3 companies showing potential for significant growth. advisor. WNDM 4 - - - --------------------------------------------------------------------------------------------------------------------------------- - - - --------------------------------------------------------------------------------------------------------------------------------- PSCA 1 AXPSM Variable Portfolio - Objective: long-term capital growth. Invests IDS Life, investment WSCA 1 Small Cap Advantage Fund primarily in equity stocks of small companies that manager; AEFC, investment WSCA 3 are often included in the S&P SmallCap 600 Index or advisor; Kenwood Capital WSCA 4 the Russell 2000 Index. Management LLC, sub-investment advisor. - - - --------------------------------------------------------------------------------------------------------------------------------- - - - --------------------------------------------------------------------------------------------------------------------------------- PCAP 1 AIM V.I. Capital Objective: growth of capital. Invests primarily in A I M Advisors, Inc. WCAP 1 Appreciation Fund common stocks, with emphasis on medium- and WCAP 3 small-sized growth companies. WCAP 4 - - - --------------------------------------------------------------------------------------------------------------------------------- - - - --------------------------------------------------------------------------------------------------------------------------------- PVAL 1 AIM V.I. Value Fund Objective: long-term growth of capital with income as A I M Advisors, Inc. WVAL 1 a secondary objective. Invests primarily in equity WVAL 3 securities judged to be undervalued relative to the WVAL 4 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. - - - --------------------------------------------------------------------------------------------------------------------------------- WSRG 1 The Dreyfus Socially Objective: capital growth, with current income as a The Dreyfus Corporation, WSRG 3 Responsible Growth Fund, secondary objective. Invests primarily in the common investment advisor; NCM WSRG 4 Inc. stock of companies that, in the opinion of the fund's Capital Management Group, WSRG 6 management, meet traditional investment standards and Inc., sub- conduct their business in a manner investment advisor. that contributes to the enhancement of the quality of life in America. - - - --------------------------------------------------------------------------------------------------------------------------------- - - - --------------------------------------------------------------------------------------------------------------------------------- WISE 1 Franklin Templeton VIP Objective: maximize income while maintaining Franklin Advisers, WISE 3 Trust Franklin Income prospects for capital appreciation. Invests primarily Inc. WISE 4 Securities Fund in a diversified portfolio of debt and equity WISE 6 securities, including high yield, lower-rated "junk bonds." - - - --------------------------------------------------------------------------------------------------------------------------------- - - - --------------------------------------------------------------------------------------------------------------------------------- WMSI 1 Franklin Templeton VIP Objective: capital appreciation with income as a Franklin Mutual WMSI 3 Trust Mutual Shares secondary goal. Invests primarily in equity Advisers, LLC WMSI 4 Securities Fund securities of companies that the manager believes are WMSI 6 available at market prices less than their actual value based on certain recognized or objective criteria (intrinsic value). - - - --------------------------------------------------------------------------------------------------------------------------------- - - - --------------------------------------------------------------------------------------------------------------------------------- WRES 1 Franklin Templeton VIP Objective: capital appreciation with a secondary goal Franklin Advisers, WRES 3 Trust Franklin Real Estate to earn current income. Invests primarily in Inc. WRES 4 Fund securities of companies operating in the real estate WRES 6 industry, primarily equity real estate investment trusts (REITS). - - - --------------------------------------------------------------------------------------------------------------------------------- - - - --------------------------------------------------------------------------------------------------------------------------------- PSMC 1 Franklin Templeton VIP Objective: long-term capital growth. Invests Franklin Advisers, WSMC 1 Trust Franklin Small Cap primarily in equity securities of U.S. small Inc. WSMC 3 Fund capitalization (small cap) growth companies. WSMC 4 - - - --------------------------------------------------------------------------------------------------------------------------------- - - - --------------------------------------------------------------------------------------------------------------------------------- WUSE 1 Goldman Sachs VIT Objective: long-term growth of capital and dividend Goldman Sachs WUSE 3 CORE SM U.S. Equity Fund income. Primarily invests in a broadly diversified Asset WUSE 4 portfolio of large-cap and blue chip equity Management WUSE 6 securities representing all major sectors of the U.S. economy. - - - --------------------------------------------------------------------------------------------------------------------------------- - - - --------------------------------------------------------------------------------------------------------------------------------- WGLI 1 Goldman Sachs VIT Global Objective: high total return, emphasizing current Goldman Sachs WGLI 3 Income Fund income, and, to a lesser extent, providing Asset WGLI 4 opportunities for capital appreciation. Invests Management WGLI 6 primarily in a portfolio of high quality fixed-income International securities of U.S. and foreign issuers and enters into transactions in foreign currencies. - - - --------------------------------------------------------------------------------------------------------------------------------- - - - --------------------------------------------------------------------------------------------------------------------------------- WMCE 1 Goldman Sachs VIT Mid Cap Objective: long-term capital appreciation. Invests Goldman Sachs WMCE 3 Value Fund primarily in mid-capitalization U.S. stocks that are Asset WMCE 4 believed to be undervalued or undiscovered by the Management WMCE 6 marketplace. - - - --------------------------------------------------------------------------------------------------------------------------------- - - - --------------------------------------------------------------------------------------------------------------------------------- PGIS 1 MFS(R)Growth with Income Objective: reasonable current income and long-term MFS Investment WGIS 1 Series growth of capital and income. Invests primarily in Management(R) WGIS 3 common stocks and related securities, such as WGIS 4 preferred stocks, convertible securities and depositary receipts for those securities. - - - --------------------------------------------------------------------------------------------------------------------------------- - - - --------------------------------------------------------------------------------------------------------------------------------- PUTS 1 MFS(R) Utilities Series Objective: capital growth and current income. Invests MFS Investment WUTS 1 primarily in equity and debt securities of domestic Management(R) WUTS 3 and foreign companies in the utilities industry. WUTS 4 - - - --------------------------------------------------------------------------------------------------------------------------------- - - - --------------------------------------------------------------------------------------------------------------------------------- PIGR 1 Putnam VT International Objective: long-term capital appreciation. Invests Putnam Investment WIGR 1 Growth Fund - Class IB primarily in equity securities of companies located Management, Inc. WIGR 3 Shares in a country other than the U.S. WIGR 4 - - - --------------------------------------------------------------------------------------------------------------------------------- - - - --------------------------------------------------------------------------------------------------------------------------------- PVIS 1 Putnam VT Vista Fund - Objective: capital appreciation. Invests primarily in Putnam Investment WVIS 1 Class IB Shares a diversified portfolio of common stocks that Putnam Management, Inc. WVIS 3 Management believes have above-average potential for WVIS 4 capital appreciation. - - - --------------------------------------------------------------------------------------------------------------------------------- - - - --------------------------------------------------------------------------------------------------------------------------------- WAAL 1 Wells Fargo VT Asset Objective: long-term total return, consistent with Wells Fargo Bank, N.A., WAAL 3 Allocation Fund reasonable risk. Invests primarily in the securities advisor; Barclays Global WAAL 4 of various indexes to replicate the total return of Fund Advisors, sub-advisor. WAAL 6 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. - - - --------------------------------------------------------------------------------------------------------------------------------- - - - --------------------------------------------------------------------------------------------------------------------------------- WCBD 1 Wells Fargo VT Corporate Objective: high level of current income consistent Wells Fargo Bank, N.A., WCBD 3 Bond Fund with reasonable risk. Invests primarily in corporate advisor; Wells Capital WCBD 4 debt securities of any maturity. Management Incorporated, WCBD 6 sub- advisor. - - - --------------------------------------------------------------------------------------------------------------------------------- - - - --------------------------------------------------------------------------------------------------------------------------------- WEQI 1 Wells Fargo VT Equity Objective: long-term capital appreciation and Wells Fargo Bank, N.A., WEQI 3 Income Fund above-average dividend income. Invests primarily in advisor; Wells Capital WEQI 4 common stocks of large, high-quality domestic Management Incorporated, WEQI 6 companies with above-average return potential and sub- advisor. above-average dividend income. - - - --------------------------------------------------------------------------------------------------------------------------------- - - - --------------------------------------------------------------------------------------------------------------------------------- WEQV 1 Wells Fargo VT Equity Objective: long-term capital appreciation. Invests Wells Fargo Bank, N.A., WEQV 3 Value Fund primarily in equity securities that we believe are advisor; Wells Capital WEQV 4 undervalued in relation to the overall stock markets. Management Incorporated, WEQV 6 sub- advisor. - - - --------------------------------------------------------------------------------------------------------------------------------- - - - --------------------------------------------------------------------------------------------------------------------------------- WGRO 1 Wells Fargo VT Growth Fund Objective: long-term capital appreciation. Invests Wells Fargo Bank, N.A., WGRO 3 primarily in common stocks and other equity advisor; Wells Capital WGRO 4 securities of domestic and foreign companies whose Management Incorporated, WGRO 6 market capitalization falls within the range of the sub- advisor. Russell 1000 Index, which is considered a mid- to large- capitalization index. - - - --------------------------------------------------------------------------------------------------------------------------------- - - - --------------------------------------------------------------------------------------------------------------------------------- WLCG 1 Wells Fargo VT Large Objective: long-term capital appreciation. Invests Wells Fargo Bank, N.A., WLCG 3 Company Growth Fund primarily in common stock of large, high-quality advisor; Peregrine Capital WLCG 4 domestic companies that have superior growth Management, Inc., WLCG 6 potential. sub-advisor. - - - --------------------------------------------------------------------------------------------------------------------------------- - - - --------------------------------------------------------------------------------------------------------------------------------- WMMK 1 Wells Fargo VT Money Objective: current income, while preserving capital Wells Fargo Bank, N.A., WMMK 3 Market Fund and liquidity. Invests primarily in high-quality, advisor; Wells Capital WMMK 4 U.S. dollar-denominated money market instruments, Management Incorporated, WMMK 6 including debt obligations. sub- advisor. - - - --------------------------------------------------------------------------------------------------------------------------------- - - - --------------------------------------------------------------------------------------------------------------------------------- WSCG 1 Wells Fargo VT Small Cap Objective: long-term capital appreciation. Invests Wells Fargo Bank, N.A., WSCG 3 Growth Fund primarily in common stocks issued by companies whose advisor; Wells Capital WSCG 4 market capitalization falls within the range of the Management Incorporated, WSCG 6 Russell 2000 Index, which is considered a small sub- advisor. capitalization index. - - - ---------------------------------------------------------------------------------------------------------------------------------
The investment objectives and policies of some of the funds are similar to the investment objectives and policies of other mutual funds that an investment advisor or its affiliates manage. Although the objectives and policies may be similar, each fund will have its own portfolio holdings and its own fees and expenses. Accordingly, each fund will have its own investment results. 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 qualified plans. It is possible that in the future, it may be disadvantageous for variable annuity accounts and variable life insurance accounts and/or qualified 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 qualified 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 qualified plan accounts, you would not bear any expenses associated with establishing separate funds. Please refer to the fund prospectuses for risk disclosure regarding simultaneous investments by variable annuity, variable life insurance and qualified plan accounts. The IRS issued final regulations relating to the diversification requirements under Section 817(h) of the Internal Revenue Code of 1986, as amended (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 Internal Revenue Service (IRS) indicated that they may provide additional guidance on investment control. This concerns how many variable subaccounts an insurance company may offer and how many exchanges among subaccounts it may allow before the contract owner would be currently taxed on income earned within subaccount assets. At this time, we do not know what the additional guidance will be or when action will be taken. We reserve the right to modify the contract, as necessary, so that the owner will not be subject to current taxation as the owner of the subaccount assets. We intend to comply with all federal tax laws so that the contract continues to qualify as an annuity for federal income tax purposes. We reserve the right to modify the contract as necessary to comply with any new tax laws. The Fixed Accounts Guarantee Period Accounts You may also allocate purchase payments to one or more of the Guarantee Period Accounts with Guarantee Periods ranging from two to ten years. The minimum required investment in each Guarantee Period Account is $1,000. Each Guarantee Period Account pays an interest rate that is declared when you allocate money to that account. That interest rate is then fixed for the Guarantee Period that you chose. We will periodically change the declared interest rate for any future allocations to these accounts, but we will not change the rate paid on money currently in a Guarantee Period Account. We have no specific formula for determining the rate of interest that we declare as future interest rates on the Guarantee Period Accounts. We will declare the interest rates from time to time based on our analysis of current market conditions. In addition, we also may consider various other factors in determining the interest rates for a given Guarantee Period including regulatory and tax requirements; sales commissions and administrative expenses we bear; general economic trends; and competitive factors. You may transfer money out of the Guarantee Period Accounts within 30 days before the end of the Guarantee Period without receiving a MVA (see "Market Value Adjustment (MVA)" below.) At that time you may choose to start a new Guarantee Period of the same length, transfer the money to another Guarantee Period Account, transfer the money to any of the subaccounts, or withdraw the money from the contract (subject to applicable withdrawal provisions). If we do not receive any instructions at the end of your Guarantee Period, we will automatically transfer the money into the one-year fixed account. These accounts are not available in all states and are not offered after annuity payouts begin. We hold amounts you allocate to the Guarantee Period Accounts in a "nonunitized" separate account we have established under the Indiana Insurance Code. This separate account provides an additional measure of assurance that we will make full payment of amounts due under the Guarantee Period Accounts. State insurance law prohibits us from charging this separate account with liabilities of any other separate account or of our general business. We own the assets of this separate account as well as any favorable investment performance of those assets. You do not participate in the performance of the assets held in this separate account. We guarantee all benefits relating to your value in the Guarantee Period Accounts. We intend to construct and manage the investment portfolio relating to the separate account using a strategy known as "immunization." Immunization seeks to lock in a defined return on the pool of assets versus the pool of liabilities over a specified time horizon. Since the return on the assets versus the liabilities is locked in, it is "immune" to any potential fluctuations in interest rates during the given time. We achieve immunization by constructing a portfolio of assets with a price sensitivity to interest rate changes (i.e., price duration) that is essentially equal to the price duration of the corresponding portfolio of liabilities. Portfolio immunization provides us with flexibility and efficiency in creating and managing the asset portfolio, while still assuring safety and soundness for funding liability obligations. We must invest this portfolio of assets in accordance with requirements established by applicable state laws regarding the nature and quality of investments that life insurance companies may make and the percentage of their assets that they may commit to any particular type of investment. Our investment strategy will incorporate the use of a variety of debt instruments having price durations tending to match the applicable Guarantee Periods. These instruments include, but are not necessarily limited to, the following: o Securities issued by the U.S. government or its agencies or instrumentalities, which issues may or may not be guaranteed by the U.S. government; o Debt securities that have an investment grade, at the time of purchase, within the four highest grades assigned by any of three nationally recognized rating agencies - Standard & Poor's, Moody's Investors Service or Duff and Phelp's - or are rated in the two highest grades by the National Association of Insurance Commissioners; o Other debt instruments which are unrated or rated below investment grade, limited to 10% of assets at the time of purchase; and o Real estate mortgages, limited to 45% of portfolio assets at the time of acquisition. In addition, options and futures contracts on fixed income securities will be used from time to time to achieve and maintain appropriate investment and liquidity characteristics on the overall asset portfolio. While this information generally describes our investment strategy, we are not obligated to follow any particular strategy except as may be required by federal law and Indiana and other state insurance laws. Market Value Adjustment (MVA) You may choose to transfer or withdraw money out of the Guarantee Period Accounts prior to the end of the Guarantee Period. The amount transferred or withdrawn will receive a MVA which will increase or decrease the actual amount transferred or withdrawn. We calculate the MVA using the formula shown below and we base it on the current level of interest rates compared to the rate of your Guarantee Period Account. Amount transferred x ( l + i ) n/12 -------------------- ( l + j + .001 ) Where: i = rate earned in the account from which funds are being transferred j = current rate for a new Guarantee Period equal to the remaining term in the current Guarantee Period n = number of months remaining in the current Guarantee Period (rounded up) We will not make MVAs for amounts withdrawn for withdrawal charges, the annual contract administrative charge or paid out as a death claim. We also will not make MVAs on automatic transfers in the Guarantee Period Account. We determine any applicable withdrawal charges based on the market value adjusted withdrawals. In some states the MVA is limited. The one-year fixed account You may allocate purchase payments to the one-year fixed account. We back the principal and interest guarantees relating to the one-year fixed account. The value of the one-year fixed account increases as we credit interest to the account. Purchase payments and transfers to the one-year fixed account become part of our general account. We credit interest daily and compound it annually. We will change the interest rates from time to time at our discretion. Interest in the one-year fixed account is not required to be registered with the SEC. However, the Market Value Adjustment interests under the contracts are registered with the SEC. The SEC staff does not review the disclosures in this prospectus on the one-year fixed account (but the SEC does review the disclosures in this prospectus on the Market Value Adjustment interests). Disclosures regarding the one-year fixed account, however, may be subject to certain generally applicable provisions of the federal securities laws relating to the accuracy and completeness of statements made in prospectuses. (See "Making the Most of Your Contract -- Transfer policies" for restrictions on transfers involving the one-year fixed account.) Buying Your Contract You or your sales representative will send an application along with your initial purchase payment to our office. As the owner, you have all rights and may receive all benefits under the contract. You can own a nonqualified annuity in joint tenancy with rights of survivorship only in spousal situations. You cannot own a qualified annuity in joint tenancy. AEFA will not issue a qualified annuity or non-qualified rollover annuity due to administration system restrictions. You can buy a contract or become an annuitant if you are 85 or younger. (The age limit may be younger for qualified annuities in some states.) When you apply, you may select: o the length of the withdrawal charge period (six or eight years)*; o the optional Enhanced Death Benefit Rider; o the optional Guaranteed Minimum Income Benefit Rider; o the one-year fixed account, Guarantee Period Accounts and/or subaccounts in which you want to invest; o how you want to make purchase payments; and o a beneficiary. *Contracts sold through AEFA are only available with an eight-year withdrawal charge schedule. 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 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 60th day after the contract's effective date; and o no later than the annuitant's 85th birthday or the tenth contract anniversary, if purchased after age 75. For qualified annuities (except Roth IRAs), to avoid IRS penalty taxes, the retirement date generally must be: o on or after the date the annuitant reaches age 59 1/2; and o for IRAs and SEPs, by April 1 of the year following the calendar year when the annuitant reaches age 70 1/2. If you take the minimum IRA distribution as required by the Code from another tax-qualified investment, or in the form of partial withdrawals from this contract, annuity payouts can start as late as the annuitant's 85th birthday or the tenth contract anniversary, if later. Beneficiary We will pay your named beneficiary the death benefit if it becomes payable before the retirement date (while the contract is in force and before annuity payouts begin). If there is no named beneficiary, then you or your estate will be the beneficiary. (See "Benefits in Case of Death" for more about beneficiaries.) Purchase payments Minimum initial purchase payment: $100,000 for contracts sold through AEFA $2,000 for all other contracts Minimum additional purchase payments: If paying by SIP*: If paying by any other method**: $50 $100 *Payments made using SIP must total $2,000 before you can make partial withdrawals. **The Guarantee Period Accounts require a minimum $1,000 initial payment. Maximum total allowable purchase payments*** (without prior approval): $1,000,000 ***This limit applies in total to all American Enterprise Life annuities you own. We reserve the right to increase the maximum limit. For qualified annuities, the qualified 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: Regular mail: American Enterprise Life Insurance Company 80 South Eighth Street P.O. Box 534 Minneapolis, MN 55440-0534 Express mail: American Enterprise Life Insurance Company Attention: Unit 829 733 Marquette Avenue Minneapolis, MN 55402 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 calculate the credit as a percentage of the net current payment (current payment less the amount of partial withdrawals that exceed all prior purchase payments) according to 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 subsequent payments which cause the contract to become eligible for a higher percentage credit, we will add credits to increase the credit percentage on prior payments (less 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. 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 the charge at the time of withdrawal regardless of the contract value or purchase payments made. We cannot increase the annual contract administrative charge and it does not apply after annuity payouts begin or when we pay death benefits. Variable account administrative charge We apply this charge daily to the subaccounts. It is reflected in the unit values of the subaccounts and it totals 0.15% of their average daily net assets on an annual basis. It covers certain administrative and operating expenses of the subaccounts such as accounting, legal and data processing fees and expenses involved in the preparation and distribution of reports and prospectuses. We cannot increase the variable account administrative charge. Mortality and expense risk fee We charge this fee daily to the subaccounts. The unit values of your subaccounts reflect this fee. 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. The subaccounts pay us the mortality and expense risk fee they accrued as follows: o first, to the extent possible, the subaccounts pay this fee from any dividends distributed from the funds in which they invest; o then, if necessary, the funds redeem shares to cover any remaining fees payable. We may use any profits we realize from the subaccounts' payment to us of the mortality and expense risk fee for any proper corporate purpose, including, among others, payment of distribution (selling) expenses. We do not expect that the withdrawal charge, discussed in the following paragraphs, will cover sales and distribution expenses. Enhanced Death Benefit Rider fee We charge a fee for this optional feature only if you choose this option. If selected, we apply this fee daily to the subaccounts as part of the mortality and expense risk fee. It is reflected in the unit values of the subaccounts and it totals 0.20% of their average daily net assets on an annual basis. We cannot increase the Enhanced Death Benefit Rider fee. Guaranteed Minimum Income Benefit Rider fee We charge a fee for this optional feature only if you choose this option. If selected, we deduct the fee (currently 0.30%) from the contract value on your contract anniversary at the end of each contract year. We prorate this fee among the subaccounts and fixed accounts in the same proportion your interest in each account bears to your total contract value. We apply the fee on an adjusted benefit base calculated as the result of (a) + (b) - (c), where: (a) is the Guaranteed Income Benefit Base, (b) is the adjusted transfers from the subaccounts to the fixed accounts made in the last six months, and (c) is the total contract value in the fixed accounts. The result of (b) minus (c) cannot be greater than zero. It allows us to base the charge largely on the subaccounts, and not on the fixed accounts. We will deduct the fee, adjusted for the number of calendar days coverage was in place, if the contract is terminated for any reason or when annuity payouts begin. We cannot increase the Guaranteed Minimum Income Benefit Rider fee after the rider effective date and it does not apply after annuity payouts begin. We can increase the Guaranteed Minimum Income Benefit Rider fee on new contracts up to a maximum of 0.75%. Withdrawal charge If you withdraw all or part of your contract, you may be subject to a withdrawal charge. A withdrawal charge applies if all or part of the withdrawal amount is from purchase payments we received within six or eight years before withdrawal. You select the withdrawal charge period at the time of your application for the contract. The withdrawal charge percentages that apply to you are shown in your contract. In addition, amounts withdrawn from a Guarantee Period Account prior to the end of the applicable Guarantee Period will be subject to a MVA. (See "The Fixed Accounts - Market Value Adjustments (MVA).") For purposes of calculating any withdrawal charge, we treat amounts withdrawn from your contract value in the following order: 1. First, in each contract year, we withdraw amounts totaling up to 10% of your prior anniversary contract value. (Your initial purchase payment is considered the prior anniversary contract value during the first contract year.) We do not assess a withdrawal charge on this amount. 2. Next, we withdraw contract earnings, if any, that are greater than the annual 10% free withdrawal amount described in number one above. Contract earnings equal contract value less purchase payments received and not previously withdrawn. We do not assess a withdrawal charge on contract earnings. NOTE: We determine contract earnings by looking at the entire contract value, not the earnings of any particular subaccount or the fixed accounts. 3. Next we withdraw purchase payments received prior to the withdrawal charge period you selected and shown in your contract. We do not assess a withdrawal charge on these purchase payments. 4. Finally, if necessary, we withdraw purchase payments received that are still within the withdrawal charge period you selected and shown in your contract. We withdraw these payments on a first-in, first-out (FIFO) basis. We do assess a withdrawal charge on these payments. We determine your withdrawal charge by multiplying each of your payments withdrawn by the applicable withdrawal charge percentage, and then adding the total withdrawal charges. The withdrawal charge percentage depends on the number of years since you made the payments that are withdrawn, depending on the schedule you selected:
Six-year schedule Eight-year schedule Years from purchase payment Withdrawal charge Years from purchase Withdrawal charge 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
Withdrawal charge calculation example: The following is an example of the calculation we would make to determine the withdrawal charge on a contract with an eight-year withdrawal charge schedule with this history: o The contract date is Nov. 1, 1999 with a contract year of Nov. 1 through Oct. 30 and with an anniversary date of Nov. 1 each year; and o We received these payments - $10,000 Nov. 1, 1999; - $8,000 Dec. 31, 2005; and - $6,000 Feb. 20, 2007; and o The owner withdraws the contract for its total withdrawal value of $38,101 on Aug. 5, 2009 and had not made any other withdrawals during that contract year; and o The prior anniversary Nov. 1, 2008 contract value was $38,488.
Withdrawal Charge Explanation $ 0 $3,848.80 is 10% of the prior anniversary contract value withdrawn without withdrawal charge; and $ 0 $10,252.20 is contract earnings in excess of the 10% free withdrawal amount withdrawn without withdrawal charge; and $ 0 $10,000 Nov. 1, 1999 payment was received nine or more years before withdrawal and is withdrawn without withdrawal charge; and $640 $8,000 Dec. 31, 2005 payment is in its fourth year from receipt, withdrawn with an 8% withdrawal charge; and $480 $6,000 Feb. 20, 2007 payment is in its third year from receipt --- withdrawn with an 8% withdrawal charge. $1,120
For a partial withdrawal that is subject to a withdrawal charge, the amount we actually withdraw from your contract will be the amount you request plus any applicable withdrawal charge. We apply the withdrawal charge to this total amount. We pay you the amount you requested. If you make a full withdrawal of your contract, we also will deduct the $30 contract administrative charge. Waiver of withdrawal charges We do not assess withdrawal charges for: o withdrawals of any contract earnings; o amounts totaling up to 10% of your prior contract anniversary contract value to the extent it exceeds contract earnings; o required minimum distributions from a qualified annuity (for those amounts required to be distributed from the contract described in this prospectus); o contracts settled using an annuity payout plan; o withdrawals made as a result of one of the "Contingent events"* described below to the extent permitted by state law (see your contract for additional conditions and restrictions); o amounts we refund to you during the free look period; and o death benefits.* *However, we will reverse certain purchase payment credits up to the maximum withdrawal charge. (See "Buying Your Contract - Purchase payment credits.") Contingent events o Withdrawals you make if you or the annuitant are confined to a hospital or nursing home and have been for the prior 60 days. Your contract will include this provision when the owner and annuitant are under age 76 on the date we issue the contract. You must provide proof satisfactory to us of the confinement as of the date you request the withdrawal. o Withdrawals you make if you or the annuitant are diagnosed in the second or later contract years as disabled with a medical condition that with reasonable medical certainty will result in death within 12 months or less from the date of the licensed physician's statement. You must provide us with a licensed physician's statement containing the terminal illness diagnosis and the date the terminal illness was initially diagnosed. o Withdrawals you make if you or the annuitant become disabled within the meaning of IRC Section 72(m)(7) after your contract date. The disabled person must also be receiving Social Security disability or state long term disability benefits. The disabled person must be age 70 or younger at the time of withdrawal. You must provide us with a signed letter from the disabled person stating that he or she meets the above criteria, a legible photocopy of Social Security disability or state long term disability benefit payments and the application for such payments. o Withdrawals you make once a year if you or the annuitant become unemployed at least one year after your contract's date, up to the following amounts each year: (a) 25% of your prior anniversary contract value (or $10,000 if greater) if the unemployment condition is met for at least 30 straight days; or (b) 50% of your prior anniversary contract value (or $10,000 if greater) if the unemployment condition is met for at least 180 straight days. The unemployment condition is met if the unemployed person is currently receiving unemployment compensation from a government unit of the United States, whether federal or state. You must provide us with a signed letter from the unemployed person stating that he or she meets the above criteria with a legible photocopy of the unemployment benefit payments meeting the above criteria with regard to dates. 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 5.07% if the assumed investment rate is 3.5% and 7.02% if the assumed investment rate is 5%. The withdrawal charge is equal to the difference in discount values using the above discount rates and the assumed investment rate. 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 (up to 3.5%). These taxes depend upon your state of residence or the state in which the contract was sold. We deduct premium taxes when you make a full withdrawal from your contract or when annuity payouts begin. We reserve the right to deduct this tax at other times such as when you make purchase payments. Valuing Your Investment We value your fixed accounts and subaccounts as follows: Fixed accounts: We value the amounts you allocated to the fixed accounts directly in dollars. The value of a fixed account equals: o the sum of your purchase payments and transfer amounts allocated to the one-year fixed account and the Guarantee Period Accounts; o plus any purchase payment credits allocated to the fixed accounts; o plus interest credited; o minus the sum of amounts withdrawn after the MVA (including any applicable withdrawal charges) and amounts transferred out; o minus any prorated contract administrative charge; and o minus any prorated portion of the Guaranteed Minimum Income Benefit Rider fee (if applicable). Subaccounts: We convert amounts you allocated to the subaccounts into accumulation units. Each time you make a purchase payment or transfer amounts into one of the subaccounts or we apply any purchase payment credits, we credit a certain number of accumulation units to your contract for that subaccount. Conversely, each time you take a partial withdrawal, transfer amounts out of a subaccount, or we assess a contract administrative charge or the Guaranteed Minimum Income Benefit Rider fee, we subtract a certain number of accumulation units from your contract. The accumulation units are the true measure of investment value in each subaccount during the accumulation period. They are related to, but not the same as, the net asset value of the fund in which the subaccount invests. The dollar value of each accumulation unit can rise or fall daily depending on the variable account expenses, performance of the fund and on certain fund expenses. Here is how we calculate accumulation unit values: Number of units To calculate the number of accumulation units for a particular subaccount, we divide your investment by the current accumulation unit value. Accumulation unit value The current accumulation unit value for each subaccount equals the last value times the subaccount's current net investment factor. Net investment factor We determine the net investment factor by: o adding the fund's current net asset value per share, plus the per share amount of any accrued income or capital gain dividends to obtain a current adjusted net asset value per share; then o dividing that sum by the previous adjusted net asset value per share; and o subtracting the percentage factor representing the mortality and expense risk fee, the variable account administrative charge and the Enhanced Death Benefit Rider fee (if selected) from the result. Because the net asset value of the fund may fluctuate, the accumulation unit value may increase or decrease. You bear all the investment risk in a subaccount. Factors that affect subaccount accumulation units Accumulation units may change in two ways: in number and in value. Here are the factors that influence those changes: The number of accumulation units you own may fluctuate due to: o additional purchase payments you allocate to the subaccounts; o any purchase payment credits allocated to the subaccounts; o transfers into or out of the subaccounts; o partial withdrawals; o withdrawal charges; o prorated portions of the contract administrative charge; and/or o prorated portions of the Guaranteed Minimum Income Benefit Rider fee (if selected). Accumulation unit values will fluctuate due to: o changes in funds' net asset value; o dividends distributed to the subaccounts; o capital gains or losses of funds; o fund operating expenses; and/or o mortality and expense risk fee, the variable account administrative charge and the Enhanced Death Benefit Rider fee (if selected). 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 Guarantee Period Accounts (two year only) 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 Amount Accumulation unit Number of units equal number of Month invested value purchased dollars each month... Jan $100 $20 5.00 Feb 100 18 5.56 you automatically buy Mar 100 17 5.88 more units when the Apr 100 15 6.67 per unit market price May 100 16 6.25 is low... Jun 100 18 5.56 Jul 100 17 5.88 and fewer units when Aug 100 19 5.26 the per unit market Sept 100 21 4.76 price is high. Oct 100 20 5.00
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 with this strategy will depend upon your willingness to continue to invest regularly through periods of low price levels. Dollar-cost averaging can be an effective way to help meet your long-term goals. For specific features contact us. Asset Rebalancing You can ask us in writing to automatically rebalance the subaccount portion of your contract value either quarterly, semi-annually or annually. The period you select will start to run on the date we record your request. On the first valuation date of each of these periods, we automatically will rebalance your contract value so that the value in each subaccount matches your current subaccount percentage allocations. These percentage allocations must be in whole numbers. Asset rebalancing does not apply to the fixed accounts. There is no charge for asset rebalancing. The contract value must be at least $2,000. You can change your percentage allocations or your rebalancing period at any time by contacting us in writing. We will restart the rebalancing period you selected as of the date we record your change. You also can ask us in writing to stop rebalancing your contract value. You must allow 30 days for us to change any instructions that currently are in place. For more information on asset rebalancing, contact your sales representative. Transferring money between accounts You may transfer money from any one subaccount, or the fixed accounts, to another subaccount before annuity payouts begin. (Certain restrictions apply to transfers involving the one-year fixed account.) We will process your transfer on the valuation date we receive your request. We will value your transfer at the next accumulation unit value calculated after we receive your request. There is no charge for transfers. Before making a transfer, you should consider the risks involved in switching investments. Transfers out of the Guarantee Period Accounts will be subject to a MVA if done more than 30 days before the end of the Guarantee Period. We may suspend or modify transfer privileges at any time. Excessive trading activity can disrupt fund management strategy and increase expenses, which are borne by all contract owners who allocated purchase payments to the fund regardless of their transfer activity. We may apply modifications or restrictions in any reasonable manner to prevent transfers we believe will disadvantage other contract owners. (For information on transfers after annuity payouts begin, see "Transfer policies" below.) Transfer policies o Before annuity payouts begin, you may transfer contract values between the subaccounts, or from the subaccounts to the fixed accounts at any time. However, if you made a transfer from the one-year fixed account to the subaccounts, you may not make a transfer from any subaccount back to the one-year fixed account for six months following that transfer. o You may transfer contract values from the one-year fixed account to the subaccounts or the Guarantee Period Accounts once a year on or within 30 days before or after the contract anniversary (except for automated transfers, which can be set up at any time for certain transfer periods subject to certain minimums). Transfers from the one-year fixed account are not subject to a MVA. o You may transfer contract values from the Guarantee Period Accounts at any time. Transfers made before the end of the Guarantee Period will receive a MVA, which may result in a gain or loss of contract value. o If we receive your request on or within 30 days before or after the contract anniversary date, the transfer from the one-year fixed account to the subaccounts or the Guarantee Period Accounts will be effective on the valuation date we receive it. o We will not accept requests for transfers from the one-year fixed account at any other time. o Once annuity payouts begin, you may not make transfers to or from the one-year fixed account, but you may make transfers once per contract year among the subaccounts. During the annuity payout period, your choices of subaccounts may be limited. o Once annuity payouts begin, you may not make any transfers to the Guarantee Period Accounts. How to request a transfer or withdrawal 1 Send your name, contract number, Social Security Number By letter: or Taxpayer Identification Number and signed request for a transfer or withdrawal to: Regular mail: American Enterprise Life Insurance Company 80 South Eighth Street P.O. Box 534 Minneapolis, MN 55440-0534 Express mail: American Enterprise Life Insurance Company Attention: Unit 829 733 Marquette Avenue Minneapolis, MN 55402 Minimum amount Transfers or withdrawals: $500 or entire account balance Maximum amount Transfers or withdrawals: Contract value 2 Your sales representative can help you set up automated By automated transfers or partial withdrawals among your subaccounts or transfers and fixed accounts. automated You can start or stop this service by written request or partial other method acceptable to us. withdrawals: You must allow 30 days for us to change any instructions that are currently in place. o Automated transfers from the one-year fixed account to any one of the subaccounts may not exceed an amount that, if continued, would deplete the one- year fixed account within 12 months. o Automated withdrawals may be restricted by applicable law under some contracts. o You may not make additional purchase payments if automated partial withdrawals are in effect. o Automated partial withdrawals may result in IRS taxes and penalties on all or part of the amount withdrawn. Minimum amount Transfers or withdrawals: $100 monthly $250 quarterly, semi-annually or annually 3 Call between 7 a.m. and 6 p.m. Central time: By phone: 800-333-3437 or (612) 671-7700 (Minneapolis/St. Paul area) Minimum amount Transfers or withdrawals: $500 or entire account balance Maximum amount Transfers: Contract value 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 total withdrawals, we will compute the value of your contract at the next accumulation unit value calculated after we receive your request. We may ask you to return the contract. You may have to pay charges (see "Charges") and IRS taxes and penalties (see "Taxes"). You cannot make withdrawals after annuity payouts begin except under Plan E (see "The Annuity Payout Period - Annuity payout plans"). Withdrawal policies If you have a balance in more than one account and you request a partial withdrawal, we will withdraw money from all your subaccounts and/or the fixed accounts in the same proportion as your value in each account correlates to your total contract value, unless you request otherwise. Receiving payment By regular or express mail: o payable to owner; o mailed to address of record. NOTE: We will charge you a fee if you request express mail delivery. Normally, we will send the payment within seven days after receiving your request. However, we may postpone the payment if: - - - -- the withdrawal amount includes a purchase payment check that has not cleared; - - - -- the NYSE is closed, except for normal holiday and weekend closings; - - - -- trading on the NYSE is restricted, according to SEC rules; - - - -- an emergency, as defined by SEC rules, makes it impractical to sell securities or value the net assets of the accounts; or - - - -- the SEC permits us to delay payment for the protection of security holders. Changing Ownership You may change ownership of your nonqualified annuity at any time by completing a change of ownership form we approve and sending it to our office. The change will become binding upon us when we receive and record it. We will honor any change of ownership request that we believe is authentic and we will use reasonable procedures to confirm authenticity. If we follow these procedures, we will not take any responsibility for the validity of the change. If you have a nonqualified annuity, you may incur income tax liability by transferring, assigning or pledging any part of it. (See "Taxes.") If you have a qualified annuity, you may not sell, assign, transfer, discount or pledge your contract as collateral for a loan, or as security for the performance of an obligation or for any other purpose except as required or permitted by the Code. However, if the owner is a trust or custodian, or an employer acting in a similar capacity, ownership of a contract may be transferred to the annuitant. 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. The benefit paid will be based on the death benefit coverage you select when you purchased the contract. If a contract has more than one person as the owner, we will pay benefits upon the first to die of any owner or the annuitant. If you or the annuitant die before annuity payouts begin while this contract is in force, we will pay the beneficiary the greatest of the following less any purchase payment credits added to the contract in the last 12 months: 1. the contract value; or 2. the total purchase payments paid plus purchase payment credits and less any "adjusted partial withdrawals"; or 3. the "maximum anniversary value" immediately preceding the date of death plus the dollar amount of any payments since that anniversary plus purchase payment credits and minus any "adjusted partial withdrawals" since that anniversary. If you own the contract in joint tenancy with rights of survivorship, we will pay benefits upon the first to die of either you or the annuitant. Adjusted partial withdrawals: We calculate an "adjusted partial withdrawal " for each partial withdrawal as the product of (a) times (b) where: (a) is the ratio of the amount of the partial withdrawal (including any applicable withdrawal charge) to the contract value on the date of (but prior to) the partial withdrawal; and (b) is the death benefit on the date of (but prior to) the partial withdrawal. Maximum anniversary value: Each contract anniversary prior to the earlier of your or the annuitant's 81st birthday, we calculate the anniversary value which is the greater of: (a) the contract value on that anniversary; or (b) total purchase payments made to the contract plus purchase payment credits and minus any "adjusted partial withdrawals". The "maximum anniversary value" is equal to the greatest of these anniversary values. After your or the annuitant's 81st birthday, the death benefit continues to be the death benefit value as of that date, plus any subsequent payments and purchase payment credits and minus any "adjusted partial withdrawals." Example: o The contract is purchased with a payment of $20,000 on Jan. 1, 1999. A purchase payment credit of $400 is added to the contract. o On Jan. 1, 2000 (the first contract anniversary) the contract value has grown to $24,000. o On March 1, 2000 the contract value has fallen to $22,000, at which point the owner takes a $1,500 partial withdrawal, leaving a contract value of $20,500. The death benefit on March 1, 2000 is calculated as follows: The "maximum anniversary value": $24,000.00 (the greatest of the anniversary values which was the contract value on Jan. 1, 2000) plus any purchase payments paid since that anniversary: +0.00 minus any "adjusted partial withdrawal" taken since that anniversary, calculated as: 1,500 x 24,000 = -1,636.36 ---------------- --------- 22,000 for a death benefit of: $22,363.64 Enhanced Death Benefit Rider If this rider is available in your state and both you and the annuitant are age 79 or younger on the contract date, you may choose to add this benefit to you contract. This rider provides that if you or the annuitant die before annuity payouts begin while this contract is in force, we will pay the beneficiary the greatest of the following amounts less any purchase payment credits added in the last 12 months: 1. the contract value; or 2. the total purchase payments paid plus purchase payment credits and less any "adjusted partial withdrawals"; or 3. the "maximum anniversary value" immediately preceding the date of death plus the dollar amount of any payments since that anniversary plus purchase payment credits and minus any "adjusted partial withdrawals" since that anniversary; or 4. the Variable Account 5% Floor The Variable Account 5% Floor On or before the contract anniversary after the earlier of your or the annuitant's 81st birthday, the Variable Account 5% Floor is the sum of the value in the fixed accounts plus the variable account floor. After the contract anniversary immediately following either your or the annuitant's 81st birthday, the Variable Account 5% Floor is the floor on that anniversary increased by additional purchase payments made since that anniversary plus purchase payment credits and reduced by any "adjusted partial withdrawals" since that anniversary. On each contract anniversary prior to the earlier of your or the annuitant's 81st birthday, we increase the variable account floor by accumulating the prior anniversary's floor at 5%. On the first contract anniversary, the floor is increased by 5% of the accumulated initial purchase payments plus purchase payment credits allocated to the subaccounts. On any day that you allocate additional amounts to, or withdraw or transfer from the subaccounts, we adjust the floor by adding the additional amounts and subtracting the "adjusted partial withdrawals" or adjusted transfers. For the Variable Account 5% Floor, we calculate the "adjusted partial withdrawals" or transfer as the result of (a) times (b) where: (a) is the ratio of the amount of withdrawal (including any withdrawal charges) or transfer from the subaccounts to the total value in the subaccounts on the date of (but prior to) the withdrawal or transfer. (b) is the variable account floor on the date of (but prior to) the withdrawal or transfer. Example: o The contract is purchased with a payment of $20,000 on Jan. 1, 1999 and a $400 purchase payment credit is added to the contract with $5,100 allocated to the one-year fixed account and $15,300 allocated to the subaccounts. o On Jan. 1, 2000 (the first contract anniversary), the one-year fixed account value is $5,200 and the subaccount value is $12,000. Total contract value is $17, 200. o On March 1, 2000, the one-year fixed account value is $5,300 and the subaccount value is $14,000. Total contract value is $19,300. The owner takes a $1,500 partial withdrawal all from the subaccounts, leaving the contract value at $17,800. The death benefit on March 1, 2000 is calculated as follows:
The "maximum anniversary value" (the purchase payment plus purchase payment credits): $ 20,400.00 plus any purchase payment paid since that anniversary: + 0.00 minus any "adjusted partial withdrawal" taken since that anniversary, calculated as: 1,500 x 20,400 = ------------------ 19,300 - 1,585.49 ---------- Maximum Anniversary Value Benefit $ 18,814.51 =========== The variable account floor on Jan. 1, 2000, calculated as: 1.05 x 15,300 = $ 16,065.00 plus any purchase payments paid since that anniversary: + 0.00 minus any "adjusted partial withdrawals" from the subaccounts, calculated as: 1,500 x 16,065 = ------------------- 14,000 -$ 1,721.25 ----------- Variable Account Floor Benefit $ 14,343.75 plus the one year fixed account value + 5,300.00 ---------- Variable Account 5% Floor, calculated as the one-year fixed account plus the Variable Account Floor Benefit $ 19,643.75 =========== Enhanced Death Benefit, calculated as the greater of the Maximum Anniversary Value Benefit and the Variable Account 5% Floor, minus any purchase payment $ 19,643.75 credits made in the last 12 months ($0)
If your spouse is sole beneficiary under a nonqualified annuity and you die before the retirement date, your spouse may keep the contract as owner with the contract value equal to the death benefit that would have otherwise been paid. To do this your spouse must, within 60 days after we receive proof of death, give us written instructions to keep the contract in force. There will be no withdrawal charges on the contract from that point forward unless additional purchase payments are made. The Guaranteed Minimum Income Benefit Rider, if selected, is then terminated. Under a qualified annuity, if the annuitant dies before the Code requires distributions to begin, and the spouse is the only beneficiary, the spouse may keep the contract as owner until the date on which the annuitant would have reached age 70 1/2 or any other date permitted by the Code. To do this, the spouse must give us written instructions within 60 days after we receive proof of death. The contract value is 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, if selected, is then terminated. Payments: Under a nonqualified annuity, we will pay the beneficiary in a single sum unless you give us other written instructions. We must fully distribute the death benefit within five years of your death. However, the beneficiary may receive payouts under any annuity payout plan available under this contract if: o the beneficiary asks us in writing within 60 days after we receive proof of death; and o payouts begin no later than one year after your death, or other date as permitted by the Code; and o the payout period does not extend beyond the beneficiary's life or life expectancy. When paying the beneficiary, we will process the death claim on the valuation date our death claim requirements are fulfilled. We will determine the contract's value at the next accumulation unit value calculated after our death claim requirements are fulfilled. We pay interest, if any, from the date of death at a rate no less than required by law. We will mail payment to the beneficiary within seven days after our death claim requirements are fulfilled. Other rules may apply to qualified annuities. (See "Taxes"). Guaranteed Minimum Income Benefit Rider An optional Guaranteed Minimum Income Benefit Rider may be available in many jurisdictions for a separate annual charge, (see "Charges - Guaranteed Minimum Income Rider fee"). The rider guarantees a minimum amount of fixed annuity lifetime income during the annuity payout period if your contract has been in force for at least ten years, subject to the conditions described below. The rider also provides you the option of variable annuity payouts, with a guaranteed minimum initial payment. This rider is only available at the time you purchase your contract if you also select the Enhanced Death Benefit Rider option. In some instances, we may allow you to add this rider if it was not available when you initially purchased your contract. In these instances, we would add this rider at the next contract anniversary and all conditions of the rider would use this date as the effective date. This rider does not create contract value or guarantee the performance of any investment option. Fixed annuity payouts under the terms of this rider will occur at the guaranteed annuity purchase rates stated in the contract. We base first year payments from the variable annuity payout option offered under this rider on the same factors as the fixed annuity payout option. We base subsequent payments on the initial payment and an assumed annual return of 5%. Because this rider is based on guaranteed actuarial factors for the fixed option, the level of fixed lifetime income it guarantees may be less than the level that would be provided by applying the then current annuity factors. Likewise, for the variable annuity payout option, we base the rider on more conservative factors resulting in a lower initial payment and lower lifetime payments than those provided otherwise if the same benefit base were used. However, the Guaranteed Income Benefit Base described below establishes a floor, which when higher than the contract value, can result in a higher annuity payout level. Thus, the rider is a guarantee of a minimum amount of annuity income. The Guaranteed Income Benefit Base is equal to the Enhanced Death Benefit if: o the Guaranteed Minimum Income Rider became effective on the contract date, and o all payments are recognized in the benefit base. The Guaranteed Income Benefit Base, less any applicable premium tax, is the value that will be used to determine minimum annuity payouts if the rider is exercised. We reserve the right to exclude subsequent payments and purchase payment credits paid in the last five years before exercise of the benefit, in the calculation of the Guaranteed Income Benefit Base. If we exclude such payments and credits, the Guaranteed Minimum Income Benefit Base would be calculated as the greatest of: (a) contract value less "market value adjusted prior 5 years of payments and purchase payment credits"; (b) total payments and purchase payment credits less prior 5 years of payments and purchase payment credits, less adjusted partial withdrawals; (c) Maximum Anniversary Value immediately preceding the date of settlement, plus payments and minus adjusted partial withdrawals since that anniversary, less the "market value adjusted prior 5 years of payments and purchase payment credits"; or (d) the Variable Account 5% Floor, less the 5% adjusted prior 5 years of payments and purchase payment credits. "Market value adjusted prior 5 years of payments and purchase payment credits" are calculated as the sum of each such payment or credit, multiplied by the ratio of the current contract value over the estimated contract value on the anniversary prior to such payment or credit. The estimated contract value at such anniversary is calculated by assuming that payments, credits and partial withdrawals occurring in a contract year take place at the beginning of the year for that anniversary and every year after that to the current contract year. "5% Adjusted prior 5 years of payments and purchase payment credits" are calculated as the sum of each payment or payment credit accumulated at 5% for the number of full contract years they have been in the contract. Conditions on election of the rider: The following conditions apply to the election of the rider: o you must elect the rider at the time you purchase your contract along with the Enhanced Death Benefit Rider option, and o the annuitant must be age 75 or younger on the contract date. Fund selection to continue the rider: You may allocate your purchase payments to any of the subaccounts or the fixed accounts. However, we reserve the right to limit the amount in the Wells Fargo Money Market Fund to 10% of the total amount in the subaccounts. If we are required to activate this restriction, and you have more than 10% of your subaccount value in this fund, we will send you notice and ask that you reallocate your contract value so that the limitation is satisfied within 60 days. If after 60 days the limitation is not satisfied, the rider will be terminated. Exercising the rider: The following conditions apply to the exercise of the rider: o you may only exercise the rider within 30 days after any contract anniversary following the expiration of a ten-year waiting period from the effective date of the rider, and o the annuitant on the retirement date must be between 50 and 86 years old, and o you can only take an annuity payout in one of the following annuity payout plans: - Plan A -- Life Annuity - no refund - Plan B -- Life Annuity with ten years certain - Plan D -- Joint and last survivor life annuity - no refund Contingent event benefits: If the annuitant satisfies the conditions for the waiver of withdrawal charges in the event of disability, terminal illness or a confinement in a nursing home or hospital (see "Charges- Waiver of withdrawal charges") you can exercise the rider at any time. In this event, you can take up to 50% of the Guaranteed Income Benefit Base in cash. You can use the balance of the Guaranteed Income Benefit Base for annuity payouts under the terms above with regard to annuitant age at retirement date, the annuity payout plans and the more conservative annuity factors. You can also change the annuitant for the payouts. Terminating the rider: The following conditions apply to the termination of the rider: o you may terminate the rider within 30 days after the first and fifth anniversary of the effective date of the rider. o you may terminate the rider any time after the 10th anniversary of the effective date of the rider. o the rider will terminate on the date you make a full withdrawal from the contract, or annuity payouts begin, or on the date that a death benefit is payable. o the rider will terminate on the contract anniversary after the annuitant's 86th birthday. Example: o The contract is purchased with a payment of $100,000 on Jan. 1, 2000, and a $2,000 purchase payment credit is added to the contract. o There are no additional purchase payments and no partial withdrawals. o The money is fully allocated to the subaccounts. o The annuitant is male and age 55 on the contract date. For the joint and last survivor option (annuity payout Plan D), the joint annuitant is female and age 55 on the contract date. o The Guaranteed Income Benefit Base is based on the Variable Account 5% Floor. o The contract is within 30 days after contract anniversary. If the Guaranteed Minimum Income Benefit Rider is exercised, the minimum fixed annuity monthly payout or the first year variable annuity monthly payout would be:
Fixed Annuity Payout Options Minimum Guaranteed Annual Income Contract Anniversary At Minimum Guaranteed Benefit Plan A -- Plan B -- Plan D -- Exercise Base Life Annuity Life Annuity Joint and last - no refund with ten years survivor life certain annuity - no refund 10 $166,147 $856.63 $842.37 $689.51 15 $212,051 $1,263.82 $1,204.45 $977.55
After the first year payments, lifetime income payments on a variable annuity payout option will depend on the investment performance of the subaccounts you select. The payments will be higher if investment performance is greater than a 5% annual return and lower if investment performance is less than a 5% annual return. 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. The amount available for payouts under the plan you select is the contract value on your retirement date (less any applicable premium tax). We do not deduct any withdrawal charges under the payout plans listed below. You also decide whether we will make annuity payouts on a fixed or variable basis, or a combination of fixed and variable. The amounts available to purchase payouts under the plan you select is the contract value on your retirement date (less any applicable premium tax). You may reallocate this contract value to the one-year fixed account to provide fixed dollar payouts and/or among the subaccounts to provide variable annuity payouts. During the annuity payout period, we reserve the right to limit the number of subaccounts in which you may invest. The Guarantee Period Accounts are not available during this payout period. Amounts of fixed and variable payouts depend on: o the annuity payout plan you select; o the annuitant's age and, in most cases, sex; o the annuity table in the contract; and o the amounts you allocated to the accounts at the settlement. In addition, for variable payouts only, amounts depend on the investment performance of the subaccounts you select. These payouts will vary from month to month because the performance of the funds will fluctuate. (In the case of fixed annuities, payouts remain the same from month to month.) For information with respect to transfers between accounts after annuity payouts begin, see "Making the Most of Your Contract -- Transfer policies." Annuity table The annuity table in your contract shows the amount of the first monthly payment for each $1,000 of contract value according to the age and, when applicable, the sex of the annuitant. (Where required by law, we will use a unisex table of settlement rates.) The table assumes that the contract value is invested at the beginning of the annuity payout period and earns a 5% rate of return, which is reinvested and helps to support future payouts. Substitution of 3.5% table If you ask us at least 30 days before the retirement date, we will substitute an annuity table based on an assumed 3.5% investment rate for the 5% table in the contract. The assumed investment rate affects both the amount of the first payout and the extent to which subsequent payouts increase or decrease. Using the 5% table results in a higher initial payment, but later payouts will increase more slowly when annuity unit values rise and decrease more rapidly when they decline. 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 have 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. The discount rate we use in the calculation will vary between 5.07% and 7.02% 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 or if the period you chose is less than your life expectancy as specified by tax law. Restrictions for some qualified plans: If you purchased a qualified annuity, you may be required to select a payout plan that provides for payouts: o over the life of the annuitant; o over the joint lives of the annuitant and a designated beneficiary; o for a period not exceeding the life expectancy of the annuitant; or o for a period not exceeding the joint life expectancies of the annuitant and a designated beneficiary. You have the responsibility for electing a payout plan that complies with your contract and with applicable law. If we do not receive instructions: You must give us written instructions for the annuity payouts at least 30 days before the annuitant's retirement date. If you do not, we will make payouts under Plan B, with 120 monthly payouts guaranteed. Contract values that you allocated to the one-year fixed account will provide fixed dollar payouts and contract values that you allocated among the subaccounts will provide variable annuity payouts. If monthly payouts would be less than $20: We will calculate the amount of monthly payouts at the time the contract value is used to purchase a payout plan. If the calculations show that monthly payouts would be less than $20, we have the right to pay the contract value to you in a lump sum or to change the frequency of the payouts. Death after annuity payouts begin If you or the annuitant die after annuity payouts begin, we will pay any amount payable to the beneficiary as provided in the annuity payout plan in effect. Taxes Generally, under current law, any increase in your contract value is taxable to you only when you receive a payout or withdrawal (see detailed discussion below). Any portion of the annuity payouts and any withdrawals you request that represent ordinary income are normally taxable. We will send you a tax information reporting form for any year in which we made a taxable distribution according to our records. Roth IRAs may grow and be distributed tax free if you meet certain distribution requirements. Qualified annuities: We designed this contract for use with qualified retirement plans. Special rules apply to these retirement plans. Your rights to benefits may be subject to the terms and conditions of these retirement plans regardless of the terms of the contract. Adverse tax consequences may result if you do not ensure that contributions, distributions and other transactions under the contract comply with the law. Qualified annuities have minimum distribution rules that govern the timing and amount of distributions during your life (except for Roth IRAs) and after your death. You should refer to your retirement plan or adoption agreement or consult a tax advisor for more information about your distribution rules. Annuity payouts under nonqualified annuities: A portion of each payout will be ordinary income and subject to tax, and a portion of each payout will be considered a return of part of your investment and will not be taxed. All amounts you receive after your investment in the contract is fully recovered will be subject to tax. Tax law requires that all nonqualified deferred annuities issued by the same company (and possibly its affiliates) to the same owner during a calendar year be taxed as a single, unified contract when you take distributions from any one of those contracts. Annuity payouts under qualified annuities (except Roth IRAs): Under a qualified annuity, the entire payout generally is includable as ordinary income and is subject to tax except to the extent that contributions were made with after-tax dollars. If you or your employer invested in your contract with deductible or pre-tax dollars as part of a qualified retirement plan, such amounts are not considered to be part of your investment in the contract and will be taxed when paid to you. 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 withdraw your contract before your plan specifies that you can receive payouts. Death benefits to beneficiaries: The death benefit under a contract (except a Roth IRA) is not tax-exempt. Any amount your beneficiary receives that represents previously deferred earnings within the contract is taxable as ordinary income to the beneficiary in the years he or she receives the payments. The death benefit under a Roth IRA generally is not taxable as ordinary income to the beneficiary if certain distribution requirements are met. Annuities owned by corporations, partnerships or trusts: For nonqualified annuities any annual increase in the value of annuities held by such entities generally will be treated as ordinary income received during that year. This provision is effective for purchase payments made after Feb. 28, 1986. However, if the trust was set up for the benefit of a natural person only, the income will remain tax-deferred. Penalties: If you receive amounts from your contract before reaching age 59 1/2, you may have to pay a 10% IRS penalty on the amount includable in your ordinary income. However, this penalty will not apply to any amount received by you or your beneficiary: o because of your death; o because you become disabled (as defined in the Code); o if the distribution is part of a series of substantially equal periodic payments, made at least annually, over your life or life expectancy (or joint lives or life expectancies of you and your beneficiary); or o if it is allocable to an investment before Aug. 14, 1982 (except for qualified annuities). For a qualified annuity, other penalties or exceptions may apply if you make withdrawals from your contract before your plan specifies that payouts can be made. Withholding, generally: If you receive all or part of the contract value, we may deduct withholding against the taxable income portion of the payment. Any withholding represents a prepayment of your tax due for the year. You take credit for these amounts on your annual tax return. If the payment is part of an annuity payout plan, we generally compute the amount of withholding using payroll tables. You may provide us with a statement of how many exemptions to use in calculating the withholding. As long as you've provided us with a valid Social Security Number or Taxpayer Identification Number, you can elect not to have any withholding occur. If the distribution is any other type of payment (such as a partial or full withdrawal), we compute withholding using 10% of the taxable portion. Similar to above, as long as you have provided us with a valid Social Security Number or Taxpayer Identification Number, you can elect not to have this withholding occur. Some states also impose withholding requirements similar to the federal withholding described above. If this should be the case, we may deduct state withholding from any payment from which we deduct federal withholding. The withholding requirements may differ if we are making payment to a non-U.S. citizen or if we deliver the payment outside the United States. Transfer of ownership of a nonqualified annuity: If you transfer a nonqualified annuity without receiving adequate consideration, the transfer is a gift and also may be a withdrawal for federal income tax purposes. If the gift is a currently taxable event for income tax purposes, the original owner will be taxed on the amount of deferred earnings at the time of the transfer and also may be subject to the 10% IRS penalty discussed earlier. In this case, the new owner's investment in the contract will be the value of the contract at the time of the transfer. Collateral assignment of a nonqualified annuity: If you collaterally assign or pledge your contract, earnings on purchase payments you made after Aug. 13, 1982 will be taxed to you like a withdrawal. Important: Our discussion of federal tax laws is based upon our understanding of current interpretations of these laws. Federal tax laws or current interpretations of them may change. For this reason and because tax consequences are complex and highly individual and cannot always be anticipated, you should consult a tax advisor if you have any questions about taxation of your contract. Tax qualification: We intend that the contract qualify as an annuity for federal income tax purposes. To that end, the provisions of the contract are to be interpreted to ensure or maintain such tax qualification, in spite of any other provisions of the contract. We reserve the right to amend the contract to reflect any clarifications that may be needed or are appropriate to maintain such qualification or to conform the contract to any applicable changes in the tax qualification requirements. We will send you a copy of any amendments. Voting Rights As a contract owner with investments in the subaccounts, you may vote on important fund policies until annuity payouts begin. Once they begin, the person receiving them has voting rights. We will vote fund shares according to the instructions of the person with voting rights. Before annuity payouts begin, the number of votes you have is determined by applying your percentage interest in each subaccount to the total number of votes allowed to the subaccount. After annuity payouts begin, the number of votes you have is equal to: o the reserve held in each subaccount for your contract; o divided by the net asset value of one share of the applicable fund. As we make annuity payouts, the reserve for the contract decreases; therefore, the number of votes also will decrease. We calculate votes separately for each subaccount. We will send notice of shareholders' meetings, proxy materials and a statement of the number of votes to which the voter is entitled. We will vote shares for which we have not received instructions in the same proportion as the votes for which we received instructions. We also will vote the shares for which we have voting rights in the same proportion as the votes for which we received instructions. Substitution of Investments We may substitute the funds in which the subaccounts invest if: o laws or regulations change, o existing funds become unavailable, or o in our judgment, the funds no longer are suitable for the subaccounts. If any of these situations occur and if we believe it is in the best interest of persons having voting rights under the contract, we have the right to substitute funds other than those currently listed in this prospectus for other funds. We may also: o add new subaccounts; o combine any two or more subaccounts; o add subaccounts investing in additional funds; o transfer assets to and from the subaccounts or the variable account; and o eliminate or close any subaccounts. In the event of substitution or any of these changes, we may amend the contract and take whatever action is necessary and appropriate without your consent or approval. However, we will not make any substitution or change without the necessary approval of the SEC and state insurance departments. We will notify you of any substitution or change. About the Service Providers Principal Underwriter American Express Financial Advisors Inc. (AEFA) serves as the principal underwriter for the contract. Its office are located at IDS Tower 10, Minneapolis, MN 55440. AEFA is a wholly-owned subsidiary of American Express Financial Corporation (AEFC) which is a wholly-owned subsidiary of American Express Company. The contracts will be distributed by broker-dealers which have entered into distribution agreements with AEFA and American Enterprise Life. We will pay commissions for sales of the contracts of up to 7% of purchase payments to insurance agencies or broker-dealers that are also insurance agencies. Sometimes we pay the commissions as a combination of a certain amount of the commission at the time of sale and a trail commission (which, when totaled, could exceed 7% of purchase payments). In addition, we may pay certain sellers additional compensation for selling and distribution activities under certain circumstances. From time to time, we will pay or permit other promotional incentives, in cash or credit or other compensation. Issuer American Enterprise Life issues the annuities. American Enterprise Life is a wholly-owned subsidiary of IDS Life, which is a wholly-owned subsidiary of AEFC. AEFC is a wholly-owned subsidiary of American Express Company. American Express Company is a financial services company principally engaged through subsidiaries (in addition to AEFC) in travel related services, investment services and international banking services. American Enterprise Life is a stock life insurance company organized in 1981 under the laws of the state of Indiana. Its administrative offices are located at 80 South Eighth Street, Minneapolis, MN 55402. Its statutory address is 100 Capitol Center South, 201 North Illinois Street, Indianapolis, IN 46204. American Enterprise Life conducts a conventional life insurance business. Legal proceedings A number of lawsuits have been filed against life and health insurers in jurisdictions in which American Enterprise Life and AEFC do business involving insurers' sales practices, alleged agent misconduct, failure to properly supervise agents and other matters. American Enterprise Life and AEFC, like other life and health insurers, from time to time are involved in such litigation. On October 13, 1998, an action entitled Richard W. and Elizabeth J. Thoresen vs. American Express Financial Corporation, American Centurion Life Assurance Company, American Enterprise Life Insurance Company, American Partners Life Insurance Company, IDS Life Insurance Company and IDS Life Insurance Company of New York was commenced in Minnesota State Court. The action was brought by individuals who purchased an annuity in a qualified plan. They allege that the sale of annuities in tax-deferred contributory retirement investment plans (e.g., IRAs) is never appropriate. The plaintiffs purport to represent a class consisting of all persons who made similar purchases. The plaintiffs seek damages in an unspecified amount. American Enterprise Life also is a defendant in various other lawsuits. In American Enterprise Life's opinion, none of these lawsuits will have a material adverse effect on our financial condition. 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.
Years ended Dec. 31, (thousands) 1998 1997 1996 1995 1994 Net investment income $ 340,219 $ 332,268 $ 271,719 $ 223,706 $ 162,201 Net loss on investments (4,788) (509) (5,258) (1,154) (1,190) Other 7,662 6,329 5,753 4,214 2,753 --------- -------------- -------------- -------------- -------------- Total revenues $ 343,093 $ 338,088 $ 272,214 $ 226,766 $ 163,764 =========== =========== =========== =========== =========== Income before income taxes $ 36,421 $ 44,958 $ 35,735 $ 33,440 $ 30,212 ============ ============ ============ ============ ============ Net income $ 22,026 $ 28,313 $ 22,823 $ 21,748 $ 19,638 ============ ============ ============ ============ ============ Total assets $ 4,885,621 $ 4,973,413 $ 4,425,837 $ 3,570,960 $ 2,712,286 ========== ========== ========== ========== ==========
Management's discussion and analysis of financial condition and results of operations 1998 Compared to 1997: Net income decreased 22 percent to $22 million in 1998, compared to $28 million in 1997. An increase in revenues, resulting primarily from an increase in net investment income was more than offset by an increase in benefits and expenses, resulting primarily from an increase in amortization of deferred policy acquisition costs. Total revenues increased to $343 million in 1998, compared with $338 million in 1997. The increase is primarily due to increases in net investment income and contractholder charges, partially offset by an increase in net realized loss on investments. Net investment income, the largest component of revenues, increased primarily as a result of an increase in investment yields. Contractholder charges, which consist primarily of charges on annuity contracts, increased 12 percent to $6.4 million in 1998, compared with $5.7 million in 1997. This increase is primarily the result of an increase in surrender charges. Net realized loss on investments increased to $4.8 million in 1998, compared to $0.5 million in 1997. The Company incurs realized losses when investments are sold at a loss and when a decline in the fair value of a fixed maturity investment is determined to be other than temporary and it is written down to fair value. Total benefits and expenses increased 4.6 percent to $307 million in 1998. The largest component of expenses, interest credited on investment contracts, decreased to $229 million, reflecting a decrease in annuities in force and lower interest rates. Amortization of deferred policy acquisition costs increased to $54 million, compared to $37 million in 1997. This increase was due primarily to accelerating amortization to reflect actual lapse experience on certain fixed annuities. 1997 Compared to 1996: Net income increased 24 percent to $28 million in 1997, compared to $23 million in 1996. This growth resulted primarily from an increase in net investment income, partially offset by an increase in interest credited on investment contracts. Total revenues increased to $338 million in 1997, compared with $272 million in 1996. The increase is primarily due to an increase in net investment and a decrease in net realized loss on investments. Net investment income, the largest component of revenues, increased primarily as a result of an increase in investments owned and a slight increase investment yields. Contractholder charges, which consist primarily of charges on annuity contracts, increased 3.6 percent to $5.7 million in 1997, compared with $5.5 million in 1996. This increase is primarily the result of an increase in surrender charges. Net realized loss on investments decreased to $0.5 million in 1997, compared to $5.3 million in 1996. The Company incurs realized losses when investments are sold at a loss and when a decline in the fair value of a fixed maturity investment is determined to be other than temporary and it is written down to fair value. Total benefits and expenses increased to $293 million in 1997. The largest component of expenses, interest credited on investment contracts, increased 21 percent to 231 million compared to $192 million in 1996. Amortization of deferred policy acquisition costs increased to $37 million compared to $31 million in 1996. These increases were due primarily to increased aggregate amounts in force. Risk Management The sensitivity analysis discussed below estimates the effects of hypothetical sudden and sustained change in the applicable market conditions on the ensuing year's earnings based on year-end positions. The market change, assumed to occur as of year-end, is a 100 basis point increase in market interest rates. Computations of the prospective effect of the hypothetical interest rate change is based on numerous assumptions, including relative levels of market interest rates, as well as the levels of assets and liabilities. The hypothetical change 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 change actually occurred over time. As a result, actual earnings effects in the future will differ from those quantified below. The Company primarily invests in fixed income securities over a broad range of maturities for the purpose of providing fixed annuity clients with a competitive rate of return on their investments while minimizing risk, and to provide a dependable and targeted spread between the interest rate earned on investments and the interest rate credited to contractholders' accounts. The Company does not invest in securities to generate trading profits. The Company has an investment committee that holds regularly scheduled meetings and, when necessary, special meetings. At these meetings, the committee reviews models projecting different interest rate scenarios and their impact on profitability. The objective of the committee is to structure the investment security portfolio based upon the type and behavior of products in the liability portfolio so as to achieve targeted levels of profitability. Rates credited to contractholders' accounts are generally reset at shorter intervals than the maturity of underlying investments. Therefore, margins may be negatively impacted by increases in the general level of interest rates. Part of the committee's strategy includes the purchase of some types of derivatives, such as interest rate caps, swaps and floors, for hedging purposes. These derivatives protect margins by increasing investment returns if there is a sudden and severe rise in interest rates, thereby mitigating the impact of an increase in rates credited to contractholders' accounts. The negative effect on the Company's pretax earnings of a 100 basis point increase in interest rates, which assumes repricings and customer behavior based on the application of proprietary models to the book of business at December 31, 1998, would be appoximately $3 million. Liquidity and Capital Resources The liquidity requirements of the Company are met by funds provided by premiums, 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 and investment purchases. The Company has an available line of credit with American Express Financial Corporation aggregating $50 million. The line of credit is used strictly as short-term sources of funds. No borrowings were outstanding under the agreement at December 31,1998. At December 31, 1998, outstanding reverse repurchase agreements totaled $51 million. At December 31, 1998, investments in fixed maturities comprised 82 percent of the Company's total invested assets. Of the fixed maturity portfolio, approximately 32 percent is invested in GNMA, FNMA and FHLMC mortgage-backed securities which are considered AAA/Aaa quality. At December 31, 1998, approximately 14 percent of the Company's investments in fixed maturities were below investment grade bonds. These investments may be subject to a higher degree of risk than the investment grade issues because of the borrower's generally greater sensitivity to adverse economic conditions, such as recession or increasing interest rates, and in certain instances, the lack of an active secondary market. Expected returns on below investment grade bonds reflect consideration of such factors. The Company has identified those fixed maturities for which a decline in fair value is determined to be other than temporary, and has written them down to fair value with a charge to earnings. At December 31, 1998, net unrealized appreciation on fixed maturities held to maturity included $52 million of gross unrealized appreciation and $7 million of gross unrealized depreciation. Net unrealized appreciation on fixed maturities available for sale included $102 million of gross unrealized appreciation and $34 million of gross unrealized depreciation. At December 31, 1998, the Company had an allowance for losses on mortgage loans totaling $8.5 million. The National Association of Insurance Commissioners has established risk-based capital standards to determine the capital requirements of a life insurance company based upon the risks inherent in its operations. These standards require the computation of a risk-based capital amount which is then compared to a company's actual total adjusted capital. The computation involves applying factors to various statutory financial data to address four primary risks: asset default, adverse insurance experience, interest rate risk and external events. These standards provide for regulatory attention when the percentage of total adjusted capital to authorized control level risk-based capital is below certain levels. As of December 31, 1998, the Company's total adjusted capital was well in excess of the levels requiring regulatory attention. Year 2000 Issue The Company is a wholly owned subsidiary of American Express Financial Corporation (AEFC), which is a wholly owned subsidiary of American Express Company (American Express). All of the major systems used by the Company are maintained by AEFC and are utilized by multiple subsidiaries and affiliates of AEFC. American Express is coordinating Year 2000 (Year 2000) efforts on behalf of all of its businesses and subsidiaries. Representatives of AEFC are participating in these efforts. American Express' and AEFC's Year 2000 compliance effort is divided into two initiatives. The first, known as "Millenniax," relates to mainframe and other technological systems maintained by the American Express Technologies organization. The second, known as "Business T," relates to the technological assets that are owned, managed or maintained by American Express' individual business and staff units, including AEFC. American Express' and AEFC's plans for remediation of theYear 2000 issue include the following program phases: (i) employee awareness and mobilization, (ii) inventory collection and assessment, (iii) impact analysis, (iv) remediation/decommission, (v) testing and (vi) implementation.With respect to systems maintained by American Express and AEFC, the first three phases referred to above have largely been completed for both Millenniax and Business T. In addition, the remediation/decommission phase for critical systems is nearly complete. As of June 30, 1999, for Millenniax for American Express, the remediation/decommission, testing and implementation phases for critical and non-critical systems in total are 91%, 85% and 74% complete, respectively. For Millenniax for AEFC, such phases are 99%, 98% and 97% complete, respectively. For Business T for American Express, such phases are 94%, 85% and 84% complete, respectively. For Business T for AEFC, such phases are 85%, 80% and 80% complete, respectively. American Express' cumulative costs since inception of the Year 2000 initiatives were $427 million through March 31, 1999 and are estimated to be in the range of $90 - $116 million for the remainder through 2000.* AEFC's cumulative costs since inception of the Year 2000 initiatives were $59 million through June 30, 1999 and are estimated to be in the range of $12 - $13 million for the remainder through 2000.* These costs, which are expensed as incurred, relate to both Millenniax and Business T, and have not had, nor are they expected to have, a material adverse impact on American Express', AEFC's, or the Company's results of operations or financial condition.* American Express' and AEFC's major businesses are heavily dependent upon internal computer systems, and all have significant interaction with systems of third parties, both domestically and internationally. American Express and AEFC are working with key external parties, including merchants, clients, counterparties, vendors, exchanges, utilities, suppliers, agents and regulatory agencies to mitigate the potential risks to American Express and AEFC of Year 2000. The failure of external parties to resolve their own Year 2000 issues in a timely manner could result in a material financial risk to American Express, AEFC or the Company. As part of their overall compliance program, American Express and AEFC are actively communicating with third parties through face-to-face meetings and correspondence, on an ongoing basis, to ascertain their state of readiness. Although numerous third parties have indicated to American Express and AEFC in writing that they are addressing their Year 2000 issues on a timely basis, the readiness of third parties overall varies across the spectrum. Because American Express' and AEFC's Year 2000 compliance is dependent on key third parties being compliant on a timely basis, there can be no assurances that American Express' and AEFC's efforts alone will resolve all Year 2000 issues. At this point, with remediation and testing of individual internal systems substantially complete, American Express' and AEFC's primary focus is on testing of systems on an integrated basis, independent validation of such testing and completing Year 2000 contingency plans. The contingency planning effort is a full-scale initiative that includes both internal and external experts under the guidance of an American Express-wide steering committee. The contingency plans, which are based in part on an assessment of the magnitude and probability of potential risks, primarily focus on proactive steps to prevent Year 2000-related failures from occurring, or if they should occur, detecting them quickly, minimizing their impact and expediting their repair. The Year 2000 contingency plans supplement disaster recovery and business continuity plans already in place, and include measures such as selecting alternative suppliers and channels of distribution and developing American Express' and AEFC's own technology infrastructure in lieu of those provided by third parties. Such plans encompass the creation of both remediation and business resumption contingency plans, in accordance with guidelines established by the Federal Financial Institutions Examination Council (FFIEC). For critical systems that are not yet Year 2000 compliant, American Express and AEFC are on track to achieve remediation by the second quarter of 1999*; to the extent that unforeseen circumstances arise that result in non-compliance of any such systems, remediation contingency plans are also being developed to mitigate such risk. American Express' and AEFC's business resumption contingency planning effort is divided into four phases, also in line with FFIEC guidelines: (i) establishing organizational planning guidelines; (ii) completing a business impact analysis; (iii) developing the business resumption contingency plans and (iv) validating and verifying the business resumption contingency plans. The first two of these phases have essentially been completed, and have identified and assessed the need for Year 2000 business resumption contingency plans for American Express' and AEFC's most critical core business processes. The contingency plans also address third party systems that American Express' and AEFC's businesses interface with and rely upon. American Express and AEFC expect that the development phase of their business resumption contingency plans will be substantially complete by the second quarter of 1999.* The final phase, which will include independent validation and verification of these plans, will take place during the third quarter of 1999.* American Express and AEFC will continue to refine their contingency planning activities throughout 1999 as additional information related to their exposures is gathered.* To the extent that there are Year 2000 failures that affect major internal processes or third party systems that American Express or AEFC relies upon, such failures could have a material impact on American Express and its businesses or subsidiaries, including American Enterprise Life, through business interruption or shutdown, financial loss, reputational damage and legal liability to third parties. *Statements in this Year 2000 discussion marked with an asterisk are forward-looking statements which are subject to risks and uncertainties. Important factors that could cause results to differ materially from these forward-looking statements include, among other things, the ability of American Express or AEFC to successfully identify all systems containing two-digit codes, the nature and amount of programming required to fix the affected systems, the costs of labor and consultants related to such efforts, the continued availability of such resources, and the ability of third parties that interface with American Express or AEFC to successfully address their Year 2000 issues. 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 $4,503,960,000 at Dec. 31, 1998, 28% was invested in mortgage-backed securities, 53% in corporate and other bonds, 18% in primary mortgage loans on real estate and the remaining 1% in other investments. Competition We are engaged in a business that is highly competitive due to the large number of stock and mutual life insurance companies and other entities marketing insurance products. There are over 1,600 stock, mutual and other types of insurers in the life insurance business. Best's Insurance Reports, Life-Health edition 1998, assigned us one of its highest classifications, A+ (Superior). Employees As of Dec. 31, 1998, we had no employees. Properties We occupy office space in Minneapolis, MN, which is rented by AEFC. We reimburse AEFC for rent based on direct and indirect allocation methods. Facilities occupied by us are believed to be adequate for the purposes for which they are used and well maintained. State Regulation American Enterprise Life is subject to the laws of the State of Indiana governing insurance companies and to the regulations of the Indiana Department of Insurance. An annual statement in the prescribed form is filed with the Indiana Department of Insurance each year covering our operation for the preceding year and its financial condition at the end of such year. Regulation by the Indiana Department of Insurance includes periodic examination to determine American Enterprise's contract liabilities and reserves so that the Indiana Department of Insurance may certify that these items are correct. The Company's books and accounts are subject to review by the Indiana Department of Insurance at all times. Such regulation does not, however, involve any supervision of the account's management or the company's investment practices or policies. In addition, American Enterprise Life is subject to regulation under the insurance laws of other jurisdictions in which it operates. A full examination of American Enterprise Life's operations is conducted periodically by the National Association of Insurance Commissioners. Under insurance guaranty fund laws, in most states, insurers doing business therein can be assessed up to prescribed limits for policyholder losses incurred by insolvent companies. Most of these laws do provide however, that an assessment may be excused or deferred if it would threaten an insurer's own financial strength. Directors and Executive Officers* The directors and principal executive officers of American Enterprise Life and the principal occupation of each during the last five years is as follows: Directors James E. Choat Born in 1947 Director, president and chief executive officer since 1996; Senior vice president - Institutional Products Group, AEFA, 1994 to 1997. Richard W. Kling Born 1940 Director and chairman of the board since March 1989. Paul S. Mannweiler** Born in 1949 Director since 1986; Partner at Locke Reynolds Boyd & Weisell since 1980. Paula R. Meyer Born in 1954 Director and executive vice president since 1998; vice president, AEFC since 1998; Piper Capital Management (PCM) President from Oct. 1997 to May 1998; PCM Director of Marketing from June 1995 to Oct. 1997; PCM Director of Retail Marketing from Dec. 1993 to June 1995. William A. Stoltzmann Born in 1948 Director since Sept. 1989; vice president, general counsel and secretary since 1985. Officers other than directors Jeffrey S. Horton Born 1961 Vice president and treasurer since Dec. 1997; vice president and corporate treasurer, AEFC, since Dec. 1997; controller, American Express Technologies - Financial Services, AEFC, from July 1997 to Dec. 1997; controller, Risk Management Products, AEFC, from May 1994 to July 1997; director of finance and analysis, Corporate Treasury, AEFC, from June 1990 to May 1994. Philip C. Wentzel Born in 1961 Vice president and controller since 1998; vice president - Finance, Risk Management Products, AEFC since 1997; and director of financial reporting and analysis from 1992 to 1997. *The address for all of the directors and principal officers is: IDS Tower 10, Minneapolis, MN 55440-0010 except for Mr. Mannweiler who is an independent director. **Mr. Mannweiler's address is: 201 No. Illinois Street, Indianapolis, IN 46204 Executive compensation Our executive officers also may serve one or more affiliated companies. The following table reflects cash compensation paid to the five most highly compensated executive officers as a group for services rendered in the most recent year to us and our affiliates. The table also shows the total cash compensation paid to all our executive officers, as a group, who were executive officers at any time during the most recent year.
Name of individual or number in group Position held Cash compensation Five most highly compensated $4,476,367 executive officers as a group: Richard W. Kling Chairman of the Board James E. Choat President and CEO Stuart A. Sedlacek Executive Vice President Lorraine R. Hart Vice President, Investments Deborah L. Pederson Assistant Vice President, Investments All executive officers as a group $7,925,328 (12)
Security ownership of management Our directors and officers do not beneficially own any outstanding shares of stock of the company. All of our outstanding shares of stock are beneficially owned by IDS Life. The percentage of shares of IDS Life owned by any director, and by all our directors and officers as a group, does not exceed 1% of the class outstanding. Experts Ernst & Young LLP, independent auditors, have audited the financial statements of American Enterprise Life Insurance Company at Dec. 31, 1998 and 1997, and for each of the three years in the period ended Dec. 31, 1998, as set forth in their report. We've included our financial statements in the prospectus and elsewhere in the registration statement in reliance on Ernst & Young LLP's report, given on their authority as experts in accounting and auditing. American Enterprise Life Financial Information
AMERICAN ENTERPRISE LIFE INSURANCE COMPANY BALANCE SHEET September 30, 1999 (unaudited) ($ thousands, except share amounts) ASSETS Investments: Fixed maturities: Held to maturity, at amortized cost (fair value: 1999, $1,023,281) $1,027,976 Available for sale, at fair value (amortized cost: 1999, $2,549,548) 2,480,649 ----------- 3,508,625 Mortgage loans on real estate 794,117 Other investments 9,148 Total investments 4,311,890 Accounts receivable 914 Accrued investment income 57,967 Deferred policy acquisition costs 186,723 Deferred income taxes 25,420 Other assets 32 Separate account assets 174,567 ------------ Total assets $4,757,513 LIABILITIES AND STOCKHOLDER'S EQUITY Liabilities: Future policy benefits for fixed annuities $4,049,397 Policy claims and other policyholders' funds 8,304 Amounts due to brokers 76,928 Other liabilities 22,069 Separate account liabilities 174,567 ----------- Total liabilities 4,331,265 Stockholder's equity: Capital stock, $100 par value per share; 100,000 shares authorized, 20,000 shares issued and outstanding 2,000 Additional paid-in capital 282,872 Accumulated other comprehensive income: Net unrealized securities (losses) gains (44,784) Retained earnings 186,160 Total stockholder's equity 426,248 Total liabilities and stockholder's equity $4,757,513 See accompanying notes.
AMERICAN ENTERPRISE LIFE INSURANCE COMPANY STATEMENTS OF INCOME Nine months ended September 30, (unaudited) ($ thousands) 1999 1998 --------- ------- Revenues: Net investment income $243,525 $258,163 Contractholder charges 4,317 5,018 Mortality and expense risk fees 1,581 872 Net realized gain (loss) on investments 4,897 (1,526) ---------- ---------- Total revenues 254,320 262,527 --------- -------- Benefits and expenses: Interest credited on investment contracts 157,155 173,709 Amortization of deferred policy acquisition costs 30,637 43,051 Other operating expenses 23,299 16,902 ---------- ----------- Total benefits and expenses 211,091 233,662 --------- -------- Income before income taxes 43,229 28,865 Income taxes 14,051 10,390 ---------- ------------ Net income $ 29,178 $ 18,475 ========= ========= See accompanying notes.
AMERICAN ENTERPRISE LIFE INSURANCE COMPANY STATEMENTS OF CASH FLOWS Nine months ended September 30, (unaudited) ($ thousands) 1999 1998 -------- ------- Cash flows from operating activities: Net income $ 29,178 $18,475 Adjustments to reconcile net income to net cash provided by (used in) operating activities: Change in accrued investment income 3,773 (1,802) Change in accounts receivable (82) 44 Change in deferred policy acquisition costs, net 9,756 23,054 Change in other assets 10 84 Change in policy claims and other policyholders' funds 915 (3,220) Deferred income tax benefit (448) (10,539) Change in other liabilities (2,430) 8,960 Amortization of premium 1,394 158 Net realized gain on investments (4,897) 1,526 Other, net (1,772) (302) --------------- ---------- Net cash provided by operating activities 35,397 36,438 Cash flows from investing activities: Fixed maturities held to maturity: Maturities 47,277 61,786 Sales 5,681 30,468 Fixed maturities available for sale: Purchases (589,946) (298,885) Maturities 216,467 239,612 Sales 359,677 43,579 Other investments: Purchases (20,766) (145,374) Sales 41,705 53,043 Change in amounts due from brokers (619) -- Change in amounts due to brokers 22,581 94,129 ---------- -------- Net cash provided by investing activities 82,057 78,358 Cash flows from financing activities: Activity related to investment contracts: Considerations received 244,670 237,037 Surrenders and other benefits (519,255) (525,542) Interest credited to account balances 157,131 173,709 ---------- ---------- Net cash used in financing activities (117,454) (114,796) ------------ ------------ Net increase (decrease) in cash and cash equivalents -- -- Cash and cash equivalents at beginning of period -- -- -------------- -------------- Cash and cash equivalents at end of year $ -- $ -- ============== ============== See accompanying notes.
AMERICAN ENTERPRISE LIFE INSURANCE COMPANY NOTES TO FINANCIAL STATEMENTS (unaudited) 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 September 30, 1999 and the related statements of income and cash flows for the nine month periods ended September 30, 1999 and 1998. 2. New Accounting Pronouncement In June 1998, the Financial Accounting Standards Board (FASB) issued Statement of Financial Accounting Standards No. 133 (FAS 133), Accounting for Derivative Instruments and Hedging Activities. In July 1999, The FASB issued FAS 137, which defers the effective date for implementation of FAS 133 by one year, making FAS 133 effective no later than January 1, 2001 for the Company's financial statements. FAS 133 establishes accounting and reporting standards for derivative instruments, including certain derivative instruments embedded in other contracts, and for hedging activities. It requires that an entity recognize all derivatives as either assets of liabilities in the balance sheet and measure those instruments at fair value. The accounting for changes in the fair value of a derivative depends on the intended use of the derivative and the resulting designation. Earlier application of all of the provisions of FAS 133 is encouraged, but is permitted only as of the beginning of any fiscal quarter that begins after issuance of FAS 133. This Statement cannot be applied retroactively. The Company has not yet determined when it will implement FAS 133. The ultimate financial impact of the new rule will be measured based on the derivatives in place at adoption and cannot be estimated at this time. Report of Independent Auditors The Board of Directors American Enterprise Life Insurance Company We have audited the accompanying balance sheets of American Enterprise Life Insurance Company (a wholly owned subsidiary of IDS Life Insurance Company) as of December 31, 1998 and 1997, and the related statements of income, stockholder's equity and cash flows for each of the three years in the period ended December 31, 1998. These financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on these financial statements based on our audits. We conducted our audits in accordance with generally accepted auditing standards. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion. In our opinion, the financial statements referred to above present fairly, in all material respects, the financial position of American Enterprise Life Insurance Company at December 31, 1998 and 1997, and the results of its operations and its cash flows for each of the three years in the period ended December 31, 1998, in conformity with generally accepted accounting principles. /s/ Ernst & Young LLP February 4, 1999 Minneapolis, Minnesota AMERICAN ENTERPRISE LIFE INSURANCE COMPANY BALANCE SHEETS December 31, ($ thousands, except share amounts)
ASSETS 1998 1997 - - - ------ ---------- ------- Investments: Fixed maturities: Held to maturity, at amortized cost (fair value: 1998, $1,126,732 ; 1997, $1,223,108) $1,081,193 $1,186,682 Available for sale, at fair value (amortized cost: 1998, $2,526,712; 1997, $2,609,621) 2,594,858 2,685,799 ----------- ----------- 3,676,051 3,872,481 Mortgage loans on real estate 815,806 738,052 Other investments 12,103 16,024 ------------- ------------- Total investments 4,503,960 4,626,557 Accounts receivable 214 563 Accrued investment income 61,740 59,588 Deferred policy acquisition costs 196,479 224,501 Other assets 43 117 Separate account assets 123,185 62,087 ------------ ------------- Total assets $4,885,621 $4,973,413 ========== ========== LIABILITIES AND STOCKHOLDER'S EQUITY Liabilities: Future policy benefits for fixed annuities $4,166,852 $4,343,213 Policy claims and other policyholders' funds 7,389 11,328 Deferred income taxes 23,199 35,601 Amounts due to brokers 54,347 34,935 Other liabilities 24,500 16,905 Separate account liabilities 123,185 62,087 ----------- ------------ Total liabilities 4,399,472 4,504,069 Stockholder's equity: Capital stock, $100 par value per share; 100,000 shares authorized, 20,000 shares issued and outstanding 2,000 2,000 Additional paid-in capital 282,872 282,872 Accumulated other comprehensive income: Net unrealized securities gains 44,295 49,516 Retained earnings 156,982 134,956 ------------ ------------ Total stockholder's equity 486,149 469,344 ------------ ------------ Total liabilities and stockholder's equity $4,885,621 $4,973,413 ========== ==========
See accompanying notes. AMERICAN ENTERPRISE LIFE INSURANCE COMPANY STATEMENTS OF INCOME Years ended December 31, ($ thousands)
1998 1997 1996 ------ ------ ---- Revenues: Net investment income $340,219 $332,268 $271,719 Contractholder charges 6,387 5,688 5,450 Mortality and expense risk fees 1,275 641 303 Net realized loss on investments (4,788) (509) (5,258) ---------- ---------- ----------- Total revenues 343,093 338,088 272,214 --------- --------- ---------- Benefits and expenses: Interest credited on investment contracts 228,533 231,437 191,672 Amortization of deferred policy acquisition costs 53,663 36,803 30,674 Other operating expenses 24,476 24,890 14,133 ---------- ---------- -------- Total benefits and expenses 306,672 293,130 236,479 --------- --------- ------- Income before income taxes 36,421 44,958 35,735 Income taxes 14,395 16,645 12,912 ---------- ---------- --------- Net income $ 22,026 $ 28,313 $ 22,823 ========= ========= ========
See accompanying notes. AMERICAN ENTERPRISE LIFE INSURANCE COMPANY STATEMENTS OF STOCKHOLDER'S EQUITY Three years ended December 31, 1998
($ thousands) Accumulated Other Comprehensive Total Additional Stockholder's Capital Paid-In Income, Retained Equity Stock Capital Net of Tax Earnings Balance, December 31, 1995 $296,816 $2,000 $177,872 $ 33,124 $83,820 Comprehensive income: Net income 22,823 -- -- -- 22,823 Unrealized holding losses arising during the year, net of taxes of $12,282 (22,810) -- -- (22,810) -- Reclassification adjustment for losses included in net income, net of tax of $(1,093) 2,029 -- -- 2,029 -- ------------------- ----------------- Other comprehensive loss (20,781) -- -- (20,781) -- ----------------- Comprehensive income 2,042 Capital contribution from parent 65,000 -- 65,000 -- -- --------------------------------------------------------------------------- Balance, December 31, 1996 363,858 2,000 242,872 12,343 106,643 Comprehensive income: Net income 28,313 -- -- -- 28,313 Unrealized holding gains arising during the year, net of taxes of $(19,891) 36,940 -- -- 36,940 -- Reclassification adjustment for losses included in net income, net of tax of $(126) 233 -- -- 233 -- ------------------- ----------------- Other comprehensive income 37,173 -- -- 37,173 -- ----------------- Comprehensive income 65,486 Capital contribution from parent 40,000 40,000 --------------------------------------------------------------------------- Balance, December 31, 1997 469,344 2,000 282,872 49,516 134,956 Comprehensive income: Net income 22,026 -- -- -- 22,026 Unrealized holding losses arising during the year, net of taxes of $3,400 (6,314) -- -- (6,314) -- Reclassification adjustment for losses included in net income, net of tax 1,093 of $(588) -- -- 1,093 -- ----------------- ------------------- ------------------- Other comprehensive loss (5,221) -- -- (5,221) -- ----------------- ----------------- Comprehensive income 16,805 --------------------------------------------------------------------------- Balance, December 31, 1998 $486,149 $2,000 $282,872 $44,295 $156,982 ===========================================================================
See accompanying notes. AMERICAN ENTERPRISE LIFE INSURANCE COMPANY STATEMENTS OF CASH FLOWS Years ended December 31, ($ thousands)
1998 1997 1996 -------- -------- -------- Cash flows from operating activities: Net income $ 22,026 $ 28,313 $ 22,823 Adjustments to reconcile net income to net cash provided by (used in) operating activities: Change in accrued investment income (2,152) (8,017) (9,692) Change in accounts receivable 349 9,304 -- Change in deferred policy acquisition costs, net 28,022 (21,276) (32,651) Change in other assets 74 4,840 (10,007) Change in policy claims and other policyholders' funds (3,939) (16,099) 15,786 Deferred income tax (benefit) provision (9,591) (2,485) 5,084 Change in other liabilities 7,595 1,255 8,621 Amortization of premium (accretion of discount), net 122 (2,316) (2,091) Net realized loss on investments 4,788 509 5,258 Other, net 2,544 959 (129) ------------- --------- ---------- Net cash provided by (used in) operating activities 49,838 (5,013) 3,002 Cash flows from investing activities: Fixed maturities held to maturity: Purchases -- (1,996) (16,967) Maturities 73,601 41,221 26,190 Sales 31,117 30,601 27,944 Fixed maturities available for sale: Purchases (298,885) (688,050) (921,914) Maturities 335,357 231,419 212,212 Sales 48,492 73,366 47,542 Other investments: Purchases (161,252) (199,593) (212,182) Sales 78,681 29,139 19,850 Change in amounts due to brokers 19,412 (53,796) 88,568 ---------- ----------- ---------- Net cash provided by (used in) investing activities 126,523 (537,689) (728,757) Cash flows from financing activities: Activity related to investment contracts: Considerations received 302,158 783,339 846,378 Surrenders and other benefits (707,052) (552,903) (312,362) Interest credited to account balances 228,533 231,437 191,672 Change in securities sold under repurchase agreements -- -- (67,000) Capital contribution from parent -- 40,000 65,000 --------------- ---------- --------- Net cash (used in) provided by financing activities (176,361) 501,873 723,688 ----------- --------- -------- Net decrease in cash and cash equivalents -- (40,829) (2,067) Cash and cash equivalents at beginning of year -- 40,829 42,896 --------------- ---------- --------- Cash and cash equivalents at end of year $ -- $ -- $ 40,829 ============== ============== ==========
See accompanying notes. 1. Summary of significant accounting policies Nature of business American Enterprise Life Insurance Company (the Company) is a stock life insurance company that is domiciled in Indiana and is licensed to transact insurance business in 48 states. The Company's principal product is deferred annuities, which are issued primarily to individuals. It offers single premium and annual premium deferred annuities on both a fixed and variable dollar basis. Immediate annuities are offered as well. Basis of presentation The Company is a wholly owned subsidiary of IDS Life Insurance Company (IDS Life), which is a wholly owned subsidiary of American Express Financial Corporation (AEFC). AEFC is a wholly owned subsidiary of American Express Company. The accompanying financial statements have been prepared in conformity with generally accepted accounting principles which vary in certain respects from reporting practices prescribed or permitted by the Indiana Department of Insurance (see Note 4). The preparation of financial statements in conformity with generally accepted accounting principles requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates. Investments Fixed maturities that the Company has both the positive intent and the ability to hold to maturity are classified as held to maturity and carried at amortized cost. All other fixed maturities are classified as available for sale and carried at fair value. Unrealized gains and losses on securities classified as available for sale are reported as a separate component of accumulated other comprehensive income, net of deferred income taxes. Realized investment gain or loss is determined on an identified cost basis. Prepayments are anticipated on certain investments in mortgage-backed securities in determining the constant effective yield used to recognize interest income. Prepayment estimates are based on information received from brokers who deal in mortgage-backed securities. Mortgage loans on real estate are carried at amortized cost less an allowance for mortgage loan losses. The estimated fair value of the mortgage loans is determined by a discounted cash flow analysis using mortgage interest rates currently offered for mortgages of similar maturities. 1. Summary of significant accounting policies (continued) Impairment of mortgage loans is measured as the excess of the loan's recorded investment over its present value of expected principal and interest payments discounted at the loan's effective interest rate, or the fair value of collateral. The amount of the impairment is recorded in an allowance for mortgage loan losses. The allowance for mortgage loan losses is maintained at a level that management believes is adequate to absorb estimated losses in the portfolio. The level of the allowance account is determined based on several factors, including historical experience, expected future principal and interest payments, estimated collateral values, and current and anticipated economic and political conditions. Management regularly evaluates the adequacy of the allowance for mortgage loan losses. The Company generally stops accruing interest on mortgage loans for which interest payments are delinquent more than three months. Based on management's judgment as to the ultimate collectibility of principal, interest payments received are either recognized as income or applied to the recorded investment in the loan. The cost of interest rate caps and floors is amortized to investment income over the life of the contracts and payments received as a result of these agreements are recorded as investment income when realized. The amortized cost of interest rate caps and floors is included in other investments. When evidence indicates a decline, which is other than temporary, in the underlying value or earning power of individual investments, such investments are written down to the fair value by a charge to income. Statements of cash flows The Company considers investments with a maturity at the date of their acquisition of three months or less to be cash equivalents. These securities are carried principally at amortized cost which approximates fair value. Supplementary information to the statements of cash flows for the years ended December 31, is summarized as follows: 1998 1997 1996 ---- ----- ---- Cash paid during the year for: Income taxes $19,035 $19,456 $10,317 Interest on borrowings 5,437 1,832 998 Contractholder charges Contractholder charges include surrender charges and fees collected regarding the issue and administration of annuity contracts. 1. Summary of significant accounting policies (continued) Deferred policy acquisition costs The costs of acquiring new business, principally sales compensation, policy issue costs, and certain sales expenses, have been deferred on annuity contracts. These costs are amortized using primarily the interest method. Liabilities for future policy benefits Liabilities for deferred annuities are accumulation values. Liabilities for fixed annuities in a benefit status are based on the established industry mortality tables with various interest rates ranging from 5.5 percent to 8.75 percent, depending on year of issue. Federal income taxes The Company's taxable income is included in the consolidated federal income tax return of American Express Company. The Company provides for income taxes on a separate return basis, except that, under an agreement between AEFC and American Express Company, tax benefit is recognized for losses to the extent they can be used on the consolidated tax return. It is the policy of AEFC and its subsidiaries that AEFC will reimburse subsidiaries for all tax benefits. Included in other liabilities at December 31, 1998 and 1997 are $3,504 payable to and $1,289, receivable from, respectively, IDS Life for federal income taxes. Separate account business The separate account assets and liabilities represent funds held for the exclusive benefit of the variable annuity contract owners. The Company receives mortality and expense risk fees from the variable annuity separate accounts. The Company makes contractual mortality assurances to the variable annuity contract owners that the net assets of the separate accounts will not be affected by future variations in the actual life expectancy experience of the annuitants and beneficiaries from the mortality assumptions implicit in the annuity contracts. The Company makes periodic fund transfers to, or withdrawals from, the separate account assets for such actuarial adjustments for variable annuities that are in the benefit payment period. The Company also guarantees that the rates at which administrative fees are deducted from contract funds will not exceed contractual maximums. Accounting Changes Effective January 1, 1998, the Company adopted Statement of Financial Accounting Standards (SFAS) No. 130, "Reporting Comprehensive Income." SFAS No. 130 requires the reporting and display of comprehensive income and its components. Comprehensive income is defined as the aggregate change in stockholder's equity excluding changes in ownership interests. For the Company, it is net income and the unrealized gains or losses on available-for-sale securities net of taxes and reclassification adjustment. 1. Summary of significant accounting policies (continued) In March 1998, the American Institute of Certified Public Accountants (AICPA) issued Statement of Position (SOP) 98-1, "Accounting for Costs of Computer Software Developed or obtained for Internal Use." The SOP, which is effective January 1, 1999, requires the capitalization of certain costs incurred after the date of adoption to develop or obtain software for internal use. Software utilized by the Company is owned by AEFC and will be capitalized on AEFC's financial statements. As a result, the new rule will not have a material impact on the Company's results of operations or financial condition. In December 1997, the AICPA issued SOP 97-3, "Accounting by Insurance and Other Enterprises for Insurance-Related Assessments", providing guidance for the timing of recognition of liabilities related to guaranty fund assessments. The Company will adopt the SOP on January 1, 1999. The Company has historically carried a balance in other liabilities on the balance sheet for potential guaranty fund assessment exposure. Adoption of the SOP will not have a material impact on the Company's results of operations or financial condition In June 1998, the Financial Accounting Standards Board issued SFAS No. 133, "Accounting for Derivative Instruments and Hedging Activities," which is effective January 1, 2000. This Statement establishes accounting and reporting standards for derivative instruments, including certain derivative instruments embedded in other contracts, and for hedging activities. It requires that an entity recognize all derivatives as either assets or liabilities in the balance sheet and measure those instruments at fair value. The accounting for changes in the fair value of a derivative depends on the intended use of the derivative and the resulting designation. Earlier application of all of the provisions of this Statement is encouraged, but it is permitted only as of the beginning of any fiscal quarter that begins after issuance of the Statement. This Statement cannot be applied retroactively. The ultimate financial impact of the new rule will be measured based on the derivatives in place at adoption and cannot be estimated at this time. Reclassification Certain 1997 and 1996 amounts have been reclassified to conform to the 1998 presentation. 2. Investments Fair values of investments in fixed maturities represent quoted market prices and estimated values when quoted prices are not available. Estimated values are determined by established procedures involving, among other things, review of market indices, price levels of current offerings of comparable issues, price estimates and market data from independent brokers and financial files. The amortized cost, gross unrealized gains and losses and fair value of investments in fixed maturities at December 31, 1998 are as follows:
Gross Gross Amortized Unrealized Unrealized Fair Held to maturity Cost Gains Losses Value ---------------- -------------- ------- ------ ------- U.S. Government agency obligations $ 8,652 $ 423 $ -- $ 9,075 State and municipal obligations 3,003 149 -- 3,152 Corporate bonds and obligations 877,140 48,822 6,670 919,292 Mortgage-backed securities 192,398 2,844 29 195,213 ------------ ---------- ---------- ----------- $1,081,193 $ 52,238 $ 6,699 $1,126,732 ========== ======== ======= ========== Available for sale U.S. Government agency obligations $ 2,062 $ 116 $ -- $ 2,178 Corporate bonds and obligations 1,472,814 69,990 34,103 1,508,701 Mortgage-backed securities 1,051,836 32,232 89 1,083,979 ----------- ---------- ----------- --------- $2,526,712 $102,338 $34,192 $2,594,858 ========== ======== ======= ========== The amortized cost, gross unrealized gains and losses and fair value of investments in fixed maturities at December 31, 1997 are as follows: Gross Gross Amortized Unrealized Unrealized Fair Held to maturity Cost Gains Losses Value ---------------- -------------- ------- ------ ------- U.S. Government agency obligations $ 11,120 $ 710 $ -- $ 11,830 State and municipal obligations 3,003 173 -- 3,176 Corporate bonds and obligations 970,498 38,176 2,763 1005,911 Mortgage-backed securities 202,061 1,497 1,367 202,191 -------------- ---------- -------- ------------ $1,186,682 $ 40,556 $ 4,130 $1,223,108 ========== ======== ======= ========== Available for sale U.S. Government agency obligations $ 2,077 $ 13 $ -- $ 2,090 Corporate bonds and obligations 1,273,217 52,207 8,020 1,317,404 Mortgage-backed securities 1,334,327 33,017 1,039 1,366,305 ----------- -------- ------- --------- $2,609,621 $85,237 $9,059 $2,685,799 ========== ======= ====== ==========
2. Investments (continued) The amortized cost and fair value of investments in fixed maturities at December 31, 1998 by contractual maturity are shown below. Expected maturities will differ from contractual maturities because borrowers may have the right to call or prepay obligations with or without call or prepayment penalties. Amortized Fair Held to maturity Cost Value Due in one year or less $ 33,208 $ 33,499 Due from one to five years 215,010 227,139 Due from five to ten years 539,917 562,708 Due in more than ten years 100,660 108,173 Mortgage-backed securities 192,398 195,213 ------------ ------------ $1,081,193 $1,126,732 Amortized Fair Available for sale Cost Value Due in one year or less $ 350 $ 358 Due from one to five years 96,412 101,441 Due from five to ten years 981,556 1,021,961 Due in more than ten years 396,558 387,119 Mortgage-backed securities 1,051,836 1,083,979 --------- --------- $2,526,712 $2,594,858 During the years ended December 31, 1998, 1997 and 1996, fixed maturities classified as held to maturity were sold with amortized cost of $31,117, $29,561 and $27,969, respectively. Net gains and losses on these sales were not significant. The sales of these fixed maturities were due to significant deterioration in the issuers' creditworthiness. In addition, fixed maturities available for sale were sold during 1998 with proceeds of $48,492 and gross realized gains and losses of $2,835 and $4,516, respectively. Fixed maturities available for sale were sold during 1997 with proceeds of $73,366 and gross realized gains and losses of $1,081 and $1,440, respectively. Fixed maturities available for sale were sold during 1996 with proceeds of $47,542 and gross realized gains and losses of $17 and $3,139, respectively. At December 31, 1998, bonds carried at $3,292 were on deposit with various states as required by law. 2. Investments (continued) At December 31, 1998, investments in fixed maturities comprised 82 percent of the Company's total invested assets. These securities are rated by Moody's and Standard & Poor's (S&P), except for securities carried at approximately $480 million which are rated by AEFC internal analysts using criteria similar to Moody's and S&P. A summary of investments in fixed maturities, at amortized cost, by rating on December 31 is as follows: Rating 1998 1997 ---------------------- -------- ------ Aaa/AAA $1,242,301 $1,531,588 Aa/AA 45,526 34,167 Aa/A 60,019 69,775 A/A 422,725 421,733 A/BBB 228,656 222,022 Baa/BBB 1,030,874 954,962 Baa/BB 79,687 84,053 Below investment grade 498,117 478,003 ------------ ------------ $3,607,905 $3,796,303 At December 31, 1998, approximately 94 percent of the securities rated Aaa/AAA are GNMA, FNMA and FHLMC mortgage-backed securities. No holdings of any other issuer are greater than one percent of the Company's total investments in fixed maturities. At December 31, 1998, approximately 18 percent of the Company's invested assets were mortgage loans on real estate. Summaries of mortgage loans by region of the United States and by type of real estate are as follows:
December 31, 1998 December 31, 1997 ----------------------- --------------------- On Balance Commitments On Balance Commitments Region Sheet to Purchase Sheet to Purchase ---------------------------------- ---------------------------------- South Atlantic $198,552 $ 651 $186,714 $ 9,199 Middle Atlantic 129,284 520 128,239 10,167 East North Central 134,165 2,211 125,018 6,294 Mountain 113,581 -- 94,061 11,620 West North Central 119,380 9,626 96,701 11,135 New England 46,103 -- 50,932 -- Pacific 43,706 -- 33,052 -- West South Central 32,086 -- 19,573 -- East South Central 7,449 -- 7,480 -- --------- ------------ --------- ------------ 824,306 13,008 741,770 48,415 Less allowance for losses 8,500 -- 3,718 -- ---------- ------------ ---------- ------------ $815,806 $13,008 $738,052 $48,415 ======== ======= ======== ======= 2. Investments (continued) December 31, 1998 December 31, 1997 ------------------- ------------------- On Balance Commitments On Balance Commitments Property type Sheet to Purchase Sheet to Purchase ---------------------------------- ---------------------------------- Department/retail stores $253,380 $ 781 $242,307 $ 9,683 Apartments 186,030 2,211 189,752 10,167 Office buildings 206,285 9,496 169,177 7,262 Industrial buildings 82,857 520 60,195 17,430 Hotels/Motels 45,552 -- 33,508 -- Medical buildings 33,103 -- 30,103 3,873 Nursing/retirement homes 6,731 -- 9,552 -- Mixed Use 10,368 -- 7,176 -- ---------- ------------ --------- ------------ 824,306 13,008 741,770 48,415 Less allowance for losses 8,500 -- 3,718 -- ----------- ----------- ---------- ----------- $815,806 $13,008 $738,052 $48,415 ======== ======= ======== =======
Mortgage loan fundings are restricted by state insurance regulatory authorities to 80 percent or less of the market value of the real estate at the time of origination of the loan. The Company holds the mortgage document, which gives it the right to take possession of the property if the borrower fails to perform according to the terms of the agreement. Commitments to purchase mortgages are made in the ordinary course of business. The fair value of the mortgage commitments is $nil. At December 31, 1998, the Company's recorded investment in impaired loans was $1,932 with an allowance of $500. At December 31, 1997, the Company's recorded investment in impaired loans was $4,443 with an allowance of $718. During 1998 and 1997, the average recorded investment in impaired loans was $2,736 and $6,473, respectively. The Company recognized $251, $nil and $nil of interest income related to impaired loans for the years ended December 31, 1998, 1997 and 1996, respectively. The following table presents changes in the allowance for investment losses related to all loans: 1998 1997 1996 ---- ---- ---- Balance, January 1 $3,718 $2,370 $ -- Provision for investment losses 4,782 1,805 2,370 Loan payoffs -- (457) -- ---------- ------- ------- Balance, December 31 $8,500 $3,718 $2,370 ====== ====== ====== Net investment income for the years ended December 31 is summarized as follows: 1998 1997 1996 ----- ----- ---- Interest on fixed maturities $285,260 $278,736 $230,559 Interest on mortgage loans 65,351 55,085 41,010 Interest on cash equivalents 137 704 1,402 Other (2,493) 1,544 1,194 ----------- ------------- ----------- 348,255 336,069 274,165 Less investment expenses 8,036 3,801 2,446 ---------- ----------- ----------- $340,219 $332,268 $271,719 ======== ======== ======== 2. Investments (continued) Net realized gain (loss) on investments for the years ended December 31 is summarized as follows: 1998 1997 1996 ---- ---- ---- Fixed maturities $ 863 $ 1,638 $(2,888) Mortgage loans (4,816) (1,348) (2,370) Other investments (835) (799) -- -------- ------ ---------- $(4,788) $ (509) $(5,258) ======= ======= ======= Changes in net unrealized appreciation (depreciation) of investments for the years ended December 31 are summarized as follows: 1998 1997 1996 ---- ---- ---- Fixed maturities available for sale $(8,032) $57,188 $(31,970) 3. Income taxes The Company qualifies as a life insurance company for federal income tax purposes. As such, the Company is subject to the Internal Revenue Code provisions applicable to life insurance companies. The income tax expense (benefit) for the years ended December 31, consists of the following: 1998 1997 1996 ---- ---- ---- Federal income taxes: Current $ 23,227 $17,668 $7,124 Deferred (9,591) (2,485) 5,084 --------- -------- ------- 13,636 15,183 12,208 State income taxes-current 759 1,462 704 ---------- --------- -------- Income tax expense $ 14,395 $16,645 $12,912 ======== ======= ======= Increases (decreases) to the federal income tax provision applicable to pretax income based on the statutory rate, for the years ended December 31, are attributable to:
1998 1997 1996 ----------- -------- ------- Provision Rate Provision Rate Provision Rate Federal income taxes based on the statutory rate $13,972 35.0% $15,735 35.0% $12,507 35.0% Increases (decreases) are attributable to : Tax-excluded interest (35) (0.1) (41) (0.1) (53) (0.1) State tax, net of federal benefit 493 1.2 956 2.1 459 1.3 Other, net (35) -- (5) -- (1) -- ------ ------ ------- ------ ------ ------ Federal income taxes $14,395 36.1% $16,645 37.0% $12,912 36.2% ======= ==== ======= ==== ======= ====
3. Income taxes (continued) Significant components of the Company's deferred income tax assets and liabilities as of December 31 are as follows: Deferred income tax assets: 1998 1997 --------- ------- Policy reserves $51,298 $54,468 Other 2,214 1,736 --------- ------- Total deferred income tax assets 53,512 56,204 -------- ------ Deferred income tax liabilities: Deferred policy acquisition costs 52,908 63,630 Investments 23,803 28,175 -------- ------ Total deferred income tax liabilities 76,711 91,805 ------- -------- Net deferred income tax liabilities $23,199 $35,601 ======= ======= The Company is required to establish a valuation allowance for any portion of the deferred income tax assets that management believes will not be realized. In the opinion of management, it is more likely than not that the Company will realize the benefit of the deferred income tax assets and, therefore, no such valuation allowance has been established. 4. Stockholder's equity Retained earnings available for distribution as dividends to IDS Life are limited to the Company's surplus as determined in accordance with accounting practices prescribed by state insurance regulatory authorities. Statutory unassigned surplus aggregated $45,716 and $17,392 as of December 31, 1998 and 1997, respectively. In addition, dividends in excess of $37,902 would require approval by the Insurance Department of the state of Indiana. Statutory net income and stockholder's equity as of December 31, are summarized as follows: 1998 1997 1996 --------- --------- ------- Statutory net income $ 37,902 $ 23,589 $ 9,138 Statutory stockholder's equity 330,588 302,264 250,975 5. Related party transactions On December 31, 1998, the Company purchased interest rate floors from IDS Life and entered into an interest rate swap with IDS Life to manage its exposure to interest rate risk. The interest rate floors had a carrying amount of $6,651 and $8,400 at December 31, 1998 and 1997, respectively. The interest rate swap is an off balance sheet transaction. The Company has no employees. Charges by IDS Life for services and use of other joint facilities aggregated $28,482, $24,535 and $17,936 for the years ended December 31, 1998, 1997 and 1996, respectively. Certain of these costs are included in deferred policy acquisition costs. 6. Lines of credit The Company has an available line of credit with AEFC aggregating $50,000. The rate for the line of credit is the parent's cost of funds, established by reference to various indices plus 20 to 45 basis points, depending on the term.There were no borrowings outstanding under this agreement at December 31, 1998 or 1997. 7. Derivative financial instruments The Company enters into transactions involving derivative financial instruments to manage its exposure to interest rate risk, including hedging specific transactions. The Company does not hold derivative instruments for trading purposes. The Company manages risks associated with these instruments as described below. Market risk is the possibility that the value of the derivative financial instruments will change due to fluctuations in a factor from which the instrument derives its value, primarily an interest rate. The Company is not impacted by market risk related to derivatives held for non-trading purposes beyond that inherent in cash market transactions. Derivatives are largely used to manage risk and, therefore, the cash flow and income effects of the derivatives are inverse to the effects of the underlying transactions. Credit risk is the possibility that the counterparty will not fulfill the terms of the contract. The Company monitors credit risk related to derivative financial instruments through established approval procedures, including setting concentration limits by counterparty, and requiring collateral, where appropriate. A vast majority of the Company's counterparties are rated A or better by Moody's and Standard & Poor's. Credit risk related to interest rate caps and floors is measured by replacement cost of the contracts. The replacement cost represents the fair value of the instruments. The notional or contract amount of a derivative financial instrument is generally used to calculate the cash flows that are received or paid over the life of the agreement. Notional amounts are not recorded on the balance sheet. Notional amounts far exceed the related credit exposure. The Company's holdings of derivative financial instruments are as follows:
Notional Carrying Fair Total Credit December 31, 1998 Amount Amount Value Exposure ----------------- ------ ------ ----- -------- Assets: Interest rate caps $ 900,000 $ 5,452 $ 1,518 $ 1,518 Interest rate floors 1,000,000 6,651 17,798 17,798 Interest rate swaps 1,000,000 -- -- -- ------------- ------------ ------------- $12,103 $19,316 $19,316 = ======= ======= ======= 7. Derivative financial instruments (continued) Notional Carrying Fair Total Credit December 31, 1997 Amount Amount Value Exposure ----------------- ------ ------ ----- -------- Assets: Interest rate caps $ 900,000 $ 7,624 $ 5,340 $ 5,340 Interest rate floors 1,000,000 8,400 8,400 8,400 Interest rate swaps 1,000,000 -- -- -- ------------- ------------ ------------ $16,024 $13,740 $13,740 ======= ======= =======
The fair values of derivative financial instruments are based on market values, dealer quotes or pricing models. All interest rate caps, floors and swaps will expire on various dates from 2000 to 2003. Interest rate caps, floors and swaps are used to manage the Company's exposure to interest rate risk. These instruments are used primarily to protect the margin between interest rates earned on investments and the interest rates credited to related annuity contract holders. 8. Fair values of financial instruments The Company discloses fair value information for most on- and off-balance sheet financial instruments for which it is practicable to estimate that value. Fair value of life insurance obligations, receivables and all non-financial instruments, such as deferred acquisition costs are excluded. Off-balance sheet intangible assets are also excluded. Management believes the value of excluded assets and liabilities is significant. The fair value of the Company, therefore, cannot be estimated by aggregating the amounts presented.
December 31, 1998 1997 -------- -------- Carrying Fair Carrying Fair Financial Assets Amount Value Amount Value Investments: Fixed maturities (Note 2): Held to maturity $1,081,193 $1,126,732 $1,186,682 $1,223,108 Available for sale 2,594,858 2,594,858 2,685,799 2,685,799 Mortgage loans on real estate (Note 2) 815,806 874,064 738,052 775,869 Derivative financial instruments (Note 7) 12,103 19,316 16,024 13,740 Separate account assets (Note 1) 123,185 123,185 62,087 62,087 Financial Liabilities Future policy benefits for fixed annuities $4,152,059 $4,000,789 $4,330,173 $4,152,471 Separate account liabilities 123,185 115,879 62,087 58,116
At December 31, 1998 and 1997, the carrying amount and fair value of future policy benefits for fixed annuities exclude life insurance-related contracts carried at $14,793 and $13,040, respectively. The fair value of these benefits is based on the status of the annuities at December 31, 1998 and 1997. 8. Fair values of financial instruments (continued) The fair values of deferred annuities and separate account liabilities are estimated as the carrying amount less applicable surrender charges. The fair value for annuities in non-life contingent payout status is estimated as the present value of projected benefit payments at rates appropriate for contracts issued in 1998 and 1997. 9. Commitments and contingencies A number of lawsuits have been filed against life and health insurers in jurisdictions in which the Company conducts business involving insurers' sales practices, alleged agent misconduct, failure to properly supervise agents, and other matters. The Company, along with AEFC and its insurance subsidiaries, has been named as a defendant in one of these types of actions. The plaintiffs purport to represent a class consisting of all persons who purchased policies or contracts from IDS Life and its subsidiaries. The complaint puts at issue various alleged sales practices and misrepresentations, alleged breaches of fiduciary duties and alleged violations of consumer fraud statutes.IDS Life and its subsidiaries believe they have meritorious defenses to the claims raised in this lawsuit. The outcome of any litigation cannot be predicted with certainty. In the opinion of management, however, the ultimate resolution of this lawsuit should not have a material adverse effect on the Company's financial position. Table of Contents of the Statement of Additional Information Performance Information p. Calculating Annuity Payouts p. Rating Agencies p. Principal Underwriter p. Please check the box to receive a copy of the Statement of Additional Information for: - - - -- Wells Fargo AdvantageSM Credit Variable Annuity - - - -- American Express Variable Portfolio Funds - - - -- AIM Variable Insurance Funds, Inc. - - - -- The Dreyfus Socially Responsible Growth Fund, Inc. - - - -- Franklin Templeton Variable Insurance Products Trust - - - -- Goldman Sachs Variable Insurance Trust (VIT) - - - -- MFS(R) Variable Insurance TrustSM - - - -- Putnam Variable Trust - - - -- Wells Fargo Variable Trust Funds Mail your request to: American Enterprise Life Insurance Company 80 South Eighth Street P.O. Box 534 Minneapolis, MN 55440-534 We will mail your request to: Your name _____________________________________________ Address _______________________________________________ City _____________________ State _________ Zip ________ STATEMENT OF ADDITIONAL INFORMATION for WELLS FARGO ADVANTAGESM VARIABLE ANNUITY American Enterprise Variable Annuity Account __, 1999 American Enterprise Variable Annuity Account is a separate account established and maintained by American Enterprise Life Insurance Company (American Enterprise Life). This Statement of Additional Information (SAI) is not a prospectus. It should be read together with the prospectus dated the same date as this SAI, which may be obtained by writing or calling us at the address and telephone number below. The prospectus is incorporated in this SAI by reference. American Enterprise Life Insurance Company 80 South Eighth Street P.O. Box 534 Minneapolis, MN 55440-0534 800-333-3437 TABLE OF CONTENTS Performance Information....................................................p. Calculating Annuity Payouts................................................p. Rating Agencies............................................................p. Principal Underwriter......................................................p. Independent Auditors.......................................................p. Financial Statements PERFORMANCE INFORMATION - - - ------------------------------------------------------------------------------- The subaccounts may quote various performance figures to illustrate past performance. We base total return and current yield quotations (if applicable) on standardized methods of computing performance as required by the Securities and Exchange Commission (SEC). An explanation of the methods used to compute performance follows below. Average Annual Total Return We will express quotations of average annual total return for the subaccounts in terms of the average annual compounded rate of return of a hypothetical investment in the contract over a period of one, five and ten years (or, if less, up to the life of the subaccounts), calculated according to the following formula: P(1+T)n = ERV where: P = a hypothetical initial payment of $1,000 T = average annual total return n = number of years ERV = Ending Redeemable Value of a hypothetical $1,000 payment made at the beginning of the period, at the end of the period (or fractional portion thereof) We calculated the following performance figures on the basis of historical performance of each fund. We show actual performance from the date the subaccounts began investing in the funds. For some subaccounts, we do not provide any performance information because they are new and have not had any activity to date. We also show performance from the commencement date of the funds as if the contract existed at that time, which it did not. Past performance does not guarantee future results. Average Annual Total Return For Annuities Without Withdrawal and Selection of the Five-Year Withdrawal Charge Schedule For Periods Ending Dec. 31, 1998
Performance Since Commencement of the Fund* Since Subaccount Investing In: 1 Year 5 Years 10 Years Commencement - - - ---------- ------------- ------ ------- -------- ------------ AXPSM VARIABLE PORTFOLIO WBCA4 Blue Chip Advantage Fund+ --% --% --% --% WCAR4 Capital Resource Fund (10/81)** 22.27 14.82 14.09 13.82 WDEI4 Diversified Equity Income Fund+ -- -- -- -- WEXI4 Extra Income Fund (5/96) -14.23 -- -- -4.77 WFDI4 Federal Income Fund+ -- -- -- -- WNDM4 New Dimensions Fund (5/96) 26.73 -- -- 22.43 WSCA4 Small Cap Advantage Fund + -- -- -- -- AIM V.I. WCAP4 Capital Appreciation Fund (5/93) 9.53 14.91 -- 16.64 WVAL4 Value Fund (5/93) 22.40 19.39 -- 19.76 Dreyfus WSRG4 The Dreyfus Socially Responsible Growth 19.48 20.15 -- 20.93 Fund, Inc. (10/93) FRANKLIN TEMPLETON VIP TRUST WISE4 Franklin Income Securities Fund - Class 2 0.11 7.09 -- 9.56 (1/89)*** WMSS4 Mutual Shares Securities Fund - Class 2 -1.45 -- -- 7.96 (11/96)*** WRES4 Franklin Real Estate Fund - Class 2 -18.08 8.39 -- 8.65 (1/89)*** WSMC4 Franklin Small Cap Fund - Class 2 (11/95)*** -2.48 -- -- 14.31 GOLDMAN SACHS Variable Insurance Trust (VIT) WUSE4 CORESM U.S. Equity Fund (2/98) -- -- -- 13.10 WGLI4 Global Income Fund (1/98) -- -- -- 6.71 WMCV4 Mid Cap Value Fund (4/98) -- -- -- -14.47 MFS Investment Management(R) WGIS4 Growth with Income Series (10/95) 20.50 -- -- 24.05 WUTS4 Utilities Series (1/95) 16.31 -- -- 23.53 PUTNAM VARIABLE TRUST WIGR4 Putnam VT International Growth Fund - 16.70 -- -- 15.53 Class IB Shares (1/97)++ WVIS4 Putnam VT Vista Fund - Class IB Shares 17.71 -- -- 19.60 (1/97)++ WELLS FARGO VARIABLE TRUST WAAL4 Asset Allocation Fund (4/94) 13.41 -- -- 9.56 WCBD4 Corporate Bond Fund (9/99)+ -- -- -- -- WEQI4 Equity Income Fund (5/96) 16.66 -- -- 19.04 WEQV4 Equity Value Fund (5/98) -- -- -- 4.76 WGRO4 Growth Fund (4/94) 26.92 -- -- 19.59 WLCG4 Large Company Growth Fund (9/99)+ -- -- -- -- WMMK4 Money Market Fund (5/94) 3.20 -- -- 3.33 WSCG4 Small Cap Growth Fund (5/95) -15.80 -- -- 8.74
*Current applicable charges deducted from fund performance include a $30 contract administrative charge, a 1.30% mortality and expense risk fee and a 0.15% variable account administrative charge. Premium taxes are not reflected in the above total returns. +Fund had not commenced operations as of Dec. 31, 1998. **(Commencement date of the Fund) ***Standardized performance for Class 2 shares reflects a blended figure, combining: (a) for periods prior to Class 2's inception of Jan. 6, 1999, historical results of Class 1 shares and (b) for periods after Jan. 6, 1999, Class 2's results reflecting an additional 12b-1 fee expense which also affects all future performance. Blended figures assume reinvestment of dividends and capitalizations. ++Each of the above Funds' Class IB Shares corresponding to the subaccounts commenced operations on April 30, 1998. For periods prior to the inception dates of the Funds' Class IB Shares, the performance shown is based on the historical performance of the Funds' Class IA Shares adjusted to reflect the current expenses of the Funds' Class IB Shares. Average Annual Total Return For Annuities With Withdrawal and Selection of the Five-Year Withdrawal Charge Schedule For Periods Ending Dec. 31, 1998
Performance Since Commencement of the Fund* Since Subaccount Investing In: 1 Year 5 Years 10 Years Commencement - - - ---------- ------------- ------ ------- -------- ------------ AXPSM VARIABLE PORTFOLIO WBCA4 Blue Chip Advantage Fund+ --% --% --% --% WCAR4 Capital Resource Fund (10/81)** 14.27 14.59 14.09 13.82 WDEI4 Diversified Equity Income Fund+ -- -- -- -- WEXI4 Extra Income Fund (5/96) -19.89 -- -- -6.56 WFDI4 Federal Income Fund+ -- -- -- -- WNDM4 New Dimensions Fund (5/96) 18.73 -- -- 20.81 WSCA4 Small Cap Advantage Fund + -- -- -- -- AIM V.I. WCAP4 Capital Appreciation Fund (5/93) 9.53 15.25 -- 16.98 WVAL4 Value Fund (5/93) 22.40 19.69 -- 20.06 Dreyfus WSRG4 The Dreyfus Socially Responsible Growth 19.48 20.44 -- 21.28 Fund, Inc. (10/93) FRANKLIN TEMPLETON VIP TRUST WISE4 Franklin Income Securities Fund - Class 2 -6.70 6.79 -- 9.56 (1/89)*** WMSS4 Mutual Shares Securities Fund - Class 2 -8.13 -- -- 5.39 (11/96)*** WRES4 Franklin Real Estate Fund - Class 2 -23.45 8.10 -- 8.65 (1/89)*** WSMC4 Franklin Small Cap Fund - Class 2 (11/95)*** -9.09 -- -- 13.32 GOLDMAN SACHS Variable Insurance Trust (VIT) WUSE4 CORESM U.S. Equity Fund (2/98) -- -- -- 5.25 WGLI4 Global Income Fund (1/98) -- -- -- -0.63 WMCV4 Mid Cap Value Fund (4/98) -- -- -- -20.11 MFS Investment Management(R) WGIS4 Growth with Income Series (10/95) 12.50 -- -- 23.28 WUTS4 Utilities Series (1/95) 8.31 -- -- 23.00 PUTNAM VARIABLE TRUST WIGR4 Putnam VT International Growth Fund - 8.70 -- -- 12.01 Class IB Shares (1/97)++ WVIS4 Putnam VT Vista Fund - Class IB Shares 9.71 -- -- 16.20 (1/97)++ WELLS FARGO VARIABLE TRUST WAAL4 Asset Allocation Fund (4/94) 5.54 -- -- 9.25 WCBD4 Corporate Bond Fund (9/99)+ -- -- -- -- WEQI4 Equity Income Fund (5/96) 8.66 -- -- 17.33 WEQV4 Equity Value Fund (5/98) -- -- -- -11.18 WGRO4 Growth Fund (4/94) 18.92 -- -- 19.37 WLCG4 Large Company Growth Fund (9/99)+ -- -- -- -- WMMK4 Money Market Fund (5/94) -3.86 -- -- 2.95 WSCG4 Small Cap Growth Fund (5/95) -21.33 -- -- 7.84
*Current applicable charges deducted from fund performance include a $30 contract administrative charge, a 1.30% mortality and expense risk fee and a 0.15% variable account administrative charge. Premium taxes are not reflected in the above total returns. +Fund had not commenced operations as of Dec. 31, 1998. **(Commencement date of the Fund) ***Standardized performance for Class 2 shares reflects a blended figure, combining: (a) for periods prior to Class 2's inception of Jan. 6, 1999, historical results of Class 1 shares and (b) for periods after Jan. 6, 1999, Class 2's results reflecting an additional 12b-1 fee expense which also affects all future performance. Blended figures assume reinvestment of dividends and capitalizations. ++Each of the above Funds' Class IB Shares corresponding to the subaccounts commenced operations on April 30, 1998. For periods prior to the inception dates of the Funds' Class IB Shares, the performance shown is based on the historical performance of the Funds' Class IA Shares adjusted to reflect the current expenses of the Funds' Class IB Shares. Average Annual Total Return For Annuities Without Withdrawal and Selection of the Five-Year Withdrawal Charge Schedule and the Optional Enhanced Death Benefit and Guaranteed Minimum Income Benefit Riders For Periods Ending Dec. 31, 1998
Performance Since Commencement of the Fund* Since Subaccount Investing In: 1 Year 5 Years 10 Years Commencement - - - ---------- ------------- ------ ------- -------- ------------ AXPSM VARIABLE PORTFOLIO WBCA2 Blue Chip Advantage Fund+ --% --% --% --% WCAR2 Capital Resource Fund (10/81)** 22.03 14.59 13.86 13.60 WDEI2 Diversified Equity Income Fund+ -- -- -- -- WEXI2 Extra Income Fund (5/96) -14.41 -- -- -4.96 WFDI2 Federal Income Fund+ -- -- -- -- WNDM2 New Dimensions Fund (5/96) 26.48 -- -- 22.20 WSCA2 Small Cap Advantage Fund + -- -- -- -- AIM V.I. WCAP2 Capital Appreciation Fund (5/93) 17.30 15.25 -- 16.75 WVAL2 Value Fund (5/93) 30.14 19.64 -- 19.82 Dreyfus WSRG2 The Dreyfus Socially Responsible Growth 27.23 20.39 -- 21.04 Fund, Inc. (10/93) FRANKLIN TEMPLETON VIP TRUST WISE2 Franklin Income Securities Fund - Class 2 -0.09 6.88 -- 9.34 (1/89)*** WMSS2 Mutual Shares Securities Fund - Class 2 -1.65 -- -- 7.74 (11/96)*** WRES2 Franklin Real Estate Fund - Class 2 -18.27 8.17 -- 8.44 (1/89)*** WSMC2 Franklin Small Cap Fund - Class 2 (11/95)*** -2.68 -- -- 14.09 GOLDMAN SACHS Variable Insurance Trust (VIT) WUSE2 CORESM U.S. Equity Fund (2/98) -- -- -- 12.90 WGLI2 Global Income Fund (1/98) -- -- -- 6.50 WMCV2 Mid Cap Value Fund (4/98) -- -- -- -14.58 MFS Investment Management(R) WGIS2 Growth with Income Series (10/95) 20.26 -- -- 23.81 WUTS2 Utilities Series (1/95) 16.08 -- -- 23.29 PUTNAM VARIABLE TRUST WIGR2 Putnam VT International Growth Fund - 16.47 -- -- 15.30 Class IB Shares (1/97)++ WVIS2 Putnam VT Vista Fund - Class IB Shares 17.48 -- -- 19.36 (1/97)++ WELLS FARGO VARIABLE TRUST WAAL2 Asset Allocation Fund (4/94) 13.19 -- -- 9.34 WCBD2 Corporate Bond Fund (9/99)+ -- -- -- -- WEQI2 Equity Income Fund (5/96) 16.43 -- -- 18.80 WEQV2 Equity Value Fund (5/98) -- -- -- -4.89 WGRO2 Growth Fund (4/94) 26.67 -- -- 19.36 WLCG2 Large Company Growth Fund (9/99)+ -- -- -- -- WMMK2 Money Market Fund (5/94) 2.99 -- -- 3.12 WSCG2 Small Cap Growth Fund (5/95) -15.97 -- -- 8.52
*Current applicable charges deducted from fund performance include a $30 contract administrative charge, a 1.30% mortality and expense risk fee and a 0.15% variable account administrative charge. Premium taxes are not reflected in the above total returns. +Fund had not commenced operations as of Dec. 31, 1998. **(Commencement date of the Fund) ***Standardized performance for Class 2 shares reflects a blended figure, combining: (a) for periods prior to Class 2's inception of Jan. 6, 1999, historical results of Class 1 shares and (b) for periods after Jan. 6, 1999, Class 2's results reflecting an additional 12b-1 fee expense which also affects all future performance. Blended figures assume reinvestment of dividends and capitalizations. ++Each of the above Funds' Class IB Shares corresponding to the subaccounts commenced operations on April 30, 1998. For periods prior to the inception dates of the Funds' Class IB Shares, the performance shown is based on the historical performance of the Funds' Class IA Shares adjusted to reflect the current expenses of the Funds' Class IB Shares. Average Annual Total Return For Annuities With Withdrawal and Selection of the Five-Year Withdrawal Charge Schedule and the Optional Enhanced Death Benefit and Guaranteed Minimum Income Benefit Riders For Periods Ending Dec. 31, 1998
Performance Since Commencement of the Fund* Since Subaccount Investing In: 1 Year 5 Years 10 Years Commencement - - - ---------- ------------- ------ ------- -------- ------------ AXPSM VARIABLE PORTFOLIO WBCA2 Blue Chip Advantage Fund+ --% --% --% --% WCAR2 Capital Resource Fund (10/81)** 13.66 14.29 13.86 13.58 WDEI2 Diversified Equity Income Fund+ -- -- -- -- WEXI2 Extra Income Fund (5/96) -20.35 -- -- -6.89 WFDI2 Federal Income Fund+ -- -- -- -- WNDM2 New Dimensions Fund (5/96) 18.10 -- -- 20.43 WSCA2 Small Cap Advantage Fund + -- -- -- -- AIM V.I. WCAP2 Capital Appreciation Fund (5/93) 8.95 14.95 -- 16.68 WVAL2 Value Fund (5/93) 21.75 19.37 -- 19.76 Dreyfus WSRG2 The Dreyfus Socially Responsible Growth 18.85 20.13 -- 20.97 Fund, Inc. (10/93) FRANKLIN TEMPLETON VIP TRUST WISE2 Franklin Income Securities Fund - Class 2 -7.18 6.50 -- 9.31 (1/89)*** WMSS2 Mutual Shares Securities Fund - Class 2 -8.62 -- -- 5.01 (11/96)*** WRES2 Franklin Real Estate Fund - Class 2 -23.91 7.80 -- 8.40 (1/89)*** WSMC2 Franklin Small Cap Fund - Class 2 (11/95)*** -9.57 -- -- 12.98 GOLDMAN SACHS Variable Insurance Trust (VIT) WUSE2 CORESM U.S. Equity Fund (2/98) -- -- -- 4.73 WGLI2 Global Income Fund (1/98) -- -- -- -1.14 WMCV2 Mid Cap Value Fund (4/98) -- -- -- -20.52 MFS Investment Management(R) WGIS2 Growth with Income Series (10/95) 11.89 -- -- 22.91 WUTS2 Utilities Series (1/95) 7.73 -- -- 22.66 PUTNAM VARIABLE TRUST WIGR2 Putnam VT International Growth Fund - 8.12 -- -- 11.59 Class IB Shares (1/97)++ WVIS2 Putnam VT Vista Fund - Class IB Shares 9.12 -- -- 15.77 (1/97)++ WELLS FARGO VARIABLE TRUST WAAL2 Asset Allocation Fund (4/94) 4.99 -- -- 8.96 WCBD2 Corporate Bond Fund (9/99)+ -- -- -- -- WEQI2 Equity Income Fund (5/96) 8.08 -- -- 16.95 WEQV2 Equity Value Fund (5/98) -- -- -- 11.61 WGRO2 Growth Fund (4/94) 18.29 -- -- 19.06 WLCG2 Large Company Growth Fund (9/99)+ -- -- -- -- WMMK2 Money Market Fund (5/94) -4.36 -- -- 2.67 WSCG2 Small Cap Growth Fund (5/95) -21.79 -- -- 7.51
*Current applicable charges deducted from fund performance include a $30 contract administrative charge, a 1.30% mortality and expense risk fee and a 0.15% variable account administrative charge. Premium taxes are not reflected in the above total returns. +Fund had not commenced operations as of Dec. 31, 1998. **(Commencement date of the Fund) ***Standardized performance for Class 2 shares reflects a blended figure, combining: (a) for periods prior to Class 2's inception of Jan. 6, 1999, historical results of Class 1 shares and (b) for periods after Jan. 6, 1999, Class 2's results reflecting an additional 12b-1 fee expense which also affects all future performance. Blended figures assume reinvestment of dividends and capitalizations. ++Each of the above Funds' Class IB Shares corresponding to the subaccounts commenced operations on April 30, 1998. For periods prior to the inception dates of the Funds' Class IB Shares, the performance shown is based on the historical performance of the Funds' Class IA Shares adjusted to reflect the current expenses of the Funds' Class IB Shares. Average Annual Total Return For Annuities Without Withdrawal and Selection of the Seven-Year Withdrawal Charge Schedule For Periods Ending Dec. 31, 1998
Performance Since Commencement of the Fund* Since Subaccount Investing In: 1 Year 5 Years 10 Years Commencement - - - ---------- ------------- ------ ------- -------- ------------ AXPSM VARIABLE PORTFOLIO WBCA7 Blue Chip Advantage Fund+ --% --% --% --% WCAR7 Capital Resource Fund (10/81)** 22.57 15.10 14.37 14.11 WDEI7 Diversified Equity Income Fund+ -- -- -- -- WEXI7 Extra Income Fund (5/96) -14.01 -- -- -4.53 WFDI7 Federal Income Fund+ -- -- -- -- WNDM7 New Dimensions Fund (5/96) 27.04 -- -- 22.73 WSCA7 Small Cap Advantage Fund + -- -- -- -- AIM V.I. WCAP7 Capital Appreciation Fund (5/93) 17.83 15.77 -- 17.27 WVAL7 Value Fund (5/93) 30.73 20.18 -- 20.36 Dreyfus WSRG7 The Dreyfus Socially Responsible Growth 27.79 20.93 -- 21.57 Fund, Inc. (10/93) FRANKLIN TEMPLETON VIP TRUST WISE7 Franklin Income Securities Fund - Class 2 0.36 7.36 -- 9.84 (1/89)*** WMSS7 Mutual Shares Securities Fund - Class 2 -1.20 -- -- 8.23 (11/96)*** WRES7 Franklin Real Estate Fund - Class 2 -17.89 8.66 -- 8.92 (1/89)*** WSMC7 Franklin Small Cap Fund - Class 2 (11/95)*** -2.24 -- -- 14.60 GOLDMAN SACHS Variable Insurance Trust (VIT) WUSE7 CORESM U.S. Equity Fund (2/98) -- -- -- 13.34 WGLI7 Global Income Fund (1/98) -- -- -- 6.97 WMCV7 Mid Cap Value Fund (4/98) -- -- -- -14.32 MFS Investment Management(R) WGIS7 Growth with Income Series (10/95) 20.80 -- -- 24.36 WUTS7 Utilities Series (1/95) 16.60 -- -- 23.83 PUTNAM VARIABLE TRUST WIGR7 Putnam VT International Growth Fund - 16.99 -- -- 15.82 Class IB Shares (1/97)++ WVIS7 Putnam VT Vista Fund - Class IB Shares 18.00 -- -- 19.90 (1/97)++ WELLS FARGO VARIABLE TRUST WAAL7 Asset Allocation Fund (4/94) 13.69 -- -- 9.83 WCBD7 Corporate Bond Fund (9/99)+ -- -- -- -- WEQI7 Equity Income Fund (5/96) 16.95 -- -- 19.33 WEQV7 Equity Value Fund (5/98) -- -- -- -4.60 WGRO7 Growth Fund (4/94) 27.23 -- -- 19.89 WLCG7 Large Company Growth Fund (9/99)+ -- -- -- -- WMMK7 Money Market Fund (5/94) 3.45 -- -- 3.59 WSCG7 Small Cap Growth Fund (5/95) -15.58 -- -- 9.01
*Current applicable charges deducted from fund performance include a $30 contract administrative charge, a 1.05% mortality and expense risk fee and a 0.15% variable account administrative charge. Premium taxes are not reflected in the above total returns. +Fund had not commenced operations as of Dec. 31, 1998. **(Commencement date of the Fund) ***Standardized performance for Class 2 shares reflects a blended figure, combining: (a) for periods prior to Class 2's inception of Jan. 6, 1999, historical results of Class 1 shares and (b) for periods after Jan. 6, 1999, Class 2's results reflecting an additional 12b-1 fee expense which also affects all future performance. Blended figures assume reinvestment of dividends and capitalizations. ++Each of the above Funds' Class IB Shares corresponding to the subaccounts commenced operations on April 30, 1998. For periods prior to the inception dates of the Funds' Class IB Shares, the performance shown is based on the historical performance of the Funds' Class IA Shares adjusted to reflect the current expenses of the Funds' Class IB Shares. Average Annual Total Return For Annuities With Withdrawal and Selection of the Seven-Year Withdrawal Charge Schedule For Periods Ending Dec. 31, 1998
Performance Since Commencement of the Fund* Since Subaccount Investing In: 1 Year 5 Years 10 Years Commencement - - - ---------- ------------- ------ ------- -------- ------------ AXPSM VARIABLE PORTFOLIO WBCA7 Blue Chip Advantage Fund+ --% --% --% --% WCAR7 Capital Resource Fund (10/81)** 14.57 14.53 14.37 14.11 WDEI7 Diversified Equity Income Fund+ -- -- -- -- WEXI7 Extra Income Fund (5/96) -19.69 -- -- -6.63 WFDI7 Federal Income Fund+ -- -- -- -- WNDM7 New Dimensions Fund (5/96) 19.04 -- -- 20.84 WSCA7 Small Cap Advantage Fund + -- -- -- -- AIM V.I. WCAP7 Capital Appreciation Fund (5/93) 9.83 15.20 -- 16.93 WVAL7 Value Fund (5/93) 22.73 19.70 -- 20.06 Dreyfus WSRG7 The Dreyfus Socially Responsible Growth 19.79 20.46 -- 21.24 Fund, Inc. (10/93) FRANKLIN TEMPLETON VIP TRUST WISE7 Franklin Income Securities Fund - Class 2 -6.47 6.60 -- 9.84 (1/89)*** WMSS7 Mutual Shares Securities Fund - Class 2 -7.91 -- -- 5.23 (11/96)*** WRES7 Franklin Real Estate Fund - Class 2 -23.26 7.93 -- 8.92 (1/89)*** WSMC7 Franklin Small Cap Fund - Class 2 (11/95)*** -8.86 -- -- 13.11 GOLDMAN SACHS Variable Insurance Trust (VIT) WUSE7 CORESM U.S. Equity Fund (2/98) -- -- -- 5.48 WGLI7 Global Income Fund (1/98) -- -- -- -0.39 WMCV7 Mid Cap Value Fund (4/98) -- -- -- -19.98 MFS Investment Management(R) WGIS7 Growth with Income Series (10/95) 12.80 -- -- 23.21 WUTS7 Utilities Series (1/95) 8.60 -- -- 23.04 PUTNAM VARIABLE TRUST WIGR7 Putnam VT International Growth Fund - 8.99 -- -- 12.30 Class IB Shares (1/97)++ WVIS7 Putnam VT Vista Fund - Class IB Shares 10.00 -- -- 16.50 (1/97)++ WELLS FARGO VARIABLE TRUST WAAL7 Asset Allocation Fund (4/94) 5.80 -- -- 9.07 WCBD7 Corporate Bond Fund (9/99)+ -- -- -- -- WEQI7 Equity Income Fund (5/96) 8.95 -- -- 17.34 WEQV7 Equity Value Fund (5/98) -- -- -- -11.03 WGRO7 Growth Fund (4/94) 19.23 -- -- 19.34 WLCG7 Large Company Growth Fund (9/99)+ -- -- -- -- WMMK7 Money Market Fund (5/94) -3.62 -- -- 2.62 WSCG7 Small Cap Growth Fund (5/95) -21.14 -- -- 7.67
*Current applicable charges deducted from fund performance include a $30 contract administrative charge, a 1.30% mortality and expense risk fee and a 0.15% variable account administrative charge. Premium taxes are not reflected in the above total returns. +Fund had not commenced operations as of Dec. 31, 1998. **(Commencement date of the Fund) ***Standardized performance for Class 2 shares reflects a blended figure, combining: (a) for periods prior to Class 2's inception of Jan. 6, 1999, historical results of Class 1 shares and (b) for periods after Jan. 6, 1999, Class 2's results reflecting an additional 12b-1 fee expense which also affects all future performance. Blended figures assume reinvestment of dividends and capitalizations. ++Each of the above Funds' Class IB Shares corresponding to the subaccounts commenced operations on April 30, 1998. For periods prior to the inception dates of the Funds' Class IB Shares, the performance shown is based on the historical performance of the Funds' Class IA Shares adjusted to reflect the current expenses of the Funds' Class IB Shares. Average Annual Total Return For Annuities Without Withdrawal and Selection of the Seven-Year Withdrawal Charge Schedule and the Optional Enhanced Death Benefit and Guaranteed Minimum Income Benefit Riders For Periods Ending Dec. 31, 1998
Performance Since Commencement Performance Since of the Subaccount Commencement of the Fund* Since Since Subaccount Investing In: 1 Year Commencement 1 Year 5 Years 10 Years Commencement - - - ---------- ------------- ------ ------------ ------ ------- -------- ------------ AXPSM VARIABLE PORTFOLIO WBCA5 Blue Chip Advantage Fund+ --% --% --% --% --% --% ECR Capital Resource Fund (2/95;10/81)** 22.33 18.21 22.33 14.81 14.05 13.78 WDEI5 Diversified Equity Income Fund+ -- -- -- -- -- -- EIA Extra Income Fund (--;5/96) -- -- -14.19 -- -- -4.72 WFDI5 Federal Income Fund+ -- -- -- -- -- -- EGD New Dimensions Fund (10/97;5/96) 26.79 26.83 26.79 -- -- 22.47 WSCA5 Small Cap Advantage Fund + -- -- -- -- -- -- AIM V.I. ECA Capital Appreciation Fund (--;5/93) -- -- 17.59 15.53 -- 17.04 EVA Value Fund (10/97;5/93) 30.50 28.59 30.50 19.89 -- 20.06 Dreyfus -- -- ESR The Dreyfus Socially Responsible -- -- 27.54 20.63 -- 20.69 Growth Fund, Inc. (--;10/93) FRANKLIN TEMPLETON VIP TRUST WISE5 Franklin Income Securities Fund - -- -- 0.16 7.15 -- 9.62 Class 2 (--;1/89)*** EMU Mutual Shares Securities Fund - -- -- -1.40 -- -- 8.01 Class 2 (--;11/96)*** ERE Franklin Real Estate Fund - -- -- -18.06 8.43 -- 8.70 Class 2 (--;1/89)*** WSMC5 Franklin Small Cap Fund - Class 2 -- -- -2.43 -- -- 14.37 (;11/95)*** GOLDMAN SACHS Variable Insurance Trust (VIT) JUS CORESM U.S. Equity Fund (--;2/98) -- -- -- -- -- 13.15 JGL Global Income Fund (--;1/98) -- -- -- -- -- 6.76 JMC Mid Cap Value Fund (--;4/98) -- -- -- -- -- -14.44 MFS Investment Management(R) WGIS5 Growth with Income Series (--;10/95) -- -- 20.56 -- -- 24.11 EUT Utilities Series (--;1/95) -- -- 16.37 -- -- 23.59 PUTNAM VARIABLE TRUST -- -- EPL Putnam VT International Growth Fund - -- -- 16.75 -- -- 15.59 Class IB Shares (--;1/97)++ EPT Putnam VT Vista Fund - -- -- 17.77 -- -- 19.66 Class IB Shares (--;1/97)++
*Current applicable charges deducted from fund performance include a $30 contract administrative charge, a 1.05% mortality and expense risk fee, a 0.15% variable account administrative charge, a 0.20% Enhanced Death Benefit Rider fee and a 0.30% Guaranteed Minimum Income Benefit Rider fee. Premium taxes are not reflected in the above total returns. +Fund had not commenced operations as of Dec. 31, 1998. **(Commencement date of the subaccount; commencement date of the Fund) ***Standardized performance for Class 2 shares reflects a blended figure, combining: (a) for periods prior to Class 2's inception of Jan. 6, 1999, historical results of Class 1 shares and (b) for periods after Jan. 6, 1999, Class 2's results reflecting an additional 12b-1 fee expense which also affects all future performance. Blended figures assume reinvestment of dividends and capitalizations. ++Each of the above Funds' Class IB Shares corresponding to the subaccounts commenced operations on April 30, 1998. For periods prior to the inception dates of the Funds' Class IB Shares, the performance shown is based on the historical performance of the Funds' Class IA Shares adjusted to reflect the current expenses of the Funds' Class IB Shares. Average Annual Total Return For Annuities Without Withdrawal and Selection of the Seven-Year Withdrawal Charge Schedule and the Optional Enhanced Death Benefit and Guaranteed Minimum Income Benefit Riders For Periods Ending Dec. 31, 1998 (continued)
Performance Since Commencement Performance Since of the Subaccount Commencement of the Fund* Since Since Subaccount Investing In: 1 Year Commencement 1 Year 5 Years 10 Years Commencement - - - ---------- ------------- ------ ------------ ------ ------- -------- ------------ WELLS FARGO VARIABLE TRUST WAAL5 Asset Allocation Fund (--;4/94)** -- -- 13.47 -- -- 9.61 WCBD5 Corporate Bond Fund (--;9/99)+ -- -- -- -- -- -- WEQI5 Equity Income Fund (--;5/96) -- -- 16.72 -- -- 19.10 WEQV5 Equity Value Fund (--;5/98) -- -- -- -- -- -4.73 WGRO5 Growth Fund (--;4/94) -- -- 26.98 -- -- 19.65 WLCG5 Large Company Growth Fund (--;9/99)+ -- -- -- -- -- -- WMMK5 Money Market Fund (--;5/94) -- -- 3.25 -- -- 3.38 WSCG5 Small Cap Growth Fund (--;5/95) -- -- -15.75 -- -- 8.79
*Current applicable charges deducted from fund performance include a $30 contract administrative charge, a 1.05% mortality and expense risk fee, a 0.15% variable account administrative charge, a 0.20% Enhanced Death Benefit Rider fee and a 0.30% Guaranteed Minimum Income Benefit Rider fee. Premium taxes are not reflected in the above total returns. +Fund had not commenced operations as of Dec. 31, 1998. **(Commencement date of the subaccount; commencement date of the Fund) Average Annual Total Return For Annuities With Withdrawal and Selection of the Seven-Year Withdrawal Charge Schedule and the Optional Enhanced Death Benefit and Guaranteed Minimum Income Benefit Riders For Periods Ending Dec. 31, 1998
Performance Since Commencement Performance Since of the Subaccount Commencement of the Fund* Since Since Subaccount Investing In: 1 Year Commencement 1 Year 5 Years 10 Years Commencement - - - ---------- ------------- ------ ------------ ------ ------- -------- ------------ AXPSM VARIABLE PORTFOLIO WBCA5 Blue Chip Advantage Fund+ --% --% --% --% --% --% ECR Capital Resource Fund (2/95;10/81)** 13.96 17.21 13.96 14.16 14.05 13.76 WDEI5 Diversified Equity Income Fund+ -- -- -- -- -- -- EIA Extra Income Fund (--;5/96) -- -- -20.15 -- -- -6.96 WFDI5 Federal Income Fund+ -- -- -- -- -- -- EGD New Dimensions Fund (10/97;5/96) 18.41 19.99 18.41 -- -- 20.43 WSCA5 Small Cap Advantage Fund + -- -- -- -- -- -- AIM V.I. ECA Capital Appreciation Fund (--;5/93) -- -- 9.24 14.90 -- 16.63 EVA Value Fund (10/97;5/93) 22.11 21.75 22.11 19.33 -- 19.69 Dreyfus ESR The Dreyfus Socially Responsible -- -- 19.16 20.14 -- 20.92 Growth Fund, Inc. (--;10/93) FRANKLIN TEMPLETON VIP TRUST WISE5 Franklin Income Securities Fund - -- -- -6.95 6.31 -- 9.58 Class 2 (--;1/89)*** EMU Mutual Shares Securities Fund - -- -- -8.39 -- -- 4.85 Class 2 (--;11/96)*** ERE Franklin Real Estate Fund - -- -- -23.71 7.61 -- 8.66 Class 2 (--;1/89)*** WSMC5 Franklin Small Cap Fund - Class 2 -- -- -9.34 -- -- 12.77 (;11/95)*** GOLDMAN SACHS Variable Insurance Trust (VIT) JUS CORESM U.S. Equity Fund (--;2/98) -- -- -- -- -- 4.95 JGL Global Income Fund (--;1/98) -- -- -- -- -- -0.90 JMC Mid Cap Value Fund (--;4/98) -- -- -- -- -- -20.39 MFS Investment Management(R) WGIS5 Growth with Income Series (--;10/95) -- -- 12.19 -- -- 22.84 EUT Utilities Series (--;1/95) -- -- 8.02 -- -- 22.69 PUTNAM VARIABLE TRUST EPL Putnam VT International Growth Fund - -- -- 8.40 -- -- 11.89 Class IB Shares (--;1/97)++ EPT Putnam VT Vista Fund - -- -- 9.41 -- -- 16.07 Class IB Shares (--;1/97)++
*Current applicable charges deducted from fund performance include a $30 contract administrative charge, a 1.05% mortality and expense risk fee, a 0.15% variable account administrative charge, a 0.20% Enhanced Death Benefit Rider fee, a 0.30% Guaranteed Minimum Income Benefit Rider fee and applicable withdrawal charges associated with the seven-year withdrawal charge schedule. Premium taxes are not reflected in the above total returns. +Fund had not commenced operations as of Dec. 31, 1998. **(Commencement date of the subaccount; commencement date of the Fund) ***Standardized performance for Class 2 shares reflects a blended figure, combining: (a) for periods prior to Class 2's inception of Jan. 6, 1999, historical results of Class 1 shares and (b) for periods after Jan. 6, 1999, Class 2's results reflecting an additional 12b-1 fee expense which also affects all future performance. Blended figures assume reinvestment of dividends and capitalizations. ++Each of the above Funds' Class IB Shares corresponding to the subaccounts commenced operations on April 30, 1998. For periods prior to the inception dates of the Funds' Class IB Shares, the performance shown is based on the historical performance of the Funds' Class IA Shares adjusted to reflect the current expenses of the Funds' Class IB Shares. Average Annual Total Return For Annuities With Withdrawal and Selection of the Seven-Year Withdrawal Charge Schedule and the Optional Enhanced Death Benefit and Guaranteed Minimum Income Benefit Riders For Periods Ending Dec. 31, 1998 (continued)
Performance Since Commencement Performance Since of the Subaccount Commencement of the Fund* Since Since Subaccount Investing In: 1 Year Commencement 1 Year 5 Years 10 Years Commencement - - - ---------- ------------- ------ ------------ ------ ------- -------- ------------ WELLS FARGO VARIABLE TRUST WAAL5 Asset Allocation Fund (--;4/94)** -- -- 5.25 -- -- 8.78 WCBD5 Corporate Bond Fund (--;9/99)+ -- -- -- -- -- -- WEQI5 Equity Income Fund (--;5/96) -- -- 8.37 -- -- 16.96 WEQV5 Equity Value Fund (--;5/98) -- -- -- -- -- -11.46 WGRO5 Growth Fund (--;4/94) -- -- 18.60 -- -- 19.03 WLCG5 Large Company Growth Fund (--;9/99)+ -- -- -- -- -- -- WMMK5 Money Market Fund (--;5/94) -- -- -4.12 -- -- 2.34 WSCG5 Small Cap Growth Fund (--;5/95) -- -- -21.59 -- -- 7.33
*Current applicable charges deducted from fund performance include a $30 contract administrative charge, a 1.05% mortality and expense risk fee, a 0.15% variable account administrative charge, a 0.20% Enhanced Death Benefit Rider fee, a 0.30% Guaranteed Minimum Income Benefit Rider fee and applicable withdrawal charges associated with the seven-year withdrawal charge schedule. Premium taxes are not reflected in the above total returns. +Fund had not commenced operations as of Dec. 31, 1998. **(Commencement date of the subaccount; commencement date of the Fund) Cumulative Total Return Cumulative total return represents the cumulative change in the value of an investment for a given period (reflecting change in a subaccount's accumulation unit value). We compute cumulative total return by using the following formula: ERV - P P where: P = a hypothetical initial payment of $1,000 ERV = Ending Redeemable Value of a hypothetical $1,000 payment made at the beginning of the period, at the end of the period (or fractional portion thereof) Total return figures reflect the deduction of the withdrawal charge which assumes you withdraw the entire contract value at the end of the one, five and ten year periods (or, if less, up to the life of the subaccount). We also may show performance figures without the deduction of a withdrawal charge. In addition, total return figures reflect the deduction of all other applicable charges including the contract administrative charge, the variable account administrative charge, the Enhanced Death Benefit Rider fee, the Guaranteed Minimum Income Benefit Rider fee and the mortality and expense risk fee. Calculation of Yield for Subaccounts Investing in Money Market Funds Seven-Day Simple Yield For the subaccounts investing in money market funds, we base quotations of simple yield on: (a) the change in the value of a hypothetical subaccount (exclusive of capital changes and income other than investment income) at the beginning of a particular seven-day period; (b) less a pro rata share of the subaccount expenses accrued over the period; and (c) dividing this difference by the value of the subaccount at the beginning of the period to obtain the base period return. The subaccount's value includes: o any declared dividends, o the value of any shares purchased with dividends paid during the period, and o any dividends declared for such shares. It does not include: o the effect of any applicable withdrawal charge, or o any realized or unrealized gains or losses. You must consider (when comparing an investment in subaccounts investing in money market funds with fixed annuities) that fixed annuities often provide an agreed-to or guaranteed yield for a stated period of time, whereas the subaccount's yield fluctuates. In comparing the yield of the subaccount to a money market fund, you should consider the different services that the contract provides. Annualized Yield for Subaccounts Investing in Income Funds For the subaccounts investing in income funds, we base quotations of yield on all investment income earned during a particular 30-day period, less expenses accrued during the period (net investment income) and compute it by dividing net investment income per accumulation unit by the value of an accumulation unit on the last day of the period, according to the following formula: YIELD = 2[( a-b + 1)6 - 1] cd where: a = dividends and investment income earned during the period b = expenses accrued for the period (net of reimbursements) c = the average daily number of accumulation units outstanding during the period that were entitled to receive dividends d = the maximum offering price per accumulation unit on the last day of the period The subaccount earns yield from the increase in the net asset value of shares of the fund in which it invests and from dividends declared and paid by the fund, which are automatically invested in shares of the fund. The yield on the subaccount's accumulation unit may fluctuate daily and does not provide a basis for determining future yields. Independent rating or statistical services or publishers or publications such as those listed below may quote subaccount performance, compare it to rankings, yields or returns, or use it in variable annuity accumulation or settlement illustrations they publish or prepare. The Bank Rate Monitor National Index, Barron's, Business Week, CDA Technologies, Donoghue's Money Market Fund Report, Financial Services Week, Financial Times, Financial World, Forbes, Fortune, Global Investor, Institutional Investor, Investor's Daily, Kiplinger's Personal Finance, Lipper Analytical Services, Money, Morningstar, Mutual Fund Forecaster, Newsweek, The New York Times, Personal Investor, Stanger Report, Sylvia Porter's Personal Finance, USA Today, U.S. News and World Report, The Wall Street Journal and Wiesenberger Investment Companies Service. CALCULATING ANNUITY PAYOUTS The Variable Account We do the following calculations separately for each of the subaccounts of the variable account. The separate monthly payouts, added together, make up your total variable annuity payout. Initial Payout: To compute your first monthly payment, we: o determine the dollar value of your contract as of the valuation date that falls on (or closest to the valuation date that falls before) the seventh calendar day before the retirement date and then deduct any applicable premium tax; then o apply the result to the annuity table contained in the contract or another table at least as favorable. The annuity table shows the amount of the first monthly payment for each $1,000 of value which depends on factors built into the table, as described below. Annuity Units: We then convert the value of your subaccount to annuity units. To compute the number of units credited to you, we divide the first monthly payment by the annuity unit value (see below) on the valuation date that falls on (or closest to the valuation date that falls before) the seventh calendar day before the retirement date. The number of units in your subaccount is fixed. The value of the units fluctuates with the performance of the underlying fund. Subsequent Payouts: To compute later payouts, we multiply: o the annuity unit value on the valuation date that falls on (or closest to the valuation date that falls before) the seventh calendar day before the payout is due; by o the fixed number of annuity units credited to you. Annuity Unit Values: We originally set this value at $1 for each subaccount. To calculate later values we multiply the last annuity value by the product of: o the net investment factor; and o the neutralizing factor. The purpose of the neutralizing factor is to offset the effect of the assumed rate built into the annuity table. With an assumed investment rate of 5%, the neutralizing factor is 0.999866 for a one day valuation period. Net Investment Factor: We determine the net investment factor by: o adding the fund's current net asset value per share, plus the per share amount of any accrued income or capital gain dividends to obtain a current adjusted net asset value per share; then o dividing that sum by the previous adjusted net asset value per share; and o subtracting the percentage factor representing the mortality and expense risk fee, the variable account administrative charge and the Enhanced Death Benefit Rider fee (if selected) from the result. Because the net asset value of the fund may fluctuate, the net investment factor may be greater or less than one, and the annuity unit value may increase or decrease. You bear this investment risk in a variable subaccount. The One-Year Fixed Account We guarantee your fixed annuity payout amounts. Once calculated, your payout will remain the same and never change. To calculate your annuity payouts we: o take the value of your one-year fixed account at the retirement date or the date you selected to begin receiving your annuity payouts; then o using an annuity table, we apply the value according to the annuity payout plan you select. The annuity payout table we use will be the one in effect at the time you choose to begin your annuity payouts. The values in the table will be equal to or greater than the table in your contract. RATING AGENCIES The following chart reflects the ratings given to us by independent rating agencies. These agencies evaluate the financial soundness and claims-paying ability of insurance companies based on a number of different factors. This information does not relate to the management or performance of the subaccounts of the contract. This information relates only to our general account and reflects our ability to make annuity payouts and to pay death benefits and other distributions from the contract. Rating Agency Rating A.M. Best A+ (Superior) - - - ----------------------- Duff & Phelps AAA - - - ----------------------- Moody's Aa2 PRINCIPAL UNDERWRITER The principal underwriter for the contract is American Express Financial Advisors Inc. (AEFA) which offers the contract on a continuous basis. The contract is new and, therefore, we have not received any withdrawal charges or paid any commissions. INDEPENDENT AUDITORS The financial statements appearing in this SAI have been audited by Ernst & Young LLP (1400 Pillsbury Center, 200 South Sixth Street, Minneapolis, MN 55402) independent auditors, as stated in their report appearing herein. FINANCIAL STATEMENTS American Enterprise Variable Annuity Account Annual Financial Information Report of Independent Auditors The Board of Directors American Enterprise Life Insurance Company We have audited the individual and combined statements of net assets of the segregated asset subaccounts of American Enterprise Variable Annuity Account (comprised of subaccounts EVA, ECR and EGD) as of December 31, 1998, and the related statements of operations for the year then ended, and the statements of changes in net assets for each of the two years in the period then ended, except for subaccounts EVA and EGD which are for the year ended December 31, 1998 and for the period October 30, 1997 (commencement of operations) to December 31, 1997. These financial statements are the responsibility of the management of American Enterprise Life Insurance Company. Our responsibility is to express an opinion on these financial statements based on our audits. We conducted our audits in accordance with generally accepted auditing standards. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. Our procedures included confirmation of securities owned at December 31, 1998 with the affiliated and unaffiliated mutual fund managers. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion. In our opinion, the financial statements referred to above present fairly, in all material respects, the individual and combined financial position of the segregated asset subaccounts of American Enterprise Variable Annuity Account at December 31, 1998, and the individual and combined results of their operations and the changes in their net assets for the periods described above, in conformity with generally accepted accounting principles. /s/ Ernst & Young LLP Ernst & Young LLP Minneapolis, Minnesota March 12, 1999
American Enterprise Variable Annuity Account Notes to Financial Statements 1. Organization American Enterprise Variable Annuity Account (the Account) was established under Indiana law on July 15, 1987 and the subaccounts are registered together as a single unit investment trust of American Enterprise Life Insurance Company (American Enterprise Life) under the Investment Company Act of 1940, as amended (the 1940 Act). Operations of the Account commenced on Feb. 21, 1995. The Account is comprised of various subaccounts. Each subaccount invests exclusively in shares of the following mutual funds (collectively, the Funds), which are registered under the 1940 Act as diversified, open-end management investment companies and have the following investment managers. Subaccount Invests exclusively in shares of Investment Manager EVA AIM V.I. Value Fund A I M Advisors, Inc. ECR AXPSM Variable Portfolio - Capital Resource Fund IDS Life Insurance Company 1 EGD AXPSM Variable Portfolio - New Dimensions Fund IDS Life Insurance Company 1 1 American Express Financial Corporation (AEFC) is the investment advisor. The assets of each subaccount of the Account are not chargeable with liabilities arising out of the business conducted by any other segregated asset account or by American Enterprise Life. American Enterprise Life issues the contracts that are distributed by banks and financial institutions either directly or through a network of third-party marketers. 2. Summary of Significant Accounting Policies Investments in the Funds Investments in shares of the Funds are stated at market value which is the net asset value per share as determined by the respective Funds. Investment transactions are accounted for on the date the shares are purchased and sold. The cost of investments sold and redeemed is determined on the average cost method. Dividend distributions received from the Funds are reinvested in additional shares of the Funds and are recorded as income by the subaccounts on the ex-dividend date. Unrealized appreciation or depreciation of investments in the accompanying financial statements represents the subaccounts' share of the Funds' undistributed net investment income, undistributed realized gain or loss and the unrealized appreciation or depreciation on their investment securities. Use of Estimates The preparation of financial statements in conformity with generally accepted accounting principles requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosures of contingent assets and liabilities at the date of the financial statements and the reported amounts of increase and decrease in net assets from operations during the period. Actual results could differ from those estimates. Federal Income Taxes American Enterprise Life is taxed as a life insurance company. The Account is treated as part of American Enterprise Life for federal income tax purposes. Under existing federal income tax law, no income taxes are payable with respect to any investment income of the Account.
3. Mortality and Expense Risk Fee American Enterprise Life makes contractual assurances to the Account that possible future adverse changes in administrative expenses and mortality experience of the contract owners and annuitants will not affect the Account. The mortality and expense risk fee paid to American Enterprise Life is computed daily and is equal, on an annual basis, to 1.25% of the average daily net assets of the subaccounts. 4. Administrative Charge American Enterprise Life deducts a daily charge equal, on an annual basis, to 0.15% of the average daily net assets of each subaccount as an administrative charge. This charge covers certain administrative and operating expenses of the subaccounts incurred by American Enterprise Life such as accounting, legal and data processing fees, and expenses involved in the preparation and distribution of reports and prospectuses. This charge cannot be increased. 5. Contract Administrative Charge American Enterprise Life deducts a contract administrative charge of $30 per year on each contract anniversary. This charge cannot be increased and does not apply after annuity payouts begin. American Enterprise Life does not expect to profit from this charge. This charge reimburses American Enterprise Life for expenses incurred in establishing and maintaining the annuity records. This charge is waived when the contract value is $50,000 or more on the current contract anniversary. The $30 annual charge is deducted at the time of any full surrender. 6. Withdrawal Charge American Enterprise Life will use a withdrawal charge to help it recover certain expenses relating to the sale of the annuity. The withdrawal charge is deducted for withdrawals up to the first seven payment years following a purchase payment. Charges by American Enterprise Life for withdrawals are not identified on an individual segregated asset account basis. Charges for all segregated asset accounts amounted to $199,062 in 1998 and $79,195 in 1997. Such charges are not treated as a separate expense of the subaccounts. They are ultimately deducted from contract withdrawal benefits paid by American Enterprise Life. This charge is waived if the withdrawal meets certain provisions as stated in the contract. 7. Investment in Shares The subaccounts' investment in shares of the Funds as of Dec. 31, 1998 were as follows: Subaccount Investment Shares NAV EVA AIM V.I. Value Fund 91,112 $26.25 ECR AXPSM Variable Portfolio - Capital Resource Fund 301,499 32.65 EGD AXPSM Variable Portfolio - New Dimensions Fund 83,670 17.52
8. Investment Transactions The subaccounts' purchases of Funds' shares, including reinvestment of dividend distributions, were as follows: Year ended Dec. 31, Subaccount Investment 1998 1997 EVA1 AIM V.I. Value Fund $2,077,208 $ 68,804 ECR AXPSM Variable Portfolio - Capital Resource Fund 3,205,569 2,325,297 EGD1 AXPSM Variable Portfolio - New Dimensions Fund 1,222,554 70,723 Combined Variable Account $6,505,331 $2,464,824 1 Operations commenced on Oct. 30, 1997. 9. Year 2000 Issue (unaudited) The Year 2000 issue is the result of computer programs having been written using two digits rather than four to define a year. Any programs that have time-sensitive software may recognize a date using "00" as the year 1900 rather than 2000. This could result in the failure of major systems or miscalculations, which could have a material impact on the operations of American Enterprise Life and the Variable Account. All of the major systems used by the American Enterprise Life and by the Variable Account are maintained by AEFC and are utilized by multiple subsidiaries and affiliates of AEFC. American Enterprise Life's and the Variable Account's businesses are heavily dependent upon AEFC's computer systems and have significant interactions with systems of third parties. A comprehensive review of AEFC's computer systems and business processes has been conducted to identify the major systems that could be affected by the Year 2000 issue. Steps have been taken to resolve potential problems including modification to existing software and the purchase of new software. AEFC's target date for substantially completing its program of corrective measures on internal business critical systems was Dec. 31, 1998. As of June 30, 1999, AEFC completed its program of corrective measures on its internal systems and applications, including Year 2000 compliance testing. The Year 2000 readiness of unaffiliated investment managers and other third parties whose system failures could have an impact on American Enterprise Life's and the Variable Account's operations continues to be evaluated. The failure of external parties to resolve their own Year 2000 issues in a timely manner could result in a material financial risk to AEFC, American Enterprise Life or the Variable Account. AEFC's Year 2000 project includes establishing Year 2000 contingency plans for all key business units. Business continuation plans, which address business continuation in the event of a system disruption, are in place for all key business units. These plans are being amended to include specific Year 2000 considerations and will continue to be refined throughout 1999 as additional information related to potential Year 2000 exposure is gathered.
American Enterprise Variable Annuity Account Statements of Net Assets Dec. 31, 1998 Segregated Asset Subaccounts Combined Variable Assets EVA ECR EGD Account Investments in shares of mutual funds: at cost $2,129,905 $8,367,712 $1,273,181 $ 11,770,798 ---------- ---------- ---------- ------------ at market value $2,391,678 $9,845,123 $1,465,483 $ 13,702,284 Accounts receivable from American Enterprise Life for contract purchase payments 1,237 12,759 6,154 20,150 ----- ------ ----- ------ Total assets 2,392,915 9,857,882 1,471,637 13,722,434 --------- --------- --------- ---------- Liabilities Payable to American Enterprise Life for: Mortality and expense risk fee 2,413 10,405 1,513 14,331 Issue and administrative fee 290 1,249 182 1,721 Payable to mutual funds for investments purchased 1,237 1,105 4,459 6,801 ----- ----- ----- ----- Total liabilities 3,940 12,759 6,154 22,853 ----- ------ ----- ------ Net assets applicable to contracts in accumulation period 2,388,975 9,839,380 1,465,483 13,693,838 Net assets applicable to contracts in payment period - 5,743 - 5,743 ---- ----- ---- ----- Total net assets $2,388,975 $9,845,123 $1,465,483 ========== ========== ========== Accumulation units outstanding 1,778,901 5,163,185 1,108,323 --------- --------- --------- Net asset value per accumulation unit $ 1.34 $ 1.91 $ 1.32 ------ ------ ------ See accompanying notes to financial statements.
American Enterprise Variable Annuity Account Statements of Operations Year ended Dec. 31, 1998 Segregated Asset Subaccounts Combined Variable Investment income EVA ECR EGD Account Dividend income from mutual funds $104,609 $ 704,897 $ 4,537 $ 814,043 -------- ---------- --------- --------- Expenses: Mortality and expense risk fee 12,205 95,285 8,135 115,625 Administrative charge 1,464 11,434 976 13,874 ----- ------ --- ------ Total expenses 13,669 106,719 9,111 129,499 ------ ------- ----- ------- Investment income (loss) - net 90,940 598,178 (4,574) 684,544 ------ ------- ------ ------- Realized and unrealized gain (loss) on investments - net Realized gain (loss) on sales of investments in mutual funds: Proceeds from sales 16,585 297,921 20,854 335,360 Cost of investments sold 16,107 266,065 20,096 302,268 ------ ------- ------ ------- Net realized gain (loss) on investments 478 31,856 758 33,092 Net change in unrealized appreciation or depreciation of investments 262,764 957,259 190,924 1,410,947 ------- ------- ------- --------- Net gain (loss) on investments 263,242 989,115 191,682 1,444,039 ------- ------- ------- --------- Net increase (decrease) in net assets resulting from operations $354,182 $1,587,293 $ 187,108 $2,128,583 ======== ========== ========= ========== See accompanying notes to financial statements.
American Enterprise Variable Annuity Account Statements of Changes in Net Assets Year ended Dec. 31, 1998 Segregated Asset Subaccounts Combined Variable Operations EVA ECR EGD Account Investment income (loss) - net $ 90,940 $ 598,178 $ (4,574) $ 684,544 Net realized gain (loss) on investments 478 31,856 758 33,092 Net change in unrealized appreciation or depreciation of investments 262,764 957,259 190,924 1,410,947 ------- ------- ------- --------- Net increase (decrease) in net assets resulting from operations 354,182 1,587,293 187,108 2,128,583 ------- --------- ------- --------- Contract transactions Contract purchase payments 1,616,894 3,114,006 1,111,110 5,842,010 Net transfers* 381,890 (245,243) 126,930 263,577 Annuity payments - (385) - (385) Contract terminations: Surrender benefits and contract charges (25,796) (529,563) (25,802) (581,161) Death benefits (5,952) (21,950) (5,911) (33,813) ------ ------- ------ ------- Increase (decrease) from contract transactions 1,967,036 2,316,865 1,206,327 5,490,228 --------- --------- --------- --------- Net assets at beginning of year 67,757 5,940,965 72,048 6,080,770 ------ --------- ------ --------- Net assets at end of year $2,388,975 $9,845,123 $1,465,483 $ 13,699,581 ========== ========== ========== ============ Accumulation unit activity Units outstanding at beginning of year 65,875 3,812,754 68,572 Contracts purchase payments 1,418,576 1,848,700 965,321 Net transfers* 327,920 (146,994) 108,613 Contract terminations: Surrender benefits and contract charges (28,544) (338,414) (29,255) Death benefits (4,926) (12,861) (4,928) ------ ------- ------ Units outstanding at end of year 1,778,901 5,163,185 1,108,323 --------- --------- --------- *Includes transfer activity from (to) other subaccounts and transfers from (to) American Enterprise Life's fixed account. See accompanying notes to financial statements.
American Enterprise Variable Annuity Account Statements of Changes in Net Assets Year ended Dec. 31, 1997 Segragated Asset Subaccount Combined Variable Operations EVA* ECR EGD* Account Investment income (loss) - net $ 1,408 $ 89,908 $ (27) $ 91,289 Net realized gain (loss) on investments - 8,855 - 8,855 Net change in unrealized appreciation or depreciation of investments (991) 780,121 1,378 780,508 ---- ------- ----- ------- Net increase (decrease) in net assets resulting from operations 417 878,884 1,351 880,652 --- ------- ----- ------- Contract transactions Contract purchase payments 66,156 2,409,335 70,697 2,546,188 Net transfers** 1,184 (33,041) - (31,857) Annuity payments - (138) - (138) Contract terminations: Surrender benefits and contract charges - (297,350) - (297,350) Death benefits - (5,701) - (5,701) ---- ------ ----- ------ Increase (decrease) from contract transactions 67,340 2,073,105 70,697 2,211,142 ------ --------- ------ --------- Net assets at beginning of year - 2,988,976 - 2,988,976 ---- --------- ---- --------- Net assets at end of year $ 67,757 $5,940,965 $ 72,048 $ 6,080,770 -------- ---------- -------- ----------- Accumulation unit activity Units outstanding at beginning of year - 2,350,045 - Contract purchase payments 64,716 1,696,748 68,572 Net transfers** 1,159 (18,567) - Contract terminations: Surrender benefits and contract charges - (211,339) - Death benefits - (4,133) - ---- ------ ----- Units outstanding at end of year 65,875 3,812,754 68,572 ------ --------- ------ *For the period Oct. 30, 1997 (commencement of operations) to Dec. 31, 1997. **Includes transfer activity from (to) other subaccounts and transfers from (to) American Enterprise Life's fixed account.
STATEMENT OF ADDITIONAL INFORMATION for WELLS FARGO ADVANTAGESM CREDIT VARIABLE ANNUITY American Enterprise Variable Annuity Account __, 1999 American Enterprise Variable Annuity Account is a separate account established and maintained by American Enterprise Life Insurance Company (American Enterprise Life). This Statement of Additional Information (SAI) is not a prospectus. It should be read together with the prospectus dated the same date as this SAI, which may be obtained by writing or calling us at the address and telephone number below. The prospectus is incorporated in this SAI by reference. American Enterprise Life Insurance Company 80 South Eighth Street P.O. Box 534 Minneapolis, MN 55440-0534 800-333-3437 TABLE OF CONTENTS Performance Information......................................................p. Calculating Annuity Payouts..................................................p. Rating Agencies..............................................................p. Principal Underwriter........................................................p. PERFORMANCE INFORMATION - - - ------------------------------------------------------------------------------- The subaccounts may quote various performance figures to illustrate past performance. We base total return and current yield quotations (if applicable) on standardized methods of computing performance as required by the Securities and Exchange Commission (SEC). An explanation of the methods used to compute performance follows below. Average Annual Total Return We will express quotations of average annual total return for the subaccounts in terms of the average annual compounded rate of return of a hypothetical investment in the contract over a period of one, five and ten years (or, if less, up to the life of the subaccounts), calculated according to the following formula: P(1+T)n = ERV where: P = a hypothetical initial payment of $1,000 T = average annual total return n = number of years ERV = Ending Redeemable Value of a hypothetical $1,000 payment made at the beginning of the period, at the end of the period (or fractional portion thereof) We calculated the following performance figures on the basis of historical performance of each fund. Currently, we do not show any performance information for the subaccounts because they are new and have not had any activity to date. However, we show performance from the commencement date of the funds as if the contract existed at that time, which it did not. Past performance does not guarantee future results. Average Annual Total Return For Annuities Without Withdrawal and Selection of the Six-Year Withdrawal Charge Schedule For Periods Ending Dec. 31, 1998
Performance Since Commencement of the Fund* Since Subaccount Investing In: 1 Year 5 Years 10 Years Commencement - - - ---------- ------------- ------ ------- -------- ------------ AXPSM VARIABLE PORTFOLIO WBCA3 Blue Chip Advantage Fund+ --% --% --% --% WCAR3 Capital Resource Fund (10/81)** 22.21 14.76 14.03 13.77 WDEI3 Diversified Equity Income Fund+ -- -- -- -- WEXI3 Extra Income Fund (5/96) -14.28 -- -- -4.82 WFDI3 Federal Income Fund+ -- -- -- -- WNDM3 New Dimensions Fund (5/96) 18.66 -- -- 20.45 WSCA3 Small Cap Advantage Fund + -- -- -- -- AIM V.I. WCAP3 Capital Appreciation Fund (5/93) 9.48 14.50 -- 16.40 WVAL3 Value Fund (5/93) 22.34 19.04 -- 19.55 Dreyfus WSRG3 The Dreyfus Socially Responsible Growth 19.42 19.80 -- 20.70 Fund, Inc. (10/93) FRANKLIN TEMPLETON VIP TRUST WISE3 Franklin Income Securities Fund - Class 2 0.06 7.04 -- 9.51 (1/89)*** WMSS3 Mutual Shares Securities Fund - Class 2 -1.50 -- -- 7.90 (11/96)*** WRES3 Franklin Real Estate Fund - Class 2 -18.14 8.33 -- 8.60 (1/89)*** WSMC3 Franklin Small Cap Fund - Class 2 (11/95)*** -2.53 -- -- 14.26 GOLDMAN SACHS Variable Insurance Trust (VIT) WUSE3 CORESM U.S. Equity Fund (2/98) -- -- -- 13.05 WGLI3 Global Income Fund (1/98) -- -- -- 6.66 WMCV3 Mid Cap Value Fund (4/98) -- -- -- -14.49 MFS Investment Management(R) WGIS3 Growth with Income Series (10/95) 20.44 -- -- 23.99 WUTS3 Utilities Series (1/95) 16.25 -- -- 23.47 PUTNAM VARIABLE TRUST WIGR3 Putnam VT International Growth Fund - Class 16.64 -- -- 15.48 IB Shares (1/97)++ WVIS3 Putnam VT Vista Fund - Class IB Shares 17.65 -- -- 19.54 (1/97)++ WELLS FARGO VARIABLE TRUST WAAL3 Asset Allocation Fund (4/94) 13.35 -- -- 9.50 WCBD3 Corporate Bond Fund (9/99)+ -- -- -- -- WEQI3 Equity Income Fund (5/96) 16.61 -- -- 18.98 WEQV3 Equity Value Fund (5/98) -- -- -- -4.79 WGRO3 Growth Fund (4/94) 26.86 -- -- 19.53 WLCG3 Large Company Growth Fund (9/99)+ -- -- -- -- WMMK3 Money Market Fund (5/94) 3.14 -- -- 3.28 WSCG3 Small Cap Growth Fund (5/95) -15.84 -- -- 8.68
*Current applicable charges deducted from fund performance include a $30 contract administrative charge, a 1.35% mortality and expense risk fee and a 0.15% variable account administrative charge. Premium taxes are not reflected in the above total returns. +Fund had not commenced operations as of Dec. 31, 1998. **(Commencement date of the Fund) ***Standardized performance for Class 2 shares reflects a blended figure, combining: (a) for periods prior to Class 2's inception of Jan. 6, 1999, historical results of Class 1 shares and (b) for periods after Jan. 6, 1999, Class 2's results reflecting an additional 12b-1 fee expense which also affects all future performance. Blended figures assume reinvestment of dividends and capitalizations. ++Each of the above Funds' Class IB Shares corresponding to the subaccounts commenced operations on April 30, 1998. For periods prior to the inception dates of the Funds' Class IB Shares, the performance shown is based on the historical performance of the Funds' Class IA Shares adjusted to reflect the current expenses of the Funds' Class IB Shares. Average Annual Total Return For Annuities With Withdrawal and Selection of the Six-Year Withdrawal Charge Schedule For Periods Ending Dec. 31, 1998
Performance Since Commencement of the Fund* Since Subaccount Investing In: 1 Year 5 Years 10 Years Commencement - - - ---------- ------------- ------ ------- -------- ------------ AXPSM VARIABLE PORTFOLIO WBCA3 Blue Chip Advantage Fund+ --% --% --% --% WCAR3 Capital Resource Fund (10/81)** 14.21 14.30 14.03 13.77 WDEI3 Diversified Equity Income Fund+ -- -- -- -- WEXI3 Extra Income Fund (5/96) -19.93 -- -- -7.22 WFDI3 Federal Income Fund+ -- -- -- -- WNDM3 New Dimensions Fund (5/96) 18.66 -- -- 20.45 WSCA3 Small Cap Advantage Fund + -- -- -- -- AIM V.I. WCAP3 Capital Appreciation Fund (5/93) 9.48 14.96 -- 16.75 WVAL3 Value Fund (5/93) 22.34 19.43 -- 19.85 Dreyfus WSRG3 The Dreyfus Socially Responsible Growth 19.42 20.19 -- 21.04 Fund, Inc. (10/93) FRANKLIN TEMPLETON VIP TRUST WISE3 Franklin Income Securities Fund - Class 2 -6.75 6.42 -- 9.51 (1/89)*** WMSS3 Mutual Shares Securities Fund - Class 2 -8.18 -- -- 4.46 (11/96)*** WRES3 Franklin Real Estate Fund - Class 2 -23.49 7.75 -- 8.60 (1/89)*** WSMC3 Franklin Small Cap Fund - Class 2 (11/95)*** -9.13 -- -- 12.76 GOLDMAN SACHS Variable Insurance Trust (VIT) WUSE3 CORESM U.S. Equity Fund (2/98) -- -- -- 5.20 WGLI3 Global Income Fund (1/98) -- -- -- -0.67 WMCV3 Mid Cap Value Fund (4/98) -- -- -- -20.13 MFS Investment Management(R) WGIS3 Growth with Income Series (10/95) 12.44 -- -- 22.83 WUTS3 Utilities Series (1/95) 8.25 -- -- 22.66 PUTNAM VARIABLE TRUST WIGR3 Putnam VT International Growth Fund - Class 8.64 -- -- 11.95 IB Shares (1/97)++ WVIS3 Putnam VT Vista Fund - Class IB Shares 9.65 -- -- 16.13 (1/97)++ WELLS FARGO VARIABLE TRUST WAAL3 Asset Allocation Fund (4/94) 5.49 -- -- 8.89 WCBD3 Corporate Bond Fund (9/99)+ -- -- -- -- WEQI3 Equity Income Fund (5/96) 8.61 -- -- 19.09 WEQV3 Equity Value Fund (5/98) -- -- -- -11.21 WGRO3 Growth Fund (4/94) 18.86 -- -- 16.68 WLCG3 Large Company Growth Fund (9/99)+ -- -- -- -- WMMK3 Money Market Fund (5/94) -3.91 -- -- 2.51 WSCG3 Small Cap Growth Fund (5/95) -21.37 -- -- 7.33
*Current applicable charges deducted from fund performance include a $30 contract administrative charge, a 1.35% mortality and expense risk fee, a 0.15% variable account administrative charge and applicable withdrawal charges associated with the six-year withdrawal charge schedule. Premium taxes are not reflected in the above total returns. +Fund had not commenced operations as of Dec. 31, 1998. **(Commencement date of the Fund) ***Standardized performance for Class 2 shares reflects a blended figure, combining: (a) for periods prior to Class 2's inception of Jan. 6, 1999, historical results of Class 1 shares and (b) for periods after Jan. 6, 1999, Class 2's results reflecting an additional 12b-1 fee expense which also affects all future performance. Blended figures assume reinvestment of dividends and capitalizations. ++Each of the above Funds' Class IB Shares corresponding to the subaccounts commenced operations on April 30, 1998. For periods prior to the inception dates of the Funds' Class IB Shares, the performance shown is based on the historical performance of the Funds' Class IA Shares adjusted to reflect the current expenses of the Funds' Class IB Shares. Average Annual Total Return For Annuities Without Withdrawal and Selection of the Six-Year Withdrawal Charge Schedule and the Optional Enhanced Death Benefit and Guaranteed Minimum Income Benefit Riders For Periods Ending Dec. 31, 1998
Performance Since Commencement of the Fund* Since Subaccount Investing In: 1 Year 5 Years 10 Years Commencement - - - ---------- ------------- ------ ------- -------- ------------ AXPSM VARIABLE PORTFOLIO WBCA1 Blue Chip Advantage Fund+ --% --% --% --% WCAR1 Capital Resource Fund (10/81)** 21.97 14.54 13.80 13.54 WDEI1 Diversified Equity Income Fund+ -- -- -- -- WEXI1 Extra Income Fund (5/96) -14.45 -- -- -5.01 WFDI1 Federal Income Fund+ -- -- -- -- WNDM1 New Dimensions Fund (5/96) 26.42 -- -- 22.14 WSCA1 Small Cap Advantage Fund + -- -- -- -- AIM V.I. WCAP1 Capital Appreciation Fund (5/93) 17.24 15.19 -- 16.69 WVAL1 Value Fund (5/93) 30.08 19.58 -- 19.76 Dreyfus WSRG1 The Dreyfus Socially Responsible Growth 27.16 20.33 -- 20.98 Fund, Inc. (10/93) FRANKLIN TEMPLETON VIP TRUST WISE1 Franklin Income Securities Fund - Class 2 -0.14 6.82 -- 9.29 (1/89)*** WMSS1 Mutual Shares Securities Fund - Class 2 -1.70 -- -- 7.69 (11/96)*** WRES1 Franklin Real Estate Fund - Class 2 -18.31 8.12 -- 8.38 (1/89)*** WSMC1 Franklin Small Cap Fund - Class 2 (11/95)*** -2.73 -- -- 14.03 GOLDMAN SACHS Variable Insurance Trust (VIT) WUSE1 CORESM U.S. Equity Fund (2/98) -- -- -- 12.85 WGLI1 Global Income Fund (1/98) -- -- -- 6.45 WMCV1 Mid Cap Value Fund (4/98) -- -- -- -14.61 MFS Investment Management(R) WGIS1 Growth with Income Series (10/95) 20.20 -- -- 23.74 WUTS1 Utilities Series (1/95) 16.02 -- -- 23.23 PUTNAM VARIABLE TRUST WIGR1 Putnam VT International Growth Fund - Class 16.41 -- -- 15.25 IB Shares (1/97)++ WVIS1 Putnam VT Vista Fund - Class IB Shares 17.42 -- -- 19.30 (1/97)++ WELLS FARGO VARIABLE TRUST WAAL1 Asset Allocation Fund (4/94) 13.13 -- -- 9.29 WCBD1 Corporate Bond Fund (9/99)+ -- -- -- -- WEQI1 Equity Income Fund (5/96) 8.38 -- -- 16.30 WEQV1 Equity Value Fund (5/98) -- -- -- -11.64 WGRO1 Growth Fund (4/94) 18.61 -- -- 18.78 WLCG1 Large Company Growth Fund (9/99)+ -- -- -- -- WMMK1 Money Market Fund (5/94) 2.94 -- -- 3.07 WSCG1 Small Cap Growth Fund (5/95) -16.01 -- -- 8.47
*Current applicable charges deducted from fund performance include a $30 contract administrative charge, a 1.35% mortality and expense risk fee, a 0.15% variable account administrative charge, a 0.20% Enhanced Death Benefit Rider fee and a 0.30% Guaranteed Minimum Income Benefit Rider fee. Premium taxes are not reflected in the above total returns. +Fund had not commenced operations as of Dec. 31, 1998. **(Commencement date of the Fund) ***Standardized performance for Class 2 shares reflects a blended figure, combining: (a) for periods prior to Class 2's inception of Jan. 6, 1999, historical results of Class 1 shares and (b) for periods after Jan. 6, 1999, Class 2's results reflecting an additional 12b-1 fee expense which also affects all future performance. Blended figures assume reinvestment of dividends and capitalizations. ++Each of the above Funds' Class IB Shares corresponding to the subaccounts commenced operations on April 30, 1998. For periods prior to the inception dates of the Funds' Class IB Shares, the performance shown is based on the historical performance of the Funds' Class IA Shares adjusted to reflect the current expenses of the Funds' Class IB Shares. Average Annual Total Return For Annuities With Withdrawal and Selection of the Six-Year Withdrawal Charge Schedule and the Optional Enhanced Death Benefit and Guaranteed Minimum Income Benefit Riders For Periods Ending Dec. 31, 1998
Performance Since Commencement of the Fund* Since Subaccount Investing In: 1 Year 5 Years 10 Years Commencement - - - ---------- ------------- ------ ------- -------- ------------ AXPSM VARIABLE PORTFOLIO WBCA1 Blue Chip Advantage Fund+ --% --% --% --% WCAR1 Capital Resource Fund (10/81)** 13.97 14.00 13.80 13.52 WDEI1 Diversified Equity Income Fund+ -- -- -- -- WEXI1 Extra Income Fund (5/96) -20.09 -- -- -7.55 WFDI1 Federal Income Fund+ -- -- -- -- WNDM1 New Dimensions Fund (5/96) 18.42 -- -- 19.82 WSCA1 Small Cap Advantage Fund + -- -- -- -- AIM V.I. WCAP1 Capital Appreciation Fund (5/93) 9.24 14.66 -- 16.45 WVAL1 Value Fund (5/93) 22.08 19.12 -- 19.55 Dreyfus WSRG1 The Dreyfus Socially Responsible Growth 19.16 19.88 -- 20.73 Fund, Inc. (10/93) FRANKLIN TEMPLETON VIP TRUST WISE1 Franklin Income Securities Fund - Class 2 -6.93 6.14 -- 9.26 (1/89)*** WMSS1 Mutual Shares Securities Fund - Class 2 -8.36 -- -- 4.08 (11/96)*** WRES1 Franklin Real Estate Fund - Class 2 -23.64 7.44 -- 8.34 (1/89)*** WSMC1 Franklin Small Cap Fund - Class 2 (11/95)*** -9.31 -- -- 12.42 GOLDMAN SACHS Variable Insurance Trust (VIT) WUSE1 CORESM U.S. Equity Fund (2/98) -- -- -- 4.68 WGLI1 Global Income Fund (1/98) -- -- -- -1.18 WMCV1 Mid Cap Value Fund (4/98) -- -- -- -20.55 MFS Investment Management(R) WGIS1 Growth with Income Series (10/95) 12.20 -- -- 22.46 WUTS1 Utilities Series (1/95) 8.02 -- -- 22.32 PUTNAM VARIABLE TRUST WIGR1 Putnam VT International Growth Fund - Class 8.41 -- -- 11.53 IB Shares (1/97)++ WVIS1 Putnam VT Vista Fund - Class IB Shares 9.42 -- -- 15.71 (1/97)++ WELLS FARGO VARIABLE TRUST WAAL1 Asset Allocation Fund (4/94) 5.28 -- -- 8.60 WCBD1 Corporate Bond Fund (9/99)+ -- -- -- -- WEQI1 Equity Income Fund (5/96) 8.38 -- -- 16.30 WEQV1 Equity Value Fund (5/98) -- -- -- -11.64 WGRO1 Growth Fund (4/94) 18.61 -- -- 18.78 WLCG1 Large Company Growth Fund (9/99)+ -- -- -- -- WMMK1 Money Market Fund (5/94) -4.10 -- -- 2.23 WSCG1 Small Cap Growth Fund (5/95) -21.53 -- -- 7.00
*Current applicable charges deducted from fund performance include a $30 contract administrative charge, a 1.35% mortality and expense risk fee, a 0.15% variable account administrative charge, a 0.20% Enhanced Death Benefit Rider fee, a 0.30% Guaranteed Minimum Income Benefit Rider fee and applicable withdrawal charges associated with the six-year withdrawal charge schedule. Premium taxes are not reflected in the above total returns. +Fund had not commenced operations as of Dec. 31, 1998. **(Commencement date of the Fund) ***Standardized performance for Class 2 shares reflects a blended figure, combining: (a) for periods prior to Class 2's inception of Jan. 6, 1999, historical results of Class 1 shares and (b) for periods after Jan. 6, 1999, Class 2's results reflecting an additional 12b-1 fee expense which also affects all future performance. Blended figures assume reinvestment of dividends and capitalizations. ++Each of the above Funds' Class IB Shares corresponding to the subaccounts commenced operations on April 30, 1998. For periods prior to the inception dates of the Funds' Class IB Shares, the performance shown is based on the historical performance of the Funds' Class IA Shares adjusted to reflect the current expenses of the Funds' Class IB Shares. Average Annual Total Return For Annuities Without Withdrawal and Selection of the Eight-Year Withdrawal Charge Schedule For Periods Ending Dec. 31, 1998
Performance Since Commencement of the Fund* Since Subaccount Investing In: 1 Year 5 Years 10 Years Commencement - - - ---------- ------------- ------ ------- -------- ------------ AXPSM VARIABLE PORTFOLIO PBCA1 Blue Chip Advantage Fund+ --% --% --% --% WCAR6 Capital Resource Fund (10/81)** 22.51 15.05 14.31 14.05 PDEI1 Diversified Equity Income Fund+ -- -- -- -- PEXI1 Extra Income Fund (5/96) -14.06 -- -- -4.58 WFDI6 Federal Income Fund+ -- -- -- -- PNDM1 New Dimensions Fund (5/96) 26.98 -- -- 22.67 PSCA1 Small Cap Advantage Fund + -- -- -- -- AIM V.I. PCAP1 Capital Appreciation Fund (5/93) 17.77 15.71 -- 17.21 PVAL1 Value Fund (5/93) 30.66 20.12 -- 20.30 Dreyfus WSRG6 The Dreyfus Socially Responsible Growth 27.73 20.87 -- 21.51 Fund, Inc. (10/93) FRANKLIN TEMPLETON VIP TRUST WISE1 Franklin Income Securities Fund - Class 2 0.31 7.31 -- 9.78 (1/89)*** WMSS6 Mutual Shares Securities Fund - Class 2 -1.25 -- -- 8.17 (11/96)*** WRES6 Franklin Real Estate Fund - Class 2 -17.93 8.60 -- 8.87 (1/89)*** PSMC1 Franklin Small Cap Fund - Class 2 (11/95)*** -2.29 -- -- 14.54 GOLDMAN SACHS Variable Insurance Trust (VIT) WUSE6 CORESM U.S. Equity Fund (2/98) -- -- -- 13.30 WGLI6 Global Income Fund (1/98) -- -- -- 6.92 WMCV6 Mid Cap Value Fund (4/98) -- -- -- -14.35 MFS Investment Management(R) PGIS1 Growth with Income Series (10/95) 20.74 -- -- 24.30 PUTS1 Utilities Series (1/95) 16.54 -- -- 23.77 PUTNAM VARIABLE TRUST PIGR1 Putnam VT International Growth Fund - Class 16.93 -- -- 15.76 IB Shares (1/97)++ PVIS1 Putnam VT Vista Fund - Class IB Shares 17.94 -- -- 19.84 (1/97)++ WELLS FARGO VARIABLE TRUST WAAL6 Asset Allocation Fund (4/94) 13.64 -- -- 9.77 WCBD6 Corporate Bond Fund (9/99)+ -- -- -- -- WEQI6 Equity Income Fund (5/96) 16.90 -- -- 19.27 WEQV6 Equity Value Fund (5/98) -- -- -- -4.63 WGRO6 Growth Fund (4/94) 27.17 -- -- 19.83 WLCG6 Large Company Growth Fund (9/99)+ -- -- -- -- WMMK6 Money Market Fund (5/94) 3.40 -- -- 3.54 WSCG6 Small Cap Growth Fund (5/95) -15.63 -- -- 8.96
*Current applicable charges deducted from fund performance include a $30 contract administrative charge, a 1.10% mortality and expense risk fee and a 0.15% variable account administrative charge. Premium taxes are not reflected in the above total returns. +Fund had not commenced operations as of Dec. 31, 1998. **(Commencement date of the Fund) ***Standardized performance for Class 2 shares reflects a blended figure, combining: (a) for periods prior to Class 2's inception of Jan. 6, 1999, historical results of Class 1 shares and (b) for periods after Jan. 6, 1999, Class 2's results reflecting an additional 12b-1 fee expense which also affects all future performance. Blended figures assume reinvestment of dividends and capitalizations. ++Each of the above Funds' Class IB Shares corresponding to the subaccounts commenced operations on April 30, 1998. For periods prior to the inception dates of the Funds' Class IB Shares, the performance shown is based on the historical performance of the Funds' Class IA Shares adjusted to reflect the current expenses of the Funds' Class IB Shares. Average Annual Total Return For Annuities With Withdrawal and Selection of the Eight-Year Withdrawal Charge Schedule For Periods Ending Dec. 31, 1998
Performance Since Commencement of the Fund* Since Subaccount Investing In: 1 Year 5 Years 10 Years Commencement - - - ---------- ------------- ------ ------- -------- ------------ AXPSM VARIABLE PORTFOLIO PBCA1 Blue Chip Advantage Fund+ --% --% --% --% WCAR6 Capital Resource Fund (10/81)** 14.51 14.12 14.31 14.05 PDEI1 Diversified Equity Income Fund+ -- -- -- -- PEXI1 Extra Income Fund (5/96) -19.73 -- -- -6.99 WFDI6 Federal Income Fund+ -- -- -- -- PNDM1 New Dimensions Fund (5/96) 18.98 -- -- 20.50 PSCA1 Small Cap Advantage Fund + -- -- -- -- AIM V.I. PCAP1 Capital Appreciation Fund (5/93) 9.77 14.80 -- 16.70 PVAL1 Value Fund (5/93) 22.66 19.34 -- 19.85 Dreyfus WSRG6 The Dreyfus Socially Responsible Growth 19.73 20.11 -- 21.00 Fund, Inc. (10/93) FRANKLIN TEMPLETON VIP TRUST WISE1 Franklin Income Securities Fund - Class 2 -6.51 6.07 -- 9.78 (1/89)*** WMSS6 Mutual Shares Securities Fund - Class 2 -7.95 -- -- 4.73 (11/96)*** WRES6 Franklin Real Estate Fund - Class 2 -23.30 7.43 -- 8.87 (1/89)*** PSMC1 Franklin Small Cap Fund - Class 2 (11/95)*** -8.90 -- -- 12.55 GOLDMAN SACHS Variable Insurance Trust (VIT) WUSE6 CORESM U.S. Equity Fund (2/98) -- -- -- 5.43 WGLI6 Global Income Fund (1/98) -- -- -- -0.44 WMCV6 Mid Cap Value Fund (4/98) -- -- -- -20.00 MFS Investment Management(R) PGIS1 Growth with Income Series (10/95) 12.74 -- -- 22.75 PUTS1 Utilities Series (1/95) 8.54 -- -- 22.70 PUTNAM VARIABLE TRUST PIGR1 Putnam VT International Growth Fund - Class 8.93 -- -- 12.24 IB Shares (1/97)++ PVIS1 Putnam VT Vista Fund - Class IB Shares 9.94 -- -- 16.44 (1/97)++ WELLS FARGO VARIABLE TRUST WAAL6 Asset Allocation Fund (4/94) 5.74 -- -- 8.55 WCBD6 Corporate Bond Fund (9/99)+ -- -- -- -- WEQI6 Equity Income Fund (5/96) 8.90 -- -- 16.99 WEQV6 Equity Value Fund (5/98) -- -- -- -11.06 WGRO6 Growth Fund (4/94) 19.17 -- -- 18.95 WLCG6 Large Company Growth Fund (9/99)+ -- -- -- -- WMMK6 Money Market Fund (5/94) -3.67 -- -- 1.97 WSCG6 Small Cap Growth Fund (5/95) -21.18 -- -- 7.16
*Current applicable charges deducted from fund performance include a $30 contract administrative charge, a 1.10% mortality and expense risk fee, a 0.15% variable account administrative charge and applicable withdrawal charges associated with the eight-year withdrawal charge schedule. Premium taxes are not reflected in the above total returns. +Fund had not commenced operations as of Dec. 31, 1998. **(Commencement date of the Fund) ***Standardized performance for Class 2 shares reflects a blended figure, combining: (a) for periods prior to Class 2's inception of Jan. 6, 1999, historical results of Class 1 shares and (b) for periods after Jan. 6, 1999, Class 2's results reflecting an additional 12b-1 fee expense which also affects all future performance. Blended figures assume reinvestment of dividends and capitalizations. ++Each of the above Funds' Class IB Shares corresponding to the subaccounts commenced operations on April 30, 1998. For periods prior to the inception dates of the Funds' Class IB Shares, the performance shown is based on the historical performance of the Funds' Class IA Shares adjusted to reflect the current expenses of the Funds' Class IB Shares. Average Annual Total Return For Annuities Without Withdrawal and Selection of the Eight-Year Withdrawal Charge Schedule and the Optional Enhanced Death Benefit and Guaranteed Minimum Income Benefit Riders For Periods Ending Dec. 31, 1998
Performance Since Commencement of the Fund* Since Subaccount Investing In: 1 Year 5 Years 10 Years Commencement - - - ---------- ------------- ------ ------- -------- ------------ AXPSM VARIABLE PORTFOLIO WBCA4 Blue Chip Advantage Fund+ --% --% --% --% WCAR4 Capital Resource Fund (10/81)** 22.26 14.82 14.09 11.70 WDEI4 Diversified Equity Income Fund+ -- -- -- -- WEXI4 Extra Income Fund (5/96) -14.23 -- -- -4.77 WFDI4 Federal Income Fund+ -- -- -- -- WNDM4 New Dimensions Fund (5/96) 26.73 -- -- 22.43 WSCA4 Small Cap Advantage Fund + -- -- -- -- AIM V.I. WCAP4 Capital Appreciation Fund (5/93) 17.53 15.48 -- 16.98 WVAL4 Value Fund (5/93) 30.40 19.88 -- 20.06 Dreyfus WSRG4 The Dreyfus Socially Responsible Growth 27.48 20.63 -- 21.28 Fund, Inc. (10/93) FRANKLIN TEMPLETON VIP TRUST WISE4 Franklin Income Securities Fund - Class 2 0.11 7.09 -- 9.56 (1/89)*** WMSS4 Mutual Shares Securities Fund - Class 2 -1.45 -- -- 7.96 (11/96)*** WRES4 Franklin Real Estate Fund - Class 2 -18.10 8.39 -- 8.65 (1/89)*** WSMC4 Franklin Small Cap Fund - Class 2 (11/95)*** -2.48 -- -- 14.31 GOLDMAN SACHS Variable Insurance Trust (VIT) WUSE4 CORESM U.S. Equity Fund (2/98) -- -- -- 13.10 WGLI4 Global Income Fund (1/98) -- -- -- 6.71 WMCV4 Mid Cap Value Fund (4/98) -- -- -- -14.47 MFS Investment Management(R) WGIS4 Growth with Income Series (10/95) 20.50 -- -- 24.05 WUTS4 Utilities Series (1/95) 16.31 -- -- 23.53 PUTNAM VARIABLE TRUST WIGR4 Putnam VT International Growth Fund - Class 16.70 -- -- 15.53 IB Shares (1/97)++ WVIS4 Putnam VT Vista Fund - Class IB Shares 17.71 -- -- 19.60 (1/97)++ WELLS FARGO VARIABLE TRUST WAAL4 Asset Allocation Fund (4/94) 13.41 -- -- 9.56 WCBD4 Corporate Bond Fund (9/99)+ -- -- -- -- WEQI4 Equity Income Fund (5/96) 16.66 -- -- 19.04 WEQV4 Equity Value Fund (5/98) -- -- -- -4.76 WGRO4 Growth Fund (4/94) 26.92 -- -- 19.59 WLCG4 Large Company Growth Fund (9/99)+ -- -- -- -- WMMK4 Money Market Fund (5/94) 3.20 -- -- 3.33 WSCG4 Small Cap Growth Fund (5/95) -15.80 -- -- 8.74
*Current applicable charges deducted from fund performance include a $30 contract administrative charge, a 1.10% mortality and expense risk fee, a 0.15% variable account administrative charge, a 0.20% Enhanced Death Benefit Rider fee and a 0.30% Guaranteed Minimum Income Benefit Rider fee. Premium taxes are not reflected in the above total returns. +Fund had not commenced operations as of Dec. 31, 1998. **(Commencement date of the Fund) ***Standardized performance for Class 2 shares reflects a blended figure, combining: (a) for periods prior to Class 2's inception of Jan. 6, 1999, historical results of Class 1 shares and (b) for periods after Jan. 6, 1999, Class 2's results reflecting an additional 12b-1 fee expense which also affects all future performance. Blended figures assume reinvestment of dividends and capitalizations. ++Each of the above Funds' Class IB Shares corresponding to the subaccounts commenced operations on April 30, 1998. For periods prior to the inception dates of the Funds' Class IB Shares, the performance shown is based on the historical performance of the Funds' Class IA Shares adjusted to reflect the current expenses of the Funds' Class IB Shares. Average Annual Total Return For Annuities With Withdrawal and Selection of the Eight-Year Withdrawal Charge Schedule and the Optional Enhanced Death Benefit and Guaranteed Minimum Income Benefit Riders For Periods Ending Dec. 31, 1998
Performance Since Commencement of the Fund* Since Subaccount Investing In: 1 Year 5 Years 10 Years Commencement - - - ---------- ------------- ------ ------- -------- ------------ AXPSM VARIABLE PORTFOLIO WBCA4 Blue Chip Advantage Fund+ --% --% --% --% WCAR4 Capital Resource Fund (10/81)** 14.26 13.81 14.09 11.68 WDEI4 Diversified Equity Income Fund+ -- -- -- -- WEXI4 Extra Income Fund (5/96) -19.89 -- -- -7.32 WFDI4 Federal Income Fund+ -- -- -- -- WNDM4 New Dimensions Fund (5/96) 18.73 -- -- 20.12 WSCA4 Small Cap Advantage Fund + -- -- -- -- AIM V.I. WCAP4 Capital Appreciation Fund (5/93) 9.53 15.48 -- 16.98 WVAL4 Value Fund (5/93) 22.40 19.02 -- 19.54 Dreyfus WSRG4 The Dreyfus Socially Responsible Growth 19.48 19.79 -- 20.69 Fund, Inc. (10/93) FRANKLIN TEMPLETON VIP TRUST WISE4 Franklin Income Securities Fund - Class 2 -6.70 5.78 -- 9.53 (1/89)*** WMSS4 Mutual Shares Securities Fund - Class 2 -8.13 -- -- 4.36 (11/96)*** WRES4 Franklin Real Estate Fund - Class 2 -23.45 7.12 -- 8.61 (1/89)*** WSMC4 Franklin Small Cap Fund - Class 2 (11/95)*** -9.09 -- -- 12.20 GOLDMAN SACHS Variable Insurance Trust (VIT) WUSE4 CORESM U.S. Equity Fund (2/98) -- -- -- 4.91 WGLI4 Global Income Fund (1/98) -- -- -- -0.95 WMCV4 Mid Cap Value Fund (4/98) -- -- -- -20.42 MFS Investment Management(R) WGIS4 Growth with Income Series (10/95) 12.50 -- -- 22.38 WUTS4 Utilities Series (1/95) 8.31 -- -- 22.36 PUTNAM VARIABLE TRUST WIGR4 Putnam VT International Growth Fund - Class 8.70 -- -- 11.83 IB Shares (1/97)++ WVIS4 Putnam VT Vista Fund - Class IB Shares 9.71 -- -- 16.01 (1/97)++ WELLS FARGO VARIABLE TRUST WAAL4 Asset Allocation Fund (4/94) 5.54 -- -- 8.25 WCBD4 Corporate Bond Fund (9/99)+ -- -- -- -- WEQI4 Equity Income Fund (5/96) 8.66 -- -- 16.61 WEQV4 Equity Value Fund (5/98) -- -- -- -11.49 WGRO4 Growth Fund (4/94) 18.92 -- -- 18.63 WLCG4 Large Company Growth Fund (9/99)+ -- -- -- -- WMMK4 Money Market Fund (5/94) -3.86 -- -- 1.69 WSCG4 Small Cap Growth Fund (5/95) -21.33 -- -- 6.82
*Current applicable charges deducted from fund performance include a $30 contract administrative charge, a 1.10% mortality and expense risk fee, a 0.15% variable account administrative charge, a 0.20% Enhanced Death Benefit Rider fee, a 0.30% Guaranteed Minimum Income Benefit Rider fee and applicable withdrawal charges associated with the eight-year withdrawal charge schedule. Premium taxes are not reflected in the above total returns. +Fund had not commenced operations as of Dec. 31, 1998. **(Commencement date of the Fund) ***Standardized performance for Class 2 shares reflects a blended figure, combining: (a) for periods prior to Class 2's inception of Jan. 6, 1999, historical results of Class 1 shares and (b) for periods after Jan. 6, 1999, Class 2's results reflecting an additional 12b-1 fee expense which also affects all future performance. Blended figures assume reinvestment of dividends and capitalizations. ++Each of the above Funds' Class IB Shares corresponding to the subaccounts commenced operations on April 30, 1998. For periods prior to the inception dates of the Funds' Class IB Shares, the performance shown is based on the historical performance of the Funds' Class IA Shares adjusted to reflect the current expenses of the Funds' Class IB Shares. Cumulative Total Return Cumulative total return represents the cumulative change in the value of an investment for a given period (reflecting change in a subaccount's accumulation unit value). We compute cumulative total return by using the following formula: ERV - P P where: P = a hypothetical initial payment of $1,000 ERV = Ending Redeemable Value of a hypothetical $1,000 payment made at the beginning of the period, at the end of the period (or fractional portion thereof) Total return figures reflect the deduction of the withdrawal charge which assumes you withdraw the entire contract value at the end of the one, five and ten year periods (or, if less, up to the life of the subaccount). We also may show performance figures without the deduction of a withdrawal charge. In addition, total return figures reflect the deduction of all other applicable charges including the contract administrative charge, the variable account administrative charge, the Enhanced Death Benefit Rider fee, the Guaranteed Minimum Income Benefit Rider fee and the mortality and expense risk fee. Calculation of Yield for Subaccounts Investing in Money Market Funds Seven-Day Simple Yield For the subaccounts investing in money market funds, we base quotations of simple yield on: (a) the change in the value of a hypothetical subaccount (exclusive of capital changes and income other than investment income) at the beginning of a particular seven-day period; (b) less a pro rata share of the subaccount expenses accrued over the period; and (c) dividing this difference by the value of the subaccount at the beginning of the period to obtain the base period return. The subaccount's value includes: o any declared dividends, o the value of any shares purchased with dividends paid during the period, and o any dividends declared for such shares. It does not include: o the effect of any applicable withdrawal charge, or o any realized or unrealized gains or losses. You must consider (when comparing an investment in subaccounts investing in money market funds with fixed annuities) that fixed annuities often provide an agreed-to or guaranteed yield for a stated period of time, whereas the subaccount's yield fluctuates. In comparing the yield of the subaccount to a money market fund, you should consider the different services that the contract provides. Annualized Yield for Subaccounts Investing in Income Funds For the subaccounts investing in income funds, we base quotations of yield on all investment income earned during a particular 30-day period, less expenses accrued during the period (net investment income) and compute it by dividing net investment income per accumulation unit by the value of an accumulation unit on the last day of the period, according to the following formula: YIELD = 2[( a-b + 1)6 - 1] cd where: a = dividends and investment income earned during the period b = expenses accrued for the period (net of reimbursements) c = the average daily number of accumulation units outstanding during the period that were entitled to receive dividends d = the maximum offering price per accumulation unit on the last day of the period The subaccount earns yield from the increase in the net asset value of shares of the fund in which it invests and from dividends declared and paid by the fund, which are automatically invested in shares of the fund. The yield on the subaccount's accumulation unit may fluctuate daily and does not provide a basis for determining future yields. Independent rating or statistical services or publishers or publications such as those listed below may quote subaccount performance, compare it to rankings, yields or returns, or use it in variable annuity accumulation or settlement illustrations they publish or prepare. The Bank Rate Monitor National Index, Barron's, Business Week, CDA Technologies, Donoghue's Money Market Fund Report, Financial Services Week, Financial Times, Financial World, Forbes, Fortune, Global Investor, Institutional Investor, Investor's Daily, Kiplinger's Personal Finance, Lipper Analytical Services, Money, Morningstar, Mutual Fund Forecaster, Newsweek, The New York Times, Personal Investor, Stanger Report, Sylvia Porter's Personal Finance, USA Today, U.S. News and World Report, The Wall Street Journal and Wiesenberger Investment Companies Service. CALCULATING ANNUITY PAYOUTS The Variable Account We do the following calculations separately for each of the subaccounts of the variable account. The separate monthly payouts, added together, make up your total variable annuity payout. Initial Payout: To compute your first monthly payment, we: o determine the dollar value of your contract as of the valuation date that falls on (or closest to the valuation date that falls before) the seventh calendar day before the retirement date and then deduct any applicable premium tax; then o apply the result to the annuity table contained in the contract or another table at least as favorable. The annuity table shows the amount of the first monthly payment for each $1,000 of value which depends on factors built into the table, as described below. Annuity Units: We then convert the value of your subaccount to annuity units. To compute the number of units credited to you, we divide the first monthly payment by the annuity unit value (see below) on the valuation date that falls on (or closest to the valuation date that falls before) the seventh calendar day before the retirement date. The number of units in your subaccount is fixed. The value of the units fluctuates with the performance of the underlying fund. Subsequent Payouts: To compute later payouts, we multiply: o the annuity unit value on the valuation date that falls on (or closest to the valuation date that falls before) the seventh calendar day before the payout is due; by o the fixed number of annuity units credited to you. Annuity Unit Values: We originally set this value at $1 for each subaccount. To calculate later values we multiply the last annuity value by the product of: o the net investment factor; and o the neutralizing factor. The purpose of the neutralizing factor is to offset the effect of the assumed rate built into the annuity table. With an assumed investment rate of 5%, the neutralizing factor is 0.999866 for a one day valuation period. Net Investment Factor: We determine the net investment factor by: o adding the fund's current net asset value per share, plus the per share amount of any accrued income or capital gain dividends to obtain a current adjusted net asset value per share; then o dividing that sum by the previous adjusted net asset value per share; and o subtracting the percentage factor representing the mortality and expense risk fee, the variable account administration charge and the Enhanced Death Benefit Rider fee (if selected) from the result. Because the net asset value of the fund may fluctuate, the net investment factor may be greater or less than one, and the annuity unit value may increase or decrease. You bear this investment risk in a variable subaccount. The One-Year Fixed Account We guarantee your fixed annuity payout amounts. Once calculated, your payout will remain the same and never change. To calculate your annuity payouts we: o take the value of your one-year fixed account at the retirement date or the date you selected to begin receiving your annuity payouts; then o using an annuity table, we apply the value according to the annuity payout plan you select. The annuity payout table we use will be the one in effect at the time you choose to begin your annuity payouts. The values in the table will be equal to or greater than the table in your contract. RATING AGENCIES The following chart reflects the ratings given to us by independent rating agencies. These agencies evaluate the financial soundness and claims-paying ability of insurance companies based on a number of different factors. This information does not relate to the management or performance of the subaccounts of the contract. This information relates only to our general account and reflects our ability to make annuity payouts and to pay death benefits and other distributions from the contract. Rating Agency Rating A.M. Best A+ (Superior) - - - ----------------------- Duff & Phelps AAA - - - ----------------------- Moody's Aa2 PRINCIPAL UNDERWRITER The principal underwriter for the contract is American Express Financial Advisors Inc. (AEFA) which offers the contract on a continuous basis. The contract is new and, therefore, we have not received any withdrawal charges or paid any commissions. PART C. Item 24. Financial Statements and Exhibits (a) Financial Statements included in Part B of this Registration Statement: American Enterprise Variable Annuity Account (comprised of subaccounts EVA, ECR and EGD): Statements of Net Assets for year ended Dec. 31, 1998 Statements of Operations for year ended Dec. 31, 1998 Statements of Changes in Net Assets for years ended Dec. 31, 1998 and 1997 Notes to Financial Statements Report of Independent Auditors dated March 12, 1999 Financial Statements included in Part A of this Registration Statement: American Enterprise Life Insurance Company: Balance Sheet as of June 30, 1999 (unaudited) Statements of Income for six months ended June 30, 1998 and 1999 (unaudited) Statements of Income for six months ended June 30, 1998 and 1999 (unaudited) Statements of Cash Flows for six months ended June 30, 1998 and 1999 (unaudited) Notes to Financial Statements Balance Sheets as of Dec. 31, 1998 and 1997 Statements of Income for years ended Dec. 31, 1998, 1997 and 1996 Statements of Stockholder's Equity for years ended Dec. 31, 1998, 1997 and 1996 Statements of Cash Flows for years ended Dec. 31, 1998, 1997 and 1996 Notes to Financial Statements Report of Independent Auditors dated Feb. 4, 1999 (b) Exhibits: 1. Resolution of the Executive Committee of the Board of Directors of American Enterprise Life establishing the American Enterprise Variable Annuity Account dated July 15, 1987, filed electronically as Exhibit 1 to the Initial Registration Statement No. 33-54471, filed on or about July 5, 1994, is incorporated by reference. 2. Not applicable. 3. Form of Selling Agreement for American Enterprise Life Insurance Company Variable Annuities, filed electronically herewith. 4.1 Form of Deferred Annuity Contract for the Wells Fargo AdvantageSM Variable Annuity (form 44209), filed electronically herewith. 4.2 Form of Deferred Annuity Contract for the Wells Fargo AdvantageSM Credit Variable Annuity (form 44210), filed electronically herewith. 4.3 Form of Enhanced Death Benefit Rider (form 44213), filed electronically herewith. 4.4 Form of Guaranteed Minimum Income Benefit Rider (form 44214), filed electronically herewith. 4.5 Form of Disability Waiver of Withdrawal Charges Rider (form 44215), filed electronically herewith. 4.6 Form of Unemployment Waiver of Withdrawal Charges Rider (form 44216), filed electronically herewith. 4.7 Form of Roth IRA Endorsement (form 43094) filed electronically as Exhibit 4.2 to Pre-Effective Amendment No. 1 to Registration Statement No. 333-74865, filed on or about Aug. 4, 1999, is incorporated by reference. 4.8 Form of SEP-IRA (form 43412) filed electronically as Exhibit 4.3 to Pre-Effective Amendment No. 1 to Registration Statement No. 333-72777, filed on or about July 8, 1999, is incorporated by reference. 4.9 Form of TSA Endorsement (form 43413) filed electronically as Exhibit 4.4 to Pre-Effective Amendment No. 1 to Registration Statement No. 333-72777, filed on or about July 8, 1999, is incorporated by reference. 5. Form of Variable Annuity Application for the Wells Fargo AdvantageSM Variable Annuity and the Wells Fargo Advantage Credit Variable Annuity (form 44211), filed electronically herewith. 6.1 Amendment and Restatement of Articles of Incorporation of American Enterprise Life dated July 29, 1986, filed electronically as Exhibit 6.1 to the Initial Registration Statement No. 33-54471, filed on or about July 5, 1994, is incorporated by reference. 6.2 Amended By-Laws of American Enterprise Life, filed electronically as Exhibit 6.2 to the Initial Registration Statement No. 33-54471, filed on or about July 5, 1994, is incorporated by reference. 7. Not applicable. 8.1 (a) Copy of Participation Agreement among Putnam Capital Manager Trust, Putnam Mutual Funds Corp. and American Enterprise Life Insurance Company, dated January 16, 1995, filed electronically as Exhibit 8.2 to American Enterprise Life Personal Portfolio Plus 2's Post-Effective Amendment No. 2 to Registration Statement No. 33-54471, is incorporated herein by reference. 8.1 (b) Form of Amendment No. 5 to Participation Agreement among Putnam Capital Manager Trust, Putnam Mutual Funds Corp. and American Enterprise Life Insurance Company dated July 16, 1999 is filed electronically herewith. 9. Opinion of counsel and consent to its use as to the legality of the securities being registered, filed electronically herewith. 10. Consent of Independent Auditors, filed electronically herewith. 11. None. 12. Not applicable. 13. Copy of schedule for computation of each performance quotation provided in the Registration Statement in response to Item 21, filed electronically herewith. 14. Not applicable. 15. Power of Attorney to sign this Registration Statement, dated July 29, 1999, filed electronically as Exhibit 15 to Registrant's Initial Registration Statement No. 333-85567, filed on or about Aug. 19, 1999 is incorporated by reference. Item 25. Directors and Officers of the Depositor (American Enterprise Life Insurance Company)
Name Principal Business Address Positions and Offices with Depositor - - - ------------------------------------- -------------------------------------- -------------------------------------- James E. Choat IDS Tower 10 Director, President and Chief Minneapolis, MN 55440 Executive Officer Lorraine R. Hart IDS Tower 10 Vice President, Investments Minneapolis, MN 55440 Jeffrey S. Horton IDS Tower 10 Vice President and Treasurer Minneapolis, MN 55440 Richard W. Kling IDS Tower 10 Director and Chairman of the Board Minneapolis, MN 55440 Bruce A. Kohn IDS Tower 10 Vice President, Group Counsel and Minneapolis, MN 55440 Assistant Secretary Paul S. Mannweiler Indianapolis Power and Light Director One Monument Circle P.O. Box 1595 Indianapolis, IN 46206-1595 Paula R. Meyer IDS Tower 10 Director and Executive Vice Minneapolis, MN 55440 President, Assured Assets Mary Ellyn Minenko IDS Tower 10 Vice President, Group Counsel and Minneapolis, MN 55440 Assistant Secretary Stuart A. Sedlacek IDS Tower 10 Executive Vice President Minneapolis, MN 55440 F. Dale Simmons IDS Tower 10 Vice President, Real Estate Loan Minneapolis, MN 55440 Management William A. Stoltzmann IDS Tower 10 Director, Vice President, General Minneapolis, MN 55440 Counsel and Secretary Philip C. Wentzel IDS Tower 10 Vice President and Controller Minneapolis, MN 55440
Item 26. Persons Controlled by or Under Common Control with the Depositor or Registrant American Enterprise Life Insurance Company is a wholly-owned subsidiary of IDS Life Insurance Company which is a wholly-owned subsidiary of American Express Financial Corporation. American Express Financial Corporation is a wholly-owned subsidiary of American Express Company (American Express). The following list includes the names of major subsidiaries of American Express.
Jurisdiction of Name of Subsidiary Incorporation I. Travel Related Services American Express Travel Related Services Company, Inc. New York II. International Banking Services American Express Bank Ltd. Connecticut III.Companies engaged in Financial Services Advisory Capital Strategies Group Inc. Minnesota American Centurion Life Assurance Company New York American Enterprise Investment Services Inc. Minnesota American Enterprise Life Insurance Company Indiana American Express Asset Management Group Inc. Minnesota American Express Asset Management International Inc. Delaware American Express Asset Management International (Japan) Ltd. Japan American Express Asset Management Ltd. England American Express Client Service Corporation Minnesota American Express Corporation Delaware American Express Financial Advisors Inc. Delaware American Express Financial Corporation Delaware American Express Insurance Agency of Arizona Inc. Arizona American Express Insurance Agency of Idaho Inc. Idaho American Express Insurance Agency of Nevada Inc. Nevada American Express Insurance Agency of Oregon Inc. Oregon American Express Minnesota Foundation Minnesota American Express Property Casualty Insurance Agency of Kentucky Inc. Kentucky American Express Property Casualty Insurance Agency of Maryland Inc. Maryland American Express Property Casualty Insurance Agency of Pennsylvania Inc. Pennsylvania American Express Trust Company Minnesota American Partners Life Insurance Company Arizona IDS Cable Corporation Minnesota IDS Cable II Corporation Minnesota IDS Capital Holdings Inc. Minnesota IDS Certificate Company Delaware IDS Futures Corporation Minnesota IDS Insurance Agency of Alabama Inc. Alabama IDS Insurance Agency of Arkansas Inc. Arkansas IDS Insurance Agency of Massachusetts Inc. Massachusetts IDS Insurance Agency of New Mexico Inc. New Mexico IDS Insurance Agency of North Carolina Inc. North Carolina IDS Insurance Agency of Utah Inc. Utah IDS Insurance Agency of Wyoming Inc. Wyoming IDS Life Insurance Company Minnesota IDS Life Insurance Company of New York New York IDS Management Corporation Minnesota IDS Partnership Services Corporation Minnesota IDS Plan Services of California, Inc. Minnesota IDS Property Casualty Insurance Company Wisconsin IDS Real Estate Services, Inc. Delaware IDS Realty Corporation Minnesota IDS Sales Support Inc. Minnesota IDS Securities Corporation Delaware Investors Syndicate Development Corp. Nevada Public Employee Payment Company Minnesota
Item 27. Number of Contract owners Not applicable. Item 28. Indemnification The By-Laws of the depositor provide that the Corporation shall have the power to indemnify a director, officer, agent or employee of the Corporation pursuant to the provisions of applicable statues or pursuant to contract. The Corporation may purchase and maintain insurance on behalf of any director, officer, agent or employee of the Corporation against any liability asserted against or incurred by the director, officer, agent or employee in such capacity or arising out of the director's, officer's, agent's or employee's status as such, whether or not the Corporation would have the power to indemnify the director, officer, agent or employee against such liability under the provisions of applicable law. The By-Laws of the depositor provide that it shall indemnify a director, officer, agent or employee of the depositor pursuant to the provisions of applicable statutes or pursuant to contract. Insofar as indemnification for liability arising under the Securities Act of 1933 may be permitted to directors, officers and controlling persons of the registrant pursuant to the foregoing provisions, or otherwise, the registrant has been advised that in the opinion of the Securities and Exchange Commission such indemnification is against public policy as expressed in the Act and is, therefore, unenforceable. In the event that a claim for indemnification against such liabilities (other than the payment by the registrant of expenses incurred or paid by a director, officer or controlling person of the registrant in the successful defense of any action, suit or proceeding) is asserted by such director, officer or controlling person in connection with the securities being registered, the registrant will, unless in the opinion of its counsel the matter has been settled by controlling precedent, submit to a court of appropriate jurisdiction the question whether such indemnification by it is against public policy as expressed in the Act and will be governed by the final adjudication of such issue. Item 29. Principal Underwriters (a) American Express Financial Advisors acts as principal underwriter for the following investment companies: AXP Bond Fund, Inc.; AXP California Tax-Exempt Trust; AXP Discovery Fund, Inc.; AXP Equity Select Fund, Inc.; AXP Extra Income Fund, Inc.; AXP Federal Income Fund, Inc.; AXP Global Series, Inc.; AXP Growth Series, Inc.; AXP High Yield Tax-Exempt Fund, Inc.; AXP International Fund, Inc.; AXP Investment Series, Inc.; AXP Managed Series, Inc.; AXP Market Advantage Series, Inc.; AXP Money Market Series, Inc.; AXP New Dimensions Fund, Inc.; AXP Precious Metals Fund, Inc.; AXP Progressive Fund, Inc.; AXP Selective Fund, Inc.; AXP Special Tax-Exempt Series Trust; AXP Stock Fund, Inc.; AXP Strategy Series, Inc.; AXP Tax-Exempt Series, Inc.; AXP Tax-Free Money Fund, Inc.; AXP Utilities Income Fund, Inc., Growth Trust; Growth and Income Trust; Income Trust, Tax-Free Income Trust, World Trust and IDS Certificate Company. (b) As to each director, officer or partner of the principal underwriter:
Name and Principal Business Address Position and Offices with Positions with Offices with Underwriter Registrant - - - ------------------------------------------ ------------------------------------ ----------------------------- Ronald. G. Abrahamson Vice President - Service Quality None IDS Tower 10 and Reengineering Minneapolis, MN 55440 Douglas A. Alger Senior Vice President - Human None IDS Tower 10 Resources Minneapolis, MN 55440 Peter J. Anderson Senior Vice President - Investment Vice President IDS Tower 10 Operations Minneapolis, MN 55440 Ward D. Armstrong Vice President-American Express None IDS Tower 10 Retirement Services Minneapolis, MN 55440 John M. Baker Vice President - Plan Sponsor None IDS Tower 10 Services Minneapolis, MN 55440 Joseph M. Barksy, III Vice President - Senior Portfolio None IDS Tower 10 Manager Minneapolis, MN 55440 Timothy V. Bechtold Vice President - Risk Management None IDS Tower 10 Products Minneapolis, MN 55440 John D. Begley Group Vice President - Ohio/Indiana None Suite 100 7760 Olentangy River Rd. Columbus, OH 43235 Brent L. Bisson Group Vice President - Los Angeles None Suite 900 Metro E. Westside Twr 11835 West Olympic Blvd. Los Angeles, CA 90064 John C. Boeder Vice President - Nonproprietary None IDS Tower 10 Products Minneapolis, MN 55440 Walter K. Booker Group Vice President - New Jersey None IDS Tower 10 Minneapolis, MN 55440 Bruce J. Bordelon Group Vice President - Gulf States None Galleria One Suite 1900 Galleria Blvd. Metairie, LA 70001 Charles R. Branch Group Vice President - Northwest None Suite 200 West 111 North River Dr. Spokane, WA 99201 Douglas W. Brewers Vice President - Sales Support None IDS Tower 10 Minneapolis, MN 55440 Karl J. Breyer Corporate Senior Vice President None IDS Tower 10 Minneapolis, MN 55440 Cynthia M. Carlson Vice President - American Express None IDS Tower 10 Securities Services Minneapolis, MN 55440 Mark W. Carter Senior Vice President and Chief None IDS Tower 10 Marketing Officer Minneapolis, MN 55440 James E. Choat Senior Vice President - Director, President and IDS Tower 10 Institutional Products Group Chief Executive Officer Minneapolis, MN 55440 Kenneth J. Ciak Vice President and General Manager None IDS Property Casualty - IDS Property Casualty 1400 Lombardi Avenue Green Bay, WI 54304 Paul A. Connolly Vice President - Advisor Staffing, None IDS Tower 10 Training and Support Minneapolis, MN 55440 Henry J. Cormier Group Vice President - Connecticut None Commerce Center One 333 East River Drive East Hartford, CT 06108 John M. Crawford Group Vice President - None Suite 200 Arkansas/Springfield/Memphis 10800 Financial Ctr Pkwy Little Rock, AR 72211 Kevin F. Crowe Group Vice President - None Suite 312 Carolinas/Eastern Georgia 7300 Carmel Executive Pk Charlotte, NC 28226 Colleen Curran Vice President and Assistant None IDS Tower 10 General Counsel Minneapolis, MN 55440 Luz Maria Davis Vice President - Communications None IDS Tower 10 Minneapolis, MN 55440 Scott M. DiGiammarino Group Vice President - None Suite 500 Washington/Baltimore 8045 Leesburg Pike Vienna, VA 22182 Bradford L. Drew Group Vice President - Eastern None Two Datran Center Florida Penthouse One B 9130 S. Dadeland Blvd. Miami, FL 33156 Douglas K. Dunning Vice President - Assured Assets None IDS Tower 10 Product Development and Management Minneapolis, MN 55440 James P. Egge Group Vice President - Western None 4305 South Louise, Suite 202 Iowa, Nebraska, Dakotas Sioux Falls, SD 57103 Gordon L. Eid Senior Vice President, General None IDS Tower 10 Counsel and Chief Compliance Minneapolis, MN 55440 Officer Robert M. Elconin Vice President - Government None IDS Tower 10 Relations Minneapolis, MN 55440 Phillip W. Evans, Group Vice President - Rocky None Suite 600 Mountain 6985 Union Park Center Midvale, UT 84047-4177 Gordon M. Fines Vice President - Mutual Fund None IDS Tower 10 Equity Investments Minneapolis, MN 55440 Douglas L. Forsberg Vice President - Institutional None IDS Tower 10 Products Group Minneapolis, MN 55440 Jeffrey P. Fox Vice President and Corporate None IDS Tower 10 Controller Minneapolis, MN 55440 William P. Fritz Group Vice President - Gateway None Suite 160 12855 Flushing Meadows Dr. St. Louis, MO 63131 Carl W. Gans Group Vice President - Twin City None 8500 Tower Suite 1770 Metro 8500 Normandale Lake Blvd. Bloomington, MN 55437 David A. Hammer Vice President and Marketing None IDS Tower 10 Controller Minneapolis, MN 55440 Teresa A. Hanratty Group Vice President - Northern None Suites 6&7 New England 169 South River Road Bedford, NH 03110 Robert L. Harden Group Vice President - Boston Metro None Two Constitution Plaza Boston, MA 02129 Lorraine R. Hart Vice President - Insurance Vice President, Investments IDS Tower 10 Investments Minneapolis, MN 55440 Scott A. Hawkinson Vice President and Controller - None IDS Tower 10 Private Client Group Minneapolis, MN 55440 Brian M. Heath Group Vice President - North Texas None Suite 150 801 E. Campbell Road Richardson, TX 75081 Janis K. Heaney Vice President - Incentive None IDS Tower 10 Management Minneapolis, MN 55440 James G. Hirsh Vice President and Assistant None IDS Tower 10 General Counsel Minneapolis, MN 55440 Jon E. Hjelm Group Vice President - Rhode None 310 Southbridge Street Island/Central - Western Auburn, MA 01501 Massachusetts David J. Hockenberry Group Vice President - Tennessee None 30 Burton Hills Blvd. Valley Suite 175 Nashville, TN 37215 Jeffrey S. Horton Vice President and Treasurer None IDS Tower 10 Minneapolis, MN 55440 David R. Hubers Chairman, President and Chief Board member IDS Tower 10 Executive Officer Minneapolis, MN 55440 Martin G. Hurwitz Vice President - Senior Portfolio None IDS Tower 10 Manager Minneapolis, MN 55440 James M. Jensen Vice President - Insurance Product None IDS Tower 10 Development and Management Minneapolis, MN 55440 Marietta L. Johns Senior Vice President - Field None IDS Tower 10 Management Minneapolis, MN 55440 Nancy E. Jones Vice President - Business None IDS Tower 10 Development Minneapolis, MN 55440 Ora J. Kaine Vice President - Financial None IDS Tower 10 Advisory Services Minneapolis, MN 55440 Linda B. Keene Vice President - Market Development None IDS Tower 10 Minneapolis, MN 55440 G. Michael Kennedy Vice President - Investment None IDS Tower 10 Services and Investment Research Minneapolis, MN 55440 Susan D. Kinder Senior Vice President - None IDS Tower 10 Distribution Services Minneapolis, MN 55440 Richard W. Kling Senior Vice President - Products Director and Chairman of IDS Tower 10 the Board Minneapolis, MN 55440 John M. Knight Vice President - Investment Treasurer IDS Tower 10 Accounting Minneapolis, MN 55440 Paul F. Kolkman Vice President - Actuarial Finance None IDS Tower 10 Minneapolis, MN 55440 Claire Kolmodin Vice President - Service Quality None IDS Tower 10 Minneapolis, MN 55440 David S. Kreager Group Vice President - Greater None Suite 108 Michigan Trestle Bridge V 5126 Lovers Lane Kalamazoo, MI 49002 Steven C. Kumagai Director and Senior Vice President None IDS Tower 10 - Field Management and Business Minneapolis, MN 55440 Systems Mitre Kutanovski Group Vice President - Chicago None Suite 680 Metro 8585 Broadway Merrillville, IN 48410 Kurt A. Larson Vice President - Senior Portfolio None IDS Tower 10 Manager Minneapolis, MN 55440 Lori J. Larson Vice President - Brokerage and None IDS Tower 10 Direct Services Minneapolis, MN 55440 Daniel E. Laufenberg Vice President and Chief U.S. None IDS Tower 10 Economist Minneapolis, MN 55440 Peter A. Lefferts Senior Vice President - Corporate None IDS Tower 10 Strategy and Development Minneapolis, MN 55440 Douglas A. Lennick Director and Executive Vice None IDS Tower 10 President - Private Client Group Minneapolis, MN 55440 Mary J. Malevich Vice President - Senior Portfolio None IDS Tower 10 Manager Minneapolis, MN 55440 Fred A. Mandell Vice President - Field Marketing None IDS Tower 10 Readiness Minneapolis, MN 55440 Daniel E. Martin Group Vice President - Pittsburgh None Suite 650 Metro 5700 Corporate Drive Pittsburgh, PA 15237 Sarah A. Mealey Vice President - Mutual Funds None IDS Tower 10 Minneapolis, MN 55440 Paula R. Meyer Vice President - Assured Assets Director and Executive Vice IDS Tower 10 President - Assured Assets Minneapolis, MN 55440 William P. Miller Vice President and Senior None IDS Tower 10 Portfolio Manager Minneapolis, MN 55440 James A. Mitchell Executive Vice President - None IDS Tower 10 Marketing and Products Minneapolis, MN 55440 Pamela J. Moret Vice President - Variable Assets None IDS Tower 10 Minneapolis, MN 55440 Alan D. Morgenstern Group Vice President - Central None Suite 200 California/Western Nevada 3500 Market Street Camp Hill, NJ 17011 Barry J. Murphy Senior Vice President - Client None IDS Tower 10 Service Minneapolis, MN 55440 Mary Owens Neal Vice President - Mature Market None IDS Tower 10 Segment Minneapolis, MN 55440 Thomas V. Nicolosi Group Vice President - New York None Suite 220 Metro Area 500 Mamaroneck Avenue Harrison, NY 10528 Michael J. O'Keefe Vice President - Advisory Business None IDS Tower 10 Systems Minneapolis, MN 55440 James R. Palmer Vice President - Taxes None IDS Tower 10 Minneapolis, MN 55440 Marc A. Parker Group Vice President - None 10200 SW Greenburg Road Portland/Eugene Suite 110 Portland, OR 97223 Carla P. Pavone Vice President - Compensation and None IDS Tower 10 Field Administration Minneapolis, MN 55440 Thomas P. Perrine Senior Vice President - Group None IDS Tower 10 Relationship Leader/American Minneapolis, MN 55440 Express Technologies Financial Services Susan B. Plimpton Vice President - Marketing Services None IDS Tower 10 Minneapolis, MN 55440 Larry M. Post Group Vice President - None One Tower Bridge Philadelphia Metro 100 Front Street, 8th Fl West Conshohocken, PA 19428 Ronald W. Powell Vice President and Assistant None IDS Tower 10 General Counsel Minneapolis, MN 55440 Diana R. Prost Group Vice President - None 3030 N.W. Expressway Kansas/Oklahoma Suite 900 Oklahoma City, OK 73112 James M. Punch Vice President and Project Manager None IDS Tower 10 - Platform I Value Enhanced Minneapolis, MN 55440 Frederick C. Quirsfeld Senior Vice President - Fixed None IDS Tower 10 Income Minneapolis, MN 55440 Rollyn C. Renstrom Vice President - Corporate None IDS Tower 10 Planning and Analysis Minneapolis, MN 55440 R. Daniel Richardson Group Vice President - Southern None Suite 800 Texas Arboretum Plaza One 9442 Capital of Texas Hwy. N Austin, TX 78759 ReBecca K. Roloff Senior Vice President - Field None IDS Tower 10 Management and Financial Advisory Minneapolis, MN 55440 Service Stephen W. Roszell Senior Vice President - None IDS Tower 10 Institutional Minneapolis, MN 55440 Max G. Roth Group Vice President - None Suite 201 S. IDS Ctr Wisconsin/Upper Michigan 1400 Lombardi Avenue Green Bay, WI 54304 Erven A. Samsel Senior Vice President - Field None 45 Braintree Hill Park Management Suite 402 Braintree, MA 02184 Russell L. Scalfano Group Vice President - None Suite 201 Illinois/Indiana/Kentucky 101 Plaza East Blvd. Evansville, IN 47715 William G. Scholz Group Vice President - Arizona/Las None Suite 205 Vegas 7333 E. Doubletree Ranch Rd Scottsdale, AZ 85258 Stuart A. Sedlacek Senior Vice President and Chief Executive Vice President IDS Tower 10 Financial Officer Minneapolis, MN 55440 Donald K. Shanks Vice President - Property Casualty None IDS Tower 10 Minneapolis, MN 55440 F. Dale Simmons Vice President - Senior Portfolio Vice President, Real Estate IDS Tower 10 Manager, Insurance Investments Loan Management Minneapolis, MN 55440 Judy P. Skoglund Vice President - Quality and None IDS Tower 10 Service Support Minneapolis, MN 55440 James B. Solberg Group Vice President - Eastern None 466 Westdale Mall Iowa Area Cedar Rapids, IA 52404 Bridget Sperl Vice President - Geographic None IDS Tower 10 Service Teams Minneapolis, MN 55440 Paul J. Stanislaw Group Vice President - Southern None Suite 1100 California Two Park Plaza Irvine, CA 92714 Lisa A. Steffes Vice President - Cardmember None IDS Tower 10 Initiatives Minneapolis, MN 55440 Lois A. Stilwell Group Vice President - Outstate None Suite 433 Minnesota Area/North 9900 East Bren Road Dakota/Western Wisconsin Minnetonka, MN 55343 William A. Stoltzmann Vice President and Assistant Director, Vice President, IDS Tower 10 General Counsel General Counsel and Minneapolis, MN 55440 Secretary James J. Strauss Vice President and General Auditor None IDS Tower 10 Minneapolis, MN 55440 Jeffrey J. Stremcha Vice President - Information None IDS Tower 10 Resource Management/ISD Minneapolis, MN 55440 Barbara Stroup Stewart Vice President - Channel None IDS Tower 10 Development Minneapolis, MN 55440 Craig P. Taucher Group Vice President - None Suite 150 Orlando/Jacksonville 4190 Belfort Road Jacksonville, FL 32216 Neil G. Taylor Group Vice President - None Suite 425 Seattle/Tacoma/Hawaii 101 Elliott Avenue West Seattle, WA 98119 John R. Thomas Senior Vice President None IDS Tower 10 Minneapolis, MN 55440 Peter S. Velardi Group Vice President - None Suite 180 Atlanta/Birmingham 1200 Ashwood Parkway Atlanta, GA 30338 Charles F. Wachendorfer Group Vice President - Detroit None Suite 100 Metro Stanford Plaza II 7979 East Tufts Ave. Pkwy Denver, CO 80237 Wesley W. Wadman Vice President - Senior Portfolio None IDS Tower 10 Manager Minneapolis, MN 55440 Donald F. Weaver Group Vice President - Greater None 3500 Market Street, Suite 200 Pennsylvania Camp Hill, PA 17011 Norman Weaver Jr. Senior Vice President - Field None 1010 Main St., Suite 2B Management Huntington Beach, CA 92648 Michael L. Weiner Vice President - Tax Research and None IDS Tower 10 Audit Minneapolis, MN 55440 Lawrence J. Welte Vice President - Investment None IDS Tower 10 Administration Minneapolis, MN 55440 Jeffry M. Welter Vice President - Equity and Fixed None IDS Tower 10 Income Trading Minneapolis, MN 55440 Thomas L. White Group Vice President - Cleveland None Suite 200 Metro 28601 Chagrin Blvd. Woodmere, OH 44122 Eric S. Williams Group Vice President - Virginia None Suite 250 3951 Westerre Parkway Richmond, VA 23233 William J. Williams Group Vice President - Western None Two North Tamiami Trail Florida Suite 702 Sarasota, FL 34236 Edwin M. Wistrand Vice President and Assistant None IDS Tower 10 General Counsel Minneapolis, MN 55440 Michael D. Wolf Vice President - Senior Portfolio None IDS Tower 10 Manager Minneapolis, MN 55440 Michael R. Woodward Senior Vice President - Field None 32 Ellicott St. Management Suite 100 Batavia, NY 14020
Item 29(c)
Net Underwriting Name of Principal Discounts and Compensation on Brokerage Underwriter Commissions Redemption Commissions Compensation American Express $4,415,795 $199,062 None None Financial Advisors Inc.
Item 30. Location of Accounts and Records American Enterprise Life Insurance Company IDS Tower 10 Minneapolis, MN 55402 Item 31. Management Services Not applicable. Item 32. Undertakings (a) Registrant undertakes that it will file a post-effective amendment to this registration statement as frequently as is necessary to ensure that the audited financial statements in the registration statement are never more than 16 months old for so long as payments under the variable annuity contracts may be accepted. (b) Registrant undertakes that it will include either (1) as part of any application to purchase a contract offered by the prospectus, a space that an applicant can check to request a Statement of Additional Information, or (2) a post card or similar written communication affixed to or included in the prospectus that the applicant can remove to send for a Statement of Additional Information. (c) Registrant undertakes to deliver any Statement of Additional Information and any financial statements required to be made available under this Form promptly upon written or oral request to American Enterprise Life Contract Owner Service at the address or phone number listed in the prospectus. (d) Registrant represents that it is relying upon the no-action assurance given to the American Council of Life Insurance (pub. avail. Nov. 28, 1998). Further, Registrant represents that it has complied with the provisions of paragraphs (1)-(4) of that no-action letter. (e) The sponsoring insurance company represents that the fees and charges deducted under the contract, in the aggregate, are reasonable in relation to the services rendered, the expenses expected to be incurred, and the risks assumed by the insurance company. SIGNATURES As required by the Securities Act of 1933 and the Investment Company Act of 1940, American Enterprise Life Insurance Company, on behalf of the Registrant, has duly caused this Registration Statement to be signed on its behalf by the undersigned, thereto duly authorized in the City of Minneapolis, and State of Minnesota, on the 3rd day of November, 1999. AMERICAN ENTERPRISE VARIABLE ANNUITY ACCOUNT (Registrant) By American Enterprise Life Insurance Company (Sponsor) By /s/ James E. Choat* James E. Choat President and Chief Executive Officer As required by the Securities Act of 1933, this Registration Statement has been signed by the following persons in the capacities indicated on the 3rd day of November, 1999. Signature Title /s/ James E. Choat* Director, President and James E. Choat Chief Executive Officer /s/ Jeffrey S. Horton* Vice President and Treasurer Jeffrey S. Horton /s/ Richard W. Kling* Chairman of the Board Richard W. Kling /s/ Paul S. Mannweiler* Director Paul S. Mannweiler /s/ Paula R. Meyer* Director and Executive Vice Paula R. Meyer President-Assured Assets /s/ William A. Stoltzmann* Director, Vice President, William A. Stoltzmann General Counsel and Secretary /s/ Philip C. Wentzel* Vice President and Controller Philip C. Wentzel *Signed pursuant to Power of Attorney, dated July 29, 1999, filed electronically as Exhibit 15 to Registrant's Initial Registration Statement No. 333-85567, filed on or about Aug. 19, 1999 is incorporated by reference. By: /s/ Mary Ellyn Minenko Mary Ellyn Minenko CONTENTS OF PRE-EFFECTIVE AMENDMENT NO. 1 TO REGISTRATION STATEMENT NO. 333-85567 This Registration Statement is comprised of the following papers and documents: The Cover Page. Part A. The prospectuses. Part B. Statements of Additional Information. Part C. Other Information. The signatures. Exhibits. EX-99 2 EXHIBIT INDEX American Enterprise Variable Annuity Account File No. 333-85567/811-7195 EXHIBIT INDEX Exhibit 3. Form of Selling Agreement for American Enterprise Life Insurance Company Variable Annuities. Exhibit 4.1. Form of Deferred Annuity Contract for the Wells Fargo AdvantageSM Variable Annuity (form 44209). Exhibit 4.2. Form of Deferred Annuity Contract for the Wells Fagro AdvantageSM Credit Variable Annuity (form 44210). Exhibit 4.3. Form of Enhanced Death Benefit Rider (form 44213). Exhibit 4.4. Form of Guaranteed Minimum Income Benefit Rider (form 44214). Exhibit 4.5. Form of Disability Waiver of Withdrawal Charges Rider (form 44215). Exhibit 4.6. Form of Unemployment Waiver of Withdrawal Charges Rider (form 44216). Exhibit 5. Form of Variable Annuity Application for the Wells Fargo AdvantageSM Variable Annuity and the Wells Fargo AdvantageSM Credit Variable Annuity (form 44211). Exhibit 8.1 (b) Form of Amendment No. 5 to Participation Agreement among Putnam Capital Manager Trust, Putnam Mutual Funds Corp. and American Enterprise Life Insurance Company dated July 16, 1999. Exhibit 9. Opinion amd Consent of Counsel, dated November 3, 1999. Exhibit 10. Consent of Independent Auditors, dated November 3, 1999. Exhibit 13. Copy of schedule for computation of each performance quotation provided in the Registration Statement in response to Item 21. EX-99.3-SELLAGMT 3 SELLING AGREEMENT SELLING AGREEMENT FOR AMERICAN ENTERPRISE LIFE INSURANCE COMPANY VARIABLE ANNUITIES This SELLING AGREEMENT ("Agreement") is entered into as of dated Effective_Date ("Effective Date") by and between American Enterprise Life Insurance Company ("Company"), American Express Financial Advisors Inc. ("Distributor", together with Company, "American Express"), SA or its affiliated insurance agencies who have also executed this Agreement or an Affiliate Participation Agreement attached as Exhibit C ("Affiliates") and are identified on Exhibit A ("Selling Agency") and Broker_Dealer ("Broker-Dealer"). Recitals The purpose of this Agreement is to establish the terms and conditions under which Selling Agency and Broker-Dealer (referred to and defined further in Section 1.2 herein as "Authorized Selling Firm") will market and sell Company's variable annuities. American Express and Authorized Selling Firm intend that Authorized Selling Firm will be responsible for managing and supervising the marketing and sales of Company's variable annuities by its Producers pursuant to this Agreement. In consideration of the mutual covenants contained herein, the parties agree as follows: 1. DEFINITIONS. As used in this Agreement, the following terms shall have the following meanings: 1.1 "Affiliate" is an insurance agency affiliated with Selling Agency, which has executed an Affiliate Participation Agreement of the form attached hereto as Exhibit B, and which is identified on Exhibit A ("Products, Territory and Commission"). 1.2 "Authorized Selling Firm" means the Broker-Dealer and Selling Agency, taken together, with respect to the sale of Products under this Agreement in accordance with the terms and conditions of the SEC no-action letter First of America Brokerage Service, Inc. (dated Sept. 28, 1995). 1.3 "Broker-Dealer" is an entity duly registered as a broker-dealer with the Securities and Exchange Commission ("SEC"), the National Association of Securities Dealers ("NASD"), and states where required. Selling Agency may also act as its own Broker-Dealer if properly registered as a broker-dealer. 1.4 "Company Rules" mean any written instructions, bulletins, manuals, the Agent Guide as defined in Section 4.4.14, and any underwriting or suitability guidelines provided by the Company. 1.5 "Producer" is a duly licensed individual who sells Products as an employee or independent contractor of Selling Agency and who is appropriately registered with the NASD. 1.6 "Products" are those variable annuity products issued by Company which will be marketed or sold by Selling Agency, Broker-Dealer and their Producers under this Agreement, and which are set forth in Exhibit A and its Addenda attached hereto. 1.7 "Replacement" is the sale of a Product which is funded by the annuity purchaser with money obtained from the liquidation of another life insurance policy or annuity contract, either of which was previously issued either by Company or by any other life insurance company. 1.8 "Selling Agency" is an insurance agency or an Affiliate duly licensed or otherwise qualified as an insurance agency, which, either itself or through Producers who are its employees or independent contractors, solicits and sells Products to the general public. 1.9 "Territory" is any of the 48 of the 50 United States (all states other than New York and New Hampshire), and the District of Columbia, and includes any other jurisdiction in which Selling Agency is permitted to market and sell the Products through Producers, but only so long as such jurisdictions are listed on Exhibit A, as it may be amended from time to time. 2. TERM OF AGREEMENT. This Agreement shall remain in effect beginning upon the Effective Date, until such time it is terminated pursuant to Section 9, "Termination." 3. APPOINTMENT AND AUTHORIZATION OF SELLING AGENCY AND BROKER-DEALER. 3.1 Appointment and Authorization of Selling Agency and Broker-Dealer. Company and Distributor hereby appoint and authorize Selling Agency and Broker-Dealer to solicit sales of and sell Products in accordance with the terms and conditions of this Agreement as an Authorized Selling Firm, and Selling Agency and Broker-Dealer hereby accept the appointment and authorization. These two appointments, taken together, constitute the appointment of Authorized Selling Firm. Authorized Selling Firm's authority will be nonexclusive, and will be limited to the performance of the services and responsibilities set forth in this Agreement. 3.2 Selection and Appointments of Affiliates. No Affiliate shall be authorized to act as such until the Affiliate has executed this Agreement or an Affiliate a Participation Agreement and Company has authorized Affiliate to act as such. 4. DUTIES, OBLIGATIONS AND LIMITATIONS OF AUTHORIZED SELLING FIRM. Commencing on the Effective Date, Authorized Selling Firm will faithfully perform all of Authorized Selling Firm's duties within the scope of the agency relationship created under this Agreement to the best of Authorized Selling Firm's knowledge, skill and judgment. As Authorized Selling Firm, Selling Agency and Broker-Dealer shall be jointly and severally responsible and liable to American Express for the faithful performance of all obligations and duties except those which this Agreement specifically identifies as duties of Broker-Dealer. Authorized Selling Firm's duties shall include, but not be limited to the following: 4.1 Recruitment of Producers. Authorized Selling Firm may recruit Producers to sell under the supervision of Authorized Selling Firm. A Producer so recruited may not solicit or sell Products prior to acquiring any required state insurance license(s) in the state(s) where such Producer will solicit and sell Products, being registered with the NASD as a representative of the Broker-Dealer, being appointed by Company as an agent, and completing the training described in Section 4.4.14. 4.2 Licensing, Registration and Appointment of Selling Agency and Producers. Selling Agency shall be responsible for the preparation and submission of proper appointment and licensing forms and the assurance that all Producers recruited by Authorized Selling Firm are appropriately licensed as insurance agents in the state(s) where such Producers will solicit and sell Products. Broker-Dealer shall be responsible for the preparation and submission to the NASD of proper representative registration forms and the assurance that all Producers are properly registered as representatives of Broker-Dealer with the NASD. Authorized Selling Firm shall recommend Producers for appointment with Company, but Company shall retain sole authority to make appointments and may, by written notice to Authorized Selling Firm, refuse to permit any Producer to solicit contracts for the sale of the Products. 4.2.1 Background checks; Warranties. Authorized Selling Firm is responsible for performing background checks on its Producers. Authorized Selling Firm warrants that such background check reports of Producers will comply with all applicable regulations of the departments of insurance and securities in the states in which said Producers will solicit and sell Products, and with the requirements of the NASD. Authorized Selling Firm further warrants and guarantees that copies of such background check reports will be made available in a timely manner to any regulator who may request them from Company, and that Company will receive confirmation that such materials have been timely delivered to any such regulator. Company will not require copies of the reports themselves, but only the assurance that they have been timely delivered as requested by such regulator, unless such reports relate or may relate to a customer inquiry or complaint about the Product or its sale, or unless such report relates to Company's internal investigation of a Producer's sales practices as regard the Products. Authorized Selling Firm further agrees that it will provide to Company a copy of their respective procedures and requirements for background checks to Company upon request, but Company is entitled to rely on Authorized Selling Firm for compliance with regulations as shown above even without actually making such a demand. 4.3 Compliance with Company Policies and Applicable Laws. Authorized Selling Firm will comply with all Company Rules and with all applicable federal and state laws and regulations. 4.4 Supervision and Administration. Authorized Selling Firm shall have full, joint and several responsibility for the training and supervision of all of its Producers who are engaged directly or indirectly in the offer or sale of the Products, and all such Producers shall be subject to the control of Authorized Selling Firm with respect to their securities and insurance regulated activities in connection with the Products. Authorized Selling Firm shall be responsible for all acts or omissions of Producers. Selling Agency's supervisory and administrative responsibilities include, but are not limited to: 4.4.1 ensuring that Producers comply with Company Rules and all federal and state laws and regulations applicable to the Products; 4.4.2 training Producers prior to allowing a Producer to sell a Product in accordance with Section 4.4.14; 4.4.3 providing advice and assistance to Producers with regard to marketing and advertising of Products, and ensuring that no advertising is used unless approved by Company in accordance with Section 4.9, "Approved Advertising." 4.4.4 supplying sales literature and application forms approved by Company to Producers; 4.4.5 ensuring that any sales literature or advertising used on or from the premises of a financial institution be: (a) revised to include the disclosure required by the financial institution regulatory agencies and the NASD; (b) submitted to and approved by Company and/or Distributor in accordance with Section 4.9, "Approved Advertising," prior to first use; and (c) delivered by the Producer to the prospective customer; 4.4.6 assisting Producers in responding to customer inquiries; 4.4.7 promptly delivering to Producers relevant Company communications and Company Rules concerning Products, such as changes in rates, regulatory notices or new Product announcements; 4.4.8 ensuring that Producers: (a) submit premium payments directly and immediately to Company in accordance with Section 4.5, "Collection and Submission of Premiums"; (b) document transactions, including the fact of delivery, and maintain any other documentation reasonably requested by Company; (c) have obtained and will continuously maintain the required state insurance licenses in the state where such Producers will solicit and sell Products; and (d) have been appointed by Company in accordance with the laws of the state in which the sale(s) occur and the customer resides; 4.4.9 on all Replacement sales, ensuring that Producers provide sufficient information to prospective annuity contract-holders as to the suitability of the Replacement sale. Such information includes but may not be limited to: (a) the amount of the surrender charge to be incurred on the investment to be liquidated; (b) all fees and possible charges, such as surrender charges, on the new investment; (c) any change in the investment risk to the prospective annuity contract-holder; (d) any change in the nature or the provider of any guarantees associated with the Product and/or the surrendered product; (e) any changes in the expenses associated with the Product and/or the surrendered product; All such information will be retained by Selling Agency for seven years counting from the date of the initial solicitation, whether or not the Product was ever sold, and will be made available to Company as is shown in Section 4.8, "Accurate Record; Audit," herein. 4.4.10 timely obtaining and maintaining all required state insurance licenses, and notifying Company if any Selling Agency or Producer fails to maintain the required state insurance license or becomes inactive; 4.4.11 promptly informing Company of any violation of law or Company Rules by Authorized Selling Firm or Producer, or of any allegation by an annuity contract-holder or regulatory agency of wrongdoing as regards the activities of Authorized Selling Firm, or a Producer with respect to the Products; and 4.4.12 any other duties necessary or appropriate to perform Authorized Selling Firm's obligations under this Agreement. 4.4.13 Broker-Dealer will fully comply with and will ensure Selling Agency's and Producers' compliance with the requirements of the NASD, the SEC and all other applicable federal and state laws, and, with Selling Agency, will establish and maintain such rules and procedures as may be necessary to cause diligent supervision of the securities activities of Selling Agency and Producers. Broker- Dealer's duties with respect to Selling Agency's and Producers' securities activities, include, but are not limited to: (a) delivering to each person submitting an application a prospectus to be furnished by American Express in the form required by the applicable federal laws or by the acts or statutes of any applicable state, province or country; (b) ensuring that all sales literature or advertising used by Authorized Selling Firm or Producers hereunder concerning the Products or Company or Distributor has been approved by American Express; (c) reviewing all Product applications for accuracy and completeness, and to determine the suitability of the sale; (d) complying with all applicable requirements of the Securities Exchange Act of 1934 ("1934 Act") and the NASD, including the requirements to maintain and preserve books and records pursuant to Section 17(a) of the 1934 Act and the rules thereunder and making such records and files available to staff of American Express and personnel of state insurance departments, the NASD, SEC or other regulatory agencies which have authority over American Express. 4.4.14. Authorized Selling Firm shall be responsible for ensuring that their Producers who market and sell the Products are trained on (i) the product specifications and features, (ii) requirements that American Express has adopted to satisfy insurance laws and regulations regarding replacements, and (iii) standards that American Express has established for Authorized Selling Firms and their Producers to use in meeting their respective duties to ensure suitable sales of the Products (delivered together as the "Agent Guide") before they begin to solicit or sell Products. If Authorized Selling Firm chooses not to use the Agent Guide in training their Representatives on (i), (ii) and (iii) above, then Authorized Selling Firm shall provide to American Express its own form of training to be used prior to the execution of this Agreement. After the execution of this Agreement, to the extent that Authorized Selling Firm uses training material related to the sale of the Products that is materially different from that contained in the Agent Guide or training material other than provided to American Express in accordance with the preceding paragraph, Authorized Selling Firm must provide that training material to American Express for approval prior to use. Authorized Selling Firm shall also be responsible for assuring that its Producers comply with Agent Guide, and the applicable suitability requirements of the National Association of Securities Dealers, Inc. ("NASD"), and any state or federal law, as amended from time to time, in selling the Products. 4.5 Collection and Submission of Premiums. American Express and Authorized Selling Firm will agree which of the following provisions will govern Authorized Selling Firm's duties related to collection and submission of premiums, by specifying on Exhibit A the applicable provision. 4.5.1 Check with Application. Authorized Selling Firm will assure its Producers' collection and timely remittance to Company of the premiums due on all Products as specified herein. Company will receive premium payments no later than the second business day after the application has been signed by the customer. 4.5.2 Gross Sweep. Authorized Selling Firm will assure its Producers' collection of the premiums due on all Products and will timely account for such premiums, directly depositing them into an account established by Authorized Selling Firm for the benefit of Company, at a bank approved by Company, and notifying Company immediately of the gross receipts for the business day and of the sales to which they relate. Upon receipt of notification from Authorized Selling Firm, Company will sweep the settlement account. Additional specific procedures governing movement of money pursuant to this paragraph will be established by Authorized Selling Firm and Company and will become part of the Company Rules. 4.5.3 Gross ACH Through Clearing Broker. Authorized Selling Firm will assure its Producer's collection of the premiums due for all Products and the timely accounting for and submission of all premiums directly and immediately to Clearing Broker. Premiums must be in the form of check, bank draft authorization, customer-approved account transfer, or wire transfer, with funds payable to the order of Selling Agency. Clearing Broker will immediately deposit premium payments received from Selling Agency into an account for the benefit of Selling Agency, or into the Clearing Broker's segregated omnibus account established for the benefit of Selling Agency (sometimes referred to as an "Omnibus Account."). Selling Agency will notify, or will ensure that the Clearing Broker notifies, Company immediately of the gross receipts for each business day. Clearing Broker will, through ACH transfer, remit the gross premiums received to a Company-owned bank account designated by Company so that the Company receives the premiums no later than the close of business on the second day after the application was signed by the Customer. Additional specific procedures governing the movement of money pursuant to this paragraph will be established by Selling Agency, Broker-Dealer, Company and Distributor, and will become part of the Company Rules. 4.5.4 Net Wire Through Clearing Broker. Selling Agency will assure its Representatives' collection of the premiums for all Variable Contracts and the timely accounting for and submission of all premiums directly and immediately to Clearing Broker. Premiums must be in the form of check, bank draft authorization, customer-approved account transfer, or wire transfer, with funds to the order of Selling Agency. Clearing Broker will immediately deposit premium payments received from Selling Agency into an account for the benefit of Selling Agency, or into the Clearing Broker's segregated account (sometimes referred to as an "Omnibus Account") established for the benefit of Selling Agency and any Affiliates or Broker-Dealer. Selling Agency will notify, or will ensure that the Clearing Broker notifies, Company immediately of the gross receipts for each business day. Clearing Broker will, through wire transfer, remit the premiums received, net of Selling Agency's share of commissions, subject to the conditions set forth below, to a Company-owned bank account designated by Company so that the Company receives the premiums no later than the close of business on the second day after the day the application was signed by the Customer. Clearing Broker may remit premium payments to Company net of Selling Agency's share of commission only if shown on Exhibit A, and only if Company and Selling Agency agree on specific procedures to be used. Such procedures will become part of the Company Rules. "Selling Agency's share of commission" specifically excludes supplemental trail commissions or other payments contemplated between the parties. If Option 4.5.3 or 4.5.4 are agreed upon by American Express and Authorized Selling Firm as the method of collection and submission of premiums then the provisions of Exhibit B will apply. 4.6 Solicitation. Authorized Selling Firm, through Producers, will solicit applicants who appear to meet Company's and Distributor's underwriting and suitability standards, provided that nothing in this Agreement shall be deemed to require Authorized Selling Firm to solicit any particular customer's application for an annuity. 4.7 Company Property. Authorized Selling Firm will safeguard, maintain and account for all policies, forms, manuals, equipment, supplies, advertising and sales literature furnished to Authorized Selling Firm and Producers by American Express and will destroy or return the same to American Express promptly upon request. 4.8 Accurate Record; Audit. As required by applicable laws and Company's policies and procedures, Authorized Selling Firm will keep identifiable and accurate records and accounts of all business and transactions effected pursuant to this Agreement. Upon reasonable notice and at reasonable times, continuing during a period of one year following the termination of this Agreement, Authorized Selling Firm will permit American Express to visit, inspect, examine, audit and verify, at Authorized Selling Firms offices or elsewhere, any of the properties, accounts, files, documents, books, reports, work papers and other records belonging to or in the possession or control of Authorized Selling Firm relating to the business covered by this Agreement, and to make copies thereof and extracts therefrom, provided that such audit shall not unreasonably interfere with Authorized Selling Firm's normal course of business. 4.9 Approved Advertising. No sales promotions, promotional materials, or any advertising relating to Products or Company or Distributor ("Sales Material") shall be used by Authorized Selling Firm or Producers unless the specific item has been approved in writing by Company and/or Distributor before use. Any promotional material developed by Authorized Selling Firm will become the sole property of American Express once approved. Any modification of the promotional materials to enable the use of such in a financial institution setting must also be approved in accordance with this section. 4.10 Chargeback of Commissions. Selling Agency will be charged back for Selling Agency's portion of commissions relating to certain surrenders of annuity products as specified in Exhibit A and its addenda, as amended from time to time. 4.11 Fidelity Bond. Authorized Selling Firm represents and warrants that all directors, officers, employees and representatives of Selling Agency who are appointed pursuant to this Agreement as Producers for Company or who have access to funds of Company, including but not limited to funds submitted with applications for Products or funds being returned to owners, are and shall be covered by a blanket fidelity bond, including coverage for larceny and embezzlement, issued by a reputable bonding company acceptable to Company. The bond shall be maintained by Broker-Dealer at Broker-Dealer's and/or Selling Agency's expense. Company may require evidence, satisfactory to it, that such coverage is in force. Authorized Selling Firm shall give prompt written notice to Company of cancellation or change of coverage. 4.12 Limitations. Authorized Selling Firm shall have no authority with respect to American Express, nor shall it represent itself as having such authority, other than as is specifically set forth in this Agreement. Without limiting the foregoing, neither Selling Agency nor Broker-Dealer shall, without the express written consent of Company and/or Distributor, as applicable: 4.12.1 make, waive, alter or change any term, rate or condition stated in any Company contract or Company or Distributor approved form, or discharge any contract in the name of Company; 4.12.2 waive a forfeiture; 4.12.3 extend the time for the payment of premiums or other monies due Company; 4.12.4 institute, prosecute or maintain any legal proceedings on behalf of Company or Distributor in connection with any matter pertaining to Company's business, nor accept service of process on behalf of Company or Distributor; 4.12.5 transact business in contravention of the rules and regulations of any insurance department and/or other governmental authorities having jurisdiction over any subject matter embraced by this Agreement; 4.12.6 make, accept or endorse notes, or endorse checks payable to Company or Distributor, or otherwise incur any expense or liability on behalf of Company or Distributor; 4.12.7 offer to pay or pay, directly or indirectly, any rebate of premium or any other inducement not specified in the Products to any owner or annuitant; 4.12.8 misrepresent the Products for the purpose of inducing an annuity contract-holder in any other company to lapse, forfeit or surrender his/her insurance therewith; 4.12.9 give or offer to give any advice or opinion regarding the taxation of any customer's income or estate in connection with the purchase of any Product; 4.12.10 enter into an agreement with any person or entity to market or sell the Products without the written consent of Company and Distributor; 4.12.11 use Company's or Distributor's names, logos, trademarks, service marks or any other proprietary designation without the prior written permission of Company; or 4.12.12 engage in any program designed to replace Products with any annuity products of other companies, at any time while this Agreement is in force; or provide data to any other person or organization which would allow or facilitate such replacement of Company's Products. Nothing herein shall preclude the replacement of Company's fixed annuity products with Company's own variable annuity products, so long as such sales are suitable and documented according to Section 4.4.9, Replacement Sales. (See also Section 9.3, Post Termination Limitations, and Section 11, Confidentiality, generally.) 4.13 Wholesaling Services. Authorized Selling Firm shall receive certain wholesaling services under this Agreement pursuant to a Wholesaling Agreement entered into on WhseDate, by American Enterprise Life Insurance Company (the "Company"), American Express Financial Advisors Inc. (the "Distributor") and WhseName (the "Wholesaler"). 5. COMPANY AND DISTRIBUTOR REPRESENTATIONS AND RESPONSIBILITIES. 5.1 Representations. 5.1.1 Company represents and warrants that (a) it is duly incorporated in the state of Indiana and licensed in all states in the Territory; and (b) that all Products, and all Sales Material (as defined in Section 4.9, above) provided by Company or Distributor have been filed with and approved by state insurance departments in all states in the Territory, and comply with all applicable laws and regulations and rules of the NASD. 5.1.2 Distributor represents and warrants that it is duly registered as a broker-dealer with the SEC, the NASD, all fifty states and the District of Columbia, and is qualified to do business in all states in which Company is licensed and qualified to do business. 5.1.3 Distributor and Company represent and warrant that Company, as issuer and on behalf of the underlying investment account(s), has registered the underlying investment account(s) of the Products with the SEC as a security under the Securities Act of 1933 ("1933 Act") and as a unit investment trust under the Investment Company Act of 1940. 5.1.4 Company represents and warrants that the prospectuses and registration statements relating to the Products do not contain any untrue statements of material fact or any omission to state a material fact, the omission of which makes any statement contained in the prospectuses and registration statements misleading. 5.1.5 Company represents and warrants that Company will meet any requirements of the NASD and state departments of insurance in the jurisdictions in which the Products are available for sale regarding both the filing and approval of Sales Material. 5.2 Prospectuses, Sales Literature and Advertising. American Express will provide to Authorized Selling Firm, without any expense to Authorized Selling Firm, prospectuses relating to the Products and such other Sales Material (as defined is Section 4.9, above) as American Express determines is necessary or desirable for use in connection with sales of the Products. 5.3 Transmission of Contracts for Delivery to Contract Owners. Company will transmit contracts for Products directly to annuity contract-holders. 5.4 Confirmations. Upon Company's acceptance of any payment for a Product, Company as agent for Distributor will deliver to each contract owner a statement confirming the transaction in accordance with Rule 10b-10 under the 1934 Act. 5.5 Annuity Contract-holder Services. Company shall provide administrative, accounting and other services to annuity contract-holders as necessary and appropriate, in the same manner as such services are provided to Company's other annuity contract-holders. 5.6 Reservation of Rights. Notwithstanding any other provision of this Agreement or any other agreement between Company and/or Distributor and Selling Agency and/or Broker-Dealer, Company reserves the unconditional right to modify any of the Products in any respect whatsoever or to suspend the sale of any Products in whole or in part at any time and without prior notice. Company reserves the unconditional rights to refuse to accept applications procured by Authorized Selling Firm or Producers which fail to meet underwriting or other standards of Company. 5.7 Company Rules. American Express shall provide Authorized Selling Firm with Company Rules as soon as is practicable. All revisions, modifications and replacements of such Company Rules shall be provided by Company and Distributor to Authorized Selling Firm promptly after issuance by Company and/or Distributor. 6 COMPENSATION. 6.1 Compensation to Authorized Selling Firm. Company shall pay a total commission on premiums collected pursuant to this Agreement based on the rates of commission set forth on the attached Exhibit A and its Addenda. In all cases, the amount of commission shown in the addenda is the total compensation available for distribution from Company, or any of its subsidiaries, affiliates, or other related entities owned or controlled by American Express Company, whether under this Agreement or under any other agreement between or among Company, Broker-Dealer, any Selling Agency or Producer, or any other party. No commission will be apid on sales outside the states shown in the Territory on Exhibit A. No commission will be paid on the sale of an annuity under this Agreement if that sale involves replacement of an asset or investment issued by Company or by any other insurance company owned or controlled by American Express Company. Company reserves the right from time to time to adjust commission upwards for any of the Products, for a specified period of time, upon notice to Selling Agency and Broker-Dealer, without requiring signatures on a corresponding addendum. No downward adjustment of commission will occur without signatures of all parties to the Agreement, except for the return to commission rates originally identified in the addenda. No compensation shall be paid unless all of the following conditions precedent have been met to Company's satisfaction: 6.1.1 Licensing of Producer. Prior to the time of any solicitation of a sale or a sale of a Product, the Producer making such solicitation or sale shall be licensed and appointed with Company in accordance with the laws of the state(s) where the sale is being made and the customer resides. 6.1.2 Licenses and Contracts. No person or entity, except Producers satisfying the provisions of Section 6.1.1, "Licensing of Producers," shall in any way share in any commissions payable hereunder unless such person or entity is licensed in accordance with the laws of the state(s) in which the sale was made and the customer resides; and unless such person or entity shall have entered into an agreement with Selling Agency which specifies such person or entity's rights and obligations and which makes provision for payment, including splitting, of commissions. Notwithstanding the preceding sentence, in those states which permit payment of a commission to an entity which is not licensed as an insurance agency, Company will pay commissions to an unlicensed entity which is a party to this Agreement, but only after such entity has provided evidence satisfactory to Company as to how Company may make such payments in accordance with applicable state insurance laws. 6.1.3 Alternative Payment Agreement. Only if shown on Exhibit A attached hereto, Company may make commission payments and debit commission chargebacks to Broker-Dealer, so long as Broker-Dealer also has insurance licenses appropriate for the sales of Products in affected states. See also Section 4.10. 6.1.4 Supplemental Trail Commissions. Amounts and conditions of payment of Supplemental Trail Commission, if any, are attached in the addenda and shown on Exhibit A. In no event will Supplemental Trail Commission be paid on a contract less than one year old. 6.2 Chargebacks. Company has the right to charge back Selling Agency for commissions paid in the event of certain surrenders of annuity contracts as specified in Exhibit A and its Addenda. 6.3 Expenses. Except as otherwise provided in this Agreement, or subsequently agreed to in writing by American Express, Authorized Selling Firm will be responsible for all costs and expenses of any kind and nature incurred by Authorized Selling Firm in the performance of its duties under this Agreement. 6.4 Post Termination Compensation Obligations. Upon termination of this Agreement, Company's obligation to pay commissions to Selling Agency, or Producers shall immediately cease except that: 6.4.1 Company will pay commissions, as the same become due and payable, upon Products for which the application has been taken and the required premium has been collected (or has become irrevocably collectable from a third party) as of the date of termination, and for which the Company subsequently issues a policy. 6.4.2 Company will charge back against those commissions identified in Exhibit A for surrenders of Products sold prior to the termination of this Agreement by Authorized Selling Firm or Producers. Company will invoice Selling Agency unless Company and Selling Agency agree upon another method of payment of such amounts. 6.4.3 Company shall pay commissions in accordance with Exhibit A and its addenda, attached hereto, on all premiums collected on Products issued prior to such termination. 7. INDEMNIFICATION. 7.1 Indemnification of Company and Distributor. Authorized Selling Firm shall indemnify, defend and hold harmless American Express, any of its officers, directors and employees, from and against any and all losses, claims, damages, liabilities, actions, costs or expenses to which American Express, or any of its officers, directors and employees, may become subject (including any legal or other expenses incurred by it in connection with investigating any claim against it and defending any action and, provided Authorized Selling Firm will have given prior written approval of such settlement or compromise, which consent will not be unreasonably withheld or delayed, any amounts paid in settlement or compromise) insofar as such losses, claims, damages, liabilities, actions, costs or expenses arise out of or are based upon: 7.1.1 The acts or omissions of Authorized Selling Firm or any of its employees, agents or Producers while acting (whether under actual or apparent authority, or otherwise) on behalf of Authorized Selling Firm or American Express in connection with this Agreement; 7.1.2 Any breach of any covenant or agreement made by Authorized Selling Firm under this Agreement; or 7.1.3 The inaccuracy or breach of any representation or warranty made by Authorized Selling Firm under this Agreement. This indemnification obligation shall not apply to the extent that such alleged act or omission is attributable to American Express either because (1) American Express directed the act or omission, or (2) the act or omission by Authorized Selling Firm or any of its employees, agents or Producers was the result of their compliance with the Company Rules. 7.2 Indemnification of Selling Agency and Broker-Dealer. American Express shall indemnify, defend and hold harmless Authorized Selling Firm, any of its officers, directors and employees, from and against any and all losses, claims, damages, liabilities, actions, costs or expenses to which Authorized Selling Firm, or any of its officers, directors and employees, may become subject (including any legal or other expenses incurred by it in connection with investigating any claim against it and defending any action and, provided American Express will have given prior written approval of such settlement or compromise, which consent will not be unreasonably withheld or delayed, any amounts paid in settlement or compromise) insofar as such losses, claims, damages, liabilities, actions, costs or expenses arise out of or are based upon: 7.2.1 The acts or omissions of American Express, or any employee or agent of American Express, (excluding Authorized Selling Firm or Producers) while acting (whether under actual or apparent authority or otherwise) on behalf of Company in connection with this Agreement; 7.2.2 Any breach of any covenant or agreement made by American Express under this Agreement; or 7.2.3 The inaccuracy or breach of any representation or warranty made by American Express under this Agreement. 7.3 Limitation of Liability. Except as expressly stated herein, as between the parties, in no event will any party to this Agreement be responsible to any other party for any incidental, indirect, consequential, punitive, or exemplary damages of any kind arising from this Agreement, including without limitation, lost revenues, loss of profits or loss of business. The parties agree that the losses and damages arising under and/or covered by Section 7.1 and 7.2 shall be subject to this limitation. 8. ARBITRATION. The parties agree to attempt to settle any misunderstandings or disputes arising out of this Agreement through consultation and negotiation in good faith and a spirit of mutual cooperation. However, if those attempts fail, the parties agree that any misunderstandings or disputes arising from this Agreement will be decided by arbitration which will be conducted, upon request of either party, before three arbitrators (unless both parties agree on one arbitrator) designated by the American Arbitration Association located in the city of Company's principal place of business. The parties further agree that the arbitrator(s) will decide which party must bear the expenses of the arbitration. This agreement to arbitrate shall not preclude either party from obtaining provisional remedies such as injunctive relief or the appointment of a receiver from a court having jurisdiction, either before, during or after the pendency of the arbitration. The institution and maintenance of such provisional remedies shall not constitute a waiver of the right of a party to submit a dispute to arbitration. 9. TERMINATION. 9.1 Termination for Cause. At any time during the Term of this Agreement, American Express or Authorized Selling Firm may terminate this Agreement immediately for cause upon written notice of such termination to the other party. Such written notice shall state the cause with specificity. As used in this Section, the term "cause" shall include any one or more of the following: 9.1.1 the conviction of any party, its officers or supervisory personnel of any felony, of fraud, or of any crime involving dishonesty; 9.1.2 the intentional misappropriation by a party of funds or property of any other party, or of funds received for it or for annuity contract-holders; 9.1.3 the cancellation, or the refusal to renew by the issuing insurance regulatory authority of, any license, certificate or other regulatory approval required in order for any party to perform its duties under this Agreement; 9.1.4 any action by a regulatory authority with jurisdiction over the activities of a party that would place the party in receivership or conservatorship or otherwise substantially interfere or prevent such party from continuing to engage in the lines of business relevant to the subject matter hereof; or 9.1.5 a party becoming a debtor in bankruptcy (whether voluntary or involuntary) or the subject of an insolvency proceeding. 9.2 Termination without Cause. American Express or Authorized Selling Firm may terminate this Agreement without cause upon 30 days prior written notice to the other parties. 9.3 Post Termination Limitation. For a period of one year after termination of this Agreement, Authorized Selling Firm and Producers shall not knowingly induce or cause, or attempt to induce or cause, any concerted or organized effort to recommend, promote, encourage or endorse the termination, surrender, or cancellation of any Product sold pursuant to this Agreement. 10. INDEPENDENT CONTRACTOR. This Agreement is not a contract of employment. Nothing contained in this Agreement shall be construed or deemed to create the relationship of joint venture, partnership, or employer and employee between American Express and Authorized Selling Firm. Each party is an independent contractor and shall be free, subject to the terms and conditions of this Agreement, to exercise judgment and discretion with regard to the conduct of business. 11. CONFIDENTIALITY. 11.1 Each party agrees that, during the term of this Agreement and at all times thereafter, it will not disclose to any unaffiliated person, firm, corporation or other entity, nor use for its own account, any of the other parties' trade secrets or confidential information, including, without limitation, the terms of this Agreement; non-public program materials; member or customer lists; proprietary information; information as to the other party's business methods, operations or affairs, or the processes and systems used in its operations and affairs, or the processes and systems used in any aspect of the operation of its business; all whether now known or subsequently learned by it. If this Agreement is terminated, each party, within 60 days after such termination, will return to the other parties, respectively, any and all copies, in whatever form or medium, of any material disclosing any of the other parties' trade secrets or confidential information as described above. Nothing in this Agreement shall require a party to keep confidential any information that: 11.1.1 the party can prove was known to it prior to any disclosure by any other party; 11.1.2 is or becomes publicly available through no fault of the party; 11.1.3 the party can prove was independently developed by it outside the scope of this Agreement and with no access to any confidential or proprietary information of any other party; 11.1.4 is required to be disclosed to governmental regulators or pursuant to judicial or administrative process or subpoena; 11.1.5 is required in order to perform that party's obligation under this Agreement; 11.1.6 is required to be disclosed by any applicable law; or 11.1.7 is mutually agreed upon by all parties to this Agreement. 11.2 In the event Authorized Selling Firm during the term of this Agreement and for a period of one year after the effective date of its termination, engages in a concerted effort to promote, recommend or encourage the termination, surrender, or cancellation of any Product sold under this Agreement, without reasonable grounds to believe that such termination, cancellation or surrender is in each individual customer's best interest, then American Express will have the right to contact present and former purchasers of the Products sold under this Agreement with a view to retaining the assets in their accounts with Company, without being found in violation of this Section 11. 12. ASSIGNMENT. The parties to this Agreement may not assign, either wholly or partially, this Agreement or any of the benefits accrued or to accrue under it, or subcontract their interests or obligations under this Agreement, without the written approval of all parties. 13. AMENDMENT OF AGREEMENT. American Express reserves the right to amend this Agreement at any time, but no amendment shall be effective until approved in writing by Authorized Selling Firm, subject to the provisions of Section 5.6, "Reservation of Rights," and Section 12, "Assignment," herein. 14. MISCELLANEOUS. 14.1 Applicable Law. This Agreement shall be governed by and interpreted under the laws of the State of Minnesota. 14.2 Severability. Should any part of this Agreement be declared invalid, the remainder of this Agreement shall remain in full force and effect, as if the Agreement had originally been executed without the invalid provisions. 14.3 Notice. Any notice hereunder shall be in writing and shall be deemed to have been duly given if sent by certified or registered mail, postage prepaid, or via a national courier service with the capacity to track its shipments, to the following addresses:
If to Company: If to Distributor: American Enterprise Life Insurance Company American Express Financial Advisors Inc. 80 South 8th Street 80 South 8th Street Minneapolis, MN 55440 Minneapolis, MN 55440 Attn: Compliance Officer (Unit 1818) Attn: Compliance Officer (Unit 1818)
If to Selling Agency: If to Broker-Dealer: SA Broker_Dealer SAAddress1 BD_address1 SAAddress2 BD_address2 SACity, SAState SAZip BD_city, BD_State BD_zip Attn: SAContact_name__tit Attn: BD_contact_name__Tit 14.4 Binding Effect. This Agreement shall be binding upon and inure to the benefit of the parties hereto and their respective successors and assigns, subject to the provisions of this Agreement limiting assignment. 14.5 Headings. The headings in this Agreement are for convenience only and are not intended to have any legal effect. 14.6 Defined Terms. The terms defined in this Agreement are to be interpreted in accordance with this Agreement. Such defined terms are not intended to conform to specific statutory definitions of any state. 14.7 Entire Agreement. This Agreement constitutes the entire agreement of the parties with respect to the subject matter hereof and supersedes all previous communications, representations, understandings and agreements, either oral or written, between the parties or any official representative thereof. 14.8 Survival. All terms and conditions of Section 7, "Indemnification"; Section 9.3, "Post Termination Limitations"; and Section 11, "Confidentiality," will survive termination of this Agreement. 14.9 No Waiver. No failure to enforce, nor any breach of any term or condition of this Agreement, shall operate as a waiver of such term or condition, or of any other term or condition, nor constitute nor be deemed a waiver or release of any other rights at law or in equity, or of claims which any party may have against any other party, for anything arising out of, connected with, or based upon this Agreement. Any waiver, including a waiver of this Section, must be in writing and signed by the parties hereto. American Enterprise Life Insurance Company SA Company Selling Agency By:_______________________ By:_______________________ Title:____________________ Title:____________________ Date:_____________________ Date:_____________________ American Express Financial Advisors Inc. Broker_Dealer Distributor Broker-Dealer By:_______________________ By:______________________ Title:____________________ Title:___________________ Date:_____________________ Date:____________________ Affiliate: Affiliate: SAAffiliate1 SAAffiliate2 By:_______________________ By:______________________ Title:____________________ Title:___________________ Date:_____________________ Date:____________________ EXHIBIT A Selling Agency: Products, Territory and Commissions SUMMARY: This Exhibit is intended to summarize the contents of Exhibit A and its Addenda, as they are added to the arrangements with SA, ("Selling Agency"), Broker_Dealer ("Broker-Dealer"), Company and Distributor under this Agreement.
Selling Agency & Broker-Dealer Products Product Commission Remittance of Premiums Territory (See Section 4.5) - - - ------------------------------------------------------------------------------------------------------------------------------ SA Wells Fargo Advantage See Addenda A & B Money_Movement State_s Broker_Dealer only SAAffiliate1 Wells Fargo Advantage Credit See Addenda C & D SAAffiliate2 - - - ------------------------------------------------------------------------------------------------------------------------------
This Exhibit A will only be separately executed when: (i) a product is added or deleted; or (ii) there is a reduction in compensation. Last Revision Date:____________________ Effective Revision Date:______________ Purpose of Last Revision:______________________________________________________ Addendum A to Exhibit A: Products, Territory and Commissions Addendum to Exhibit A of the Selling Agreement between American Enterprise Life Insurance Company ("Company"), American Express Financial Advisors Inc. ("Distributor"), Wells Fargo Securities, Inc.("Selling Agency") and Wells Fargo Securities, Inc. ("Selling Agent's Broker") dated November 15, 1999. This Addendum is effective for the states, and from the date(s), specified on Exhibit A, executed by the parties to this Agreement. The Product to be offered through Selling Agent is a flexible premium variable annuity known as the Wells Fargo Advantage Variable Annuity, which is to be offered only in the Territory shown in Exhibit A. COMMISSION: The commission payable for contracts described in this Addendum will be as follows: (a) ____% gross of all premiums for issue ages of both owner and annuitant not exceeding 80 (qualified or non-qualified). (b) ____% gross of all premiums for issue ages of both owner and annuitant of 81-85 (qualified or non-qualified). (c) No commission is payable for policies described in this Addendum where the issue age of either the annuitant or owner exceeds age 85 (qualified or non-qualified). No commission is payable on the sale of Products under this Agreement if that sale involves replacement of an asset or investment issued by Company or by any other insurance company owned or controlled by American Express Company. CHARGEBACK: In the event of the surrender of an annuity within forty days of the issue date, there will be a chargeback of all commissions paid with respect to premium received in accordance with the following schedule. After this "free look" period, no chargebacks will be assessed. Agreed to on ______________, 1999. American Enterprise Life Insurance Company Wells Fargo Securities, Inc. Company Selling Agency and Selling Agency's Broker By:_______________________ By:_______________________________ Title:____________________ Title:____________________________ American Express Financial Advisors Inc. Distributor By:_______________________ Title:____________________ Addendum B to Exhibit A Supplemental Trail Commission by and between American Enterprise Life Insurance Company ("Company"), American Express Service Corporation (Distributor), Wells Fargo Securities, Inc. (Selling Agency) and Well Fargo Securities, Inc. (Selling Agency's Broker) dated November 15, 1999. This Addendum is effective November 15, 1999, and applies only to the sale of the Wells Fargo Advantage Variable Annuity described in Addendum A, above. Supplemental Trail Commission: 1. In addition to the compensation shown in other Addenda to this Agreement, Company agrees to pay to Selling Agency a Supplemental Trail Commission as shown in #2, below, subject to all the conditions in #3 below. 2. Payment. At the end of each calendar quarter, Company shall calculate and pay the Supplemental Trail Commission as follows: Supplemental Trail Compensation = Eligible Value x Annual Rate ---------------------------- 4 Where: A. Annual Rate of the Supplemental Trail Commission is shown below. Supplemental Trail Commission increases when the annuity contract's surrender charge period lapses. In ALL cases, Years 2-5: "x" basis points In SOME cases: Years 6 & 7: "x" basis points (if contract's surrender charge period is 7 years) In SOME cases: Years 6 & 7: "y" basis points (if contract's surrender charge period is 5 years) In ALL cases: Years 8 +: "y" basis points B. Eligible Contracts means contracts sold to customers under this Addendum A to this Agreement which have reached their first contract anniversary as of the calendar quarter end. C. Eligible Value means accumulation value (including earnings accrued), as of the quarter end for which the Supplemental Trail Commission is being calculated, of all Eligible Contracts for which Option B or C, above, has been selected. Each option's trail will be calculated separately. Trail checks will be made payable to the Selling Agency, and will be sent directly to Selling Agency for distribution. 3. Conditions of Payment: A. Payment for each quarter's Supplemental Trail Commission shall be final, and no credits or additions or adjustments shall be made to it. Each quarter is evaluated independently. Chargebacks will be accounted for in the quarter in which the contract is returned to the Company. B. Company will supply supporting information for the calculation, along with payment, to Selling Agency within 45 business days of the end of each calendar quarter. C. The Supplemental Trail Commission does not apply to sales outside the Territory or to sales which are otherwise excluded from normal commission payments under Exhibit A and/or any other Addenda to this Agreement (e.g., unlicensed sales, sales for which Selling Agency could not otherwise be compensated, etc.). D. In the event that notice of termination of this entire Agreement is given by any party hereto, the obligation to pay the Supplemental Trail Commission will survive for three years from the effective date of such termination. No Supplemental Trail Commission will be payable for the quarter in which that third anniversary of termination occurs, or thereafter. E. Subject to Condition D above, Supplemental Trail Commission will be paid to the Selling Agency for as long as each Eligible Contract continues to remain an Eligible Contract as herein defined, and for as long as the Selling Agency continues to be licensed as an insurance agency and appointed with Company. F. The obligation to pay Supplemental Trail Commission runs from Company to Selling Agency only. All distribution of Supplemental Trail Commission is the Selling Agency's responsibility. No claim made by or on behalf of any individual representative for Supplemental Trail Commission will be honored by Company, and no expense, including (without limitation) attorney fees, that an Selling Agency or a representative may incur to determine the individual representative's entitlement to Supplemental Trail Commission, will be absorbed by or reimbursed by Company. G. In all cases, the amount of commission described above is the total compensation available for distribution from Company, or any of its subsidiaries, affiliates, or other related entities owned or controlled by American Express Company, whether under this Agreement or under any other agreement between or among Company, Selling Agency, or any other party. See Addendum A, above, for details of payment of commission at time of sale. Agreed to on _________________, 1999. American Enterprise Life Insurance Company Wells Fargo Securities, Inc. Company Selling Agency and Selling Agency's Broker By:________________________ By:_______________________________ Title:_____________________ Title:____________________________ Date:______________________ Date:_____________________________ American Express Financial Advisors Inc. Distributor By:________________________ Title:_____________________ Date:______________________ Addendum C to Exhibit A: Products, Territory and Commissions Addendum to Exhibit A of the Selling Agreement between American Enterprise Life Insurance Company ("Company"), American Express Financial Advisors Inc. ("Distributor"), Wells Fargo Securities, Inc.("Selling Agency") and Wells Fargo Securities, Inc. ("Selling Agent's Broker") dated November 15, 1999. This Addendum is effective for the states, and from the date(s), specified on Exhibit A, executed by the parties to this Agreement. The Products to be offered through Selling Agent is a flexible premium variable annuity known as the Wells Fargo Advantage Credit Variable Annuity, which will be offered only in the Territory shown in Exhibit A. COMMISSION: The commission payable for contracts described in this Addendum will be as follows: (a) ____% gross of all premiums for issue ages of both owner and annuitant not exceeding age 80 (qualified or non-qualified). (b) ____% gross of all premiums for issue ages of both owner and annuitant of 81-85 (qualified or non-qualified). (c) No commission is payable for policies described in this Addendum where the issue age of either the annuitant or owner exceeds age 85 (qualified or non-qualified No commission is payable on the sale of Products under this Agreement if that sale involves replacement of an asset or investment issued by Company or by any other insurance company owned or controlled by American Express Company. CHARGEBACK: In the event of the surrender of an annuity within forty days of the issue date, there will be a chargeback of all commissions paid with respect to premium received in accordance with the following schedule. After this "free look" period, no chargebacks will be assessed. Agreed to on _________________, 1999. American Enterprise Life Insurance Company Wells Fargo Securities, Inc. Company Selling Agency and Selling Agency's Broker By:_________________________ By:_____________________________ Title:______________________ Title:__________________________ American Express Financial Advisors Inc. Distributor By:_________________________ Title:______________________ Addendum D to Exhibit A Supplemental Trail Commission by and between American Enterprise Life Insurance Company ("Company"), American Express Service Corporation (Distributor), Wells Fargo Securities, Inc. (Selling Agency) and Well Fargo Securities, Inc. (Selling Agency's Broker) dated November 15, 1999. This Addendum is effective November 15, 1999, and applies only to the sale of the Wells Fargo Advantage Credit Variable Annuity described in Addendum C, above. Supplemental Trail Commission: 1. In addition to the compensation shown in other Addenda to this Agreement, Company agrees to pay to Selling Agency a Supplemental Trail Commission as shown in #2, below, subject to all the conditions in #3 below. 2. Payment. At the end of each calendar quarter, Company shall calculate and pay the Supplemental Trail Commission as follows: Supplemental Trail Compensation = Eligible Value x Annual Rate ---------------------------- 4 Where: A. Annual Rate of the Supplemental Trail Commission is agreed to be ____ basis points, starting in Year 2 of the life of an Eligible Contract. B. Eligible Contracts means contracts sold to customers under this Addendum A to this Agreement which have reached their first contract anniversary as of the calendar quarter end. C. Eligible Value means accumulation value (including earnings accrued), as of the quarter end for which the Supplemental Trail Commission is being calculated, of all Eligible Contracts for which Option B or C, above, has been selected. Each option's trail will be calculated separately. Trail checks will be made payable to the Selling Agency, and will be sent directly to Selling Agency for distribution. 3. Conditions of Payment: A. Payment for each quarter's Supplemental Trail Commission shall be final, and no credits or additions or adjustments shall be made to it. Each quarter is evaluated independently. Chargebacks will be accounted for in the quarter in which the contract is returned to the Company. B. Company will supply supporting information for the calculation, along with payment, to Selling Agency within 45 business days of the end of each calendar quarter. C. The Supplemental Trail Commission does not apply to sales outside the Territory or to sales which are otherwise excluded from normal commission payments under Exhibit A and/or any other Addenda to this Agreement (e.g., unlicensed sales, sales for which Selling Agency could not otherwise be compensated, etc.). D. In the event that notice of termination of this entire Agreement is given by any party hereto, the obligation to pay the Supplemental Trail Commission will survive for three years from the effective date of such termination. No Supplemental Trail Commission will be payable for the quarter in which that third anniversary of termination occurs, or thereafter. E. Subject to Condition D above, Supplemental Trail Commission will be paid to the Selling Agency for as long as each Eligible Contract continues to remain an Eligible Contract as herein defined, and for as long as the Selling Agency continues to be licensed as an insurance agency and appointed with Company. F. The obligation to pay Supplemental Trail Commission runs from Company to Selling Agency only. All distribution of Supplemental Trail Commission is the Selling Agency's responsibility. No claim made by or on behalf of any individual representative for Supplemental Trail Commission will be honored by Company, and no expense, including (without limitation) attorney fees, that an Selling Agency or a representative may incur to determine the individual representative's entitlement to Supplemental Trail Commission, will be absorbed by or reimbursed by Company. G. In all cases, the amount of commission described above is the total compensation available for distribution from Company, or any of its subsidiaries, affiliates, or other related entities owned or controlled by American Express Company, whether under this Agreement or under any other agreement between or among Company, Selling Agency, or any other party. See Addendum A, above, for details of payment of commission at time of sale. Agreed to on ___________________, 1999. American Enterprise Life Insurance Company Wells Fargo Securities, Inc. Company Selling Agency and Selling Agency's Broker By:__________________________ By:________________________________ Title:_______________________ Title:_____________________________ Date:________________________ Date:______________________________ American Express Financial Advisors Inc. Distributor By:__________________________ Title:_______________________ Date:________________________ EXHIBIT B TO SELLING AGENCY AGREEMENT FOR THE SALE OF VARIABLE ANNUITIES (for use if Payment Options 4.5.3 or 4.5.4 appear on Exhibit A) The Selling Agency Agreement between American Enterprise Life Insurance Company ("Company"), American Express Financial Advisors Inc. ("Distributor"), SA ("Selling Agency") and Broker_Dealer ("Broker-Dealer") dated Effective_Date ("Agreement") is hereby amended as follows. This Amendment is effective Addendum_Effective_D. The purpose of this Amendment is to modify Selling Agency's and Broker-Dealer's obligations and duties under the Agreement with respect to the process for remitting premiums to Company to enable Authorized Selling Firm to use the services of a third party, _____(Full name of Clearing Broker, City, State)_____ ("Clearing Broker"). To the extent there are any inconsistencies between the Agreement and this Amendment, the provisions contained herein will supersede the Agreement. Section 4.4, Supervision and Administration, is amended to replace subsection 4.4.8 (a) with the following: 4.4.8(a) Authorized Selling Firm will instruct customers to pay their premiums for the Products, by check or bank draft authorization or wire transfer, with funds to the order of Selling Agency in accordance with Section 4.5, "Collection and Submission of Premiums." Section 4.8, Accurate Record, Audit, shall be amended by adding the following, at the end of the Section: Company will have the right to audit the books of the Authorized Selling Firm and Authorized Selling Firm will obtain Clearing Broker's consent for Company to audit the books of Clearing Broker, with respect to any premium remittance, or the premium remittance process, insofar as either involves the Clearing Broker. Section 4 of the Agreement is hereby amended by inserting a new subsection, 4.13, Compensation to Clearing Broker: 4.13 Compensation to Clearing Broker. Authorized Selling Firm agrees that they will only pay Clearing Broker for the services authorized herein on a fixed fee basis. Such fee may be paid on a per-transaction basis only if it is reasonable in relation to the services rendered, and only if prior written authorization is obtained from the Company. Authorized Selling Firm will not pay Clearing Broker a commission or use any form of compensation where the Clearing Broker's fee is determined by the dollar amount of any given purchase of any Product, unless Clearing Broker is separately licensed by appropriate state insurance licensing authorities and appointed to sell Products. Section 4 of the Agreement is hereby amended by inserting a new subsection, Section 4.14, Representations and Warranties of Selling Agency and Broker-Dealer: 4.14 Representations and Warranties of Selling Agency and Broker-Dealer: 4.14.1 Authorized Selling Firm represents and warrants that Clearing Broker is the designated receiver of premium payments on variable annuity products sold by Selling Agency. 4.14.2 Authorized Selling Firm represents and warrants that Broker-Dealer has executed an agreement with the Clearing Broker for the clearing of premiums which satisfies all requirements of the National Association for Securities Dealers, Inc. 4.14.3 Authorized Selling Firm represents and warrants that it will ensure that activities of the Clearing Broker in connection with the Products will be limited to those specified in this Amendment, and that all such activities will be performed in accordance with applicable state and federal laws and regulations. Selling Agency and/or Broker-Dealer must obtain Company's prior written agreement if the activities of Clearing Broker are modified in any way. Section 7.1, Indemnification of Company, is amended by adding the following subsection: Section 7.1.4 The acts or omissions of the Clearing Broker or any employee or agent of Clearing Broker while performing the activities covered by this Agreement. The indemnity obligation of this paragraph will extend to any regulatory penalties incurred by Company as a result of said activities. EXHIBIT C Affiliate Participation Agreement SAAffiliate1 ("Affiliate") agrees to act as an Affiliate of Selling Agency and American Enterprise Life Insurance Company ("Company") agrees to appoint Affiliate in the jurisdiction in the Territory identified on Exhibit A and for the Products identified on Exhibit A in accordance with the terms and conditions of the Selling Agreement between Selling Agency, Broker-Dealer, Company and Distributor dated Effective_Date ("Agreement"), incorporated herein by this reference, as it may be amended from time to time. Affiliate acknowledges, warrants, covenants and agrees that: 1. All terms used herein shall have the definitions used in the Agreement. 2. Affiliate assumes all of the duties and responsibilities of Selling Agency as an insurance agency under the Agreement except that Affiliate's rights, duties and responsibilities shall only extend to the jurisdictions in the Territory on Exhibit A and Products identified on Exhibit A. 3. Affiliate and Selling Agency are jointly and severally liable for the performance of Affiliates duties and responsibilities under the Agreement in the jurisdictions in the Territory identified on Exhibit A. 4. Affiliate warrants that it has the licenses required to sell annuities and perform the duties and responsibilities of an insurance agency in the jurisdictions in the Territory identified on Exhibit A. 5. Selling Agency, by this appointment, agrees that it will forward to Affiliate any notices from Company which affect Affiliate. Affiliate agrees that notice from Company to Selling Agency is valid and effective notice to it. 6. All other provisions of the Agreement will apply to and govern Affiliate's activities pursuant to this Affiliate Participation Agreement, including, but not limited to the provisions concerning amendments to the Agreement. 7. Selling Agency is authorized to execute amendments to the Exhibits and Addenda on behalf of Selling Agency and Affiliate and Affiliate will accept, agree to and perform its duties as Affiliate under the Agreement in accordance with all such amendments upon receiving written notice thereof from Selling Agency, provided that any term of such an amendment which would be inconsistent with the terms of this Affiliate Participation Agreement will require an amendment of the Affiliate Participation Agreement in order to bind Affiliate to that term. 8. This Affiliate Participation Agreement may be terminated in accordance with the termination provision of the main Agreement. IN WITNESS WHEREOF Affiliate and Selling Agency have signed this Affiliate Participation Agreement as of ______________________. SAAffiliate1 SA Affiliate Selling Agency By:_____________________ By:______________________________ Title:__________________ Title:___________________________ Send complete form to: American Enterprise Life Insurance Company 80 South 8th Street, Minneapolis, MN 55402, Attn: Contract Manager, Unit 1818 Accepted and appointment of Affiliate made on______________ By: ______________ For American Enterprise Life Insurance Company EX-99.4.1.-DAC 4 FORM OF DEFERRED ANNUITY CONTRACT (FORM 44209) Deferred Annuity Contract Administrative Offices: 80 South Eighth Street P.O. Box 534 Minneapolis, MN 55440 American Enterprise Life This is a deferred annuity contract. It is a legal contract between you, as the owner, and us, American Enterprise Life Insurance Company, a Stock Company, Indianapolis, Indiana. PLEASE READ YOUR CONTRACT CAREFULLY. If the annuitant is living on the Retirement Date, we will begin to pay you monthly annuity payments. Any payments made by us are subject to the terms of this contract. The owner and beneficiary are as named in the application unless they are changed as provided for in this contract. We issue this contract in consideration of your application and the payment of the purchase payments. Signed for and issued by American Enterprise Life Insurance Company of Indianapolis, Indiana, as of the contract date. ACCUMULATION VALUES AND ANNUITY PAYMENTS, WHEN BASED ON THE INVESTMENT RESULTS OF THE SEPARATE ACCOUNT, ARE VARIABLE AND NOT GUARANTEED AS TO FIXED DOLLAR AMOUNT. SEE PAGE 12 FOR VARIABLE PROVISIONS. PAYMENTS AND VALUES BASED ON THE GUARANTEE PERIOD ACCOUNTS ARE SUBJECT TO A MARKET VALUE ADJUSTMENT FORMULA, THE OPERATION OF WHICH MAY RESULT IN UPWARD AND DOWNWARD ADJUSTMENTS IN AMOUNTS PAYABLE TO AN OWNER OR ANNUITANT, INCLUDING WITHDRAWALS, TRANSFERS AND AMOUNTS APPLIED TO PURCHASE AN ANNUITY. SEE PAGE 14 FOR MARKET VALUE ADJUSTMENT PROVISIONS. NOTICE OF YOUR RIGHT TO EXAMINE THIS CONTRACT FOR 10 DAYS. If for any reason you are not satisfied with this contract, return it to us or our agent within 10 days after you receive it. We will then cancel this contract. Upon such cancellation we will refund an amount equal to the sum of: (1) the contract value, including any Market Value Adjustment, if applicable, at the end of the Valuation Period during which we receive the contract; and (2) any premium tax charges paid. This contract will then be considered void from its start. Secretary President o Flexible Purchase Payments o Investment Experience Reflected in Benefits o Optional Fixed Dollar or Variable Accumulation Values and Annuity Payments o Annuity Payments to Begin on the Retirement Date o This Contract is Nonparticipating -- Dividends Are Not Payable
CONTRACT DATA Contract Number: [9920-SAMPLE] Contract Date: [November 1, 1999] Initial Purchase Payment: [$10,000] Retirement Date: [November 1, 2039] Annuitant: [John Doe] Contract Type: [Non-Qualified] Contract Owner: [John Doe]
Upon issuance of this contract your initial purchase payment has been applied to the one year fixed account, guarantee period accounts and variable subaccounts as shown below. You may make additional payments and change the purchase payment allocation as provided in this contract. Refer to the purchase payments provision on Page 9.
Purchase Payment Purchase Payment Allocation Allocation Percentage Allocation Allocation Percentage AEL One Year Fixed Account [%] [Fund 14 [% Fund 15 % [2 Year Guarantee Period Account [% Fund 16 % 3 Year Guarantee Period Account % Fund 17 % 4 Year Guarantee Period Account % Fund 18 % 5 Year Guarantee Period Account % Fund 19 % 6 Year Guarantee Period Account % Fund 20 % 7 Year Guarantee Period Account % Fund 21 % 8 Year Guarantee Period Account % Fund 22 % 9 Year Guarantee Period Account % Fund 23 % 10 Year Guarantee Period Account] %] Fund 24 % Fund 25 % Fund 26 % [Fund 1 [% Fund 27 % Fund 2 % Fund 28 % Fund 3 % Fund 29 % Fund 4 % Fund 30 % Fund 5 % Fund 31 % Fund 6 % Fund 32 % Fund 7 % Fund 33 % Fund 8 % Fund 34 % Fund 9 % Fund 35 % Fund 10 % Fund 36 % Fund 11 % Fund 37 % Fund 12 % Fund 38 % Fund 13] %] Fund 39] %]
CONTRACT DATA - Continued Contract Number: [9920-SAMPLE] Contract Date: [November 1, 1999] [Enhanced Death Benefit Rider Attached] [Guaranteed Minimum Income Benefit Rider Attached Annual Charge of .30% "Subaccount Limitation under the Guaranteed Minimum Income Benefit: We reserve the right to limit the amount in the Wells Fargo Money Market Fund to (10%) of the total amount in the subaccounts."] Withdrawal Charge: If you withdraw all or a portion of this contract, a withdrawal charge may apply. A withdrawal charge applies if all or part of the contract value withdrawn is from payments received during the [seven years] before withdrawal. Years From Payment Receipt Withdrawal Charge [1 [8.0% of purchase payment withdrawal 2 8.0% of purchase payment withdrawal 3 7.0% of purchase payment withdrawal 4 6.0% of purchase payment withdrawal 5 5.0% of purchase payment withdrawal 6 4.0% of purchase payment withdrawal 7 2.0% of purchase payment withdrawal Thereafter] 0.0% of purchase payment withdrawal] You may withdraw the greater of 15 percent of your prior contract anniversary contract value or contract earnings each contract year without incurring a withdrawal charge. Refer to the withdrawal charge provision on Page 14 for additional withdrawal charge information. Mortality and Expense Risk Charge: [1.30%] See page 13. Variable Account Administrative Charge: .15% See page 13. Contract Administrative Charge: $30. See page 11. The Maximum Total Purchase Payment: $1,000,000 for issue ages through age 85 The Minimum Additional Purchase Payment is $100. The Guaranteed Minimum Effective Interest Rate to be credited to the AEL One Year Fixed Account and Guarantee Period Account(s) is 3%. Market Value Adjustment All payments and values based on the Guarantee Period Accounts are subject to a Market Value Adjustment formula, the operation of which may result in upward and downward adjustments in amounts payable. See page 14. Guide to Contract Provisions Definitions Important words and meanings...........Page General Provisions Entire contract; Annuity tax qualification; Contract modification; Incontestability; Benefits based on incorrect data; State laws; Reports to owner; Evidence of survival; Protection of proceeds; Payments by us; Voting rights..........Page Ownership and Beneficiary Owner rights; Change of ownership; Beneficiary; Change of Beneficiary; Assignment .....Page Payments to Beneficiary Describes options and amounts payable upon death..................................Page Purchase Payments Purchase payments amounts; Payment limits; Allocations of purchase payments ......Page Contract Value Describes the fixed and variable account contract values; Interest to be credited; Contract administrative charge; Premium taxes; Transfers of contract values; Dollar Cost Averaging Program ...............................Page Fixed and Variable Accounts Describes the fixed account; Describes Guarantee Period Accounts; Describes the variable subaccounts, accumulation units and values; Net investment factor; Mortality and expense risk charge; Variable account administrative charge; Annuity unit value .................................Page Withdrawal Provisions Contract withdrawal for its withdrawal value; Rules for withdrawal; Market Value Adjustment.............................Page Annuity Provisions When annuity payments begin; Different ways to receive annuity payments; Determination of payment amounts ....................Page Tables of Annuity Rates Tables showing the amount of the first variable annuity payment and the guaranteed fixed annuity payments for the various payment plans .........................Page Definitions The following words are used often in this contract. When we use these words, this is what we mean: Accumulation Unit An accumulation unit is an accounting unit of measure. It is used to calculate the variable account contract value prior to annuitization. Annuitant The person or persons on whose life monthly annuity payments depend. Annuitization The application of the contract value of this contract to provide annuity payments. Annuity Unit An annuity unit is an accounting unit of measure. It is used to calculate the value of annuity payments from the variable account on and after annuitization. Code The Internal Revenue Code of 1986, as amended. Contract Anniversary The same day and month as the contract date each year that the contract remains in force. Contract Date It is the date from which contract anniversaries, contract years, and contract months are determined. Your contract date is shown under Contract Data. Contract Value The sum of the: (1) fixed account contract value; and (2) variable account contract value. Fixed Annuity A fixed annuity is an annuity with payments which are guaranteed by us as to dollar amount during the annuity payment period. One Year Fixed Account It is an account to which you may allocate purchase payments and contract values. Amounts you allocate to the one year fixed account earn guaranteed interest rates that we declare periodically. Guarantee Period Accounts These are fixed accounts to which you may allocate purchase payments and contract values. Guaranteed Period Accounts have guaranteed interest rates declared periodically with guarantee periods ranging from 2 to 10 years. Withdrawals or transfers from a Guarantee Period Account prior to the end of the specified term will receive a Market Value Adjustment which may result in a gain or loss of principal. IRA Contract A contract used in or under a retirement plan or program that is intended to qualify as an Individual Retirement Annuity under Section 408(b) of the Code. IRA Required Minimum Distributions The minimum distributions Code Section 408(b)(3) requires to be distributed from an IRA, beginning not later than the April 1 following the calendar year you reach age 70 1/2 (Required Beginning Date). Market Value Adjustment A positive or negative adjustment assessed if any portion of a Guarantee Period Account is withdrawn or transferred prior to the end of its guaranteed period. Nonqualified Contract A contract used primarily for retirement purposes that is not intended to qualify as an IRA contract. Retirement Date The date shown under Contract Data on which annuity payments are to begin. This date may be changed as provided in this contract. You will be notified prior to the retirement date in order to select an appropriate annuity payment plan. Valuation Date A valuation date is each day the New York Stock Exchange is open for trading. Valuation Period A valuation period is the interval of time commencing at the close of business on each valuation date and ending at the close of business on the next valuation date. Variable Account Consists of separate subaccounts to which you may allocate purchase payments and contract values; each invests in shares of one fund. The value of your investment in each subaccount changes with the performance of the particular fund. Variable Annuity A variable annuity is an annuity with payments which are not predetermined or guaranteed as to dollar amount and vary in amount with the investment experience of one or more of the variable subaccounts. We, Us, Our American Enterprise Life Insurance Company Written Request A request in writing signed by you and delivered to us at our administrative office. You, Your The owner of this contract. In a non-qualified contract, the owner may be someone other than the annuitant. The owner is shown in the application unless the owner has been changed as provided in this contract. General Provisions Entire Contract This contract form, any endorsements or riders and the copy of the application attached to it are the entire contract between you and us. No one except one of our corporate officers (President, Vice President, Secretary or Assistant Secretary) can change or waive any of our rights or requirements under this contract. That person must do so in writing. None of our other representatives or other persons has the authority to change or waive any of our rights or requirements under this contract. Annuity Tax Qualification This contract is intended to qualify as an annuity contract under Section 72 of the Code for federal income tax purposes. To that end, the provisions of this contract are to be interpreted to ensure or maintain such tax-qualification, notwithstanding any other provisions to the contrary. Contract Modification We reserve the right to modify this contract to the extent necessary to: 1. qualify this contract as an annuity contract under Section 72 of the Code and all related laws and regulations which are in effect during the term of this contract; and 2. if this contract is purchased as an IRA contract, to qualify this contract as such an IRA contract under Section 408 of the Code and all related laws and regulations which are in effect during the term of this contract. We will obtain any necessary approval of any regulatory authority for the modifications. Incontestable This contract is incontestable from its date of issue. Benefits Based on Incorrect Data Payments under the contract will be based on the annuitant's birthdate and sex. If the annuitant's birthdate or sex or your birthdate has been misstated, payments under this contract will be adjusted. They will be based on what would have been provided at the correct birthdate and sex. Any underpayments made by us will be made up immediately. Any overpayments made by us will be subtracted from the future payments. State Laws This contract is governed by the law of the state in which it is delivered. The values and benefits of this contract are at least equal to those required by such state. Any paid up annuity, cash withdrawal or death benefits available under the contract are not less than the minimum benefits required by any statute of the state in which the contract is delivered. Reports to Owner At least once a year we will send you a statement showing the contract value and the cash withdrawal value of this contract. This statement will be based on any laws or regulations that apply to contracts of this type. Evidence of Survival Where any payments under this contract depend on the recipient or annuitant being alive on a certain date, proof that such condition has been met may be required by us. Such proof may be required prior to making the payments. Protection of Proceeds Payments under this contract are not assignable by any beneficiary prior to the time they are due. To the extent allowed by law, payments are not subject to the claims of creditors or to legal process. Payments by Us All sums payable by us are payable at our administrative office. Any payment or withdrawal from a variable annuity is based on the variable contract value. Voting Rights So long as federal law requires, we will give certain voting rights to contractowners. As contractowner, if you have voting rights we will send a notice to you telling you the time and place of a shareholder meeting. The notice will also explain matters to be voted upon and how many votes you get. Ownership and Beneficiary Owner Rights As long as the annuitant is living and unless otherwise provided in this contract, you may exercise all rights and privileges provided in this contract or allowed by us. If this is an IRA contract, you shall be the annuitant, and during your life you will have the sole and absolute power to receive and enjoy all rights under the contract. Your entire interest is nonforfeitable. Joint ownership is not permitted. Change of Ownership If this is an IRA contract, your right to change the ownership is restricted. This contract may not be sold, assigned, transferred, discounted or pledged as collateral for a loan or as security for the performance of an obligation or for any other purpose to any person other than as may be required or permitted under Section 408 of the Code, or under any other applicable section of the Code. Your interest in this contract may be transferred to your former spouse, if any, under a divorce decree or a written instrument incidental to such divorce. If this is a nonqualified contract, you may change the ownership. Any change of ownership as provided above must be made by written request on a form approved by us. The change must be made while the annuitant is living. Once the change is recorded by us, it will take effect as of the date of your request, subject to any action taken or payment made by us before the recording. Beneficiary Beneficiaries are those you have named in the application or later changed as provided below, to receive benefits of this contract if you or the annuitant die while this contract is in force. Only those beneficiaries who are living when death benefits become payable may share in the benefits, if any. If no beneficiary is then living, we will pay the benefits to you, if living, otherwise to your estate. Change of Beneficiary You may change the beneficiary anytime while the annuitant is living by satisfactory written request to us. Once the change is recorded by us, it will take effect as of the date of your request, subject to any action taken or payment made by us before the recording. Assignment If this is an IRA contract, you may not assign this contract as collateral. If this is a nonqualified contract, you can assign this contract or any interest in it while the annuitant is living. Your interest and the interest of any beneficiary is subject to the interest of the assignee. An assignment is not a change of ownership and an assignee is not an owner as these terms are used in this contract. Any amounts payable to the assignee will be paid in a single sum. A copy of any assignment must be submitted to us at our administrative office. Any assignment is subject to any action taken or payment made by us before the assignment was recorded at our administrative office. We are not responsible for the validity of any assignment. Payments to Beneficiary Death Benefits Before Annuitization A death benefit is payable to the beneficiary upon the earlier death of you or the annuitant while this contract is in force and prior to annuitization. We will pay the beneficiary the greatest of the following amounts: 1. the contract value; or 2. the total payments made to the contract minus adjustments for partial withdrawals; or 3. the highest contract value on any prior contract anniversary before either your or the annuitant's 81st birthday, plus any purchase payments made since that contract anniversary and less any "adjustments for partial withdrawals" since that contract anniversary. After either your or the annuitant's 81st birthday, this value will only change due to additional payments or "adjustments for partial withdrawals". Adjustments for Partial Withdrawals Adjustments for partial withdrawals are calculated for each partial withdrawal as the product of (a) times (b) where: (a) is the ratio of the amount of the partial withdrawal (including any withdrawal charges) to the contract value on the date of (but prior to) the partial withdrawal; and (b) is the death benefit on the date of (but prior to) the partial withdrawal. Any amounts payable or applied by us as described in the sections below will be based on the contract values as of the valuation date on or next following the date on which due proof of death is received at our administrative office. Payment of Nonqualified Contract Death Benefit Before Annuitization The above death benefit will be payable in a lump sum upon the receipt of due proof of death of you or the annuitant, whichever first occurs. The beneficiary may elect to receive payment any time within five years after the date of death. The above death benefit will also be made upon the first to die if ownership is in a joint tenancy except where spouses are joint owners with right of survivorship and the surviving joint spouse elects to continue the contract. In lieu of a lump sum, payments may be made under an Annuity Payment Plan, provided: 1. the beneficiary elects the plan within 60 days after we receive due proof of death; and 2. the plan provides payments over a period which does not exceed the life or life expectancy of the beneficiary; and 3. payments must begin no later than one year after the date of death. For Annuity Payment Plans, the reference to "annuitant" in the Annuity Provisions shall apply to the beneficiary. Payment of IRA Contract Death Benefit Before Annuitization The above death benefit will be payable in a lump sum upon the receipt of due proof of death. Under tax law, distributions are considered to have begun if they are made when you reach your IRA required beginning date or if you have annuitized according to applicable Treasury Regulations. If distributions from your IRA have begun but you have not annuitized before your death, your beneficiary must continue using the same method, or a faster method, than you were using for your required minimum distributions, to receive the death benefit. If distributions from your IRA have not begun and you have not annuitized before your death, your beneficiary may take one or more distributions so that the entire death benefit is received within five years of the year in which your death occurs. In lieu of taking payments within five years, payments may be made under an Annuity Payment Plan, provided: 1. the beneficiary elects the plan within 60 days after we receive due proof of death; and 2. the plan provides payments over a period which does not exceed the life or life expectancy of the beneficiary; and 3. payments must begin no later than one year after the year your death occurs, in the case of a non-spouse beneficiary, or by December 31 of the year in which you would have turned age 701/2, in the case of a spouse beneficiary. Payment amounts, durations and life expectancy calculations must comply with Section 401(a)(9) of the Code and regulations thereunder. For purposes of the foregoing provisions, life expectancy and joint and last survivor expectancy shall be determined by use of the expected return multiples in Table V and VI of Treasury Regulation Section 1.72-9 in accordance with Code Section 408(b)(3) and the regulations thereunder. Life expectancy will be initially determined on the basis of your beneficiary's attained age in the year distributions are required to commence. Unless you (or your spouse) elects otherwise prior to the time distributions are required to commence, your life expectancy and, if applicable, your spouse's life expectancy will be recalculated annually based on your attained ages in the year for which the required distribution is being determined. The life expectancy of a nonspouse beneficiary will not be recalculated. Instead, life expectancy will be calculated using the attained age of such beneficiary during the calendar year in which the individual attains age 701/2, and payments for subsequent years shall be calculated based on such life expectancy reduced by one for each calendar year which has elapsed since the calendar year life expectancy was first calculated. You or your beneficiary, as applicable, shall have the sole responsibility for requesting a distribution that complies with this Contract and applicable law. For Annuity Payment Plans, the reference to "annuitant" in the Annuity Provisions shall apply to the beneficiary. Spouse's Option to Continue Contract For nonqualified contracts: If you die prior to annuitization and your spouse is the sole beneficiary or co-owner of the contract, your spouse may keep the contract in force as owner and may make additional purchase payments to the contract. For IRA contracts: If you die prior to your required beginning date and your spouse is the sole beneficiary, your spouse may keep the contract in force as his or her own IRA. As owner, your spouse may make additional payments to the contract. As owner, your spouse's life will determine the IRA required beginning date and minimum distribution amounts. If you die after your required beginning date, spousal continuation of this contract is not available. Election by the spouse to continue the contract must be made by written request within 60 days after we receive proof of death. Upon such continuation the contract value shall be equal to the death benefit that would otherwise have been paid. Withdrawal charges under the continued contract shall only apply to additional purchase payments. Death After Annuitization If you or the annuitant die after annuitization, the amount payable to the beneficiary, if any, will be as provided in the Annuity Payment Plan then in effect. Purchase Payments Purchase Payments Purchase payments are the payments you make for this contract and the benefits it provides. Purchase payments must be paid or mailed to us at our administrative office or to an authorized agent. If requested, we'll give you a receipt for your purchase payments. Additional Purchase Payments Additional purchase payments may be made until the earlier of: 1. the date this contract terminates by withdrawal or otherwise; or 2. the date on which annuity payments begin. Additional purchase payments are subject to the "Payment Limits Provision" below. Payment Limits Provision Maximum Purchase Payments -- The maximum total contract purchase payments may not exceed the amounts shown under Contract Data. We reserve the right to increase the maximums. Additional Purchase Payments -- You may make additional purchase payments of at least $100. In addition, if this is an IRA contract, except as otherwise provided in this paragraph, the total purchase payments for any taxable year may not exceed $2,000 or as otherwise provided in the Code and all related laws and regulations which are in effect during the term of this contract. In the case of a rollover contribution described in Sections 402(c), 403(a)(4), 403(b)(8) or 408(d)(3) of the Code, there is no limit on the amount of your purchase payment. No contribution will be accepted under a SIMPLE plan established by any employer pursuant to Code Section 408(p). No transfer or rollover of funds attributable to contributions made by a particular employer under its SIMPLE plan will be accepted from a SIMPLE IRA prior to the expiration of the two-year period beginning on the date the individual first participated in that employer's SIMPLE plan. You shall have the sole responsibility for determining whether purchase payments meet applicable income tax requirements. All purchase payments must be made in cash. If you die before the entire interest in this contract has been distributed to you, and your beneficiary is other than your surviving spouse, no additional purchase payments will be accepted from your beneficiary under this contract. Allocation of Purchase Payments You instruct us on how you want your purchase payments allocated among the fixed account(s) and variable subaccounts. Your choice for the fixed account(s) and each variable subaccount may be made in any whole percent from 0% to 100%. Your allocation instructions as of the contract date are shown under Contract Data. We reserve the right to limit the maximum number of accounts and/or subaccounts to which you can allocate purchase payments or contract value at any time. If purchase payments are allocated to a Guarantee Period Fixed Account, the period you select will determine the guaranteed interest rate applicable that will be payable for the guaranteed period. By written request, or by another method agreed to by us, you may change your choice of accounts or percentages. The first net purchase payment will be allocated as of the end of the valuation period during which we make an affirmative decision to issue this contract. Net purchase payments after the first will be allocated as of the end of the valuation period during which we receive the payment at our administrative office. Contract Value The contract value at any time is the sum of: 1. the fixed account contract value; and 2. the variable account contract value. If: 1. part or all of the contract value is withdrawn; or 2. charges described herein are made against the contract value; then a number of accumulation units from the variable subaccounts and an amount from the fixed account(s) will be deducted to equal such amount. For withdrawals, deductions will be made from the fixed account(s)or variable subaccounts that you specify. Otherwise, the number of units from the variable subaccounts and the amount from the fixed account(s) will be deducted in the same proportion that your interest in each bears to the total contract value. Variable Account Contract Value The variable account contract value at any time will be: 1. the sum of the value of all variable subaccount accumulation units under this contract resulting from purchase payments and any contract value credits so allocated, or transfers among the variable and fixed accounts; less 2. the value of any units deducted for charges or withdrawals. Fixed Account Contract Value The Fixed Account is comprised of the One Year Fixed Account and the Guarantee Period Accounts. The fixed account contract value at any time will be: 1. the sum of all purchase payments allocated to the fixed account(s), plus interest credited; plus 2. any amounts transferred to the fixed account(s) from any variable subaccount, plus interest credited; less 3. any amounts transferred from the fixed account(s) to any variable subaccount; less 4. any amounts deducted for charges, market value adjustments or withdrawals. Interest to be Credited We will credit interest to the fixed account contract value. Interest will begin to accrue daily on the date the purchase payments which are received in our administrative office become available for us to use. Such interest will be credited at rates that we determine from time to time. However, we guarantee that the rate will not be less than a 3% effective annual interest rate. Contract Administrative Charge We charge a fee for establishing and maintaining our records for this contract. The charge is $30 per year and is deducted from the contract value at the end of each contract year. The charge deducted will be prorated among the variable subaccounts, the one-year fixed account and guarantee period accounts in the same proportion your interest in each bears to the total contract value. We waive the annual contract administrative charge for any contract year where the contract value immediately prior to the deduction of the contract administrative charge is $50,000 or more. If you make a full withdrawal of this contract, we deduct the full $30 contract administrative charge at the time of full withdrawal regardless of contract value. The charge does not apply at or after annuitization of this contract or at the time a death benefit is paid. Premium Tax Charges We reserve the right to assess a charge against the contract value of this contract for any applicable premium tax assessed to us by a state or local government. This charge could be deducted when you make purchase payments, or make a full withdrawal of the contract value or at the time of annuitization. Transfers of Contract Values While this contract is in force prior to annuitization, transfers of contract values may be made as outlined below. 1. You may transfer all or a part of the values held in one or more of the variable subaccounts to another one or more of the variable subaccounts. Subject to Item 2, you may also transfer values held in one or more of the variable subaccounts to the fixed account. 2. On or within the 30 days before or after a contract anniversary you may transfer values from the one-year fixed account to one or more of the variable subaccounts or Guarantee Period Accounts. If such a transfer is made, no transfers from any variable subaccount to the one-year fixed account may be made for six months after such a transfer. 3. You may transfer values from your Guarantee Period Accounts to other accounts at any time. Any transfer prior to the end of the applicable guarantee period will be subject to a market value adjustment. You may make a transfer by written request. Telephone transfers may also be made according to telephone procedures that are then currently in effect, if any. There is no fee or charge for these transfers. However, the minimum transfer amount is $500, or if less, the entire value in the subaccount or in the fixed account(s) from which the transfer is being made, or other such minimum amounts agreed to by us. We may suspend or modify transfer privileges at any time. The right to transfer contract values between the subaccounts is also subject to modification if we determine, in our sole discretion, that the exercise of that right by one or more contract owners is, or would be, to the disadvantage of other contract owners. Any modification could be applied to transfers to or from some or all of the subaccounts. These modifications could include, but not be limited to, the requirements of a minimum time period between each transfer, not accepting transfer requests of an agent acting under a power of attorney on behalf of more than one contract owner or limiting the dollar amount that may be transferred between the subaccounts and the fixed account by a contract owner at any one time. We may apply these modifications or restrictions in any manner reasonably designed to prevent any use of the transfer right we consider to be to the disadvantage of other contract owners. Dollar Cost Averaging Program You may authorize the transfer of an amount, at the interval selected by you, from the DCA Fixed Account Option to any variable subaccount. All amounts that are allocated to a DCA Fixed Account Option will be transferred out in specified amounts within the specified DCA Fixed Account period from either the one-year Fixed Account or the 2-year Guarantee Period Account (without market value adjustment). The values credited and applied to your contract are determined on each date of transfer. You may terminate the DCA Fixed Account Option at any time. Upon termination any amount remaining in the DCA Fixed Account Option will be transferred to the one-year Fixed Account. We reserve the right to change the terms and conditions of the DCA program at any time. Fixed and Variable Accounts The Fixed Account The fixed account is comprised of the One Year Fixed Account and the Guarantee Period Accounts. One Year Fixed Account The One Year Fixed Account is our general account. It is made up of all our assets other than those in: 1. The Variable Account; and 2. Any other segregated asset accounts, including the Guarantee Period Accounts. We back the principal and interest guarantees relating to the One Year Fixed Account. Purchase payments and transfers to the One Year Fixed Account become part of our general account. Guarantee Period Accounts The Guarantee Period Accounts are part of a "nonunitized" segregated asset account (Separate Account). We have established the separate account for the purpose of facilitating accounting and investment processes we undertake in offering guaranteed interest for periods you can select ranging from 2 to 10 years. This separate account may not be charged with liabilities from any other separate account or our general account. We back the principal and interest guarantees relating to the Guarantee Period Accounts. The minimum investment in any Guarantee Period Account is $1,000. The Variable Account The variable account is a separate investment account of ours. It consists of several subaccounts which are named under Contract Data. We have allocated a part of our assets for this and certain other contracts to the variable account. Such assets remain our property. However, they may not be charged with the liabilities from any other business in which we may take part. Investments of the Variable Account Purchase payments applied to the variable account will be allocated as specified by the owner. Each variable subaccount will buy, at net asset value, shares of the fund shown for that subaccount under Contract Data or as later added or changed. We may change the funds the variable subaccounts buy shares from if laws or regulations change, the existing funds become unavailable or, in the judgment of American Enterprise Life, the funds are no longer suitable for the subaccounts. We have the right to substitute any funds for those shown under Contract Data, including funds other than those shown under Contract Data. We may also: o add new subaccounts, o combine any two or more subaccounts, o make additional subaccounts investing in additional funds, o transfer assets to and from the subaccounts or the variable account, and o eliminate or close any subaccounts. We would first seek approval of the Securities and Exchange Commission if necessary, and, where required, the insurance regulator of the state where this contract is delivered. Valuation of Assets Fund shares in the variable subaccounts will be valued at their net asset value. Variable Account Accumulation Units The number of accumulation units for each of the variable subaccounts is found by adding the number of accumulation units resulting from: 1. purchase payments allocated to the subaccount; and 2. transfers to the subaccount; and subtracting the number of accumulation units resulting from: 1. transfers from the subaccount; and 2. withdrawals (including withdrawal and other charges) from the subaccount; and 3. contract administrative charge or any rider charge deductions from the subaccount. The number of accumulation units added or subtracted for each of the above transactions is found by dividing (1) by (2) where: 1. is the amount allocated to or deducted from the subaccount; and 2. is the accumulation unit value for the subaccount for the respective valuation period during which we received the purchase payment or transfer value, or during which we deducted transfers, withdrawals, withdrawal or other charges or contract administrative charges. Variable Account Accumulation Unit Value The value of an accumulation unit for each of the variable subaccounts was set at $1 when the first fund shares were bought. The value for any later valuation period is found as follows: The accumulation unit value for each variable subaccount for the last prior valuation period is multiplied by the net investment factor for the same subaccount for the next following valuation period. The result is the accumulation unit value. The value of an accumulation unit may increase or decrease from one valuation period to the next. Net Investment Factor The net investment factor is an index applied to measure the investment performance of a variable subaccount from one valuation period to the next. The net investment factor may be greater or less than one; therefore, the value of an accumulation or annuity unit may increase or decrease. The net investment factor for any such subaccount for any valuation period is determined by: dividing (1) by (2) and subtracting (3) and (4) from the result. This is done where: 1. is the sum of: a. the net asset value per share of the fund held in the variable subaccount determined at the end of the current valuation period; plus b. the per share amount of any dividend or capital gain distribution made by the fund held in the variable subaccount, if the "ex-dividend" date occurs during the current valuation period; and 2. is the net asset value per share of the fund held in the variable subaccount, determined at the end of the last prior valuation period; and 3. is a factor representing the mortality and expense risk charge; and 4. is a factor representing the variable account administrative charge. Mortality and Expense Risk Charge In calculating unit values we will deduct a mortality and expense risk charge from the variable subaccounts. Based on the benefits you elected, the charge ranges from 1.05% to 1.50% on an annual basis of the daily net asset value of the subaccounts. The mortality and expense risk for your contract is shown under Contract Data. This deduction is made to compensate us for assuming the mortality and expense risks under contracts of this type. We estimate that approximately 2/3 of this charge is for assumption of mortality risk and 1/3 is for assumption of expense risk. The deduction will be: 1. made from each variable subaccount; and 2. computed on a daily basis. Variable Account Administrative Charge In calculating unit values, we will deduct a variable account administrative charge from the variable subaccounts equal, on an annual basis, to 0.15% of the daily net asset value. This deduction is made to compensate us for certain administrative and operating expenses for contracts of this type. The deduction will be: 1. made from each variable subaccount; and 2. computed on a daily basis. Annuity Unit Value The value of an annuity unit for each variable subaccount was arbitrarily set at $1 when the first fund shares were bought. The value for any later valuation period is found as follows: 1. the annuity unit value for each variable subaccount for the last prior valuation period is multiplied by the net investment factor for the subaccount for the valuation period for which the annuity unit value is being calculated. 2. the result is multiplied by an interest factor. This is done to neutralize the assumed investment rate which is built into the annuity tables on Page 18. Withdrawal Provisions Withdrawal By written request and subject to the rules below you may: 1. withdraw this contract for the total withdrawal value; or 2. partially withdraw this contract for a part of the withdrawal value. Rules for Withdrawal All withdrawals will have the following conditions. 1. You must apply by written request or other method agreed to by us: a. while this contract is in force; and b. prior to the earlier of beginning an annuity payment plan or the death of the annuitant or owner. 2. You must withdraw an amount equal to at least $500. Each variable subaccount value and the fixed account value after a partial withdrawal must be either $0 or at least $50. 3. The amount withdrawn, less any charges, will normally be mailed to you within seven days of the receipt of your written request and this contract, if required. For withdrawals from the fixed account, we have the right to defer payment to you for up to six months from the date we receive your request. 4. For partial withdrawals, if you do not specify from which account the withdrawal is to be made, the withdrawal will be made from the variable subaccounts and the fixed account(s) in the same proportion as your interest in each bears to the contract value. 5. Any amounts withdrawn and charges which may apply cannot be repaid. Upon withdrawal for the full withdrawal value this contract will terminate. We may require that you return the contract to us before we pay the full withdrawal value. Withdrawal Value The withdrawal value at any time will be: 1. the contract value; 2. plus or minus any applicable market value adjustment; 3. minus the full $30 contract administrative charge; 4. minus any withdrawal charge. Withdrawal Charge If you withdraw all or a part of your contract, you may be subject to a withdrawal charge. A withdrawal charge applies if all or a part of the contract value you withdraw is from payments received that are still in the withdrawal charge period indicated under Contract Data. Refer to Waiver of Withdrawal Charges for situations when withdrawal charges are not deducted. We determine your withdrawal charge by multiplying each of your payments withdrawn by the applicable withdrawal charge percentage, and then totalling the withdrawal charges. For a partial withdrawal that is subject to a withdrawal charge, the amount we actually withdraw from your contract value will be the amount you request plus any applicable withdrawal charge. The withdrawal charge is applied to this total amount. We pay you the amount you requested. The withdrawal charge percentage depends upon the number of years since you made the payment(s) withdrawn as shown on the Contract Data pages. Market Value Adjustment With respect to the Guarantee Period Accounts, any amount withdrawn, transferred or annuitized prior to the end of that guarantee period may be subject to a Market Value Adjustment. The Market Value Adjustment will be calculated by multiplying the amount withdrawn, transferred or annuitized by the formula described below: Amount x ( 1 + i ) n/12 ----------------------- ( 1 + j + .001 ) Where: i = rate earned in the account from which funds are being transferred j = current rate for a new Guarantee Period equal to the remaining term in the current Guarantee Period n = number of months remaining in the current Guarantee Period (rounded up) There will be no Market Value Adjustment on withdrawals from Guarantee Period Account(s) in the following situations: (1) Death Benefit; (2) amounts withdrawn to pay fees or charges; (3) amounts withdrawn from the Guarantee Period Account(s) within 30 days after the end of the Guarantee Period; and (4) on amounts transferred from the DCA Fixed Account(s) Option. Waiver of Withdrawal Charges Withdrawal charges are waived for all of the following. 1. In each contract year, the greater of: a. Withdrawals during the year totaling up to 15% of your prior contract anniversary contract value, or b. Contract earnings. ("Contract earnings" is defined as the contract value less purchase payments not previously withdrawn.) 2. Withdrawals made if both you and the annuitant were under age 76 on the contract date, and you provide proof satisfactory to us that, as of the date you request the withdrawal, you or the annuitant are confined to a hospital or nursing home, and have been for the prior 60 days. To qualify, the nursing home must: a. be licensed by an appropriate licensing agency to provide nursing services; and b. provide 24-hour-a-day nursing services; and c. have a doctor available for emergency situations; and d. have a nurse on duty or call at all times; and e. maintain clinical records; and f. have appropriate methods for administering drugs. 3. Withdrawal charges are waived if you or the annuitant are diagnosed in the second or later contract years as disabled with a medical condition that with reasonable medical certainty will result in death within 12 months or less from the date of the licensed physician's statement. You must provide us with a licensed physician's statement containing the terminal illness diagnosis and the date the terminal illness was initially diagnosed. 4. IRA required minimum distributions, for those amounts required to be distributed from this contract only. 5. Annuity payment plan payments. 6. Payments made in the event of the death of the owner or annuitant. Withdrawal Order We use this order to determine withdrawal charges. 1. First, withdrawals up to 15% of your prior contract anniversary contract value not previously withdrawn during this contract year. (No withdrawal charge.) 2. Next, withdrawals are from amounts representing contract earnings - if any - in excess of the annual 15% free withdrawal amount. In the first contract year, amounts representing contract earnings - if any - shall be withdrawn first. (No withdrawal charge.) 3. Next, withdrawals are from purchase payments received prior to the withdrawal charge period shown in the schedule under contract Data, and not previously withdrawn. (No withdrawal charge.) 4. Last, withdrawals are from purchase payments received that are still within the withdrawal charge period shown in the schedule under Contract Data. We withdraw these payments on a "first-in, first-out" (FIFO) basis. There is a withdrawal charge on these payments. Suspension or Delay in Payment of Withdrawal We have the right to suspend or delay the date of any withdrawal payment from the variable subaccounts for any period: 1. when the New York Stock Exchange is closed; or 2. when trading on the New York Stock Exchange is restricted; or 3. when an emergency exists as a result of which: a. disposal of securities held in the variable subaccounts is not reasonably practical; or b. it is not reasonably practical to fairly determine the value of the net assets of the variable subaccounts; or 4. during any other period when the Securities and Exchange Commission, by order, so permits for the protection of security holders. Rules and regulations of the Securities and Exchange Commission will govern as to whether the conditions set forth in 2 and 3 exist. Annuity Provisions Annuitization When annuitization occurs, the contract value, less any applicable Market Value Adjustment will be applied to make annuity payments. The first payment will be made as of the retirement date. This date is shown under Contract Data. Before payments begin we will require satisfactory proof that the annuitant is alive. We may also require that you exchange this contract for a supplemental contract which provides the annuity payments. Change of Retirement Date You may change the retirement date shown for this contract. Tell us the new date by written request. If you select a new date, it must be at least 30 days after we receive your written request at our administrative office. The maximum retirement date on an IRA contract is the later of: 1. the April 1 following the calendar year in which the annuitant attains age 70 1/2; or 2. such other date which satisfies the minimum distribution requirements under the Code, its regulations, and/or promulgations by the Internal Revenue Service; or 3. such other date as agreed upon by us. Notwithstanding the above, and for all nonqualified contracts, the maximum retirement date is the later of: 1. the annuitant's 85th birthday; or 2. the 10th contract anniversary. Annuity Payment Plans Annuity payments may be made on a fixed dollar basis, a variable basis or a combination of both. You can schedule receipt of annuity payments according to one of the Plans A through E below or another plan agreed to by us. If this is an IRA, payment amounts, durations and life expectancy calculations must comply with Section 401(a)(9) of the Code and the Regulations thereunder and generally must: 1. provide for payments over your life or over your and your beneficiary's lives; or 2. provide for payments over a period which does not exceed your life expectancy and/or the life expectancy of you and your beneficiary; and 3. meet the minimum incidental death benefit requirements under the Code and all related laws and regulations which are then in effect. The rules described in the "Payment of IRA Contract Death Benefit Before Annuitization" section for determining life expectancy will apply in determining the amount of these distributions, except that the life expectancy of you and your beneficiary will be initially determined on the basis of your attained ages in the year you reach 701/2. IRA annuity payments must be nonincreasing, or may increase only for a variable life annuity as provided in Treasury Regulation Section 1.401(a)(9)-1, Q&A F-3. An appropriate annuity payment plan is intended to satisfy the following requirements that otherwise apply: the annual distribution required to be made by your IRA required beginning date is for the calendar year in which you reached age 70 1/2; annual payments for subsequent years, including the year in which your IRA required beginning date occurs, must be made by December 31 of that year. You shall have the sole responsibility for electing an annuity payment plan that complies with this Contract and applicable law. Plan A -- This provides monthly annuity payments during the lifetime of the annuitant. No payments will be made after the annuitant dies. Plan B -- This provides monthly annuity payments during the lifetime of the annuitant with a guarantee by us that payments will be made for a period of at least five, 10 or 15 years. You must select the guaranteed period. Plan C --This provides monthly annuity payments during the lifetime of the annuitant with a guarantee by us that payments will be made for a certain number of months. We determine the number of months by dividing the amount applied under this plan by the amount of the first monthly annuity payment. Plan D -- Monthly annuity payments will be paid during the lifetime of the annuitant and joint annuitant. When either the annuitant or the joint annuitant dies we will continue to make monthly payments during the lifetime of the survivor. No payments will be made after the death of both the annuitant and joint annuitant. Plan E -- This provides monthly annuity payments for a period of years. The period of years may be no less than 10 nor more than 30. You may select the plan by written request to us at least 30 days before the retirement date. If at least 30 days before the retirement date we have not received at our administrative office your written request to select a plan, we will make payments according to Plan B with payments guaranteed for 10 years. If the amount to be applied to a plan would not provide a monthly payment of at least $20, we have the right to change the frequency of the payment or to make a lump sum payment of the contract value. Allocation of Contract Values at Annuitization At the time of annuitization under an Annuity Payment Plan, you may reallocate your contract value to the One Year Fixed Account to provide fixed dollar payments and/or among the variable subaccounts, to provide variable annuity payments. We reserve the right to limit the number of variable subaccounts used at any one time during annuitization. The Guarantee Period Accounts are not available after annuitization. Fixed Annuity A fixed annuity is an annuity with payments that are guaranteed by us as to dollar amount. Fixed annuity payments remain the same. At annuitization the fixed account contract value will be applied to the applicable Annuity Table. This will be done in accordance with the payment plan chosen. The minimum amount payable for each $1,000 so applied is shown in Table B on Page 19. Variable Annuity A variable annuity is an annuity with payments which: 1. are not predetermined or guaranteed as to dollar amount; and 2. vary in amount with the investment experience of the variable subaccounts. Determination of the First Variable Annuity Payment At annuitization, the variable account contract value will be applied to the applicable Annuity Table. This will be done: 1. on the valuation date on or next preceding the seventh calendar day before the retirement date; and 2. in accordance with the payment plan chosen. The amount payable for the first payment for each $1,000 so applied is shown in Table A on Page 18. Variable Annuity Payments After the First Payment Variable annuity payments after the first payment vary in amount. The amount changes with the investment performance of the variable subaccounts. The dollar amount of variable annuity payments after the first is not fixed. It may change from month to month. The dollar amount of such payments is determined as follows. 1. The dollar amount of the first annuity payment is divided by the value of an annuity unit as of the valuation date on or next preceding the seventh calendar day before the retirement date. This result establishes the number of annuity units for each monthly annuity payment after the first payment. This number of annuity units remains fixed during the annuity payment period. 2. The fixed number of annuity units is multiplied by the annuity unit value as of the valuation date on or next preceding the seventh calendar day before the date the payment is due. The result establishes the dollar amount of the payment. We guarantee that the dollar amount of each payment after the first will not be affected by variations in expenses or mortality experience. Exchange of Annuity Units After annuity payments begin, annuity units of any variable subaccount may be exchanged for units of any of the other variable subaccounts. This may be done no more than once a year. We reserve the right to limit the number of variable subaccounts used at any one time. Once annuity payments start no exchanges may be made to or from any fixed annuity. Tables of Annuity Rates Table A below shows the amount of the first monthly variable annuity payment, based on a 5% assumed investment return, for each $1,000 of value applied under any payment plan. The amount of the first and all subsequent monthly fixed dollar annuity payments for each $1,000 of value applied under any payment plan will be based on our fixed dollar Table of Annuity Rates in effect at annuitization. Such rates are guaranteed to be not less than those shown in Table B. The amount of such annuity payments under Plans A, B and C will depend upon the sex and age of the annuitant at annuitization. The amount of such annuity payments under Plan D will depend upon the sex and the age of the annuitant and the joint annuitant at annuitization. Table A - Dollar Amount of First Monthly Variable Annuity Payment Per $1,000 Applied
Plan A Plan B Plan C Plan D - - - -------------------------------------------------------------------------------------------------------------------------- Age Life Income Life Income with Life Income Joint & Survivor at Beginning Non-Refund Five Years Ten Years Fifteen Years Installment Non-Refund Annui- In Certain Certain Certain Refund Male & Female tization Year Male Female Male Female Male Female Male Female Male Female Same Age Age 65 2005 6.49 5.85 6.44 5.83 6.29 5.77 6.06 5.66 6.13 5.67 5.34 2010 6.40 5.78 6.35 5.76 6.22 5.71 6.00 5.61 6.06 5.61 5.30 2015 6.31 5.72 6.27 5.70 6.15 5.65 5.95 5.56 6.00 5.56 5.25 2020 6.23 5.66 6.19 5.64 6.08 5.60 5.90 5.52 5.93 5.51 5.21 2025 6.15 5.60 6.12 5.59 6.01 5.54 5.84 5.47 5.88 5.47 5.18 2030 6.08 5.55 6.05 5.53 5.95 5.50 5.80 5.43 5.82 5.43 5.14 Age 70 2005 7.41 6.54 7.29 6.50 6.98 6.36 6.54 6.14 6.79 6.22 5.85 2010 7.28 6.45 7.17 6.41 6.88 6.28 6.48 6.08 6.70 6.15 5.78 2015 7.16 6.35 7.06 6.32 6.80 6.21 6.42 6.03 6.61 6.08 5.72 2020 7.04 6.27 6.95 6.24 6.71 6.14 6.37 5.97 6.53 6.01 5.66 2025 6.93 6.19 6.85 6.16 6.63 6.07 6.31 5.92 6.45 5.95 5.61 2030 6.83 6.11 6.76 6.09 6.55 6.01 6.26 5.87 6.38 5.90 5.56 Age 75 2005 8.67 7.58 8.42 7.47 7.78 7.15 7.02 6.70 7.65 6.99 6.59 2010 8.49 7.43 8.26 7.34 7.68 7.05 6.97 6.63 7.53 6.89 6.49 2015 8.32 7.30 8.11 7.21 7.58 6.96 6.91 6.57 7.42 6.80 6.40 2020 8.16 7.18 7.97 7.10 7.48 6.87 6.86 6.51 7.31 6.71 6.31 2025 8.00 7.06 7.83 6.99 7.38 6.78 6.81 6.46 7.21 6.62 6.24 2030 7.86 6.95 7.70 6.89 7.29 6.70 6.75 6.40 7.12 6.55 6.16 Age 85 2005 13.01 11.44 11.71 10.69 9.46 9.09 7.69 7.60 10.30 9.50 9.30 2010 12.65 11.12 11.48 10.45 9.38 9.00 7.67 7.58 10.11 9.32 9.09 2015 12.31 10.82 11.26 10.23 9.30 8.90 7.66 7.56 9.93 9.15 8.90 2020 11.99 10.55 11.04 10.02 9.22 8.80 7.64 7.53 9.76 9.00 8.72 2025 11.70 10.29 10.84 9.83 9.15 8.71 7.62 7.51 9.60 8.85 8.55 2030 11.42 10.06 10.64 9.64 9.07 8.62 7.61 7.48 9.45 8.72 8.40 Table A above is based on the "1983 Individual Annuitant Mortality Table A" with 100% Projection Scale G and a 5% assumed investment return. Annuity rates for any year, age, or any combination of year, age and sex not shown above, will be calculated on the same basis as those rates shown in the Table above. Such rates will be furnished by us upon request. Amounts shown in the Table below are based on a 5% assumed investment return.
Plan E - Dollar Amount of First Monthly Variable Annuity Payment Per $1,000 Applied
- - - --------------------------------------------------------------------------------------------------- Years Payable Monthly Payment Years Payable Monthly Payment Years Payable Monthly Payment 10 10.51 17 7.20 24 5.88 11 9.77 18 6.94 25 5.76 12 9.16 19 6.71 26 5.65 13 8.64 20 6.51 27 5.54 14 8.20 21 6.33 28 5.45 15 7.82 22 6.17 29 5.36 16 7.49 23 6.02 30 5.28
Table B - Dollar Amounts of Each Monthly Fixed Dollar Annuity Payment Per $1,000 Applied
Plan A Plan B Plan C Plan D - - - ---------------------------------------------------------------------------------------------------------------------------- Settlement Life Income Life Income with Life Income Joint & Survivor Beginning Non-Refund Five Years Ten Years Fifteen Years Installment Non-Refund Settlement In Certain Certain Certain Refund Male & Female Age Year Male Female Male Female Male Female Male Female Male Female Same Age Age 65 2005 5.30 4.68 5.26 4.66 5.15 4.62 4.95 4.53 4.84 4.43 4.20 2010 5.21 4.61 5.17 4.60 5.07 4.55 4.89 4.48 4.77 4.38 4.15 2015 5.12 4.55 5.09 4.53 4.99 4.49 4.83 4.42 4.71 4.34 4.11 2020 5.04 4.48 5.01 4.47 4.92 4.44 4.77 4.38 4.66 4.29 4.07 2025 4.96 4.43 4.94 4.42 4.86 4.39 4.72 4.33 4.60 4.25 4.03 2030 4.89 4.37 4.87 4.37 4.79 4.34 4.67 4.29 4.55 4.21 3.99 Age 70 2005 6.21 5.38 6.12 5.35 5.87 5.24 5.48 5.05 5.45 4.97 4.74 2010 6.08 5.29 6.01 5.26 5.77 5.16 5.41 4.99 5.37 4.90 4.67 2015 5.96 5.20 5.89 5.17 5.68 5.08 5.35 4.93 5.29 4.84 4.61 2020 5.85 5.11 5.79 5.09 5.59 5.01 5.29 4.87 5.22 4.78 4.55 2025 5.75 5.03 5.69 5.01 5.51 4.94 5.23 4.82 5.15 4.72 4.49 2030 5.64 4.96 5.59 4.94 5.43 4.88 5.17 4.76 5.08 4.67 4.44 Age 75 2005 7.47 6.42 7.27 6.33 6.72 6.07 6.00 5.65 6.24 5.68 5.50 2010 7.29 6.28 7.11 6.20 6.61 5.97 5.94 5.59 6.14 5.60 5.40 2015 7.12 6.15 6.96 6.08 6.50 5.87 5.88 5.52 6.04 5.51 5.31 2020 6.96 6.03 6.82 5.97 6.40 5.78 5.83 5.46 5.95 5.43 5.23 2025 6.81 5.91 6.68 5.86 6.30 5.69 5.77 5.40 5.86 5.36 5.15 2030 6.67 5.81 6.55 5.76 6.21 5.60 5.72 5.34 5.77 5.29 5.08 Age 85 2005 11.77 10.25 10.64 9.60 8.51 8.12 6.73 6.64 8.66 7.97 8.24 2010 11.42 9.94 10.40 9.37 8.42 8.02 6.71 6.61 8.50 7.82 8.03 2015 11.09 9.65 10.18 9.15 8.34 7.91 6.70 6.59 8.35 7.68 7.84 2020 10.78 9.38 9.96 8.94 8.26 7.81 6.68 6.56 8.20 7.55 7.66 2025 10.49 9.14 9.75 8.74 8.18 7.72 6.66 6.54 8.06 7.42 7.50 2030 10.22 8.91 9.56 8.56 8.09 7.62 6.65 6.51 7.94 7.31 7.35 Table B above is based on the "1983 Individual Annuitant Mortality Table A" at 3.0% with 100% Projection Scale G. Annuity rates for any year, age, or any combination of year, age and sex not shown above, will be calculated on the same basis as those rates shown in the Table above. Such rates will be furnished by us upon request. Amounts shown in the Table below are based on a 3.0% annual effective interest rate.
Plan E - Dollar Amount of Each Monthly Fixed Dollar Annuity Payment Per $1,000 Applied
- - - --------------------------------------------------------------------------------------------------- Years Payable Monthly Payment Years Payable Monthly Payment Years Payable Monthly Payment 10 9.61 17 6.23 24 4.84 11 8.86 18 5.96 25 4.71 12 8.24 19 5.73 26 4.59 13 7.71 20 5.51 27 4.47 14 7.26 21 5.32 28 4.37 15 6.87 22 5.15 29 4.27 16 6.53 23 4.99 30 4.18
Deferred Annuity Contract --------------------------------------------------- ------------------- Administrative Offices: 80 South Eighth Street P.O. Box 534 American Minneapolis, MN 55440 Enterprise Life o Flexible Purchase Payment o Investment Experience Reflected in Benefits o Optional Fixed Dollar or Variable Accumulation Values and Annuity Payments o Annuity Payments to Begin on the Retirement Date o This Contract is Nonparticipating - Dividends Are Not Payable EX-99.4.2.-DAC 5 FORM OF DEFERRED ANNUITY CONTRACT (FORM 44210) Deferred Annuity Contract Administrative Offices: 80 South Eighth Street P.O. Box 534 Minneapolis, MN 55440 American Enterprise Life This is a deferred annuity contract. It is a legal contract between you, as the owner, and us, American Enterprise Life Insurance Company, a Stock Company, Indianapolis, Indiana. PLEASE READ YOUR CONTRACT CAREFULLY. If the annuitant is living on the Retirement Date, we will begin to pay you monthly annuity payments. Any payments made by us are subject to the terms of this contract. The owner and beneficiary are as named in the application unless they are changed as provided for in this contract. We issue this contract in consideration of your application and the payment of the purchase payments. Signed for and issued by American Enterprise Life Insurance Company of Indianapolis, Indiana, as of the contract date. ACCUMULATION VALUES AND ANNUITY PAYMENTS, WHEN BASED ON THE INVESTMENT RESULTS OF THE SEPARATE ACCOUNT, ARE VARIABLE AND NOT GUARANTEED AS TO FIXED DOLLAR AMOUNT. SEE PAGE 12 FOR VARIABLE PROVISIONS. PAYMENTS AND VALUES BASED ON THE GUARANTEE PERIOD ACCOUNTS ARE SUBJECT TO A MARKET VALUE ADJUSTMENT FORMULA, THE OPERATION OF WHICH MAY RESULT IN UPWARD AND DOWNWARD ADJUSTMENTS IN AMOUNTS PAYABLE TO AN OWNER OR ANNUITANT, INCLUDING WITHDRAWALS, TRANSFERS AND AMOUNTS APPLIED TO PURCHASE AN ANNUITY. SEE PAGE 14 FOR MARKET VALUE ADJUSTMENT PROVISIONS. NOTICE OF YOUR RIGHT TO EXAMINE THIS CONTRACT FOR 10 DAYS. If for any reason you are not satisfied with this contract, return it to us or our agent within 10 days after you receive it. We will then cancel this contract. Upon such cancellation we will refund an amount equal to the sum of: (1) the contract value, including any Market Value Adjustment, if applicable, and less any purchase payment credits, at the end of the Valuation Period during which we receive the contract; and (2) any premium tax charges paid. This contract will then be considered void from its start. Secretary President o Flexible Purchase Payments o Investment Experience Reflected in Benefits o Optional Fixed Dollar or Variable Accumulation Values and Annuity Payments o Annuity Payments to Begin on the Retirement Date o This Contract is Nonparticipating -- Dividends Are Not Payable CONTRACT DATA
Contract Number: [9920-SAMPLE] Contract Date: [November 1,1999] Initial Purchase Payment: [$10,000] Retirement Date: [November 1, 2039] Annuitant: [John Doe] Contract Type: [Non-Qualified] Contract Owner: [John Doe]
Upon issuance of this contract your initial purchase payment has been applied to the one year fixed account, guarantee period accounts and variable subaccounts as shown below. You may make additional payments and change the purchase payment allocation as provided in this contract. Refer to the purchase payments provision on Page 9.
Purchase Payment Purchase Payment Allocation Allocation Percentage Allocation Allocation Percentage AEL One Year Fixed Account [%] [Fund 14 [% Fund 15 % [2 Year Guarantee Period Account [% Fund 16 % 3 Year Guarantee Period Account % Fund 17 % 4 Year Guarantee Period Account % Fund 18 % 5 Year Guarantee Period Account % Fund 19 % 6 Year Guarantee period Account % Fund 20 % 7 Year Guarantee Period Account % Fund 21 % 8 Year Guarantee Period Account % Fund 22 % 9 Year Guarantee Period Account % Fund 23 % 10 Year Guarantee Period Account] %] Fund 24 % Fund 25 % Fund 26 % [Fund 1 [% Fund 27 % Fund 2 % Fund 28 % Fund 3 % Fund 29 % Fund 4 % Fund 30 % Fund 5 % Fund 31 % Fund 6 % Fund 32 % Fund 7 % Fund 33 % Fund 8 % Fund 34 % Fund 9 % Fund 35 % Fund 10 % Fund 36 % Fund 11 % Fund 37 % Fund 12 % Fund 38 % Fund 13] %] Fund 39] %]
Purchase Payment Credits Cumulative Net Purchase Payment Amount Net Purchase Payment Credit Percentage [$0 - $9,999.99 [1% $10,000 - $999,999.99 2% $1,000,000 - $4,999,999.99 3% $5,000,000 + ] 4%] Purchase payment credits are not vested until [ 12 months ] after being credited in the case of a free look cancellation, a death claim payment or a full withdrawal not subject to withdrawal charges. CONTRACT DATA - Continued Contract Number: [9920-SAMPLE] Contract Date: [November 1, 1999] [Enhanced Death Benefit Rider Attached] [Guaranteed Minimum Income Benefit Rider Attached Annual Charge of .30% "Subaccount Limitation under the Guaranteed Minimum Income Benefit: We reserve the right to limit the amount in the Wells Fargo Money Market Fund to (10%) of the total amount in the subaccounts."] Withdrawal Charge: If you withdraw all or a portion of this contract, a withdrawal charge may apply. A withdrawal charge applies if all or part of the contract value withdrawn is from payments received during the [eight years] before withdrawal. Years From Payment Receipt Withdrawal Charge [1 [8.0% of purchase payment withdrawal 2 8.0% of purchase payment withdrawal 3 8.0% of purchase payment withdrawal 4 8.0% of purchase payment withdrawal 5 8.0% of purchase payment withdrawal 6 6.0% of purchase payment withdrawal 7 4.0% of purchase payment withdrawal 8 2.0% of purchase payment withdrawal Thereafter] 0.0% of purchase payment withdrawal] You may withdraw the greater of 10 percent of your prior contract anniversary contract value or contract earnings each contract year without incurring a withdrawal charge. Refer to the withdrawal charge provision on Page 14 for additional withdrawal charge information. Mortality and Expense Risk Charge: [1.35%] See page 13. Variable Account Administrative Charge: .15% See page 13. Contract Administrative Charge: $30 See page 11. The Maximum Total Purchase Payment: $1,000,000 for issue ages through age 85 The Minimum Additional Purchase Payment is $100. The Guaranteed Minimum Effective Interest Rate to be credited to the AEL One Year Fixed Account and Guarantee Period Account(s) is 3%. Market Value Adjustment All payments and values based on the Guarantee Period Account(s) are subject to a Market Value Adjustment formula, the operation of which may result in upward and downward adjustments in amounts payable. See page 14. Guide to Contract Provisions Definitions Important words and meanings...........Page General Provisions Entire contract; Annuity tax qualification; Contract modification; Incontestability; Benefits based on incorrect data; State laws; Reports to owner; Evidence of survival; Protection of proceeds; Payments by us; Voting rights...................Page Ownership and Beneficiary Owner rights; Change of ownership; Beneficiary; Change of Beneficiary; Assignment.............................Page Payments to Beneficiary Describes options and amounts payable upon death..................................Page Purchase Payments Purchase payments amounts; Payment limits; Allocations of purchase payments, Purchase Payment Credits........................Page Contract Value Describes the fixed and variable account contract values; Interest to be credited; Contract administrative charge; Premium taxes; Transfers of contract values; Dollar Cost Averaging Program..........Page Fixed and Variable Accounts Describes the fixed account; Describes Guarantee Period Accounts; Describes the variable subaccounts, accumulation units and values; Net investment factor; Mortality and expense risk charge; Variable account administrative charge; Annuity unit value..................................Page Withdrawal Provisions Contract withdrawal for its withdrawal value; Rules for withdrawal; Market Value Adjustment.............................Page Annuity Provisions When annuity payments begin; Different ways to receive annuity payments; Determination of payment amounts.....................Page Tables of Annuity Rates Tables showing the amount of the first variable annuity payment and the guaranteed fixed annuity payments for the various payment plans..........................Page Definitions The following words are used often in this contract. When we use these words, this is what we mean: Accumulation Unit An accumulation unit is an accounting unit of measure. It is used to calculate the variable account contract value prior to annuitization. Annuitant The person or persons on whose life monthly annuity payments depend. Annuitization The application of the contract value of this contract to provide annuity payments. Annuity Unit An annuity unit is an accounting unit of measure. It is used to calculate the value of annuity payments from the variable account on and after annuitization. Code The Internal Revenue Code of 1986, as amended. Contract Anniversary The same day and month as the contract date each year that the contract remains in force. Contract Date It is the date from which contract anniversaries, contract years, and contract months are determined. Your contract date is shown under Contract Data. Contract Value The sum of the: (1) fixed account contract value; and (2) variable account contract value. Fixed Annuity A fixed annuity is an annuity with payments which are guaranteed by us as to dollar amount during the annuity payment period. One Year Fixed Account It is an account to which you may allocate purchase payments and contract values. Amounts you allocate to the one year account earn guaranteed interest rates that we declare periodically. Guarantee Period Account These are fixed accounts to which you may allocate purchase payments and contract values. Guarantee Period Accounts have guaranteed interest rates declared periodically with guarantee periods ranging from 2 to 10 years. Withdrawals or transfers from a Guarantee Period Account prior to the end of the specified term will receive Market Value Adjustment which may result in a gain or loss of principal. IRA Contract A contract used in or under a retirement plan or program that is intended to qualify as an Individual Retirement Annuity under Section 408(b) of the Code. IRA Required Minimum Distributions The minimum distributions Code Section 408(b)(3) requires to be distributed from an IRA, beginning not later than the April 1 following the calendar year you reach age 70 1/2 (Required Beginning Date). Market Value Adjustment A positive or negative adjustment assessed if any portion of a Guarantee Period Account is withdrawn or transferred prior to the end of its guaranteed period. Nonqualified Contract A contract used primarily for retirement purposes that is not intended to qualify as an IRA contract. Retirement Date The date shown under Contract Data on which annuity payments are to begin. This date may be changed as provided in this contract. You will be notified prior to the retirement date in order to select an appropriate annuity payment plan. Valuation Date A valuation date is each day the New York Stock Exchange is open for trading. Valuation Period A valuation period is the interval of time commencing at the close of business on each valuation date and ending at the close of business on the next valuation date. Variable Account Consists of separate subaccounts to which you may allocate purchase payments and contract values; each invests in shares of one fund. The value of your investment in each subaccount changes with the performance of the particular fund. Variable Annuity A variable annuity is an annuity with payments which are not predetermined or guaranteed as to dollar amount and vary in amount with the investment experience of one or more of the variable subaccounts. We, Us, Our American Enterprise Life Insurance Company Written Request A request in writing signed by you and delivered to us at our administrative office. You, Your The owner of this contract. In a non-qualified contract, the owner may be someone other than the annuitant. The owner is shown in the application unless the owner has been changed as provided in this contract. General Provisions Entire Contract This contract form, any endorsements or riders and the copy of the application attached to it are the entire contract between you and us. No one except one of our corporate officers (President, Vice President, Secretary or Assistant Secretary) can change or waive any of our rights or requirements under this contract. That person must do so in writing. None of our other representatives or other persons has the authority to change or waive any of our rights or requirements under this contract. Annuity Tax Qualification This contract is intended to qualify as an annuity contract under Section 72 of the Code for federal income tax purposes. To that end, the provisions of this contract are to be interpreted to ensure or maintain such tax-qualification, notwithstanding any other provisions to the contrary. Contract Modification We reserve the right to modify this contract to the extent necessary to: 1. qualify this contract as an annuity contract under Section 72 of the Code and all related laws and regulations which are in effect during the term of this contract; and 2. if this contract is purchased as an IRA contract, to qualify this contract as such an IRA contract under Section 408 of the Code and all related laws and regulations which are in effect during the term of this contract. We will obtain any necessary approval of any regulatory authority for the modifications. Incontestable This contract is incontestable from its date of issue. Benefits Based on Incorrect Data Payments under the contract will be based on the annuitant's birthdate and sex. If the annuitant's birthdate or sex or your birthdate has been misstated, payments under this contract will be adjusted. They will be based on what would have been provided at the correct birthdate and sex. Any underpayments made by us will be made up immediately. Any overpayments made by us will be subtracted from the future payments. State Laws This contract is governed by the law of the state in which it is delivered. The values and benefits of this contract are at least equal to those required by such state. Any paid up annuity, cash withdrawal or death benefits available under the contract are not less than the minimum benefits required by any statute of the state in which the contract is delivered. Reports to Owner At least once a year we will send you a statement showing the contract value and the cash withdrawal value of this contract. This statement will be based on any laws or regulations that apply to contracts of this type. Evidence of Survival Where any payments under this contract depend on the recipient or annuitant being alive on a certain date, proof that such condition has been met may be required by us. Such proof may be required prior to making the payments. Protection of Proceeds Payments under this contract are not assignable by any beneficiary prior to the time they are due. To the extent allowed by law, payments are not subject to the claims of creditors or to legal process. Payments by Us All sums payable by us are payable at our administrative office. Any payment or withdrawal from a variable annuity is based on the variable contract value. Voting Rights So long as federal law requires, we will give certain voting rights to contractowners. As contractowner, if you have voting rights we will send a notice to you telling you the time and place of a shareholder meeting. The notice will also explain matters to be voted upon and how many votes you get. Ownership and Beneficiary Owner Rights As long as the annuitant is living and unless otherwise provided in this contract, you may exercise all rights and privileges provided in this contract or allowed by us. If this is an IRA contract, you shall be the annuitant, and during your life you will have the sole and absolute power to receive and enjoy all rights under the contract. Your entire interest is nonforfeitable. Joint ownership is not permitted. Change of Ownership If this is an IRA contract, your right to change the ownership is restricted. This contract may not be sold, assigned, transferred, discounted or pledged as collateral for a loan or as security for the performance of an obligation or for any other purpose to any person other than as may be required or permitted under Section 408 of the Code, or under any other applicable section of the Code. Your interest in this contract may be transferred to your former spouse, if any, under a divorce decree or a written instrument incidental to such divorce. If this is a nonqualified contract, you may change the ownership. Any change of ownership as provided above must be made by written request on a form approved by us. The change must be made while the annuitant is living. Once the change is recorded by us, it will take effect as of the date of your request, subject to any action taken or payment made by us before the recording. Beneficiary Beneficiaries are those you have named in the application or later changed as provided below, to receive benefits of this contract if you or the annuitant die while this contract is in force. Only those beneficiaries who are living when death benefits become payable may share in the benefits, if any. If no beneficiary is then living, we will pay the benefits to you, if living, otherwise to your estate. Change of Beneficiary You may change the beneficiary anytime while the annuitant is living by satisfactory written request to us. Once the change is recorded by us, it will take effect as of the date of your request, subject to any action taken or payment made by us before the recording. Assignment If this is an IRA contract, you may not assign this contract as collateral. If this is a nonqualified contract, you can assign this contract or any interest in it while the annuitant is living. Your interest and the interest of any beneficiary is subject to the interest of the assignee. An assignment is not a change of ownership and an assignee is not an owner as these terms are used in this contract. Any amounts payable to the assignee will be paid in a single sum. A copy of any assignment must be submitted to us at our administrative office. Any assignment is subject to any action taken or payment made by us before the assignment was recorded at our administrative office. We are not responsible for the validity of any assignment. Payments to Beneficiary Death Benefits Before Annuitization A death benefit is payable to the beneficiary upon the earlier death of you or the annuitant while this contract is in force and prior to annuitization. We will pay the beneficiary the greatest of the following amounts, less any purchase payment credits that have not vested; 1. the contract value; or 2. the total payments and purchase payment credits made to the contract minus adjustments for partial withdrawals; or 3. the highest contract value on any prior contract anniversary before either your or the annuitant's 81st birthday, plus any purchase payments and purchase payment credits made since that contract anniversary and less any "adjustments for partial withdrawals" since that contract anniversary. After either your or the annuitant's 81st birthday, this value will only change due to additional payments and purchase payment credits or "adjustments for partial withdrawals". Adjustments for Partial Withdrawals Adjustments for partial withdrawals are calculated for each partial withdrawal as the product of (a) times (b) where: (a) is the ratio of the amount of the partial withdrawal (including any withdrawal charges) to the contract value on the date of (but prior to) the partial withdrawal; and (b) is the death benefit on the date of (but prior to) the partial withdrawal. Any amounts payable or applied by us as described in the sections below will be based on the contract values as of the valuation date on or next following the date on which due proof of death is received at our administrative office. Payment of Nonqualified Contract Death Benefit Before Annuitization The above death benefit will be payable in a lump sum upon the receipt of due proof of death of you or the annuitant, whichever first occurs. The beneficiary may elect to receive payment any time within five years after the date of death. The above death benefit will also be made upon the first to die if ownership is in a joint tenancy except where spouses are joint owners with right of survivorship and the surviving joint spouse elects to continue the contract. In lieu of a lump sum, payments may be made under an Annuity Payment Plan, provided: 1. the beneficiary elects the plan within 60 days after we receive due proof of death; and 2. the plan provides payments over a period which does not exceed the life or life expectancy of the beneficiary; and 3. payments must begin no later than one year after the date of death. For Annuity Payment Plans, the reference to "annuitant" in the Annuity Provisions shall apply to the beneficiary. Payment of IRA Contract Death Benefit Before Annuitization The above death benefit will be payable in a lump sum upon the receipt of due proof of death. Under tax law, distributions are considered to have begun if they are made when you reach your IRA required beginning date or if you have annuitized according to applicable Treasury Regulations. If distributions from your IRA have begun but you have not annuitized before your death, your beneficiary must continue using the same method, or a faster method, than you were using for your required minimum distributions, to receive the death benefit. If distributions from your IRA have not begun and you have not annuitized before your death, your beneficiary may take one or more distributions so that the entire death benefit is received within five years of the year in which your death occurs. In lieu of taking payments within five years, payments may be made under an Annuity Payment Plan, provided: 1. the beneficiary elects the plan within 60 days after we receive due proof of death; and 2. the plan provides payments over a period which does not exceed the life or life expectancy of the beneficiary; and 3. payments must begin no later than one year after the year your death occurs, in the case of a non-spouse beneficiary, or by December 31 of the year in which you would have turned age 701/2, in the case of a spouse beneficiary. Payment amounts, durations and life expectancy calculations must comply with Section 401(a)(9) of the Code and regulations thereunder. For purposes of the foregoing provisions, life expectancy and joint and last survivor expectancy shall be determined by use of the expected return multiples in Table V and VI of Treasury Regulation Section 1.72-9 in accordance with Code Section 408(b)(3) and the regulations thereunder. Life expectancy will be initially determined on the basis of your beneficiary's attained age in the year distributions are required to commence. Unless you (or your spouse) elects otherwise prior to the time distributions are required to commence, your life expectancy and, if applicable, your spouse's life expectancy will be recalculated annually based on your attained ages in the year for which the required distribution is being determined. The life expectancy of a nonspouse beneficiary will not be recalculated. Instead, life expectancy will be calculated using the attained age of such beneficiary during the calendar year in which the individual attains age 701/2, and payments for subsequent years shall be calculated based on such life expectancy reduced by one for each calendar year which has elapsed since the calendar year life expectancy was first calculated. You or your beneficiary, as applicable, shall have the sole responsibility for requesting a distribution that complies with this Contract and applicable law. For Annuity Payment Plans, the reference to "annuitant" in the Annuity Provisions shall apply to the beneficiary. Spouse's Option to Continue Contract For nonqualified contracts: If you die prior to annuitization and your spouse is the sole beneficiary or co-owner of the contract, your spouse may keep the contract in force as owner and may make additional purchase payments to the contract. For IRA contracts: If you die prior to your required beginning date and your spouse is the sole beneficiary, your spouse may keep the contract in force as his or her own IRA. As owner, your spouse may make additional payments to the contract. As owner, your spouse's life will determine the IRA required beginning date and minimum distribution amounts. If you die after your required beginning date, spousal continuation of this contract is not available. Election by the spouse to continue the contract must be made by written request within 60 days after we receive proof of death. Upon such continuation the contract value shall be equal to the death benefit that would otherwise have been paid. Withdrawal charges under the continued contract shall only apply to additional purchase payments. Death After Annuitization If you or the annuitant die after annuitization, the amount payable to the beneficiary, if any, will be as provided in the Annuity Payment Plan then in effect. Purchase Payments Purchase Payments Purchase payments are the payments you make for this contract and the benefits it provides. Purchase payments must be paid or mailed to us at our administrative office or to an authorized agent. If requested, we'll give you a receipt for your purchase payments. Additional Purchase Payments Additional purchase payments may be made until the earlier of: 1. the date this contract terminates by withdrawal or otherwise; or 2. the date on which annuity payments begin. Additional purchase payments are subject to the "Payment Limits Provision" below. Payment Limits Provision Maximum Purchase Payments -- The maximum total contract purchase payments may not exceed the amounts shown under Contract Data. We reserve the right to increase the maximums. Additional Purchase Payments -- You may make additional purchase payments of at least $100. In addition, if this is an IRA contract, except as otherwise provided in this paragraph, the total purchase payments for any taxable year may not exceed $2,000 or as otherwise provided in the Code and all related laws and regulations which are in effect during the term of this contract. In the case of a rollover contribution described in Sections 402(c), 403(a)(4), 403(b)(8) or 408(d)(3) of the Code, there is no limit on the amount of your purchase payment. No contribution will be accepted under a SIMPLE plan established by any employer pursuant to Code Section 408(p). No transfer or rollover of funds attributable to contributions made by a particular employer under its SIMPLE plan will be accepted from a SIMPLE IRA prior to the expiration of the two-year period beginning on the date the individual first participated in that employer's SIMPLE plan. You shall have the sole responsibility for determining whether purchase payments meet applicable income tax requirements. All purchase payments must be made in cash. If you die before the entire interest in this contract has been distributed to you, and your beneficiary is other than your surviving spouse, no additional purchase payments will be accepted from your beneficiary under this contract. Allocation of Purchase Payments You instruct us on how you want your purchase payments allocated among the fixed account(s) and variable subaccounts. Your choice for the fixed account(s) and each variable subaccount may be made in any whole percent from 0% to 100%. Your allocation instructions as of the contract date are shown under Contract Data. We reserve the right to limit the maximum number of accounts and/or subaccounts to which you can allocate purchase payments or contract value at any time. If purchase payments are allocated to a Guarantee Period Fixed Account, the period you select will determine the guaranteed interest rate applicable that will be payable for the Guarantee Period. By written request, or by another method agreed to by us, you may change your choice of accounts or percentages. The first net purchase payment will be allocated as of the end of the valuation period during which we make an affirmative decision to issue this contract. Net purchase payments after the first will be allocated as of the end of the valuation period during which we receive the payment at our administrative office. Purchase Payment Credits We apply an additional purchase payment credit to your contract value for all net purchase payments you make to this contract. The purchase payment credit is a percentage of each net purchase payment which is the purchase payment less the amount of partial withdrawals that exceed all prior purchase payments. The percentage depends on the amount of cumulative purchase payments under the contract less partial withdrawals as shown under Contract Data. If an additional purchase payment causes the contract as a whole to be eligible for a greater percentage credit, an additional credit on prior purchase payments, less any partial withdrawals, will be allocated on the date of the additional purchase payment. Such additional credit is calculated to bring the credit percentage on all prior net purchase payments to the current level. Purchase payment credits will be allocated to the contract value according to your then-existing purchase payment allocation instructions. Any partial withdrawal reduces the cumulative net purchase payments used as the basis of the credits on a last-in, first-out basis. Purchase payment credits are vested as indicated under Contract Data. Contract Value Contract Value The contract value at any time is the sum of: 1. the fixed account(s) contract value; and 2. the variable account contract value. If: 1. part or all of the contract value is withdrawn; or 2. charges described herein are made against the contract value; then a number of accumulation units from the variable subaccounts and an amount from the fixed account(s) will be deducted to equal such amount. For withdrawals, deductions will be made from the fixed account(s) or variable subaccounts that you specify. Otherwise, the number of units from the variable subaccounts and the amount from the fixed account(s) will be deducted in the same proportion that your interest in each bears to the total contract value. Variable Account Contract Value The variable account contract value at any time will be: 1. the sum of the value of all variable subaccount accumulation units under this contract resulting from purchase payments and any purchase payment credits so allocated, or transfers among the variable and fixed accounts; less 2. the value of any units deducted for charges or withdrawals. Fixed Account Contract Value The Fixed Account is comprised of the One Year Fixed Account and the Guarantee Period Accounts. The fixed account contract value at any time will be: 1. the sum of all purchase payments and any purchase payment credits allocated to the fixed account(s), plus interest credited; plus 2. any amounts transferred to the fixed account(s) from any variable subaccount, plus interest credited; less 3. any amounts transferred from the fixed account(s) to any variable subaccount; less 4. any amounts deducted for charges, market value adjustments or withdrawals. Interest to be Credited We will credit interest to the fixed account contract value. Interest will begin to accrue daily on the date the purchase payments which are received in our administrative office become available for us to use. Such interest will be credited at rates that we determine from time to time. However, we guarantee that the rate will not be less than a 3% effective annual interest rate. Contract Administrative Charge We charge a fee for establishing and maintaining our records for this contract. The charge is $30 per year and is deducted from the contract value at the end of each contract year. The charge deducted will be prorated among the variable subaccounts, the one-year fixed account and guarantee period accounts in the same proportion your interest in each bears to the total contract value. We waive the annual contract administrative charge for any contract year where the contract value immediately prior to the deduction of the contract administrative charge is $50,000 or more. If you make a full withdrawal of this contract, we deduct the full $30 contract administrative charge at the time of full withdrawal regardless of contract value. The charge does not apply at or after annuitization of this contract or at the time a death benefit is paid. Premium Tax Charges We reserve the right to assess a charge against the contract value of this contract for any applicable premium tax assessed to us by a state or local government. This charge could be deducted when you make purchase payments, or make a full withdrawal of the contract value or at the time of annuitization. Transfers of Contract Values While this contract is in force prior to annuitization, transfers of contract values may be made as outlined below. 1. You may transfer all or a part of the values held in one or more of the variable subaccounts to another one or more of the variable subaccounts. Subject to Item 2, you may also transfer values held in one or more of the variable subaccounts to the fixed account. 2. On or within the 30 days before or after a contract anniversary you may transfer values from the one-year fixed account to one or more of the variable subaccounts or Guarantee Period Accounts. If such a transfer is made, no transfers from any variable subaccount to the one-year fixed account may be made for six months after such a transfer. 3. You may transfer values from your Guarantee Period Accounts to other accounts at any time. Any transfer prior to the end of the applicable guarantee period will be subject to a market value adjustment. You may make a transfer by written request. Telephone transfers may also be made according to telephone procedures that are then currently in effect, if any. There is no fee or charge for these transfers. However, the minimum transfer amount is $500, or if less, the entire value in the subaccount or in the fixed account(s) from which the transfer is being made, or other such minimum amounts agreed to by us. We may suspend or modify transfer privileges at any time. The right to transfer contract values between the subaccounts is also subject to modification if we determine, in our sole discretion, that the exercise of that right by one or more contract owners is, or would be, to the disadvantage of other contract owners. Any modification could be applied to transfers to or from some or all of the subaccounts. These modifications could include, but not be limited to, the requirements of a minimum time period between each transfer, not accepting transfer requests of an agent acting under a power of attorney on behalf of more than one contract owner or limiting the dollar amount that may be transferred between the subaccounts and the fixed account by a contract owner at any one time. We may apply these modifications or restrictions in any manner reasonably designed to prevent any use of the transfer right we consider to be to the disadvantage of other contract owners. Dollar Cost Averaging Program You may authorize the transfer of an amount, at the interval selected by you, from the DCA Fixed Account Option to any variable subaccount. All amounts that are allocated to a DCA Fixed Account Option will be transferred out in specified amounts within the specified DCA Fixed Account period from either the one-year Fixed Account or the 2-year Guarantee Period Account (without market value adjustment). The values credited and applied to your contract are determined on each date of transfer. You may terminate the DCA Fixed Account Option at any time. Upon termination any amount remaining in the DCA Fixed Account Option will be transferred to the one-year Fixed Account. We reserve the right to change the terms and conditions of the DCA program at any time. Fixed and Variable Accounts The Fixed Account The fixed account is comprised of the One Year Fixed Account and the Guarantee Period Accounts. One Year Fixed Account The One Year Fixed Account is our general account. It is made up of all our assets other than those in: 1. The Variable Account; and 2. Any other segregated asset accounts, including the Guarantee Period Accounts. We back the principal and interest guarantees relating to the One Year Fixed Account. Purchase payments and transfers to the One Year Fixed Account become part of our general account. Guarantee Period Accounts The Guarantee Period Accounts are part of a "nonunitized" segregated asset account (Separate Account). We have established the separate account for the purpose of facilitating accounting and investment processes we undertake in offering guaranteed interest for periods you can select ranging from 2 to 10 years. This separate account may not be charged with liabilities from any other separate account or our general account. We back the principal and interest guarantees relating to the Guarantee Period Accounts. The minimum investment in any Guarantee Period Account is $1,000. The Variable Account The variable account is a separate investment account of ours. It consists of several subaccounts which are named under Contract Data. We have allocated a part of our assets for this and certain other contracts to the variable account. Such assets remain our property. However, they may not be charged with the liabilities from any other business in which we may take part. Investments of the Variable Account Purchase payments applied to the variable account will be allocated as specified by the owner. Each variable subaccount will buy, at net asset value, shares of the fund shown for that subaccount under Contract Data or as later added or changed. We may change the funds the variable subaccounts buy shares from if laws or regulations change, the existing funds become unavailable or, in the judgment of American Enterprise Life, the funds are no longer suitable for the subaccounts. We have the right to substitute any funds for those shown under Contract Data, including funds other than those shown under Contract Data. We may also: o add new subaccounts, o combine any two or more subaccounts, o make additional subaccounts investing in additional funds, o transfer assets to and from the subaccounts or the variable account, and o eliminate or close any subaccounts. We would first seek approval of the Securities and Exchange Commission if necessary, and, where required, the insurance regulator of the state where this contract is delivered. Valuation of Assets Fund shares in the variable subaccounts will be valued at their net asset value. Variable Account Accumulation Units The number of accumulation units for each of the variable subaccounts is found by adding the number of accumulation units resulting from: 1. purchase payments and any purchase payment credits allocated to the subaccount; and 2. transfers to the subaccount; and subtracting the number of accumulation units resulting from: 1. transfers from the subaccount; and 2. withdrawals (including withdrawal and other charges) from the subaccount; and 3. contract administrative charge or any rider charge deductions from the subaccount. The number of accumulation units added or subtracted for each of the above transactions is found by dividing (1) by (2) where: 1. is the amount allocated to or deducted from the subaccount; and 2. is the accumulation unit value for the subaccount for the respective valuation period during which we received the purchase payment or transfer value, or during which we deducted transfers, withdrawals, withdrawal or other charges or contract administrative charges. Variable Account Accumulation Unit Value The value of an accumulation unit for each of the variable subaccounts was set at $1 when the first fund shares were bought. The value for any later valuation period is found as follows: The accumulation unit value for each variable subaccount for the last prior valuation period is multiplied by the net investment factor for the same subaccount for the next following valuation period. The result is the accumulation unit value. The value of an accumulation unit may increase or decrease from one valuation period to the next. Net Investment Factor The net investment factor is an index applied to measure the investment performance of a variable subaccount from one valuation period to the next. The net investment factor may be greater or less than one; therefore, the value of an accumulation or annuity unit may increase or decrease. The net investment factor for any such subaccount for any valuation period is determined by: dividing (1) by (2) and subtracting (3) and (4) from the result. This is done where: 1. is the sum of: a. the net asset value per share of the fund held in the variable subaccount determined at the end of the current valuation period; plus b. the per share amount of any dividend or capital gain distribution made by the fund held in the variable subaccount, if the "ex-dividend" date occurs during the current valuation period; and 2. is the net asset value per share of the fund held in the variable subaccount, determined at the end of the last prior valuation period; and 3. is a factor representing the mortality and expense risk charge; and 4. is a factor representing the variable account administrative charge. Mortality and Expense Risk Charge In calculating unit values we will deduct a mortality and expense risk charge from the variable subaccounts. Based on the benefits you elected, the charge ranges from 1.10% to 1.55% on an annual basis of the daily net asset value of the subaccounts. The mortality and expense risk for your contract is shown under Contract Data. This deduction is made to compensate us for assuming the mortality and expense risks under contracts of this type. We estimate that approximately 2/3 of this charge is for assumption of mortality risk and 1/3 is for assumption of expense risk. The deduction will be: 1. made from each variable subaccount; and 2. computed on a daily basis. Variable Account Administrative Charge In calculating unit values, we will deduct a variable account administrative charge from the variable subaccounts equal, on an annual basis, to 0.15% of the daily net asset value. This deduction is made to compensate us for certain administrative and operating expenses for contracts of this type. The deduction will be: 1. made from each variable subaccount; and 2. computed on a daily basis. Annuity Unit Value The value of an annuity unit for each variable subaccount was arbitrarily set at $1 when the first fund shares were bought. The value for any later valuation period is found as follows: 1. the annuity unit value for each variable subaccount for the last prior valuation period is multiplied by the net investment factor for the subaccount for the valuation period for which the annuity unit value is being calculated. 2. the result is multiplied by an interest factor. This is done to neutralize the assumed investment rate which is built into the annuity tables on Page 17. Withdrawal Provisions Withdrawal By written request and subject to the rules below you may: 1. withdraw this contract for the total withdrawal value; or 2. partially withdraw this contract for a part of the withdrawal value. Rules for Withdrawal All withdrawals will have the following conditions. 1. You must apply by written request or other method agreed to by us: a. while this contract is in force; and b. prior to the earlier of beginning an annuity payment plan or the death of the annuitant or owner. 2. You must withdraw an amount equal to at least $500. Each variable subaccount value and the fixed account value after a partial withdrawal must be either $0 or at least $50. 3. The amount withdrawn, less any charges, will normally be mailed to you within seven days of the receipt of your written request and this contract, if required. For withdrawals from the fixed account, we have the right to defer payment to you for up to six months from the date we receive your request. 4. For partial withdrawals, if you do not specify from which account the withdrawal is to be made, the withdrawal will be made from the variable subaccounts and the fixed account(s) in the same proportion as your interest in each bears to the contract value. 5. Any amounts withdrawn and charges which may apply cannot be repaid. Upon withdrawal for the full withdrawal value this contract will terminate. We may require that you return the contract to us before we pay the full withdrawal value. Withdrawal Value The withdrawal value at any time will be: 1. the contract value; 2. plus or minus any applicable market value adjustment; 3. minus the full $30 contract administrative charge; 4. minus any withdrawal charge; 5. minus any purchase payment credits that have not vested as indicated under Contract Data. Withdrawal Charge If you withdraw all or a part of your contract, you may be subject to a withdrawal charge. A withdrawal charge applies if all or a part of the contract value you withdraw is from payments received that are still in the withdrawal charge period indicated under Contract Data. Refer to Waiver of Withdrawal Charges for situations when withdrawal charges are not deducted. We determine your withdrawal charge by multiplying each of your payments withdrawn by the applicable withdrawal charge percentage, and then totalling the withdrawal charges. For a partial withdrawal that is subject to a withdrawal charge, the amount we actually withdraw from your contract value will be the amount you request plus any applicable withdrawal charge. The withdrawal charge is applied to this total amount. We pay you the amount you requested. The withdrawal charge percentage depends upon the number of years since you made the payment(s) withdrawn as shown under Contract Data. Market Value Adjustment With respect to the Guarantee Period Accounts, any amount withdrawn, transferred or annuitized prior to the end of that guarantee period may be subject to a Market Value Adjustment. The Market Value Adjustment will be calculated by multiplying the amount withdrawn, transferred or annuitized by the formula described below: Amount x ( 1 + i ) n/12 ----------------------- ( 1 + j + .001 ) Where: i = rate earned in the account from which funds are being transferred j = current rate for a new Guarantee Period equal to the remaining term in the current Guarantee Period n = number of months remaining in the current Guarantee Period (rounded up) There will be no Market Value Adjustment on withdrawals from Guarantee Period Account(s) in the following situations: (1) Death Benefit; (2) amounts withdrawn to pay fees or charges; (3) amounts withdrawn from the Guarantee Period Account(s) within 30 days after the end of the Guarantee Period; and (4) on amounts transferred from the DCA Fixed Account(s) Option. Waiver of Withdrawal Charges Withdrawal charges are waived for all of the following. 1. In each contract year, the greater of: a. Withdrawals during the year totaling up to 10% of your prior contract anniversary contract value, or b. Contract earnings. ("Contract earnings" is defined as the contract value less purchase payments not previously withdrawn.) 2. Withdrawals made if both you and the annuitant were under age 76 on the contract date, and you provide proof satisfactory to us that, as of the date you request the withdrawal, you or the annuitant are confined to a hospital or nursing home, and have been for the prior 60 days. To qualify, the nursing home must: a. be licensed by an appropriate licensing agency to provide nursing services; and b. provide 24-hour-a-day nursing services; and c. have a doctor available for emergency situations; and d. have a nurse on duty or call at all times; and e. maintain clinical records; and f. have appropriate methods for administering drugs. 3. Withdrawal charges are waived if you or the annuitant are diagnosed in the second or later contract years as disabled with a medical condition that with reasonable medical certainty will result in death within 12 months or less from the date of the licensed physician's statement. You must provide us with a licensed physician's statement containing the terminal illness diagnosis and the date the terminal illness was initially diagnosed. 4. IRA required minimum distributions, for those amounts required to be distributed from this contract only. 5. Annuity payment plan payments. 6. Payments made in the event of the death of the owner or annuitant. Withdrawal Order We use this order to determine withdrawal charges. 1. First, withdrawals up to 10% of your prior contract anniversary contract value not previously withdrawn during this contract year. (No withdrawal charge.) 2. Next, withdrawals are from amounts representing contract earnings - if any - in excess of the annual 10% free withdrawal amount. In the first contract year, amounts representing contract earnings - if any - shall be withdrawn first. (No withdrawal charge.) 3. Next, withdrawals are from purchase payments received prior to the withdrawal charge period shown in the schedule under contract Data, and not previously withdrawn. (No withdrawal charge.) 4. Last, withdrawals are from purchase payments received that are still within the withdrawal charge period shown in the schedule under Contract Data. We withdraw these payments on a "first-in, first-out" (FIFO) basis. There is a withdrawal charge on these payments. Suspension or Delay in Payment of Withdrawal We have the right to suspend or delay the date of any withdrawal payment from the variable subaccounts for any period: 1. when the New York Stock Exchange is closed; or 2. when trading on the New York Stock Exchange is restricted; or 3. when an emergency exists as a result of which: a. disposal of securities held in the variable subaccounts is not reasonably practical; or b. it is not reasonably practical to fairly determine the value of the net assets of the variable subaccounts; or 4. during any other period when the Securities and Exchange Commission, by order, so permits for the protection of security holders. Rules and regulations of the Securities and Exchange Commission will govern as to whether the conditions set forth in 2 and 3 exist. Annuity Provisions Annuitization When annuitization occurs, the contract value, less any applicable Market Value Adjustment will be applied to make annuity payments. The first payment will be made as of the retirement date. This date is shown under Contract Data. Before payments begin we will require satisfactory proof that the annuitant is alive. We may also require that you exchange this contract for a supplemental contract which provides the annuity payments. Change of Retirement Date You may change the retirement date shown for this contract. Tell us the new date by written request. If you select a new date, it must be at least 30 days after we receive your written request at our administrative office. The maximum retirement date on an IRA contract is the later of: 1. the April 1 following the calendar year in which the annuitant attains age 70 1/2; or 2. such other date which satisfies the minimum distribution requirements under the Code, its regulations, and/or promulgations by the Internal Revenue Service; or 3. such other date as agreed upon by us. Notwithstanding the above, and for all nonqualified contracts, the maximum retirement date is the later of: 1. the annuitant's 85th birthday; or 2. the 10th contract anniversary. Annuity Payment Plans Annuity payments may be made on a fixed dollar basis, a variable basis or a combination of both. You can schedule receipt of annuity payments according to one of the Plans A through E below or another plan agreed to by us. If this is an IRA, payment amounts, durations and life expectancy calculations must comply with Section 401(a)(9) of the Code and the Regulations thereunder and generally must: 1. provide for payments over your life or over your and your beneficiary's lives; or 2. provide for payments over a period which does not exceed your life expectancy and/or the life expectancy of you and your beneficiary; and 3. meet the minimum incidental death benefit requirements under the Code and all related laws and regulations which are then in effect. The rules described in the "Payment of IRA Contract Death Benefit Before Annuitization" section for determining life expectancy will apply in determining the amount of these distributions, except that the life expectancy of you and your beneficiary will be initially determined on the basis of your attained ages in the year you reach 701/2. IRA annuity payments must be nonincreasing, or may increase only for a variable life annuity as provided in Treasury Regulation Section 1.401(a)(9)-1, Q&A F-3. An appropriate annuity payment plan is intended to satisfy the following requirements that otherwise apply: the annual distribution required to be made by your IRA required beginning date is for the calendar year in which you reached age 70 1/2; annual payments for subsequent years, including the year in which your IRA required beginning date occurs, must be made by December 31 of that year. You shall have the sole responsibility for electing an annuity payment plan that complies with this Contract and applicable law. Plan A -- This provides monthly annuity payments during the lifetime of the annuitant. No payments will be made after the annuitant dies. Plan B -- This provides monthly annuity payments during the lifetime of the annuitant with a guarantee by us that payments will be made for a period of at least five, 10 or 15 years. You must select the guaranteed period. Plan C --This provides monthly annuity payments during the lifetime of the annuitant with a guarantee by us that payments will be made for a certain number of months. We determine the number of months by dividing the amount applied under this plan by the amount of the first monthly annuity payment. Plan D -- Monthly annuity payments will be paid during the lifetime of the annuitant and joint annuitant. When either the annuitant or the joint annuitant dies we will continue to make monthly payments during the lifetime of the survivor. No payments will be made after the death of both the annuitant and joint annuitant. Plan E -- This provides monthly annuity payments for a period of years. The period of years may be no less than 10 nor more than 30. You may select the plan by written request to us at least 30 days before the retirement date. If at least 30 days before the retirement date we have not received at our administrative office your written request to select a plan, we will make payments according to Plan B with payments guaranteed for 10 years. If the amount to be applied to a plan would not provide a monthly payment of at least $20, we have the right to change the frequency of the payment or to make a lump sum payment of the contract value. Allocation of Contract Values at Annuitization At the time of annuitization under an Annuity Payment Plan, you may reallocate your contract value to the One Year Fixed Account to provide fixed dollar payments and/or among the variable subaccounts, to provide variable annuity payments. We reserve the right to limit the number of variable subaccounts used at any one time during annuitization. The Guarantee Period Accounts are not available after annuitization. Fixed Annuity A fixed annuity is an annuity with payments that are guaranteed by us as to dollar amount. Fixed annuity payments remain the same. At annuitization the fixed account contract value will be applied to the applicable Annuity Table. This will be done in accordance with the payment plan chosen. The minimum amount payable for each $1,000 so applied is shown in Table B on Page 18. Variable Annuity A variable annuity is an annuity with payments which: 1. are not predetermined or guaranteed as to dollar amount; and 2. vary in amount with the investment experience of the variable subaccounts. Determination of the First Variable Annuity Payment At annuitization, the variable account contract value will be applied to the applicable Annuity Table. This will be done: 1. on the valuation date on or next preceding the seventh calendar day before the retirement date; and 2. in accordance with the payment plan chosen. The amount payable for the first payment for each $1,000 so applied is shown in Table A on Page 18. Variable Annuity Payments After the First Payment Variable annuity payments after the first payment vary in amount. The amount changes with the investment performance of the variable subaccounts. The dollar amount of variable annuity payments after the first is not fixed. It may change from month to month. The dollar amount of such payments is determined as follows. 1. The dollar amount of the first annuity payment is divided by the value of an annuity unit as of the valuation date on or next preceding the seventh calendar day before the retirement date. This result establishes the number of annuity units for each monthly annuity payment after the first payment. This number of annuity units remains fixed during the annuity payment period. 2. The fixed number of annuity units is multiplied by the annuity unit value as of the valuation date on or next preceding the seventh calendar day before the date the payment is due. The result establishes the dollar amount of the payment. We guarantee that the dollar amount of each payment after the first will not be affected by variations in expenses or mortality experience. Exchange of Annuity Units After annuity payments begin, annuity units of any variable subaccount may be exchanged for units of any of the other variable subaccounts. This may be done no more than once a year. We reserve the right to limit the number of variable subaccounts used at any one time. Once annuity payments start no exchanges may be made to or from any fixed annuity. Tables of Annuity Rates Table A below shows the amount of the first monthly variable annuity payment, based on a 5% assumed investment return, for each $1,000 of value applied under any payment plan. The amount of the first and all subsequent monthly fixed dollar annuity payments for each $1,000 of value applied under any payment plan will be based on our fixed dollar Table of Annuity Rates in effect at annuitization. Such rates are guaranteed to be not less than those shown in Table B. The amount of such annuity payments under Plans A, B and C will depend upon the sex and age of the annuitant at annuitization. The amount of such annuity payments under Plan D will depend upon the sex and the age of the annuitant and the joint annuitant at annuitization. Table A - Dollar Amount of First Monthly Variable Annuity Payment Per $1,000 Applied
Plan A Plan B Plan C Plan D - - - -------------------------------------------------------------------------------------------------------------------------- Age Life Income Life Income with Life Income Joint & Survivor at Beginning Non-Refund Five Years Ten Years Fifteen Years Installment Non-Refund Annui- In Certain Certain Certain Refund Male & Female tization Year Male Female Male Female Male Female Male Female Male Female Same Age Age 65 2005 6.49 5.85 6.44 5.83 6.29 5.77 6.06 5.66 6.13 5.67 5.34 2010 6.40 5.78 6.35 5.76 6.22 5.71 6.00 5.61 6.06 5.61 5.30 2015 6.31 5.72 6.27 5.70 6.15 5.65 5.95 5.56 6.00 5.56 5.25 2020 6.23 5.66 6.19 5.64 6.08 5.60 5.90 5.52 5.93 5.51 5.21 2025 6.15 5.60 6.12 5.59 6.01 5.54 5.84 5.47 5.88 5.47 5.18 2030 6.08 5.55 6.05 5.53 5.95 5.50 5.80 5.43 5.82 5.43 5.14 Age 70 2005 7.41 6.54 7.29 6.50 6.98 6.36 6.54 6.14 6.79 6.22 5.85 2010 7.28 6.45 7.17 6.41 6.88 6.28 6.48 6.08 6.70 6.15 5.78 2015 7.16 6.35 7.06 6.32 6.80 6.21 6.42 6.03 6.61 6.08 5.72 2020 7.04 6.27 6.95 6.24 6.71 6.14 6.37 5.97 6.53 6.01 5.66 2025 6.93 6.19 6.85 6.16 6.63 6.07 6.31 5.92 6.45 5.95 5.61 2030 6.83 6.11 6.76 6.09 6.55 6.01 6.26 5.87 6.38 5.90 5.56 Age 75 2005 8.67 7.58 8.42 7.47 7.78 7.15 7.02 6.70 7.65 6.99 6.59 2010 8.49 7.43 8.26 7.34 7.68 7.05 6.97 6.63 7.53 6.89 6.49 2015 8.32 7.30 8.11 7.21 7.58 6.96 6.91 6.57 7.42 6.80 6.40 2020 8.16 7.18 7.97 7.10 7.48 6.87 6.86 6.51 7.31 6.71 6.31 2025 8.00 7.06 7.83 6.99 7.38 6.78 6.81 6.46 7.21 6.62 6.24 2030 7.86 6.95 7.70 6.89 7.29 6.70 6.75 6.40 7.12 6.55 6.16 Age 85 2005 13.01 11.44 11.71 10.69 9.46 9.09 7.69 7.60 10.30 9.50 9.30 2010 12.65 11.12 11.48 10.45 9.38 9.00 7.67 7.58 10.11 9.32 9.09 2015 12.31 10.82 11.26 10.23 9.30 8.90 7.66 7.56 9.93 9.15 8.90 2020 11.99 10.55 11.04 10.02 9.22 8.80 7.64 7.53 9.76 9.00 8.72 2025 11.70 10.29 10.84 9.83 9.15 8.71 7.62 7.51 9.60 8.85 8.55 2030 11.42 10.06 10.64 9.64 9.07 8.62 7.61 7.48 9.45 8.72 8.40 Table A above is based on the "1983 Individual Annuitant Mortality Table A" with 100% Projection Scale G and a 5% assumed investment return. Annuity rates for any year, age, or any combination of year, age and sex not shown above, will be calculated on the same basis as those rates shown in the Table above. Such rates will be furnished by us upon request. Amounts shown in the Table below are based on a 5% assumed investment return.
Plan E - Dollar Amount of First Monthly Variable Annuity Payment Per $1,000 Applied
- - - ------------------------------------------------------------------------------------------------------ Years Payable Monthly Payment Years Payable Monthly Payment Years Payable Monthly Payment 10 10.51 17 7.20 24 5.88 11 9.77 18 6.94 25 5.76 12 9.16 19 6.71 26 5.65 13 8.64 20 6.51 27 5.54 14 8.20 21 6.33 28 5.45 15 7.82 22 6.17 29 5.36 16 7.49 23 6.02 30 5.28
Table B - Dollar Amounts of Each Monthly Fixed Dollar Annuity Payment Per $1,000 Applied
Plan A Plan B Plan C Plan D - - - ------------------------------------------------------------------------------------------------------------------------ Settlement Life Income Life Income with Life Income Joint & Survivor Beginning Non-Refund Five Years Ten Years Fifteen Years Installment Non-Refund Settlement In Certain Certain Certain Refund Male & Female Age Year Male Female Male Female Male Female Male Female Male Female Same Age Age 65 2005 5.30 4.68 5.26 4.66 5.15 4.62 4.95 4.53 4.84 4.43 4.20 2010 5.21 4.61 5.17 4.60 5.07 4.55 4.89 4.48 4.77 4.38 4.15 2015 5.12 4.55 5.09 4.53 4.99 4.49 4.83 4.42 4.71 4.34 4.11 2020 5.04 4.48 5.01 4.47 4.92 4.44 4.77 4.38 4.66 4.29 4.07 2025 4.96 4.43 4.94 4.42 4.86 4.39 4.72 4.33 4.60 4.25 4.03 2030 4.89 4.37 4.87 4.37 4.79 4.34 4.67 4.29 4.55 4.21 3.99 Age 70 2005 6.21 5.38 6.12 5.35 5.87 5.24 5.48 5.05 5.45 4.97 4.74 2010 6.08 5.29 6.01 5.26 5.77 5.16 5.41 4.99 5.37 4.90 4.67 2015 5.96 5.20 5.89 5.17 5.68 5.08 5.35 4.93 5.29 4.84 4.61 2020 5.85 5.11 5.79 5.09 5.59 5.01 5.29 4.87 5.22 4.78 4.55 2025 5.75 5.03 5.69 5.01 5.51 4.94 5.23 4.82 5.15 4.72 4.49 2030 5.64 4.96 5.59 4.94 5.43 4.88 5.17 4.76 5.08 4.67 4.44 Age 75 2005 7.47 6.42 7.27 6.33 6.72 6.07 6.00 5.65 6.24 5.68 5.50 2010 7.29 6.28 7.11 6.20 6.61 5.97 5.94 5.59 6.14 5.60 5.40 2015 7.12 6.15 6.96 6.08 6.50 5.87 5.88 5.52 6.04 5.51 5.31 2020 6.96 6.03 6.82 5.97 6.40 5.78 5.83 5.46 5.95 5.43 5.23 2025 6.81 5.91 6.68 5.86 6.30 5.69 5.77 5.40 5.86 5.36 5.15 2030 6.67 5.81 6.55 5.76 6.21 5.60 5.72 5.34 5.77 5.29 5.08 Age 85 2005 11.77 10.25 10.64 9.60 8.51 8.12 6.73 6.64 8.66 7.97 8.24 2010 11.42 9.94 10.40 9.37 8.42 8.02 6.71 6.61 8.50 7.82 8.03 2015 11.09 9.65 10.18 9.15 8.34 7.91 6.70 6.59 8.35 7.68 7.84 2020 10.78 9.38 9.96 8.94 8.26 7.81 6.68 6.56 8.20 7.55 7.66 2025 10.49 9.14 9.75 8.74 8.18 7.72 6.66 6.54 8.06 7.42 7.50 2030 10.22 8.91 9.56 8.56 8.09 7.62 6.65 6.51 7.94 7.31 7.35 Table B above is based on the "1983 Individual Annuitant Mortality Table A" at 3.0% with 100% Projection Scale G. Annuity rates for any year, age, or any combination of year, age and sex not shown above, will be calculated on the same basis as those rates shown in the Table above. Such rates will be furnished by us upon request. Amounts shown in the Table below are based on a 3.0% annual effective interest rate.
Plan E - Dollar Amount of Each Monthly Fixed Dollar Annuity Payment Per $1,000 Applied
- - - ------------------------------------------------------------------------------------------------------ Years Payable Monthly Payment Years Payable Monthly Payment Years Payable Monthly Payment 10 9.61 17 6.23 24 4.84 11 8.86 18 5.96 25 4.71 12 8.24 19 5.73 26 4.59 13 7.71 20 5.51 27 4.47 14 7.26 21 5.32 28 4.37 15 6.87 22 5.15 29 4.27 16 6.53 23 4.99 30 4.18
Deferred Annuity Contract --------------------------------------------------- ------------------- Administrative Offices: 80 South Eighth Street P.O. Box 534 American Minneapolis, MN 55440 Enterprise Life o Flexible Purchase Payment o Investment Experience Reflected in Benefits o Optional Fixed Dollar or Variable Accumulation Values and Annuity Payments o Annuity Payments to Begin on the Retirement Date o This Contract is Nonparticipating - Dividends Are Not Payable EX-99.4.3.-EDBR 6 ENHANCED DEATH BENEFIT RIDER (FORM 44213) ENHANCED DEATH BENEFIT RIDER The "Death Benefits Before Annuitization" provision of the annuity contract to which this rider is attached is hereby deleted and replaced with the following. Enhanced Death Benefits Before Annuitization An enhanced death benefit is payable to the beneficiary upon the earlier death of you or the annuitant while this contract is in force and prior to annuitization. We will pay the beneficiary the greatest of the following amounts less any applicable purchase payment credits that have not vested: 1. the contract value as of the date we receive proof of death; or 2. the total payments and any applicable purchase payment credits made to the contract minus adjustments for partial withdrawals; or 3. the highest contract value on any prior contract anniversary before your or the annuitant's 81st birthday, plus any purchase payments and purchase payment credits made since that contract anniversary and less any "adjustments for partial withdrawals" since that contract anniversary; After either your or the annuitant's 81st birthday, this value will only change due to additional payments and any applicable purchase payment credits or "adjustments for partial withdrawals"; or 4. the variable account 5% floor. Adjustment for Partial Withdrawals Adjustments for partial withdrawals are calculated for each partial withdrawal as the product of (a) times (b) where: (a) is the ratio of the amount of the partial withdrawal (including any withdrawal charges) to the contract value on the date of (but prior to) the partial withdrawal. (b) is the benefit calculated from (2) and (3) on the date of (but prior to) the partial withdrawal. The Variable Account 5% Floor Prior to the earlier of your or the annuitant's 81st birthday, the Variable Account 5% Floor is equal to the sum of the value in the fixed account plus the variable account floor. On your first contract anniversary, the variable account floor is established by accumulating your initial purchase payment and any applicable purchase payment credits to the subaccounts at 5%. On any day that you allocate additional amounts to or withdraw or transfer amounts from the subaccounts, we adjust the floor by adding the additional amounts and subtracting the adjusted withdrawals or adjusted transfers. On each contract anniversary prior to the earlier of your or the annuitant's 81st birthday, we increase the variable account floor by accumulating the prior contract anniversary's floor at 5%. On the contract anniversary following the earlier of your or the annuitant's 81st birthday, the Variable Account 5% Floor is the floor on that anniversary increased by additional purchase payments and any applicable purchase payment credits since that anniversary and reduced by adjusted withdrawals or adjusted transfers since that anniversary. We calculate the adjusted withdrawals or adjusted transfers as the result of (a) times (b) where: (a) is the ratio of the amount of withdrawal (including any withdrawal charges) or transfers from the subaccounts to the total in the subaccounts on the date of (but prior to) the withdrawal or transfers; and (b) is the variable account floor on the date of (but prior to) the withdrawal or transfer. Any amounts payable or applied by us as described in the sections below will be based on the contract values as of the valuation date on or next following the date on which due proof of death is received at our Administrative Office. This Rider is effective as of the contract date of this contract unless a different date is shown here. American Enterprise Life Insurance Company Secretary EX-99.4.4-GMIBR 7 (FORM 44214) GUARANTEED MINIMUM INCOME BENEFIT RIDER This rider is made part of the annuity contract to which it is attached. This rider is subject to all of the provisions in the annuity contract that do not conflict with the provisions of this rider. Guaranteed Minimum Income Benefit If you selected the Guaranteed Minimum Income Benefit Rider option, it will be indicated under Contract Data. It can only be selected with the Enhanced Death Benefit Rider. The rider guarantees a minimum amount of a fixed annuity lifetime income during the annuity payout period, the option of a variable annuity payout, with a guaranteed minimum initial payment or a combination of the two options, if the contract has been in force for at least ten contract years. Fixed annuity payouts under this rider will occur at the guaranteed annuity purchase rates stated in Table B in the contract. First year payments from the variable annuity payout option will be determined using the same factors as the fixed annuity payout option. Subsequent payments after the first year are based on the initial payment and will be higher or lower than the initial payment if the investment performance of the subaccounts selected is greater or less than an annual return of 5%. The Guaranteed Income Benefit Base establishes a floor, which when higher than the contract value, can result in a higher annuity payout level. The Guaranteed Income Benefit Base, less any applicable premium tax, is the value that will be used to determine minimum annuity payouts, if the rider is exercised. We do not deduct any withdrawal charges under the payout plans provided for this rider. Guaranteed Income Benefit Base If the rider is effective on the contract date, the Guaranteed Income Benefit Base is equal to the death benefit amount under the Enhanced Death Benefit Rider except to the extent subsequent premiums are not included in the calculation. We reserve the right to exclude subsequent premiums paid in the last five years before exercise of the benefit, in the calculation of the Guaranteed Income Benefit Base. If the rider is effective on a contract anniversary date, the Guaranteed Income Benefit Base is calculated using the contract value on that anniversary as the initial premium. All purchase payments, withdrawals and transfers made prior to that anniversary date are ignored. Conditions On Election Of The Rider The following conditions apply to the election of the rider: o You must elect the Enhanced Death Benefit Rider option, and o The annuitant must be age 75 or younger on the rider effective date. Fund Selection To Continue The Rider You may allocate your purchase payments to any of the subaccounts or fixed accounts offered in the contract. However, we reserve the right to limit the amount in specified subaccounts as indicated under Contract Data. If we do so, we will send you written notice and ask that you reallocate your contract value so that the limitation is satisfied within 60 days. If, after 60 days, the limitation is not satisfied by your contract, the rider will be terminated. Exercising The Rider The following conditions apply to the exercising of the rider: o You may only exercise this rider within 30 days after any contract anniversary following the expiration of the ten year waiting period from the effective date of the rider, and o The annuitant on the retirement date must be between 50 to 86 years old, and o You can only take an annuity payout in one of the following annuity payout plans: o Plan A -- Life Annuity-No Refund o Plan B -- Life Annuity with Ten Years Certain o Plan D -- Joint and Last Survivor Life Annuity-No Refund Contingent Event Benefits If the annuitant satisfies the conditions for the waiver of withdrawal charges in the event of disability, terminal illness or a confinement in a nursing home or hospital (see "Waiver of Withdrawal Charges" in the contract) you can exercise the rider at any time. In this event, you can take up to 50% of the Guaranteed Income Benefit Base as a lump sum. The remainder of the Guaranteed Income Benefit Base can be used for annuity payouts under the terms above with regard to annuitant age at retirement date, the annuity payout plans and the annuity factors. The annuitant can also be changed for the payouts. Charges for the Rider The charge for this rider is deducted once a year from your contract value on your contract anniversary. We pro-rate this charge among the subaccounts and fixed accounts in the same proportion your interest in each account bears to your total contract value. This charge is shown under Contract Data and is multiplied against the result of (a)+(b)-(c), where (a) is the Guaranteed Income Benefit Base (b) is any adjusted transfers from the subaccounts to the fixed accounts made in the last six months (c) is the total contract value in the fixed accounts. The result of (b) minus (c) will not be greater than zero. If the contract is terminated for any reason or when annuity payouts begin, we will deduct the fee at that time, adjusted for the number of calendar days coverage was in place during the contract year. Terminating The Rider The following conditions apply to the termination of the rider: o You may terminate the rider within 30 days following the first and fifth contract anniversaries, after the effective date of the rider. o You may terminate the rider any time after the 10th anniversary after the effective date of the rider. o The rider will terminate on the date you make a full withdrawal from the contract, or annuity payouts begin, or on the date that a death benefit is payable. o The rider will terminate on the contract anniversary after the annuitant's 86th birthday. This Rider is effective as of the contract date of this contract unless a different date is shown here. American Enterprise Life Insurance Company Secretary EX-99.4.5-DWWC 8 (FORM 44215) DISABILITY WAIVER OF WITHDRAWAL CHARGES RIDER This rider is made part of the annuity contract to which it is attached. It shall become part of the Withdrawal Provisions section of the contract. Disability Waiver of Withdrawal Charges We will waive the Withdrawal Charges for withdrawals taken if you or the annuitant: 1. Become disabled within the meaning of IRCss.72(m)(7) after the contract date of the contract; 2. Are receiving Social Security disability or state long-term disability benefits; and 3. Are 70 years old or younger on the date of withdrawal. We must receive due proof of the items above at the time of your request which includes, but is not limited to, a legible photocopy of the payments described in item (2), the application for such payments that meet the above criteria with regard to dates, and a signed letter from you that you or the annuitant meet the above criteria. This Rider is effective as of the contract date of this contract. American Enterprise Life Insurance Company Secretary EX-99.4.6-UWWC 9 UNEMPLOYMENT WAIVER (FORM 44216) UNEMPLOYMENT WAIVER OF WITHDRAWAL CHARGES RIDER This rider is made part of the annuity contract to which it is attached. It shall become part of the Withdrawal Provisions section of the contract. Unemployment Waiver of Withdrawal Charges If you or the annuitant become unemployed at least one year after the contract date, you can withdraw, once per contract year, the amount shown in (a) or (b) below without withdrawal charges: (a) 25% of your prior contract anniversary value (or $10,000 if greater) if the unemployment condition as defined in this rider is met for at least 30 straight days; or (b) 50% of your prior contract anniversary value (or $10,000 if greater) if the unemployment condition as defined in this rider is met for at least 180 straight days. The unemployment condition shall be met if the unemployed person is currently receiving unemployment compensation from a government unit of the United States, whether state or federal. We must receive due proof of the unemployment compensation at the time of your request each year which includes, but is not limited to, a legible photocopy of payments that meet the above criteria with regard to dates and a signed letter from you that you or the annuitant meet the above criteria. This benefit does not impact any tax liabilities or IRS penalties incurred as a result of a withdrawal. You or the annuitant are responsible for all such liabilities and penalties. This Rider is effective as of the contract date of this contract. American Enterprise Life Insurance Company Secretary EX-99.5-APPL 10 VARIABLE ANNUITY APPLICATION (FORM 44211) [ ABC ] Variable Annuity Application American Enterprise Life Insurance Company Administrative Offices: 80 South Eighth Street P.O. Box 534 Minneapolis, MN 55440 - - - ------------------------------------------------------------------------------- 1. Annuitant Full Name (First, Middle Initial, Last) - - - ------------------------------------------------------------------------------- Address (Street Address or P.O. Box, City, State, Zip) - - - ------------------------------------------------------------------------------- Citizenship: [ ] U.S. [ ] Other (Country)_______________ - - - ------------------------------------------------------------------------------- Sex Date of Birth Social Security Number (Month/Day/Year) (Tax Identification Number) [ ] M / / [ ] F - - - ------------------------------------------------------------------------------- 2. Owner (check one) [ ] Same as Annuitant (Do not complete owner information below) [ ] Joint with Annuitant (Spouse only)-Not Available for IRA [ ] Other - - - ------------------------------------------------------------------------------- Full Name (First, Middle Initial, Last) - - - ------------------------------------------------------------------------------- Address (Street Address or P.O. Box, City, State, Zip) - - - ------------------------------------------------------------------------------- Relationship to the Annuitant - - - ------------------------------------------------------------------------------- Sex Date of Birth Social Security Number (Month/Day/Year) (Tax Identification Number) [ ] M / / [ ] F - - - ------------------------------------------------------------------------------- For joint spousal owners, the annuitant's Social Security number will be used for tax reporting purposes unless you specify otherwise under Remarks. - - - ------------------------------------------------------------------------------- 3. Primary Beneficiary (Name, relationship to the Annuitant; if unrelated, include Social Security number and date of birth) - - - ------------------------------------------------------------------------------- Contingent Beneficiary (Name, relationship to the Annuitant; if unrelated, include Social Security number and date of birth) - - - ------------------------------------------------------------------------------- 4. Annuity Plan (check one) [ ] Nonqualified [ ] Traditional [ ] IRA SEP-IRA [ ] Roth IRA { [ ] TSA Rollover } If IRA (check and complete applicable types) [ ] Traditional IRA: Amount $_______ for _______ (year) [ ] Traditional IRA: Amount $_______ for _______ (year) [ ] SEP-IRA: Amount $_______ for _______ (year) [ ] SEP-IRA: Amount $_______ for _______ (year) [ ] Roth Contributory: Amount $_______ for _______ (year) [ ] Roth Contributory: Amount $_______ for _______ (year) [ ] Rollover IRA: Amount $_________ [ ] Trustee to Trustee IRA: Amount $_________ [ ] Roth Conversion IRA: Amount $_______ - - - ------------------------------------------------------------------------------- 5. Products (Complete Section A or B) A. [Wells Fargo Advantage] VA Contract [ ] 7 Year Surrender Charge Optional Riders: [ ] Enhanced Death Benefit Rider [ ] Guaranteed Minimum Income Benefit Rider (must also select EDBR) [ ] 5 Year Surrender Charge Optional Riders: [ ] Enhanced Death Benefit Rider [ ] Guaranteed Minimum Income Benefit Rider (must also select EDBR) B. [Wells Fargo Advantage Credit] VA Contract [ ] 8 Year Surrender Charge Optional Riders: [ ] Enhanced Death Benefit Rider [ ] Guaranteed Minimum Income Benefit Rider (must also select EDBR) [ ] 6 Year Surrender Charge Optional Riders: [ ] Enhanced Death Benefit Rider [ ] Guaranteed Minimum Income Benefit Rider (must also select EDBR) - - - ------------------------------------------------------------------------------- APPLICATION CONTINUES -> - - - ------------------------------------------------------------------------------- 6. Purchase Payments Initial Purchase Payment $_________________ Payment Allocation*: Fixed Account ___% AEL One-Year Fixed Account Guarantee Period Accounts (GPA) __% 2 Year GPA Account __% 3 Year GPA Account __% 4 Year GPA Account __% 5 Year GPA Account __% 6 Year GPA Account __% 7 Year GPA Account __% 8 Year GPA Account __% 9 Year GPA Account __% 10 Year GPA Account
- - - ------------------------------------- ----------------------------------- ----------------------------------- CATEGORY 1 CATEGORY 3 CATEGORY 5 - - - ------------------------------------- ----------------------------------- ----------------------------------- - - - ------------------------------------- ----------------------------------- ----------------------------------- __% Fund 1 __% Fund 13 __% Fund 25 - - - ------------------------------------- ----------------------------------- ----------------------------------- - - - ------------------------------------- ----------------------------------- ----------------------------------- __% Fund 2 __% Fund 14 __% Fund 26 - - - ------------------------------------- ----------------------------------- ----------------------------------- - - - ------------------------------------- ----------------------------------- ----------------------------------- __% Fund 3 __% Fund 15 __% Fund 27 - - - ------------------------------------- ----------------------------------- ----------------------------------- - - - ------------------------------------- ----------------------------------- ----------------------------------- __% Fund 4 __% Fund 16 __% Fund 28 - - - ------------------------------------- ----------------------------------- ----------------------------------- - - - ------------------------------------- ----------------------------------- ----------------------------------- __% Fund 5 __% Fund 17 __% Fund 29 - - - ------------------------------------- ----------------------------------- ----------------------------------- - - - ------------------------------------- ----------------------------------- ----------------------------------- __% Fund 6 __% Fund 18 __% Fund 30 - - - ------------------------------------- ----------------------------------- ----------------------------------- - - - ------------------------------------- ----------------------------------- ----------------------------------- CATEGORY 2 CATEGORY 4 CATEGORY 6 - - - ------------------------------------- ----------------------------------- ----------------------------------- - - - ------------------------------------- ----------------------------------- ----------------------------------- __% Fund 7 __% Fund 19 __% Fund 31 - - - ------------------------------------- ----------------------------------- ----------------------------------- - - - ------------------------------------- ----------------------------------- ----------------------------------- __% Fund 8 __% Fund 20 __% Fund 32 - - - ------------------------------------- ----------------------------------- ----------------------------------- - - - ------------------------------------- ----------------------------------- ----------------------------------- __% Fund 9 __% Fund 21 __% Fund 33 - - - ------------------------------------- ----------------------------------- ----------------------------------- - - - ------------------------------------- ----------------------------------- ----------------------------------- __% Fund 10 __% Fund 22 __% Fund 34 - - - ------------------------------------- ----------------------------------- ----------------------------------- - - - ------------------------------------- ----------------------------------- ----------------------------------- __% Fund 11 __% Fund 23 __% Fund 35 - - - ------------------------------------- ----------------------------------- ----------------------------------- - - - ------------------------------------- ----------------------------------- ----------------------------------- __% Fund 12 __% Fund 24 __% Fund 36 - - - ------------------------------------- ----------------------------------- ----------------------------------- - - - ------------------------------------- ----------------------------------- ----------------------------------- __% Fund 37 - - - ------------------------------------- ----------------------------------- ----------------------------------- - - - ------------------------------------- ----------------------------------- ----------------------------------- __% Fund 38 - - - ------------------------------------- ----------------------------------- ----------------------------------- - - - ------------------------------------- ----------------------------------- ----------------------------------- __% Fund 39 - - - ------------------------------------- ----------------------------------- -----------------------------------
*Must be whole numbers and total 100%. Your above payment allocation instructions will remain in effect for any future payments you make until you change your instructions. - - - ------------------------------------------------------------------------------- 7. Replacement Will the annuity applied for replace any existing insurance or annuity? [ ] Yes [ ] No If Yes, provide details - company, contract number, amount, reason - under Remarks. - - - ------------------------------------------------------------------------------- 8. Remarks and Special Instructions (including special mailing instructions) - - - ------------------------------------------------------------------------------- 9. It Is Agreed That: 1. All statements and answers given above are true and complete to the best of my/our knowledge. 2. Only an officer of American Enterprise Life Insurance Company can modify any annuity contract or waive any requirement in this application. 3. If joint spousal owners are named, ownership will be in joint tenancy with right of survivorship unless prohibited by state of settlement or specified otherwise in Remarks above. 4. I/we acknowledge receipt of the current prospectuses for the variable annuity. 5. I/we understand that earnings and values, when based on the investment experience of a variable fund, portfolio, account or subaccount, are not guaranteed and may both increase or decrease. 6. Tax law requires that all non-qualified deferred annuity contracts issued by the same company, to the same policyholder (owner), during the same calendar year are to be treated as a single, unified contract. The amount of income included and taxed in a distribution (or a transaction deemed a distribution under tax law) taken from any one of such contracts is determined by summing all such contracts together. Signatures - - - --------------------------- Location (City/State) - - - --------------------------- Date x__________________________ Annuitant Signature x________________________________ Owner Signature (if other than annuitant) x________________________________ Licensed Agent Signature x________________________________ Joint Owner (if any) Signature - - - ------------------------------------------------------------------------------ 10. State Specific Information / Fraud Warnings: For applicants in Arizona: Write to us if you want information about your annuity contract benefits and provisions. We'll promptly send your requested information. If for any reason you are not satisfied with the contract, you may return it to us or our agent within 10 days after receiving it. We will refund an amount equal to the sum of the contract value and any premium tax charges and the contract will then be void. For applicants in Arkansas, Kentucky, Maine, New Mexico, Ohio and Pennsylvania: Any person who knowingly and with intent to defraud any insurance company or other person files an application for insurance or statement of claim containing any materially false information or conceals for the purpose of misleading, information concerning any fact material thereto commits a fraudulent insurance act, which is a crime and subjects such person to criminal and civil penalties. For applicants in Colorado: Any person who, with intent to defraud or knowing that he or she is facilitating a fraud against an insurer, submits an application or files a claim containing a false or deceptive statement, may be guilty of insurance fraud. For applicants in District of Columbia: WARNING: It is a crime to provide false or misleading information to an insurer for the purpose of defrauding the insurer or any other person. Penalties include imprisonment and/or fines. In addition, an insurer may deny insurance benefits if false information materially related to a claim was provided by the applicant. For applicants in Florida: Any person who knowingly and with intent to injure, defraud, or deceive any insurer files a statement of claim or an application containing any false, incomplete, or misleading information is guilty of a felony or the third degree. Agent's Printed Name:____________ Agent's Florida License ID#_______ For applicants in Louisiana: Any person who knowingly presents a false or fraudulent claim for payment of a loss or benefit or knowingly presents false information in an application for insurance is guilty of a crime and may be subject to fines and confinement in prison. For applicants in New Jersey: Any person who knowingly files a statement of claim containing any false or misleading information is subject to criminal and civil penalties. - - - ------------------------------------------------------------------------------- 11. Social Security or Taxpayer Identification Number Certification. You certify, under the penalties of perjury as required by Form W-9 of the Internal Revenue Service, that: (1) The number shown on this form is your contract taxpayer identification number (or you are waiting for a number to be issued to you), and (2) You are not subject to backup withholding because: (a) you are exempt from backup withholding, or (b) you have not been notified by the Internal Revenue Service that you are subject to backup withholding as a result of a failure to report all interest or dividends, or (c) the IRS has notified you that you are no longer subject to backup withholding. You must cross out item 2 above if you have been notified by the IRS that you are currently subject to backup withholding because of underreporting interest of dividends on your tax return. The Internal Revenue Service does not require your consent to any provision of this document other than the certification required to avoid backup withholding. x______________________ Owner Signature x________________________________ Joint Owner Signature (if any) x______________________ Date Please complete Agent's Report that follows.
- - - ------------------------------------------------------------------------------ 12. Agent's Report (Type of Print) Agent's Name______________________ Agent's Social Security Number__________________ Agency Name and Number (if applicable)_____________________________________________ Telephone Number ( )__________________ Fax Number ( )____________________ Branch Address___________________________ Sale Location___________________________
I hereby certify that I personally solicited this application; that the application and this report are complete and accurate to the best of my knowledge and belief. To the best of my knowledge, this application [ ] does [ ] does not involve replacement of existing life insurance or annuities. (If replacement is involved, I have provided details - company, contract number, amount, reason - under Remarks and have completed any state replacement requirements including any required state replacement forms). x________________________________ Licensed Agent Signature EX-99.8.1B-AMEND5 11 AMENDMENT NO. 5 TO PARTICIPATION AGMT. AMENDMENT 5 TO PARTICIPATION AGREEMENT Among PUTNAM CAPITAL MANAGER TRUST (now known as Putnam Variable Trust) PUTNAM MUTUAL FUNDS CORP. and AMERICAN ENTERPRISE LIFE INSURANCE COMPANY THIS AMENDMENT 5 TO PARTICIPATION AGREEMENT ("Amendment 5") is made and entered into this 16h day of July, 1999 by and among Putnam Variable Trust (formerly Putnam Capital Manager Trust) (the "Fund"); Putnam Mutual Funds Corp. (the "Distributor"); and American Enterprise Life Insurance Company (the "Company"). WHEREAS, the Company, the Fund and the Distributor are parties to the Participation Agreement dated January 16, 1995, as amended April 30, 1997, October 30, 1997, August 21, 1998 and June 15, 1999 (the "Agreement"); and WHEREAS, the parties now desire to amend the Agreement to add an Authorized Fund, to allow new flexible premium variable annuities and a new flexible premium variable life insurance policy to invest in the Authorized Funds and to permit the Company to use the new names of the Fund in connection with marketing the Contracts; NOW, THEREFORE, in consideration of their mutual promises, the Company, the Fund and the Distributor agree as follows: 1. Amendment to Section 4.6. Section 4.6 is hereby deleted in its entirety and replaced with the following: The Trust and the Underwriter hereby consent to the Company's use of the names "Putnam," "Putnam Variable Trust" and "Putnam VT" in connection with marketing the Contracts, subject to the terms of Sections 4.1 and 4.2. Such consent shall terminate with the termination of this Agreement. 2. Amendment to Schedule A. In accordance with the terms of the Agreement, the parties hereby amend Schedule A to read as follows: Schedule A Contracts American Enterprise Variable Annuity Account, established July 15, 1987. AEL Personal Portfoliosm and AEL Personal Portfolio Plus offer the following Authorized Funds as investment options: Putnam VT Diversified Income Fund - Class IA Shares Putnam VT Growth and Income Fund - Class IA Shares Putnam VT New Opportunities Fund - Class IA Shares Putnam VT High Yield Fund - Class IA Shares AEL Personal Portfolio Plus2 offers the following Authorized Funds as investment options: Putnam VT Diversified Income Fund - Class IB Shares Putnam VT Growth and Income Fund - Class IB Shares Putnam VT High Yield Fund - Class IB Shares Putnam VT Voyager Fund - Class IB Shares AEL Preferredsm, distributed through TCF, offers the following Authorized Funds as investment options: Putnam VT Diversified Income Fund - Class IA Shares Putnam VT Growth and Income Fund - Class IA Shares Putnam VT New Opportunities Fund - Class IA Shares Putnam VT Voyager Fund - Class IA Shares Putnam VT Global Growth Fund - Class IA Shares American Express Platinum Variable Annuitysm offers the following Authorized Funds as investment options: Putnam VT Growth & Income Fund - Class IB Shares Putnam VT International Growth & Income Fund - Class IB Shares Putnam VT Vista Fund - Class IB Shares American Express Signature Variable Annuitysm offers the following Authorized Funds as investment options: Putnam VT Growth and Income Fund - Class IB Shares Putnam VT International New Opportunities Fund - Class IB Shares Putnam VT International Growth Fund - Class IB Shares American Express Pinnacle Variable Annuitysm offers the following Authorized Funds as investment options: Putnam VT Growth and Income Fund - Class IB Shares Putnam VT International Growth Fund - Class IB Shares Putnam VT U. S. Government Fund - Class IB Shares Putnam VT Vista Fund - Class IB Shares Variable Annuity distributed through Wells Fargo offers the following Authorized Funds as investment options: Putnam VT International Growth Fund - Class IB Shares Putnam VT Vista Fund - Class IB Shares American Enterprise Variable Life Account, established July 15, 1987. American Express Signature Variable Universal Lifesm offers the following Authorized Funds as investment options: Putnam VT Growth and Income Fund - Class IB Shares Putnam VT International New Opportunities Fund - Class IB Shares Putnam VT International Growth Fund - Class IB Shares 3. Definitions. Terms not defined in this Amendment 5 will have the meaning as those terms defined in the Agreement. 4. Counterparts. This Amendment 5 may be executed simultaneously in two or more counterparts, each of which taken together will constitute one and the same instrument. IN WITNESS WHEREOF, each of the parties hereto has caused this Amendment 5 to be executed in its name and on its behalf by its duly authorized representatives as of the date specified above. PUTNAM VARIABLE TRUST PUTNAM MUTUAL FUNDS CORP. By:______________________ By:_____________________ Name:____________________ Name:___________________ Title:___________________ Title:__________________ AMERICAN ENTERPRISE LIFE INSURANCE COMPANY ATTEST: By:______________________ By:_____________________ Name:____________________ Name:___________________ Title:___________________ Title:__________________ EX-99.9-OPIN 12 OPINION OF COUNSEL November 3, 1999 American Enterprise Life Insurance Company 80 South Eighth Street P.O. Box 534 Minneapolis, MN 55440-0534 RE: American Enterprise Variable Annuity Account Pre-Effective Amendment No. 1 File No.: 333-85567/811-7195 Ladies and Gentlemen: I am familiar with the establishment of the American Enterprise Variable Annuity Account ("Account"), which is a separate account of American Enterprise Life Insurance Company ("Company") established by the Company's Board of Directors according to applicable insurance law. I also am familiar with the above-referenced Registration Statement filed by the Company on behalf of the Account with the Securities and Exchange Commission. I have made such examination of law and examined such documents and records as in my judgment are necessary and appropriate to enable me to give the following opinion: 1. The Company is duly incorporated, validly existing and in good standing under applicable state law and is duly licensed or qualified to do business in each jurisdiction where it transacts business. The Company has all corporate powers required to carry on its business and to issue the contracts. 2. The Account is a validly created and existing separate account of the Company and is duly authorized to issue the securities registered. 3. The contracts issued by the Company, when offered and sold in accordance with the prospectus contained in the Registration Statement and in compliance with applicable law, will be legally issued and represent binding obligations of the Company in accordance with their terms. I hereby consent to the filing of this opinion as an exhibit to the Registration Statement. Sincerely, /s/ Mary Ellyn Minenko Mary Ellyn Minenko Vice President and Group Counsel EX-99.10-CONIA 13 CONSENT OF INDEPENDENT AUDITORS Consent of Independent Auditors We consent to the reference to our firm under the caption "Experts" in the Prospectuses and under the caption "Independent Auditors" in the Statement of Additional Information and to the use of our report dated February 4, 1999 with respect to the financial statements of American Enterprise Life Insurance Company and to the use of our report dated March 12, 1999 with respect to the financial statements of American Enterprise Variable Annuity Account, included in Pre-Effective Amendment No. 1 to Registration Statement (Form N-4, No. 333-85567) and related Prospectuses for the registration of the Wells Fargo AdvantageSM Variable Annuity and the Wells Fargo AdvantageSM Credit Variable Annuity Contracts to be offered by American Enterprise Life Insurance Company. /s/ Ernst & Young LLP Ernst & Young LLP Minneapolis, Minnesota November 3, 1999 EX-99.13-PERFCAL 14 PERFORMANCE CALCULATIONS American Enterprise Life - Wells Fargo AdvantageSM Variable Annuity Performance Calculations As disclosed in the Fund's prospectus, cumulative total return is the cumulative change in the value of an investment over a specified time period. We assume that income earned by the investment is reinvested. Cumulative Total Return = Ending Total Value - Initial Amount Invested Initial Amount Invested where: Ending Total Value = Initial Investment * ((1 + Gross Total Return) - Contract Charge Factor) and; Contract Charge Factor = Policy Fee Estimated Average Policy Size Gross Total Return = Ending AUV - Initial AUV Initial AUV Average Policy Size = $45,000 Policy Fee = $30 Average annual total return (T) equates the initial amount invested (P) to the ending redeemable value (ERV) over each period (n) in accordance with the formula prescribed by the Securities and Exchange P(1+T)n = ERV. Average annual total return with surrender charge Ending Total Value - Surrender Charge Amount Initial Amount Invested where: Surrender Charge Amount = (Ending Total Value - Free Withdrawal Amount) * Surrender Charge % and; Free Withdrawal Amount is the greater of 10% of the value of the contract on the prior contract anniversary or 100% of earnings on the contract (Ending Total Value - Initial Amount Invested). The surrender charge percentage depends on the number of years since you made the payments that are surrendered, depending on the schedule you selected:
Five year schedule Seven year schedule Years from purchase payment Years from purchase receipt Surrender charge percentage payment receipt Surrender charge percentage percentage 1 8% 1 8% 2 8 2 8 3 6 3 7 4 4 4 6 5 2 4 5 6 0 6 4 7 2 8 0
American Enterprise Life - Wells Fargo AdvantageSM Credit Variable Annuity Performance Calculations As disclosed in the Fund's prospectus, cumulative total return is the cumulative change in the value of an investment over a specified time period. We assume that income earned by the investment is reinvested. Cumulative Total Return = Ending Total Value - Initial Amount Invested Initial Amount Invested where: Ending Total Value = Initial Investment * ((1 + Gross Total Return) - Contract Charge Factor) and; Contract Charge Factor = Policy Fee Estimated Average Policy Size Gross Total Return = Ending AUV - Initial AUV Initial AUV Average Policy Size = $45,000 Policy Fee = $30 Average annual total return (T) equates the initial amount invested (P) to the ending redeemable value (ERV) over each period (n) in accordance with the formula prescribed by the Securities and Exchange P(1+T)n = ERV. Average annual total return with surrender charge Ending Total Value - Surrender Charge Amount Initial Amount Invested where: Surrender Charge Amount = (Ending Total Value - Free Withdrawal Amount) * Surrender Charge % and; Free Withdrawal Amount is the greater of 10% of the value of the contract on the prior contract anniversary or 100% of earnings on the contract (Ending Total Value - Initial Amount Invested). The surrender charge percentage depends on the number of years since you made the payments that are surrendered, depending on the schedule you selected:
Six year schedule Eight year schedule Years from purchase payment Years from purchase receipt Surrender charge percentage payment receipt Surrender charge percentage percentage 1 8% 1 8% 2 8 2 8 3 8 3 8 4 6 4 8 5 4 4 8 6 2 6 6 7 0 7 4 8 2 9 0
EX-99. 15 ACCELERATION LETTER November 3, 1999 Securities and Exchange Commission 450 Fifth Street, N.W. Washington, D.C. 20549-1004 ATTN: Document Control - EDGAR RE: American Enterprise Variable Annuity Account Pre-Effective Amendment No. 1 Registration Statement on Form N-4 File Nos. 333-85567 and 811-7195 Dear Commissioners: American Enterprise Variable Annuity Account , the Registrant, filed Pre-Effective Amendment No. 1, dated November 3, 1999, to the above-referenced Form N-4 Registration Statement. Pursuant to Rule 461 under the Securities Act of 1933, the Principal Underwriter for the Registrant, American Express Financial Advisors Inc., now respectfully requests that the effective date of the Registration be accelerated and that the Registration Statement be declared effective on November 3, 1999, or as soon as practicable thereafter. Yours truly, American Express Financial Advisors, Inc. (Principal Underwriter) /s/ William Stoltzmann William Stoltzmann Vice President and Assistant General Counsel -----END PRIVACY-ENHANCED MESSAGE-----