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Riversource of New York Variable Annuity Account 1, et al. – ‘485BPOS’ on 4/28/05

On:  Thursday, 4/28/05, at 10:07am ET   ·   Effective:  4/29/05   ·   Accession #:  820027-5-377   ·   File #s:  333-00041, 811-07475

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  As Of                Filer                Filing    For·On·As Docs:Size              Issuer               Agent

 4/28/05  Riversource of NY Var Annuity … 1 485BPOS     4/29/05    6:269K                                   Ameriprise Financial Inc
          Acl Variable Annuity Account 1

Post-Effective Amendment
Filing Table of Contents

Document/Exhibit                   Description                      Pages   Size 

 1: 485BPOS     Acl Variable Annuity Account 1                        76    471K 
 2: EX-99       Exhibit Index                                          1      5K 
 4: EX-99.10 AUD CONSENT  Consent of Independent Registered Public     1      7K 
                          Accounting Firm                                        
 5: EX-99.13.1 PWR ATTY  Power of Attorney                             2±    10K 
 6: EX-99.13.2 PWR ATTY  Power of Attorney                             1      5K 
 3: EX-99.9 OPIN COUNSEL  Opinion of Counsel and Consent               1      8K 


485BPOS   —   Acl Variable Annuity Account 1
Document Table of Contents

Page (sequential) | (alphabetic) Top
 
11st Page   -   Filing Submission
3Table of Contents
4Key Terms
"American Centurion Life
"Fixed Account
5The Certificate in Brief
"Buying Your Certificate
6Surrenders
"Changing Ownership
"Benefits in Case of Death
"Taxes
"Expense Summary
9Condensed Financial Information (Unaudited)
10Financial Statements
11The Variable Account and the Funds
"The funds
16Charges
17Valuing Your Investment
18Making the Most of Your Certificate
"Transferring Between Accounts
19Transfer policies
22Qualified Annuities
23The Annuity Payout Period
"Annuity Payout Plans
25Required minimum distributions
26Voting Rights
"Substitution of Investments
27About the Service Providers
"Principal Underwriter
28Table of Contents of the Statement of Additional Information
32Calculating Annuity Payouts
"Rating Agencies
"Independent Registered Public Accounting Firm
64Item 24. Financial Statements and Exhibits
66Item 25. Directors and Officers of the Depositor (American Centurion Life Assurance Company)
67Item 26. Persons Controlled by or Under Common Control with the Depositor or Registrant (Continued)
"Item 27. Number of Contract owners
"Item 28. Indemnification
73Item 30. Location of Accounts and Records
"Item 31. Management Services
"Item 32. Undertakings
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SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 FORM N-4 REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933 Post-Effective Amendment No. 10 (File No. 333-00041) [x] ------- and/or REGISTRATION STATEMENT UNDER THE INVESTMENT COMPANY ACT OF 1940 Amendment No. 11 (File No. 811-07475) [x] ------- (Check appropriate box or boxes) ACL VARIABLE ANNUITY ACCOUNT 1 -------------------------------------------------------------------------------- (Exact Name of Registrant) American Centurion Life Assurance Company -------------------------------------------------------------------------------- (Name of Depositor) 20 Madison Avenue Extension, Albany NY 12203 -------------------------------------------------------------------------------- (Address of Depositor's Principal Executive Offices) (Zip Code) Depositor's Telephone Number, including Area Code (612) 671-3678 -------------------------------------------------------------------------------- Mary Ellyn Minenko, 50607 AXP Financial Center, Minneapolis, MN 55474 -------------------------------------------------------------------------------- (Name and Address of Agent for Service) It is proposed that this filing will become effective (check appropriate box) [ ] immediately upon filing pursuant to paragraph (b) [X] on April 29, 2005 pursuant to paragraph (b) [ ] 60 days after filing pursuant to paragraph (a)(1) [ ] on (date) pursuant to paragraph (a)(1) If appropriate check the following box: [ ] this post-effective amendment designates a new effective date for a previously filed post-effective amendment.
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PROSPECTUS APRIL 29, 2005 PRIVILEGED ASSETS(R) SELECT ANNUITY GROUP FLEXIBLE PREMIUM DEFERRED COMBINATION FIXED/VARIABLE ANNUITY ISSUED BY: AMERICAN CENTURION LIFE ASSURANCE COMPANY (AMERICAN CENTURION LIFE) 20 Madison Avenue Extension Albany, NY 12203 Telephone: (518) 452-4150 (Albany area) (800) 633-3563 ACL VARIABLE ANNUITY ACCOUNT 1 This prospectus contains information that you should know before investing. Prospectuses are also available for: o American Express(R) Variable Portfolio Funds o AIM Variable Insurance Funds o American Century(R) Variable Portfolios, Inc. o Credit Suisse Trust o Janus Aspen Series: Institutional Shares Please read the prospectuses carefully and keep them for future reference. THE SECURITIES AND EXCHANGE COMMISSION (SEC) HAS NOT APPROVED OR DISAPPROVED THESE SECURITIES OR PASSED UPON THE ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE. AN INVESTMENT IN THIS CERTIFICATE 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 CERTIFICATE 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 Centurion Life at the telephone number and address listed above. The table of contents of the SAI is on the last page of this prospectus. The SEC maintains an Internet site. This prospectus, the SAI and other information about the product are available on the EDGAR Database on the SEC's Internet site at (http://www.sec.gov). Variable annuities are insurance products that are complex investment vehicles. Before you invest, be sure to ask about the variable annuity's features, benefits, risks and fees, and whether the variable annuity is appropriate for you, based upon your financial situation and objectives. This prospectus provides a general description of the certificate. Your actual certificate and any riders or endorsements are the controlling documents. American Centurion Life has not authorized any person to give any information or to make any representation regarding the certificate other than those contained in this prospectus or the fund prospectuses. Do not rely on any such information or representations. -------------------------------------------------------------------------------- 1 ACL PRIVILEGED ASSETS SELECT ANNUITY -- PROSPECTUS
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TABLE OF CONTENTS KEY TERMS .....................................................................3 THE CERTIFICATE IN BRIEF ......................................................4 EXPENSE SUMMARY ...............................................................5 CONDENSED FINANCIAL INFORMATION (UNAUDITED) ...................................8 FINANCIAL STATEMENTS ..........................................................9 THE VARIABLE ACCOUNT AND THE FUNDS ...........................................10 THE FIXED ACCOUNT ............................................................13 BUYING YOUR CERTIFICATE ......................................................13 CHARGES ......................................................................15 VALUING YOUR INVESTMENT ......................................................16 MAKING THE MOST OF YOUR CERTIFICATE ..........................................17 SURRENDERS ...................................................................20 CHANGING OWNERSHIP ...........................................................20 BENEFITS IN CASE OF DEATH ....................................................21 THE ANNUITY PAYOUT PERIOD ....................................................22 TAXES ........................................................................23 VOTING RIGHTS ................................................................25 SUBSTITUTION OF INVESTMENTS ..................................................25 ABOUT THE SERVICE PROVIDERS ..................................................26 TABLE OF CONTENTS OF THE STATEMENT OF ADDITIONAL INFORMATION .................27 CORPORATE REORGANIZATION On Feb. 1, 2005, American Express Company announced plans to pursue a spin-off of 100% of the common stock of American Express Financial Corporation (AEFC). AEFC is the parent company of IDS Life Insurance Company (IDS Life). IDS Life is the parent company of American Centurion Life. American Centurion Life issues your certificate. The spin-off of AEFC, expected to be completed in the third quarter of 2005, is subject to certain regulatory and other approvals, as well as final approval by the board of directors of American Express Company. Upon completion of the spin-off, AEFC will be a publicly traded company separate from American Express Company. AEFC will continue to own all the outstanding stock of IDS Life and will replace American Express Company as the ultimate control person of American Centurion Life. -------------------------------------------------------------------------------- 2 ACL PRIVILEGED ASSETS SELECT ANNUITY -- PROSPECTUS
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KEY TERMS THESE TERMS CAN HELP YOU UNDERSTAND DETAILS ABOUT YOUR CERTIFICATE. ACCUMULATION UNIT: A measure of the value of each subaccount before annuity payouts begin. AMERICAN CENTURION LIFE: In this prospectus, "we," "us," "our" and "American Centurion Life" refer to American Centurion Life Assurance Company. ANNUITANT: The person on whose life or life expectancy the annuity payouts are based. ANNUITY PAYOUTS: A fixed amount paid at regular intervals under one of several plans. ANNUITY START DATE: The date when annuity payouts are scheduled to begin. This date is established when you start your certificate. You can change it in the future. BENEFICIARY: The person you designate to receive benefits in case of the owner's or annuitant's death while the certificate is in force. CERTIFICATE VALUE: The total value of your certificate before we deduct any applicable charges. CERTIFICATE YEAR: A period of 12 months, starting on the effective date of your certificate and on each anniversary of the effective date. CLOSE OF BUSINESS: The time the New York Stock Exchange (NYSE) closes (4 p.m. Eastern time unless the NYSE closes earlier). CODE: The Internal Revenue Code of 1986, as amended. FIXED ACCOUNT: An account to which you may allocate purchase payments. Amounts you allocate to this account earn interest at rates that we declare periodically. FUNDS: Investment options under your certificate. You may allocate your purchase payments into subaccounts investing in shares of any or all of these funds. OWNER (YOU, YOUR): The person who controls the certificate (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 certificate's benefits. QUALIFIED ANNUITY: A certificate that you purchase to fund one of the following tax-deferred retirement plans that is subject to applicable federal law and any rules of the plan itself: o Individual Retirement Annuities (IRAs) under Section 408(b) of the Code, including rollovers from qualified plans o Simplified Employee Pension (SEP) plans under Section 408(k) of the Code A qualified annuity will not provide any necessary or additional tax deferral if it is used to fund a retirement plan that is already tax deferred. All other certificates are considered NONQUALIFIED ANNUITIES. SURRENDER VALUE: The amount you are entitled to receive if you make a full surrender from your certificate. It is the certificate value minus any applicable charges. VALUATION DATE: Any normal business day, Monday through Friday, on which the NYSE is open, up to the close of business. At the close of business, the next valuation date begins. We calculate the accumulation unit value of each subaccount on each valuation date. If we receive your purchase payment or any transaction request (such as a transfer or surrender request) at our home office before the close of business, we will process your payment or transaction using the accumulation unit value we calculate on the valuation date we received your payment or transaction request. On the other hand, if we receive your purchase payment or transaction request at our home office at or after the close of business, we will process your payment or transaction using the accumulation unit value we calculate on the next valuation date. If you make a transaction request by telephone (including by fax), you must have completed your transaction by the close of business in order for us to process it using the accumulation unit value we calculate on that valuation date. If you were not able to complete your transaction before the close of business for any reason, including telephone service interruptions or delays due to high call volume, we will process your transaction using the accumulation unit value we calculate on the next valuation date. VARIABLE ACCOUNT: Consists of separate subaccounts to which you may allocate purchase payments; each subaccount invests in shares of one fund. The value of your investment in each subaccount changes with the performance of the particular fund. -------------------------------------------------------------------------------- 3 ACL PRIVILEGED ASSETS SELECT ANNUITY -- PROSPECTUS
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THE CERTIFICATE IN BRIEF PURPOSE: The purpose of the certificate is to allow you to accumulate money for retirement. You do this by making one or more purchase payments. You may allocate your purchase payments to the fixed account and/or subaccounts under the certificate. These accounts, in turn, may earn returns that increase the value of the certificate. Beginning at a specified time in the future called the retirement date, the certificate provides lifetime or other forms of payout of your certificate value on a fixed basis. It may not be advantageous for you to purchase this certificate in exchange for, or in addition to, an existing annuity or life insurance policy. Generally, you can exchange one annuity for another in a "tax-free" exchange under Section 1035 of the Code. You also generally can exchange a life insurance policy for an annuity. However, before making an exchange, you should compare the contract and certificate carefully because the features and benefits may be different. Fees and charges may be higher or lower on your old contract than on this certificate. You may have to pay a surrender charge when you exchange out of your old contract. If the exchange does not qualify for Section 1035 treatment, you also may have to pay federal income tax on the exchange. You should not exchange your old contract for this certificate, or buy this certificate in addition to your old contract, unless you determine it is in your best interest. TAX-DEFERRED RETIREMENT PLANS: Most annuities have a tax-deferred feature. So do many retirement plans under the Code. As a result, when you use a qualified annuity to fund a retirement plan that is tax-deferred, your certificate will not provide any necessary or additional tax deferral for that retirement plan. A qualified annuity has features other than tax deferral that may help you reach your retirement goals. In addition, the Code subjects retirement plans including IRAs to required withdrawals triggered at a certain age. These mandatory withdrawals are called required minimum distributions (RMDs). RMDs may reduce the value of certain death benefits (see "Taxes -- Qualified Annuities -- Required minimum distributions"). You should consult your tax advisor before you purchase the certificate as a qualified annuity for an explanation of the potential tax implications to you. FREE LOOK PERIOD: You may return your certificate for a full refund within 30 days after you receive it. You must invest the portion of the purchase payment you allocate to the variable account in the AXP(R) Variable Portfolio - Cash Management Fund subaccount for the period we estimate or calculate your free look right to be in existence (generally 35 days after the certificate issue date.) If you choose not to keep your certificate, return it to us within the free look period. We will cancel the certificate and we promptly will refund the greater of (1) your purchase payment without investment earnings, or (2) your certificate value plus any amount we deducted from your payment prior to allocation to the variable account or the fixed account. 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. 10) o the fixed account, which earns interest at a rate that we adjust periodically. (p. 13) BUYING YOUR CERTIFICATE: You can purchase a certificate by submitting a complete application. Applications are subject to acceptance at our home office. You may buy a nonqualified annuity or a qualified annuity. You must make an initial lump-sum purchase payment. You have the option of making additional purchase payments in the future. PURCHASE PAYMENTS: MINIMUM ALLOWABLE PURCHASE PAYMENTS: If paying by installments under a scheduled payment plan: $100 per month $50 biweekly If paying by any other method: $2,000 initial payment for nonqualified annuities $1,000 initial payment for qualified annuities $100 for any additional payments Installments must total at least $1,000 in the first year. MAXIMUM ALLOWABLE PURCHASE PAYMENTS: For the first year: $1,000,000 for issue ages through 75 $500,000 for issue ages 76 to 85 For each subsequent year: $50,000 -------------------------------------------------------------------------------- 4 ACL PRIVILEGED ASSETS SELECT ANNUITY -- PROSPECTUS
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TRANSFERS: Subject to certain restrictions, you currently may redistribute your certificate value among the accounts until annuity payouts begin. You may establish automated transfers among the accounts. (p. 17) SURRENDERS: You may surrender all or part of your certificate value at any time before the annuity start date. You may also establish systematic surrenders. There is no surrender charge. Surrenders may be taxable (and include a 10% IRS penalty if made prior to your reaching age 59 1/2) and may have other tax consequences; also, certain restrictions apply. (p. 20) 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. 20) BENEFITS IN CASE OF DEATH: If you or the annuitant die before annuity payouts begin, we will pay the beneficiary the greater of the certificate value or total purchase payments made less partial surrenders. (p. 21) ANNUITY PAYOUTS: You can apply your certificate value to an annuity payout plan that begins on the annuity start 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 IRS requirements. Payouts will be made on a fixed basis. (p. 22) TAXES: Generally, income earned on your certificate value grows tax deferred until you surrender it or begin to receive payouts. (Under certain circumstances, IRS penalty taxes may apply.) The tax treatment of qualified and nonqualified annuities differs. Even if you direct payouts to someone else, you will be taxed on the income if you are the owner. (p. 23) LIMITATIONS ON USE OF CERTIFICATE: If mandated by applicable law, including, but not limited to, federal anti-money laundering laws, we may be required to reject a purchase payment. We may also be required to block an owner's access to certificate values. We may also be required to satisfy other statutory obligations. Under these circumstances we may refuse to implement requests for transfers, surrenders or death benefits until instructions are received from the appropriate governmental authority or a court of competent jurisdiction. EXPENSE SUMMARY THE FOLLOWING TABLES DESCRIBE THE FEES AND EXPENSES YOU WILL PAY WHEN BUYING, OWNING AND SURRENDERING THE CERTIFICATE. THE FIRST TABLE DESCRIBES THE FEES AND EXPENSES YOU WILL PAY AT THE TIME THAT YOU BUY THE CERTIFICATE OR SURRENDER THE CERTIFICATE. CERTIFICATE OWNER TRANSACTION EXPENSES SURRENDER CHARGE 0% THE NEXT TABLES DESCRIBE THE FEES AND EXPENSES THAT YOU WILL PAY PERIODICALLY DURING THE TIME THAT YOU OWN THE CERTIFICATE, NOT INCLUDING FUND FEES AND EXPENSES. ANNUAL CERTIFICATE ADMINISTRATIVE CHARGE $30 (We currently waive this charge when purchase payments less partial surrenders is at least $10,000.) ANNUAL VARIABLE ACCOUNT EXPENSES (As a percentage of average daily subaccount value) MORTALITY AND EXPENSE RISK FEE 1% -------------------------------------------------------------------------------- 5 ACL PRIVILEGED ASSETS SELECT ANNUITY -- PROSPECTUS
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ANNUAL OPERATING EXPENSES OF THE FUNDS THE NEXT TWO TABLES DESCRIBE THE OPERATING EXPENSES OF THE FUNDS THAT YOU MAY PAY PERIODICALLY DURING THE TIME THAT YOU OWN THE CERTIFICATE. THE FIRST TABLE SHOWS THE MINIMUM AND MAXIMUM TOTAL OPERATING EXPENSES CHARGED BY THE FUNDS FOR THE LAST FISCAL YEAR. THE SECOND TABLE SHOWS THE FEES AND EXPENSES CHARGED BY EACH FUND FOR THE LAST FISCAL YEAR. MORE DETAIL CONCERNING EACH FUND'S FEES AND EXPENSES IS CONTAINED IN THE PROSPECTUS FOR EACH FUND. [Enlarge/Download Table] MINIMUM AND MAXIMUM TOTAL ANNUAL OPERATING EXPENSES FOR THE FUNDS (Including management fee, distribution and/or service (12b-1) fees and other expenses) MINIMUM MAXIMUM Total expenses before fee waivers and/or expense reimbursements .63% 1.57% [Enlarge/Download Table] TOTAL ANNUAL OPERATING EXPENSES FOR EACH FUND (Before fee waivers and/or expense reimbursements, if applicable, as a percentage of average daily net assets) MANAGEMENT 12B-1 OTHER FEES FEES EXPENSES TOTAL AXP(R) Variable Portfolio - Cash Management Fund .51% .13% .05% .69%(1) AXP(R) Variable Portfolio - Diversified Bond Fund .60 .13 .08 .81(1) AXP(R) Variable Portfolio - Large Cap Equity Fund .65 .13 .07 .85(1) (previously AXP(R) Variable Portfolio - Capital Resource Fund) AXP(R) Variable Portfolio - Managed Fund .59 .13 .06 .78(1) AXP(R) Variable Portfolio - Strategy Aggressive Fund .51 .13 .08 .72(1) AXP(R) Variable Portfolio - Threadneedle International Fund .75 .13 .10 .98(1) (previously AXP(R) Variable Portfolio - International Fund) AIM V.I. Core Stock Fund, Series I Shares .75 -- .46 1.21(2) (previously INVESCO VIF - Core Equity Fund, Series I Shares) American Century(R) VP Capital Appreciation, Class I 1.00 -- -- 1.00(3) American Century(R) VP Value, Class I .93 -- -- .93(3) Credit Suisse Trust - Global Small Cap Portfolio 1.25 -- .32 1.57(4) (previously Credit Suisse Trust - Global Post-Venture Capital Portfolio) Janus Aspen Series Large Cap Growth Portfolio: Institutional Shares .64 -- .02 .66(5) (previously Janus Aspen Series Growth Portfolio: Institutional Shares) Janus Aspen Series Worldwide Growth Portfolio: Institutional Shares .60 -- .03 .63(5) (1) The Fund's expense figures are based on actual expenses for the fiscal year ended Aug. 31, 2004. (2) Figures shown in the table are for the year ended Dec. 31, 2004 and are expressed as a percentage of Fund average daily net assets. There is no guarantee that actual expenses will be the same as those shown in the table. The Fund's advisor has contractually agreed to waive advisory fees and/or reimburse expenses of Series I shares to the extent necessary to limit Total Annual Fund Operating Expenses (excluding certain items discussed below) of Series I shares to 1.30% of average daily nets assets for each series portfolio of AIM Variable Insurance Funds. In determining the advisor's obligation to waive advisory fees and/or reimburse expenses, the following expenses are not taken into account, and could cause the Total Annual Fund Operating Expenses to exceed the limit stated above: (i) Rule 12b-1 plan fees, if any; (ii) interest; (iii) taxes; (iv) dividend expense on short sales; (v) extraordinary items (these are expenses that are not anticipated to arise from the Fund's day-to day operations), or items designated as such by the Fund's Board of Trustees; (vi) expenses related to a merger or reorganization, as approved by the Fund's Board of Trustees; and (vii) expenses that the Fund has incurred but did not actually pay because of an expense offset arrangement. Currently, the only expense offset arrangements from which the Fund benefits are in the form of credits that the Fund receives from banks where the Fund or its transfer agent has deposit accounts in which it holds uninvested cash. Those credits are used to pay certain expenses incurred by the Fund. The expense limitation is in effect through April 30, 2006. Effective Jan.1, 2005 through Dec. 31, 2009, the adviser has contractually agreed to waive a portion of its advisory fees to the extent that total expenses exceed 1.15 for AIM V.I. Core Stock Fund, Series I Shares average daily net assets. (3) Based on expenses incurred by the Fund, as stated in the most recent shareholder report. The Fund has a stepped fee schedule. As a result, the Fund's management fee generally decreases as fund assets increase. (4) Fee waivers and/or expense reimbursements reduced expenses for the Portfolio, without which performance would be lower. Waivers and/or reimbursements may be discontinued at any time. The expense ratios after the waiver and reimbursements would have been: Credit Suisse Trust - Global Small Cap Portfolio (1.08%, 0%, .32% and 1.40%). (5) Fees and expenses shown were determined based on net assets as of the fiscal year ended Dec. 31, 2004, restated to reflect reductions in the Portfolios' management fees effective July 1, 2004. Expenses for the Portfolios are based upon expenses for the fiscal year ended Dec. 31, 2004. All expenses are shown without the effect of any expense offset arrangements. -------------------------------------------------------------------------------- 6 ACL PRIVILEGED ASSETS SELECT ANNUITY -- PROSPECTUS
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COMPENSATION DISCLOSURE We and/or our affiliates may receive compensation when you allocate purchase payments or certificate value to subaccounts which invest in the funds listed in the table above. The amount of this compensation varies by fund, may be significant and may create potential conflicts of interest. For example, the amount of compensation potentially available under a compensation arrangement may influence our decision on which funds to include or retain in the certificate (see "The Variable Account and the Funds -- The funds"). This compensation is in addition to any revenues we receive from the charges you pay when buying, owning and surrendering the certificate. This compensation may be paid to us and/or our affiliates from various sources including: o fund assets (but only for those funds with 12b-1 plans as disclosed in the table above. See the fund's prospectus for details about these plans. Because 12b-1 fees are paid out of fund assets on an on-going basis, certificate owners who select subaccounts investing in funds that have adopted 12b-1 plans may pay more than certificate owners who select subaccounts investing in funds that have not adopted 12b-1 plans); o assets of the fund's adviser, subadviser or an affiliate of either; o assets of the fund's distributor or an affiliate. In accordance with applicable laws, regulations and the terms of the agreements under which such compensation is paid, we or our affiliates may receive this compensation for various purposes including: o activities or services we or our affiliates provide which assist in the promotion and distribution of the certificates including the funds available under the certificates; o advertising, printing and mailing sales literature, printing and distributing prospectuses and reports; o furnishing personal services to certificate owners, including education of certificate owners, answering routine inquiries regarding a fund, maintaining accounts or providing such other services eligible for service fees as defined under the rules of the National Association of Securities Dealers, Inc. (NASD); o subaccounting, transaction processing, recordkeeping and administrative services. EXAMPLES THESE EXAMPLES ARE INTENDED TO HELP YOU COMPARE THE COST OF INVESTING IN THE CERTIFICATE WITH THE COST OF INVESTING IN OTHER VARIABLE ANNUITY CONTRACTS. THESE COSTS INCLUDE YOUR TRANSACTION EXPENSES, CERTIFICATE ADMINISTRATIVE CHARGES*, VARIABLE ACCOUNT ANNUAL EXPENSES AND FUND FEES AND EXPENSES. THESE EXAMPLES ASSUME THAT YOU INVEST $10,000 IN THE CERTIFICATE FOR THE TIME PERIODS INDICATED. THESE EXAMPLES ALSO ASSUME THAT YOUR INVESTMENT HAS A 5% RETURN EACH YEAR. MAXIMUM EXPENSES. This example assumes the maximum fees and expenses of any of the funds for the last fiscal year. Although your actual costs may be higher or lower, based on this assumption your costs would be: 1 YEAR 3 YEARS 5 YEARS 10 YEARS $276.24 $847.39 $1,444.40 $3,057.79 MINIMUM EXPENSES. This example assumes the minimum fees and expenses of any of the funds for the last fiscal year. Although your actual costs may be higher or lower, based on this assumption your costs would be: 1 YEAR 3 YEARS 5 YEARS 10 YEARS $179.89 $557.12 $958.89 $2,081.41 * In these examples, the $30 administrative charge is approximated as a .125% charge. This percentage was determined by dividing the total amount of the administrative charges collected during the year that are attributable to the certificate by the total average net assets that are attributable to the certificate. -------------------------------------------------------------------------------- 7 ACL PRIVILEGED ASSETS SELECT ANNUITY -- PROSPECTUS
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CONDENSED FINANCIAL INFORMATION (UNAUDITED) The following tables give per-unit information about the financial history of each subaccount. The date in which operations commenced in each price level is noted in parentheses. [Enlarge/Download Table] VARIABLE ACCOUNT CHARGES OF 1.00% OF THE DAILY NET ASSETS OF THE VARIABLE ACCOUNT. Year ended Dec. 31, 2004 2003 2002 2001 2000 1999 1998 1997 1996 ------------------------------------------------------------------------------------------------------------------------------------ AXP(R) Variable Portfolio - Cash Management Fund* (12/9/1996) Accumulation unit value at beginning of period $1.20 $1.21 $1.21 $1.18 $1.12 $1.08 $1.04 $1.00 $1.00 Accumulation unit value at end of period $1.20 $1.20 $1.21 $1.21 $1.18 $1.12 $1.08 $1.04 $1.00 Number of accumulation units outstanding at end of period (000 omitted) 9 9 9 9 8 46 170 189 -- * The 7-day simple and compound yields for AXP(R) Variable Portfolio - Cash Management Fund at Dec. 31, 2004 were 0.53% and 0.53%, respectively. ------------------------------------------------------------------------------------------------------------------------------------ AXP(R) Variable Portfolio - Diversified Bond Fund (12/9/1996) Accumulation unit value at beginning of period $1.29 $1.25 $1.19 $1.12 $1.07 $1.07 $1.06 $0.99 $1.00 Accumulation unit value at end of period $1.34 $1.29 $1.25 $1.19 $1.12 $1.07 $1.07 $1.06 $0.99 Number of accumulation units outstanding at end of period (000 omitted) 21 53 33 30 14 19 21 15 -- ------------------------------------------------------------------------------------------------------------------------------------ AXP(R) Variable Portfolio - Large Cap Equity Fund (12/9/1996) (previously AXP(R) Variable Portfolio - Capital Resource Fund) Accumulation unit value at beginning of period $1.18 $0.92 $1.20 $1.48 $1.81 $1.48 $1.20 $0.98 $1.00 Accumulation unit value at end of period $1.24 $1.18 $0.92 $1.20 $1.48 $1.81 $1.48 $1.20 $0.98 Number of accumulation units outstanding at end of period (000 omitted) 40 53 55 62 75 82 50 23 -- ------------------------------------------------------------------------------------------------------------------------------------ AXP(R) Variable Portfolio - Managed Fund (12/9/1996) Accumulation unit value at beginning of period $1.34 $1.13 $1.31 $1.48 $1.53 $1.34 $1.17 $0.99 $1.00 Accumulation unit value at end of period $1.46 $1.34 $1.13 $1.31 $1.48 $1.53 $1.34 $1.17 $0.99 Number of accumulation units outstanding at end of period (000 omitted) 48 52 57 58 64 69 63 44 -- ------------------------------------------------------------------------------------------------------------------------------------ AXP(R) Variable Portfolio - Strategy Aggressive Fund (12/9/1996) Accumulation unit value at beginning of period $0.88 $0.69 $1.02 $1.54 $1.91 $1.13 $1.11 $1.00 $1.00 Accumulation unit value at end of period $0.95 $0.88 $0.69 $1.02 $1.54 $1.91 $1.13 $1.11 $1.00 Number of accumulation units outstanding at end of period (000 omitted) 62 92 100 129 121 58 65 42 -- ------------------------------------------------------------------------------------------------------------------------------------ AXP(R) Variable Portfolio - Threadneedle International Fund (12/9/1996) (previously AXP(R) Variable Portfolio - International Fund) Accumulation unit value at beginning of period $0.91 $0.72 $0.89 $1.26 $1.69 $1.17 $1.03 $1.01 $1.00 Accumulation unit value at end of period $1.06 $0.91 $0.72 $0.89 $1.26 $1.69 $1.17 $1.03 $1.01 Number of accumulation units outstanding at end of period (000 omitted) 24 17 19 18 15 11 15 14 -- ------------------------------------------------------------------------------------------------------------------------------------ AIM V.I. Core Stock Fund, Series I Shares (12/10/1996) (previously INVESCO VIF - Core Equity Fund, Series I Shares) Accumulation unit value at beginning of period $1.49 $1.23 $1.54 $1.70 $1.64 $1.44 $1.26 $1.00 $1.00 Accumulation unit value at end of period $1.54 $1.49 $1.23 $1.54 $1.70 $1.64 $1.44 $1.26 $1.00 Number of accumulation units outstanding at end of period (000 omitted) 39 68 86 126 140 194 221 155 -- ------------------------------------------------------------------------------------------------------------------------------------ American Century(R) VP Capital Appreciation, Class I (12/10/1996) Accumulation unit value at beginning of period $1.05 $0.88 $1.13 $1.58 $1.46 $0.90 $0.93 $0.97 $1.00 Accumulation unit value at end of period $1.12 $1.05 $0.88 $1.13 $1.58 $1.46 $0.90 $0.93 $0.97 Number of accumulation units outstanding at end of period (000 omitted) 51 57 52 67 85 49 51 42 -- ------------------------------------------------------------------------------------------------------------------------------------ American Century(R) VP Value, Class I (12/10/1996) Accumulation unit value at beginning of period $1.86 $1.46 $1.69 $1.51 $1.29 $1.31 $1.27 $1.01 $1.00 Accumulation unit value at end of period $2.11 $1.86 $1.46 $1.69 $1.51 $1.29 $1.31 $1.27 $1.01 Number of accumulation units outstanding at end of period (000 omitted) 79 134 160 94 26 53 50 33 -- ------------------------------------------------------------------------------------------------------------------------------------ -------------------------------------------------------------------------------- 8 ACL PRIVILEGED ASSETS SELECT ANNUITY -- PROSPECTUS
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[Enlarge/Download Table] VARIABLE ACCOUNT CHARGES OF 1.00% OF THE DAILY NET ASSETS OF THE VARIABLE ACCOUNT. (CONTINUED) Year ended Dec. 31, 2004 2003 2002 2001 2000 1999 1998 1997 1996 ------------------------------------------------------------------------------------------------------------------------------------ Credit Suisse Trust - Global Small Cap Portfolio (12/10/1996) (previously Credit Suisse Trust - Global Post-Venture Capital Portfolio) Accumulation unit value at beginning of period $1.01 $0.69 $1.06 $1.50 $1.87 $1.16 $1.10 $0.98 $1.00 Accumulation unit value at end of period $1.18 $1.01 $0.69 $1.06 $1.50 $1.87 $1.16 $1.10 $0.98 Number of accumulation units outstanding at end of period (000 omitted) 66 67 76 74 68 67 75 65 -- ------------------------------------------------------------------------------------------------------------------------------------ Janus Aspen Series Large Cap Growth Portfolio: Institutional Shares (12/10/1996) (previously Janus Aspen Series Growth Portfolio: Institutional Shares) Accumulation unit value at beginning of period $1.39 $1.06 $1.46 $1.96 $2.32 $1.63 $1.21 $1.00 $1.00 Accumulation unit value at end of period $1.44 $1.39 $1.06 $1.46 $1.96 $2.32 $1.63 $1.21 $1.00 Number of accumulation units outstanding at end of period (000 omitted) 345 365 391 492 594 472 352 230 -- ------------------------------------------------------------------------------------------------------------------------------------ Janus Aspen Series Worldwide Growth Portfolio: Institutional Shares (12/10/1996) Accumulation unit value at beginning of period $1.47 $1.20 $1.63 $2.12 $2.54 $1.56 $1.22 $1.00 $1.00 Accumulation unit value at end of period $1.53 $1.47 $1.20 $1.63 $2.12 $2.54 $1.56 $1.22 $1.00 Number of accumulation units outstanding at end of period (000 omitted) 209 250 286 355 390 462 339 252 -- ------------------------------------------------------------------------------------------------------------------------------------ FINANCIAL STATEMENTS You can find our audited financial statements and the audited financial statements of the subaccounts in the SAI. -------------------------------------------------------------------------------- 9 ACL PRIVILEGED ASSETS SELECT ANNUITY -- PROSPECTUS
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THE VARIABLE ACCOUNT AND THE FUNDS THE VARIABLE ACCOUNT: The variable account was established under New York law on Dec. 1, 1995, 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 Centurion 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. Although the Internal Revenue Service (IRS) has issued some guidance on investor control, the U.S. Treasury and the IRS may continue to examine this aspect of variable contracts and provide additional guidance on investor control. Their concern involves how many investment choices (subaccounts) may be offered by an insurance company and how many exchanges among those subaccounts may be allowed before the certificate owner would be currently taxed on income earned within the certificate. 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 certificate, 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 certificate continues to qualify as an annuity for federal income tax purposes. We reserve the right to modify the certificate as necessary to comply with any new tax laws. THE FUNDS: The certificate currently offers subaccounts investing in shares of the funds listed in the table below. O INVESTMENT OBJECTIVES: The investment managers and advisers 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 available by contacting us at the address or telephone number on the first page of this prospectus. O FUND NAME AND MANAGEMENT: A fund underlying your certificate in which a subaccount invests may have a name, portfolio manager, objectives, strategies and characteristics that are the same or substantially similar to those of a publicly-traded retail mutual fund. Despite these similarities, an underlying fund is not the same as any publicly-traded retail mutual fund. Each underlying fund will have its own unique portfolio holdings, fees, operating expenses and operating results. The results of each underlying fund may differ significantly from any publicly-traded retail mutual fund. O FUND SELECTION: We select the underlying funds in which the subaccounts initially invest and upon any substitution (see "Substitution of Investments"). In doing so, we may consider various objective and subjective factors. These factors include compensation we and our affiliates may receive from a fund's investment adviser, subadviser, distributor or an affiliate. This compensation benefits us and our affiliates (see "About the Service Providers -- Principal Underwriter"). The amount of this compensation differs by fund and depending on the amount of average daily net assets invested in a particular fund, this compensation may be significant. For example, the compensation we receive from affiliates of funds other than the AXP(R) Variable Portfolio Funds currently ranges up to 0.50% of the average daily net assets invested in the fund through this certificate and other contracts we or our affiliates issue. This compensation is in addition to revenues we receive from the charges you pay when buying, owning and surrendering the certificate (see "Expense Summary"). O ALLOCATION OF PURCHASE PAYMENTS AND CERTIFICATE VALUE: Purchase payments and certificate value you allocate to subaccounts investing in any of the AXP(R) Variable Portfolio Funds are generally more profitable for us and our affiliates. For example, we may receive compensation from our affiliates in connection with purchase payments and certificate value you allocate to the AXP(R) Variable Portfolio Funds that exceeds the range disclosed in the previous paragraph for funds our affiliates do not manage. This may influence recommendations your sales representative makes regarding whether you should invest in the certificate, and whether you should allocate purchase payments or certificate value to a particular subaccount. O ELIGIBLE PURCHASERS: All funds are available to serve as the underlying investments for variable annuities and variable life insurance policies. The funds are not available to the public (see "Fund name and management" above). Some funds also are available to serve as investment options for tax-deferred retirement plans. It is possible that in the future for tax, regulatory or other reasons, it may be disadvantageous for variable annuity accounts and variable life insurance accounts and/or tax-deferred retirement plans to invest in the available funds simultaneously. Although we and the funds do not currently foresee any such disadvantages, the boards of directors or trustees of each fund will monitor events in order to identify any material conflicts between annuity owners, policy owners and tax-deferred retirement plans and to determine what action, if any, should be taken in response to a conflict. If a board were to conclude that it should establish separate funds for the variable annuity, variable life insurance and tax-deferred retirement plan accounts, you would not bear any expenses associated with establishing separate funds. Please refer to the funds' prospectuses for risk disclosure regarding simultaneous investments by variable annuity, variable life insurance and tax-deferred retirement plan accounts. Each fund intends to comply with the diversification requirements under Section 817(h) of the Code. -------------------------------------------------------------------------------- 10 ACL PRIVILEGED ASSETS SELECT ANNUITY -- PROSPECTUS
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YOU MAY ALLOCATE PURCHASE PAYMENTS AND TRANSFERS TO ANY OR ALL OF THE SUBACCOUNTS OF THE VARIABLE ACCOUNT THAT INVEST IN SHARES OF THE FOLLOWING FUNDS: [Enlarge/Download Table] ------------------------------- ------------------------------------------------------------- --------------------------- FUND NAME INVESTMENT OBJECTIVES AND POLICIES INVESTMENT ADVISER OR MANAGER ------------------------------- ------------------------------------------------------------- --------------------------- AXP(R) Variable Portfolio - Maximum current income consistent with liquidity and AEFC Cash Management Fund stability of principal. Invests primarily in money market instruments, such as marketable debt obligations issued by corporations or the U.S. government or its agencies, bank certificates of deposit, bankers' acceptances, letters of credit, and commercial paper, including asset-backed commercial paper. ------------------------------- ------------------------------------------------------------- --------------------------- AXP(R) Variable Portfolio - High level of current income while attempting to conserve AEFC Diversified Bond Fund the value of the investment and continuing a high level of income for the longest period of time. Under normal market conditions, the Fund invests at least 80% of its net assets in bonds and other debt securities. At least 50% of the Fund's net assets will be invested in securities like those included in the Lehman Brothers Aggregate Bond Index, which are investment grade and denominated in U.S. dollars. The Index includes securities issued by the U.S. government, corporate bonds, and mortgage- and asset-backed securities. Although the Fund emphasizes high- and medium-quality debt securities, it will assume some credit risk to achieve higher yield and/or capital appreciation by buying lower-quality bonds. ------------------------------- ------------------------------------------------------------- --------------------------- AXP(R) Variable Portfolio - Capital appreciation. Under normal market conditions, the AEFC Large Cap Equity Fund Fund invests at least 80% of its net assets in equity securities of companies with market capitalization greater (previously AXP(R) Variable than $5 billion at the time of purchase. Portfolio - Capital Resource Fund) ------------------------------- ------------------------------------------------------------- --------------------------- AXP(R) Variable Portfolio - Maximum total investment return through a combination of AEFC Managed Fund capital growth and current income. Invests primarily in a combination of common and preferred stocks, bonds and other debt securities. ------------------------------- ------------------------------------------------------------- --------------------------- AXP(R) Variable Portfolio - Capital appreciation. Under normal market conditions, at AEFC Strategy Aggressive Fund least 65% of the Fund's total assets are invested in equity securities. ------------------------------- ------------------------------------------------------------- --------------------------- AXP(R) Variable Portfolio - Capital appreciation. Invests primarily in equity AEFC, adviser; Threadneedle International securities of foreign issuers that offer strong growth Threadneedle Fund potential. International Limited, an indirect wholly-owned (previously AXP(R) Variable subsidiary of AEFC, Portfolio - International subadviser. Fund) ------------------------------- ------------------------------------------------------------- --------------------------- -------------------------------------------------------------------------------- 11 ACL PRIVILEGED ASSETS SELECT ANNUITY -- PROSPECTUS
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[Enlarge/Download Table] ------------------------------- ------------------------------------------------------------- --------------------------- FUND NAME INVESTMENT OBJECTIVES AND POLICIES INVESTMENT ADVISER OR MANAGER ------------------------------- ------------------------------------------------------------- --------------------------- AIM V.I. Core Stock Fund, High total return through both growth and current income. A I M Advisors, Inc., Series I Shares The Fund normally invests at least 80% of its assets in advisor; INVESCO common and preferred stocks. At least 50% of common and Institutional (N.A.), (previously INVESCO VIF - preferred stocks which the Fund holds will be dividend Inc., subadvisor. Core Equity Fund, Series I paying. Stocks selected for the Fund generally are expected Shares) to produce income and consistent, stable returns. Although the Fund focuses on the stocks of larger companies with a history of paying dividends, it also may invest in companies that have not paid regular dividends. The Fund's equity investments are limited to equity securities that can be traded easily in the United States. It may however, invest in foreign securities in the form of American Depository Receipts ("ADRs"). ------------------------------- ------------------------------------------------------------- --------------------------- American Century(R) VP Capital growth, with income as a secondary objective. American Century Capital Appreciation, Class I Invests primarily in common stocks that are considered by Investment Management, management to have better-than-average prospects for Inc. appreciation. ------------------------------- ------------------------------------------------------------- --------------------------- American Century(R) VP Value, Capital growth, with income as a secondary objective. American Century Class I Invests primarily in stocks of companies that management Investment Management, believes to be undervalued at the time of purchase. Inc. ------------------------------- ------------------------------------------------------------- --------------------------- Credit Suisse Trust - Global Long-term growth of capital. Invests primarily in equity Credit Suisse Asset Small Cap Portfolio securities of small companies from at least three countries Management, LLC, including the U.S. investment adviser; (previously Credit Suisse Credit Suisse Asset Trust - Global Post-Venture Management Limited ("CSAM Capital Portfolio) London," and "CSAM Australia"), sub-investment adviser. ------------------------------- ------------------------------------------------------------- --------------------------- Janus Aspen Series - Large Long-term growth of capital in a manner consistent with the Janus Capital Cap Growth Portfolio: preservation of capital. Invests under normal circumstances Institutional Shares at least 80% of its net assets in large-sized companies. Large-sized companies are those whose market capitalization (previously Janus Aspen falls within the range of companies in the Russell 1000(R) Series - Growth Portfolio: Index at the time of purchase. Institutional Shares) ------------------------------- ------------------------------------------------------------- --------------------------- Janus Aspen Series - Long-term growth of capital in a manner consistent with the Janus Capital Worldwide Growth Portfolio: preservation of capital. Invests primarily in common stocks Institutional Shares of companies of any size located throughout the world. The Portfolio normally invests in issuers from at least five different countries, including the United States. The Portfolio under unusual circumstances invests in fewer than five countries or even a single country. ------------------------------- ------------------------------------------------------------- --------------------------- -------------------------------------------------------------------------------- 12 ACL PRIVILEGED ASSETS SELECT ANNUITY -- PROSPECTUS
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THE FIXED ACCOUNT You also may allocate purchase payments to the fixed account. We back the principal and interest guarantees relating to the fixed account. These guarantees are based on the continued claims-paying ability of the company. The value of the fixed account increases as we credit interest to the account. Purchase payments and transfers to the fixed account become part of our general account. We credit interest daily and compound it annually. The interest rate we apply to each purchase payment and transfer to the fixed account is guaranteed for one year. Thereafter, we will change the rates from time to time at our discretion. These rates will be based on various factors including, but not limited to, the interest rate environment, returns earned on investments backing these annuities, the rates currently in effect for new and existing company annuities, product design, competition, and the company's revenues and expenses. Interests in the fixed account are not required to be registered with the SEC. The SEC staff does not review the disclosures in this prospectus on the fixed account. Disclosures regarding the fixed account, however, may be subject to certain generally applicable provisions of the federal securities laws relating to the accuracy and completeness of statements made in prospectuses. (See "Making the Most of Your Certificate -- Transfer policies" for restrictions on transfers involving the fixed account.) BUYING YOUR CERTIFICATE Our representative can help you prepare and submit your application. Alternatively, you may ask us for the forms and prepare them yourself. As the owner, you have all rights and may receive all benefits under the certificate. 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. When you apply, you may select: o the fixed account and/or subaccounts in which you want to invest; o how you want to make purchase payments; o the date you want to start receiving annuity payouts (the annuity start date); and o a beneficiary. If your application is complete, we will process it and apply your purchase payment to the fixed account and subaccounts you selected within two business days after we receive it at our home office. If we accept your application, we will send you a certificate. If your application is not complete, you must give us the information to complete it within five business days. If we cannot accept your application within five business days, we will decline it and return your payment unless you specifically ask us to keep the payment and apply it once your application is complete. We will credit additional purchase payments you make to your accounts on the valuation date we receive them. If we receive an additional purchase payment at our home office before the close of business, we will credit any portion of that payment allocated to the subaccounts using the accumulation unit value we calculate on the valuation date we received the payment. If we receive an additional purchase payment at our home office at or after the close of business, we will credit any portion of that payment allocated to the subaccounts using the accumulation unit value we calculate on the next valuation date after we received the payment. THE ANNUITY START DATE Annuity payouts are to begin on the annuity start date. Your selected date can align with your actual retirement from a job, or it can be a different 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, the annuity start date must be: o no earlier than the 30th day after the certificate's effective date; and o no later than the annuitant's 85th birthday. FOR QUALIFIED ANNUITIES, to comply with IRS regulations, the annuity start date generally must be: o by April 1 of the year following the calendar year when the annuitant reaches age 70 1/2. If you satisfy your RMDs in the form of partial surrenders from this certificate, annuity payouts can start as late as, but not later than, the annuitant's 85th birthday. BENEFICIARY If death benefits become payable before the annuity start date while the certificate is in force and before annuity payouts begin, we will pay your named beneficiary all or part of the certificate value. If there is no named beneficiary, then the default provisions of your contract apply. (See "Benefits in Case of Death" for more about beneficiaries.) -------------------------------------------------------------------------------- 13 ACL PRIVILEGED ASSETS SELECT ANNUITY -- PROSPECTUS
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PURCHASE PAYMENTS MINIMUM ALLOWABLE PURCHASE PAYMENTS(1) If paying by installments under a scheduled payment plan: $100 per month $50 biweekly If paying by any other method: $2,000 initial payment for nonqualified annuities $1,000 initial payment for qualified annuities $100 for any additional payments Installments must total at least $1,000 in the first year. (1) If you do not make any purchase payments for the most recent 36 months, and your previous payments total $1,000 or less, we have the right to give you 30 days' written notice and pay you the total value of your certificate in a lump sum. MAXIMUM ALLOWABLE PURCHASE PAYMENTS(2) (for the first year, this is based on your age or the age of the annuitant (whoever is older) on the effective date of the certificate): For the first year: $1,000,000 through age 75 $500,000 for ages 76 to 85 For each subsequent year: $50,000 (2) These limits apply in total to all American Centurion Life annuities and certificates you own. We reserve the right to increase maximum limits or reduce age limits. For qualified annuities the tax-deferred retirement plan's or the Code's limits on annual contributions also apply. HOW TO MAKE PURCHASE PAYMENTS 1 BY LETTER Send your check along with your name and certificate number to: Regular mail: AMERICAN CENTURION LIFE ASSURANCE COMPANY BOX 5550 ALBANY, NY 12205 Express mail: AMERICAN CENTURION LIFE ASSURANCE COMPANY 20 MADISON AVENUE EXTENSION ALBANY, NY 12203 2 BY SCHEDULED PAYMENT PLAN Through: o a bank authorization. 3 OTHER METHOD ACCEPTABLE TO US -------------------------------------------------------------------------------- 14 ACL PRIVILEGED ASSETS SELECT ANNUITY -- PROSPECTUS
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CHARGES ADMINISTRATIVE CHARGE We charge this fee for establishing and maintaining your records. We deduct $30 from the certificate value on your certificate anniversary at the end of each certificate year. We prorate this charge among the subaccounts and the fixed account in the same proportion your interest in each account bears to your total certificate value. We will waive this charge for any certificate year where: o the total purchase payments (less partial surrenders) on the current certificate anniversary is $10,000 or more, or o a death benefit is payable, or o you surrender the certificate in full. This charge does not apply after annuity payouts begin. We reserve the right to impose the administrative charge on all certificates, including those with purchase payments equal to or greater than $10,000. MORTALITY AND EXPENSE RISK FEE We charge this fee daily to the subaccounts. The unit values of your subaccounts reflect this fee and it totals 1% of their average daily net assets on an annual basis. This fee covers the mortality risk and expense risk that we assume. Approximately two-thirds of this amount is for our assumption of mortality risk, and one-third is for our assumption of expense risk. This fee does not apply to the fixed account. Mortality risk arises because of our guarantee to pay a death benefit and our guarantee to make annuity payouts according to the terms of the contract and certificates, 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 the administrative charge may not cover our expenses. We would have to make up any deficit from our general assets. We could profit from the expense risk fee if future expenses are less than expected. The subaccounts pay us the mortality and expense risk fee they accrued as follows: o first, to the extent possible, the subaccounts pay this fee from any dividends distributed from the funds in which they invest; o then, if necessary, the funds redeem shares to cover any remaining fees payable. We may use any profits we realize from the subaccounts' payment to us of the mortality and expense risk fee for any proper corporate purpose, including, among others, payment of distribution (selling) expenses. OTHER INFORMATION ON CHARGES There is no surrender charge if you take a total or a partial surrender from your certificate. In some cases, we may incur lower sales and administrative expenses. In those cases, we may, at our discretion, reduce or eliminate the administrative charge. However, we expect this to occur infrequently. -------------------------------------------------------------------------------- 15 ACL PRIVILEGED ASSETS SELECT ANNUITY -- PROSPECTUS
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VALUING YOUR INVESTMENT We value your fixed account and subaccounts as follows: FIXED ACCOUNT We value the amounts allocated to the fixed account directly in dollars. The fixed account value equals: o the sum of your purchase payments and transfer amounts allocated to the fixed account; o plus interest credited; o minus the sum of amounts surrendered and amounts transferred out, and o minus any prorated portion of the administrative charge. SUBACCOUNTS We convert amounts you allocated to the subaccounts into accumulation units. Each time you make a purchase payment or transfer amounts into one of the subaccounts, we credit a certain number of accumulation units to your certificate for that account. Conversely, we subtract a certain number of accumulation units from your certificate each time you take a partial surrender, transfer amounts out of a subaccount or we assess an administrative charge. The accumulation units are the true measure of investment value in each subaccount during the accumulation period. They are related to, but not the same as, the net asset value of the fund in which the subaccount invests. The dollar value of each accumulation unit can rise or fall daily depending on the variable account expenses, performance of the fund and on certain fund expenses. Here is how we calculate accumulation unit values: NUMBER OF UNITS: to calculate the number of accumulation units for a particular subaccount we divide your investment by the current accumulation unit value. ACCUMULATION UNIT VALUE: the current accumulation unit value for each subaccount equals the last value times the subaccount's current net investment factor. WE DETERMINE THE NET INVESTMENT FACTOR BY: o adding the fund's current net asset value per share, plus the per share amount of any accrued income or capital gain dividends to obtain a current adjusted net asset value per share; then o dividing that sum by the previous adjusted net asset value per share; and o subtracting the percentage factor representing the mortality and expense risk fee from the result. Because the net asset value of the fund may fluctuate, the accumulation unit value may increase or decrease. You bear all the investment risk in a subaccount. FACTORS THAT AFFECT SUBACCOUNT ACCUMULATION UNITS: accumulation units may change in two ways -- in number and in value. The number of accumulation units you own may fluctuate due to: o additional purchase payments you allocate to the subaccounts; o transfers into or out of the subaccounts; o partial surrenders; and/or o deduction of a prorated portion of the administrative charge. Accumulation unit values will fluctuate due to: o changes in fund net asset value; o fund dividends distributed to the subaccounts; o fund capital gains or losses; o fund operating expenses; and o mortality and expense risk fees. -------------------------------------------------------------------------------- 16 ACL PRIVILEGED ASSETS SELECT ANNUITY -- PROSPECTUS
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MAKING THE MOST OF YOUR CERTIFICATE AUTOMATED DOLLAR-COST AVERAGING Currently, you can use automated transfers to take advantage of dollar-cost averaging (investing a fixed amount at regular intervals). For example, you might transfer a set amount monthly from a relatively conservative subaccount to a more aggressive one, or to several others, or from the fixed account to one or more subaccounts. 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. [Download Table] HOW DOLLAR-COST AVERAGING WORKS NUMBER AMOUNT ACCUMULATION OF UNITS MONTH INVESTED UNIT VALUE PURCHASED By investing an equal number of dollars each month ... Jan $ 100 $ 20 5.00 Feb 100 18 5.56 you automatically buy more Mar 100 17 5.88 units when the per unit market price is low ... ----> Apr 100 15 6.67 May 100 16 6.25 Jun 100 18 5.56 Jul 100 17 5.88 Aug 100 19 5.26 and fewer units when the per unit market price is high. ----> Sept 100 21 4.76 Oct 100 20 5.00 You paid an average price of $17.91 per unit over the 10 months, while the average market price actually was $18.10. Dollar-cost averaging does not guarantee that any subaccount will gain in value nor will it protect against a decline in value if market prices fall. Because dollar-cost averaging involves continuous investing, your success will depend upon your willingness to continue to invest regularly through periods of low price levels. Dollar-cost averaging can be an effective way to help meet your long-term goals. For specific features contact our home office. Some restrictions may apply. TRANSFERRING BETWEEN ACCOUNTS You may transfer certificate value from any one subaccount, or the fixed account, to another subaccount before annuity payouts begin. When your request to transfer will be processed depends on when we receive it: o If we receive your transfer request at our home office before the close of business, we will process your transfer using the accumulation unit value we calculate on the valuation date we received your transfer request. o If we receive your transfer request at our home office at or after the close of business, we will process your transfer using the accumulation unit value we calculate on the next valuation date after we received your transfer request. There is no charge for transfers. Before making a transfer, you should consider the risks involved in changing investments. We may suspend or modify transfer privileges at any time. WE SEEK TO PREVENT MARKET TIMING. MARKET TIMING IS FREQUENT OR SHORT-TERM TRADING ACTIVITY. WE DO NOT ACCOMMODATE SHORT-TERM TRADING ACTIVITIES. DO NOT BUY A CERTIFICATE IF YOU WISH TO USE SHORT-TERM TRADING STRATEGIES TO MANAGE YOUR INVESTMENT. Market timing may hurt the performance of an underlying fund in which a subaccount invests in several ways, including but not necessarily limited to: o diluting the value of an investment in an underlying fund in which a subaccount invests; o increasing the transaction costs and expenses of an underlying fund in which a subaccount invests; and, o preventing the investment adviser(s) of an underlying fund in which a subaccount invests from fully investing the assets of the fund in accordance with the fund's investment objectives. Market timing can reduce the value of your investment in the certificate. If market timing causes the returns of an underlying fund to suffer, certificate value you have allocated to a subaccount that invests in that underlying fund will be lower, too. Market timing can cause you, any joint owner of the certificate and your beneficiary(ies) under the certificate a financial loss. -------------------------------------------------------------------------------- 17 ACL PRIVILEGED ASSETS SELECT ANNUITY -- PROSPECTUS
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WE APPLY THE FOLLOWING MARKET TIMING POLICY TO DISCOURAGE FREQUENT TRANSFERS OF CERTIFICATE VALUE AMONG THE SUBACCOUNTS: We try to distinguish market timing from transfers that we believe are not harmful, such as periodic rebalancing for purposes of asset allocation or dollar-cost averaging. There is no set number of transfers that constitutes market timing. Even one transfer in related accounts may be market timing. We seek to restrict the transfer privileges of a certificate owner who makes more than three subaccount transfers in any 90 day period. If we determine, in our sole judgment, that your transfer activity constitutes market timing, we may modify, restrict or suspend your transfer privileges to the extent permitted by applicable law, which may vary based on the state law that applies to your certificate and the terms of your certificate. These restrictions or modifications may include, but not be limited to: o requiring transfer requests to be submitted only by first-class U.S. mail; o not accepting hand-delivered transfer requests or requests made by overnight mail; o not accepting telephone or electronic transfer requests; o requiring a minimum time period between each transfer; o not accepting transfer requests of an agent acting under power of attorney; o limiting the dollar amount that you may transfer at any one time; or o suspending the transfer privilege. Subject to applicable state law and the terms of each certificate, we will apply the policy described above to all certificate owners uniformly in all cases. We will notify you in writing after we impose any modification, restriction or suspension of your transfer rights. We cannot guarantee that we will be able to identify and restrict all market timing activity. Because we exercise discretion in applying the restrictions described above, we cannot guarantee that we will be able to restrict all market timing activity. In addition, state law and the terms of some certificates may prevent us from stopping certain market timing activity. Market timing activity that we are unable to identify and/or restrict may impact the performance of the funds and harm certificate owners. IN ADDITION TO THE MARKET TIMING POLICY WE APPLY TO DISCOURAGE FREQUENT TRANSFERS AMONG THE SUBACCOUNTS, THE FUNDS AVAILABLE AS INVESTMENT OPTIONS UNDER THE CERTIFICATE MAY HAVE ADOPTED THEIR OWN MARKET TIMING POLICIES AND PROCEDURES. MARKET TIMING POLICIES AND PROCEDURES ADOPTED BY UNDERLYING FUNDS MAY AFFECT YOUR INVESTMENT IN THE CERTIFICATE IN SEVERAL WAYS, INCLUDING BUT NOT LIMITED TO: o Each fund may restrict or refuse trading activity that the fund determines, in its sole discretion, represents market timing. o Even if we determine that your transfer activity does not constitute market timing, it is possible that the underlying fund's policy might cause us to reject your transfer request. Orders we place to purchase fund shares for the variable account are subject to acceptance by the fund. We reserve the right to reject without prior notice to you any transfer request if the fund does not accept our order. o Each underlying fund is responsible for its own market timing policy, and we cannot guarantee that we will be able to implement specific market timing policies and procedures that a fund has adopted. As a result, a fund's returns might be adversely affected, and a fund might terminate our right to offer its shares through the variable account. o Funds that are available as investment options under the certificate may also be offered to other intermediaries including unaffiliated insurance company separate accounts. Even if we are able to implement a fund's market timing policies, there can be no guarantee that other eligible purchasers of the fund's shares will be able to do so, and the returns of that fund could be adversely affected. Funds available as investment options under the certificate that invest in securities that trade in overseas securities markets may be at greater risk of loss from market timing, as market timers may seek to take advantage of changes in the values of securities between the close of overseas markets and the close of U.S. markets. Further the risks of market timing may be greater for underlying funds that invest in securities, such as small cap stocks, high yield bonds, or municipal securities, that may be traded infrequently. FOR MORE INFORMATION ABOUT WHETHER A PARTICULAR UNDERLYING FUND HAS ADOPTED A MARKET TIMING POLICY, WHAT THAT POLICY IS IF ONE HAS BEEN ADOPTED, AND THE RISKS THAT MARKET TIMING POSES TO THAT FUND, SEE THAT FUND'S PROSPECTUS. TRANSFER POLICIES o Before annuity payouts begin, you may transfer certificate values between the subaccounts, from the subaccounts to the fixed account or from the fixed account to the subaccounts. o The amount transferred to any one account must be at least $100. -------------------------------------------------------------------------------- 18 ACL PRIVILEGED ASSETS SELECT ANNUITY -- PROSPECTUS
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HOW TO REQUEST A TRANSFER OR SURRENDER 1 BY LETTER Send your name, certificate number, Social Security Number or Taxpayer Identification Number (TIN)* and signed request for a transfer or surrender to: Regular mail: AMERICAN CENTURION LIFE ASSURANCE COMPANY P.O. BOX 5550 ALBANY, NY 12205 Express mail: AMERICAN CENTURION LIFE ASSURANCE COMPANY 20 MADISON AVENUE EXTENSION ALBANY, NY 12203 MINIMUM AMOUNT Transfers or surrenders: $100 or entire account balance MAXIMUM AMOUNT Transfers or surrenders: Certificate value or entire account balance * Failure to provide your Social Security Number or TIN may result in mandatory tax withholding on the taxable portion of the distribution. 2 BY AUTOMATED TRANSFERS AND AUTOMATED PARTIAL SURRENDERS You can set up automated transfers among your subaccounts or fixed account or partial surrenders from the accounts. You can start or stop this service by written request or other method acceptable to us. You must allow 30 days for us to change any instructions that are currently in place. o Automated surrenders may be restricted by applicable law under some certificates. o Automated partial surrenders may result in IRS taxes and penalties on all or part of the amount surrendered. o The balance in any account from which you make an automated transfer or automated partial surrender must be sufficient to satisfy your instructions. If not, we will suspend your entire automated arrangement until the balance is adequate. o If we must suspend your automated transfer or automated partial surrender arrangement for six months, we reserve the right to discontinue the arrangement in its entirety. MINIMUM AMOUNT Transfers or surrenders: $100 3 BY PHONE Call between 8 a.m. and 4:30 p.m. Eastern time: (800) 633-3565 MINIMUM AMOUNT Transfers or surrenders: $100 or entire account balance MAXIMUM AMOUNT Transfers: Certificate value or entire account balance Surrenders: $5,000 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 surrender requests that we believe are authentic and we will use reasonable procedures to confirm that they are. This includes asking identifying questions and recording calls. We will not allow a telephone surrender 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 or surrenders are automatically available. You may request that telephone transfers or surrenders NOT be authorized from your account by writing to us. -------------------------------------------------------------------------------- 19 ACL PRIVILEGED ASSETS SELECT ANNUITY -- PROSPECTUS
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SURRENDERS You may surrender all or part of your certificate at any time before annuity payouts begin by sending us a written request or by calling us. We will process your surrender request on the valuation date we receive it. If we receive your surrender request at our home office before the close of business, we will process your surrender using the accumulation unit value we calculate on the valuation date we received your surrender request. If we receive your surrender request at our home office at or after the close of business, we will process your surrender using the accumulation unit value we calculate on the next valuation date after we received your surrender request. We may ask you to return the certificate. You may have to pay administrative charges (see "Charges") and IRS taxes and penalties (see "Taxes"). You cannot make surrenders after annuity payouts begin. Any partial surrenders you take under the certificate will reduce your certificate value. As a result, the value of your death benefit will also be reduced. In addition, surrenders you are required to take to satisfy RMDs under the Code may reduce the value of your death benefit (see "Taxes -- Qualified Annuities -- Required minimum distributions"). SURRENDER POLICIES If you have a balance in more than one account and you request a partial surrender, we will withdraw money from all your subaccounts and/or the fixed account in the same proportion as your value in each account correlates to your total certificate value, unless you request otherwise. RECEIVING PAYMENT By regular or express mail: o payable to you. 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 surrender 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 home office. The change will become binding on 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 certificate 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 certificate may be transferred to the annuitant. -------------------------------------------------------------------------------- 20 ACL PRIVILEGED ASSETS SELECT ANNUITY -- PROSPECTUS
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BENEFITS IN CASE OF DEATH If you or the annuitant die before annuity payouts begin while the certificate is in force, we will pay the beneficiary the greater of: o certificate value; or o purchase payments minus partial surrenders. IF YOU DIE BEFORE YOUR RETIREMENT DATE: When paying the beneficiary, we will process the death claim on the valuation date our death claim requirements are fulfilled. We will determine the certificate's value using the accumulation unit value we calculate on that valuation date. We pay interest, if any, at a rate no less than required by law. If requested, we will mail payment to the beneficiary within seven days after our death claim requirements are fulfilled. NONQUALIFIED ANNUITIES: If your spouse is sole beneficiary and you die before the retirement date, your spouse may keep the certificate as owner. To do this your spouse must, within 60 days after we receive proof of death, give us written instructions to keep the certificate in force. If your beneficiary is not your spouse, we will pay the beneficiary in a lump 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 certificate 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. QUALIFIED ANNUITIES o SPOUSE BENEFICIARY: If you have not elected an annuity payout plan, and if your spouse is the sole beneficiary, your spouse may either elect to treat the certificate as his/her own or elect an annuity payout plan or another plan agreed to by us. If your spouse elects a payout plan, the payouts must begin no later than the year in which you would have reached age 70 1/2. If you attained age 70 1/2 at the time of death, payouts must begin no later than Dec. 31 of the year following the year of your death. o NON-SPOUSE BENEFICIARY: If you have not elected an annuity payout plan, and if death occurs prior to the year you would have attained age 70 1/2, the beneficiary may elect to receive payouts from the certificate over a five year period. If your beneficiary does not elect a five year payout, or if your death occurs after attaining age 70 1/2, we will pay the beneficiary in a lump sum unless the beneficiary elects to receive payouts under any annuity payout plan available under this certificate if: o the beneficiary asks us in writing within 60 days after we receive proof of death; and o payouts begin no later than one year following the year of your death; and o the payout period does not extend beyond the beneficiary's life or life expectancy. o ANNUITY PAYOUT PLAN: If you elect an annuity payout plan, the payouts to your beneficiary will continue pursuant to the annuity payout plan you elect. -------------------------------------------------------------------------------- 21 ACL PRIVILEGED ASSETS SELECT ANNUITY -- PROSPECTUS
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THE ANNUITY PAYOUT PERIOD As owner of the certificate, you have the right to decide how and to whom annuity payouts will be made starting at the annuity start date. You may select one of the annuity payout plans outlined below, or we may mutually agree on other payout arrangements. The amount available to purchase payouts under the plan you select is the certificate value on your annuity start date. We will make annuity payouts on a fixed basis. Amounts of payouts depend on: o the annuity payout plan you select; o the annuitant's age and, in most cases, sex; and o the annuity table in the certificate. ANNUITY PAYOUT PLANS You may choose any one of these annuity payout plans by giving us written instructions at least 30 days before certificate 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 annuity start 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. In addition, a 10% IRS penalty tax could apply under this payout plan. (See "Taxes.") ANNUITY PAYOUT PLAN REQUIREMENTS FOR QUALIFIED ANNUITIES: If your certificate is a qualified annuity, you must select a payout plan as of the retirement date set forth in your certificate. You have the responsibility for electing a payout plan that complies with your certificate and with applicable law. Your certificate describes your payout plan options. The options will meet certain IRS regulations governing RMDs if the payout plan meets the incidental distribution benefit requirements, if any, and the payouts are made: o in equal or substantially equal payments over a period not longer than the life of the annuitant or over the life of the annuitant and designated beneficiary; or o in equal or substantially equal payments over a period not longer than the life expectancy of the annuitant or over the life expectancy of the annuitant and designated beneficiary; or o over a period certain not longer than the life expectancy of the annuitant or over the life expectancy of the annuitant and designated beneficiary. IF WE DO NOT RECEIVE INSTRUCTIONS: You must give us written instructions for the annuity payouts at least 30 days before the annuitant's retirement date. If you do not, we will make payouts under Plan B, with 120 monthly payouts guaranteed. IF MONTHLY PAYOUTS WOULD BE LESS THAN $20: We will calculate the amount of monthly payouts at the time the certificate 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 certificate value to the owner in a lump sum. 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. -------------------------------------------------------------------------------- 22 ACL PRIVILEGED ASSETS SELECT ANNUITY -- PROSPECTUS
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TAXES Generally, under current law, your certificate has a tax-deferral feature. This means any increase in the value of the fixed account and/or subaccounts in which you invest is taxable to you only when you receive a payout or surrender (see detailed discussion below). Any portion of the annuity payouts and any surrenders you request that represent ordinary income normally are taxable. We will send you a tax information reporting form for any year in which we made a taxable distribution according to our records. NONQUALIFIED ANNUITIES Tax law requires that all nonqualified deferred annuity contracts or certificates 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 or certificates. ANNUITY PAYOUTS: 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. Under Annuity Payout Plan A: Life annuity - no refund, where the annuitant dies before your investment in the certificate is fully recovered, the remaining portion of the unrecovered investment may be available as a federal income tax deduction to the owner for the last taxable year of the annuitant. Under all other annuity payout plans, where the annuity payouts end before your investment in the certificate is fully recovered, the remaining portion of the unrecovered investment may be available as a federal income tax deduction to the taxpayer for the tax year in which the payouts end. (See "Annuity Payout Plans.") All amounts you receive after your investment in the certificate is fully recovered will be subject to tax. SURRENDERS: If you surrender part or all of your nonqualified annuity before your annuity payouts begin, your surrender payment will be taxed to the extent that the certificate value immediately before the surrender exceeds your investment. You also may have to pay a 10% IRS penalty for surrenders of taxable income you make before reaching age 59 1/2 unless certain exceptions apply. WITHHOLDING (INCLUDING IRAS AND SEPS): If you receive taxable income as a result of an annuity payout or a surrender, 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 income 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 TIN, you can elect not to have any withholding occur. If the distribution is any other type of payment (such as a partial or full surrender) 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 TIN, you can elect not to have this withholding occur. The withholding requirements differ if we deliver the payment outside the United States and/or you are a non-resident alien. Some states also may impose withholding requirements similar to the federal withholding described above. If this should be the case, we may deduct state withholding from the payment. DEATH BENEFITS TO BENEFICIARIES: The death benefit under a certificate is not exempt from estate or income taxes. Any amount your beneficiary receives that represents deferred earnings within the certificate is taxable as ordinary income to the beneficiary in the year he or she receives the payments. ANNUITIES OWNED BY CORPORATIONS, PARTNERSHIPS OR TRUSTS: For nonqualified annuities, any annual increase in the value of annuities held by such entities generally will be treated as ordinary income received during that year. 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 nonqualified annuity 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: o because of your death or, in the event of non-natural ownership, the death of the annuitant; 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); o if it is allocable to an investment before Aug. 14, 1982; or o if annuity payouts begin before the first certificate anniversary. -------------------------------------------------------------------------------- 23 ACL PRIVILEGED ASSETS SELECT ANNUITY -- PROSPECTUS
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TRANSFER OF OWNERSHIP: If you transfer a nonqualified annuity without receiving adequate consideration, the transfer is a gift and also may be treated as a surrender 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 certificate will be the value of the certificate at the time of the transfer. In general, this rule does not apply to transfers between spouses or former spouses. Please consult your tax advisor for further details. COLLATERAL ASSIGNMENT: If you collaterally assign or pledge your certificate, earnings on purchase payments you made after Aug. 13, 1982 will be taxed to you like a withdrawal and you may have to pay a 10% IRS penalty. QUALIFIED ANNUITIES Adverse tax consequences may result if you do not ensure that contributions, distributions and other transactions under the certificate comply with the law. Qualified annuities have minimum distribution rules that govern the timing and amount of distributions. You should refer to your IRA disclosure statement or consult a tax advisor for additional information about the distribution rules applicable to your situation. When you use your certificate to fund a retirement plan or IRA that is already tax-deferred under the Code, the certificate will not provide any necessary or additional tax deferral. ANNUITY PAYOUTS: Under a qualified annuity, the entire payout generally is includable as ordinary income and is subject to tax unless: (1) the certificate is an IRA to which you made non-deductible contributions; or (2) you rolled after-tax dollars from a retirement plan into your IRA. SURRENDERS: Under a qualified annuity, the entire surrender will generally be includable as ordinary income and is subject to tax unless: (1) the certificate is an IRA to which you made non-deductible contributions; or (2) you rolled after-tax dollars from a retirement plan into your IRA. REQUIRED MINIMUM DISTRIBUTIONS: Retirement plans are subject to required withdrawals called required minimum distributions (RMDs) generally beginning at age 70 1/2. In addition, a new tax regulation, effective for RMDs calculated in 2006 and after, may cause the RMDs for some certificates with certain death benefits to increase. RMDs may reduce the value of certain death benefits. You should consult your tax advisor for an explanation of the potential tax implications to you. PENALTIES: If you receive amounts from your qualified annuity 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: 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 to pay certain medical or education expenses (IRAs only). DEATH BENEFITS TO BENEFICIARIES: The entire death benefit generally is taxable as ordinary income to the beneficiary in the year he or she receives payments from the qualified annuity. If you made non-deductible contributions to a traditional IRA, the portion of any distribution from the certificate that represents after-tax contributions is not taxable as ordinary income to your beneficiary. COLLATERAL ASSIGNMENT: You may not collaterally assign or pledge your qualified annuity. 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 certificate. -------------------------------------------------------------------------------- 24 ACL PRIVILEGED ASSETS SELECT ANNUITY -- PROSPECTUS
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AMERICAN CENTURION LIFE'S TAX STATUS: We are taxed as a life insurance company under the Code. For federal income tax purposes, the subaccounts are considered a part of our company, although their operations are treated separately in accounting and financial statements. Investment income is reinvested in the fund in which each subaccount invests and becomes part of that subaccount's value. This investment income, including realized capital gains, is not taxed to us, and therefore no charge is made against the subaccounts for federal income taxes. We reserve the right to make such a charge in the future if there is a change in the tax treatment of variable annuities. TAX QUALIFICATION: We intend that the certificate qualify as an annuity for federal income tax purposes. To that end, the provisions of the certificate are to be interpreted to ensure or maintain such tax qualification, in spite of any other provisions of the certificate. We reserve the right to amend the certificate to reflect any clarifications that may be needed or are appropriate to maintain such qualification or to conform the certificate to any applicable changes in the tax qualification requirements. We will send you a copy of any amendments. VOTING RIGHTS As an owner with investments in the subaccounts, you may vote on important fund policies. We will vote fund shares according to your instructions. 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. We calculate votes separately for each subaccount. We will send notice of these 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 the existing funds become unavailable, or o in our judgment, the funds no longer are suitable for the subaccounts. If any of these situations occur and if we believe it is in the best interest of persons having voting rights under the certificate, we have the right to substitute a fund currently listed in this prospectus (existing fund) for another fund (new fund). The new fund may have higher fees and/or operating expenses than the existing fund. Also, the new fund may have investment objectives and policies and/or investment advisers which differ from the existing fund. We may also: o change the funds in which the subaccounts invest, and o make additional subaccounts investing in additional funds. We will notify you of any substitution or change. If we notify you that a subaccount will be eliminated or closed, you will have a certain period of time to tell us where to reallocate purchase payments or contract value currently allocated to that subaccount. If we do not receive your reallocation instructions by the due date, we automatically will reallocate to the subaccount investing in the AXP(R) Variable Portfolio - Cash Management Fund. You may then transfer this reallocated amount in accordance with the transfer provisions of your certificate (see "Transferring Between Accounts" above). In the event of substitution of any of these changes, we may amend the certificate 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. -------------------------------------------------------------------------------- 25 ACL PRIVILEGED ASSETS SELECT ANNUITY -- PROSPECTUS
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ABOUT THE SERVICE PROVIDERS PRINCIPAL UNDERWRITER American Express Financial Advisors Inc. (AEFA) serves as the principal underwriter and distributes the certificates. Its offices are located at 70100 AXP Financial Center, Minneapolis, MN 55474. AEFA is a wholly-owned subsidiary of AEFC which is a wholly-owned subsidiary of American Express Company, a financial services company headquartered in New York City. The AEFC family of companies offers not only insurance and annuities, but also mutual funds, investment certificates, and a broad range of financial management services. ISSUER American Centurion Life issues the certificates. American Centurion Life is a wholly-owned subsidiary of IDS Life, which is a wholly-owned subsidiary of AEFC. American Centurion Life is a stock life insurance company organized in 1969 under the laws of the State of New York. Our home office is located at 20 Madison Avenue Extension, Albany, NY 12203. American Centurion Life conducts a conventional life insurance business in New York. LEGAL PROCEEDINGS The SEC, the NASD and several state attorneys general have brought proceedings challenging several mutual fund and variable account financial practices, including suitability generally, late trading, market timing, disclosure of revenue sharing arrangements and inappropriate sales. American Centurion Life has received requests for information and has been contacted by regulatory authorities concerning its practices and is cooperating fully with these inquiries. American Centurion Life and its affiliates are involved in a number of other legal and arbitration proceedings concerning matters arising in connection with the conduct of their respective business activities. American Centurion Life believes it has meritorious defenses to each of these actions and intends to defend them vigorously. American Centurion Life believes that it is not a party to, nor are any of its properties the subject of, any pending legal or arbitration proceedings that would have a material adverse effect on American Centurion Life's consolidated financial condition, results of operations or liquidity. However, it is possible that the outcome of any such proceedings could have a material impact on results of operations in any particular reporting period as the proceedings are resolved. -------------------------------------------------------------------------------- 26 ACL PRIVILEGED ASSETS SELECT ANNUITY -- PROSPECTUS
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TABLE OF CONTENTS OF THE STATEMENT OF ADDITIONAL INFORMATION Calculating Annuity Payouts............................p. 3 Rating Agencies........................................p. 3 Principal Underwriter..................................p. 3 Independent Registered Public Accounting Firm..........p. 3 Financial Statements...................................p. 4 -------------------------------------------------------------------------------- 27 ACL PRIVILEGED ASSETS SELECT ANNUITY -- PROSPECTUS
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(logo) AMERICAN EXPRESS (R) AMERICAN CENTURION LIFE ASSURANCE COMPANY 20 MADISON AVENUE EXTENSION ALBANY, NY 12203 (800) 633-3563 S-6102 L (4/05)
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STATEMENT OF ADDITIONAL INFORMATION FOR PRIVILEGED ASSETS(R) SELECT ANNUITY ACL VARIABLE ANNUITY ACCOUNT 1 APRIL 29, 2005 ACL Variable Annuity Account 1 is a separate account established and maintained by American Centurion Life Assurance Company (American Centurion 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. American Centurion Life Assurance Company 20 Madison Avenue Extension Albany, NY 12203 518-452-4150 (Albany area) (800) 633-3563
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TABLE OF CONTENTS Calculating Annuity Payouts p. 3 Rating Agencies p. 3 Principal Underwriter p. 3 Independent Registered Public Accounting Firm p. 3 Financial Statements p. 4 CORPORATE REORGANIZATION On Feb. 1, 2005, American Express Company announced plans to pursue a spin-off of 100% of the common stock of American Express Financial Corporation (AEFC). AEFC is the parent company of IDS Life Insurance Company (IDS Life). IDS Life is the parent company of American Centurion Life. American Centurion Life issues your certificate. The spin-off of AEFC, expected to be completed in the third quarter of 2005, is subject to certain regulatory and other approvals, as well as final approval by the board of directors of American Express Company. Upon completion of the spin-off, AEFC will be a publicly traded company separate from American Express Company. AEFC will continue to own all the outstanding stock of IDS Life and will replace American Express Company as the ultimate control person of American Centurion Life. -------------------------------------------------------------------------------- 2 -- ACL VARIABLE ANNUITY ACCOUNT 1
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CALCULATING ANNUITY PAYOUTS We guarantee the fixed annuity payout amounts. Once calculated, the payout will remain the same and never change. To calculate annuity payouts we: o take the total value of the fixed account and the subaccounts at the annuity start date or the date selected to begin receiving annuity payouts; then o using an annuity table we apply the value according to the annuity payout plan selected. The annuity payout table we use will be the one in effect at the time chosen to begin annuity payouts. The table will be equal to or greater than the table in the contract. RATING AGENCIES We receive ratings from independent rating agencies. These agencies evaluate the financial soundness and claims-paying ability of insurance companies based on a number of different factors. The ratings reflect each agency's estimation of our ability to meet our contractual obligations such as making annuity payouts and paying death benefits and other distributions. As such, the ratings relate to our fixed account and not to the subaccounts. This information generally does not relate to the management or performance of the subaccounts. For detailed information on the agency ratings given to us, contact your sales representative. Or view our current ratings by visiting the agency websites directly at: A.M. Best www.ambest.com Fitch www.fitchratings.com A.M. Best -- Rates insurance companies for their financial strength. Fitch -- Rates insurance companies for their claims-paying ability. PRINCIPAL UNDERWRITER American Express Financial Advisors Inc. (AEFA) serves as principal underwriter for the certificate, which it offers on a continuous basis. AEFA is registered with the Securities and Exchange Commission under the Securities Exchange Act of 1934 as a broker-dealer and is a member of the National Association of Securities Dealers, Inc. (NASD). Our sales representatives are licensed insurance and annuity agents and are registered with the NASD as our representatives. AEFA is an affiliate of ours. Both AEFA and American Centurion Life are ultimately controlled by American Express Company. The principal business address of AEFA is 70100 AXP Financial Center, Minneapolis, MN 55474. American Centurion Life does not pay AEFA any underwriting commissions for its role as principal underwriter of the certificate. INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM The financial statements appearing in this SAI have been audited by Ernst & Young LLP, 220 South Sixth Street, Suite 1400, Minneapolis, MN 55402, independent registered public accounting firm, as stated in their report appearing herein. -------------------------------------------------------------------------------- 3 -- ACL VARIABLE ANNUITY ACCOUNT 1
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REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM THE BOARD OF DIRECTORS AMERICAN CENTURION LIFE ASSURANCE COMPANY We have audited the accompanying individual statements of assets and liabilities of the 12 segregated asset subaccounts of ACL Variable Annuity Account 1, referred to in Note 1, as of December 31, 2004, and the related statements of operations and changes in net assets for the periods indicated therein. These financial statements are the responsibility of the management of American Centurion Life Assurance Company. Our responsibility is to express an opinion on these financial statements based on our audits. We conducted our audits in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. We were not engaged to perform an audit of ACL Variable Annuity Account 1's internal control over financial reporting. Our audits included consideration of internal control over financial reporting as a basis for designing audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of ACL Variable Annuity Account 1's internal control over financial reporting. Accordingly, we express no such opinion. An audit also includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements, assessing the accounting principles used and significant estimates made by management, and evaluating the overall financial statement presentation. Our procedures included confirmation of securities owned as of December 31, 2004 by correspondence with the affiliated and unaffiliated mutual fund managers. 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 financial position of the 12 segregated asset subaccounts of ACL Variable Annuity Account 1, referred to in Note 1, at December 31, 2004, and the individual results of their operations and the changes in their net assets for the periods indicated therein, in conformity with U.S. generally accepted accounting principles. /s/ Ernst& Young LLP Minneapolis, Minnesota March 31, 2005 -------------------------------------------------------------------------------- 4 -- ACL VARIABLE ANNUITY ACCOUNT 1
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[Enlarge/Download Table] STATEMENTS OF ASSETS AND LIABILITIES SEGREGATED ASSET SUBACCOUNTS ------------------------------------------------------------------ AXP VP AXP VP AXP VP AXP VP AXP VP STRATEGY DECEMBER 31, 2004 CASH MGMT DIV BOND LG CAP EQ MANAGED AGGR ASSETS Investments, at value(1),(2) $10,478 $28,544 $50,064 $70,016 $ 59,113 Dividends receivable 13 107 -- -- -- Receivable for share redemptions -- -- -- -- -- ------------------------------------------------------------------------------------------------------------------------------------ Total assets 10,491 28,651 50,064 70,016 59,113 ==================================================================================================================================== LIABILITIES Payable to American Centurion Life for mortality and expense risk fee 9 24 42 59 50 ------------------------------------------------------------------------------------------------------------------------------------ Net assets applicable to contracts in accumulation period $10,482 $28,627 $50,022 $69,957 $ 59,063 ==================================================================================================================================== (1) Investment shares 10,482 2,681 2,391 4,640 7,388 ------------------------------------------------------------------------------------------------------------------------------------ (2) Investments, at cost $10,478 $28,269 $66,505 $69,745 $100,193 ------------------------------------------------------------------------------------------------------------------------------------ [Enlarge/Download Table] SEGREGATED ASSET SUBACCOUNTS ------------------------------------------------------------------ AIM VI AXP VP CORE STOCK, AC VP CAP AC VP CS GLOBAL DECEMBER 31, 2004 (CONTINUED) THDL INTL SER I APPR, CL I VAL, CL I SM CAP ASSETS Investments, at value(1),(2) $25,676 $60,659 $56,591 $167,364 $78,470 Dividends receivable -- -- -- -- -- Receivable for share redemptions -- 52 48 144 67 ------------------------------------------------------------------------------------------------------------------------------------ Total assets 25,676 60,711 56,639 167,508 78,537 ==================================================================================================================================== LIABILITIES Payable to American Centurion Life for mortality and expense risk fee 21 52 48 144 67 ------------------------------------------------------------------------------------------------------------------------------------ Net assets applicable to contracts in accumulation period $25,655 $60,659 $56,591 $167,364 $78,470 ==================================================================================================================================== (1) Investment shares 2,663 3,277 7,388 19,127 7,038 ------------------------------------------------------------------------------------------------------------------------------------ (2) Investments, at cost $28,281 $58,655 $74,482 $144,455 $87,831 ------------------------------------------------------------------------------------------------------------------------------------ [Enlarge/Download Table] SEGREGATED ASSET SUBACCOUNTS -------------------------------- JANUS ASPEN JANUS ASPEN LG CAP WORLD DECEMBER 31, 2004 (CONTINUED) GRO, INST GRO, INST ASSETS Investments, at value(1),(2) $494,785 $319,262 Dividends receivable -- -- Receivable for share redemptions 424 273 ------------------------------------------------------------------------------------------------------------------------------------ Total assets 495,209 319,535 ==================================================================================================================================== LIABILITIES Payable to American Centurion Life for mortality and expense risk fee 424 273 ------------------------------------------------------------------------------------------------------------------------------------ Net assets applicable to contracts in accumulation period $494,785 $319,262 ==================================================================================================================================== (1) Investment shares 24,653 11,922 ------------------------------------------------------------------------------------------------------------------------------------ (2) Investments, at cost $594,929 $419,114 ------------------------------------------------------------------------------------------------------------------------------------ See accompanying notes to financial statements. -------------------------------------------------------------------------------- 5 -- ACL VARIABLE ANNUITY ACCOUNT 1
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[Enlarge/Download Table] STATEMENTS OF OPERATIONS SEGREGATED ASSET SUBACCOUNTS --------------------------------------------------------------- AXP VP AXP VP AXP VP AXP VP AXP VP STRATEGY YEAR ENDED DECEMBER 31, 2004 CASH MGMT DIV BOND LG CAP EQ MANAGED AGGR INVESTMENT INCOME Dividend income $ 76 $ 1,231 $ 493 $ 1,668 $ -- Variable account expenses 103 324 572 726 720 ------------------------------------------------------------------------------------------------------------------------------------ Investment income (loss) -- net (27) 907 (79) 942 (720) ==================================================================================================================================== REALIZED AND UNREALIZED GAIN (LOSS) ON INVESTMENTS -- NET Realized gain (loss) on sales of investments: Proceeds from sales 370 45,437 19,804 19,452 33,974 Cost of investments sold 370 44,847 28,591 20,394 64,843 ------------------------------------------------------------------------------------------------------------------------------------ Net realized gain (loss) on sales of investments -- 590 (8,787) (942) (30,869) Distributions from capital gains -- -- -- -- -- Net change in unrealized appreciation or depreciation of investments -- (89) 10,541 5,900 35,669 ------------------------------------------------------------------------------------------------------------------------------------ Net gain (loss) on investments -- 501 1,754 4,958 4,800 ------------------------------------------------------------------------------------------------------------------------------------ Net increase (decrease) in net assets resulting from operations $ (27) $ 1,408 $ 1,675 $ 5,900 $ 4,080 ==================================================================================================================================== [Enlarge/Download Table] SEGREGATED ASSET SUBACCOUNTS --------------------------------------------------------------- AIM VI AXP VP CORE STOCK, AC VP CAP AC VP CS GLOBAL YEAR ENDED DECEMBER 31, 2004 (CONTINUED) THDL INTL SER I APPR, CL I VAL, CL I SM CAP INVESTMENT INCOME Dividend income $ 224 $ 513 $ -- $ 2,928 $ -- Variable account expenses 194 849 542 1,934 725 ------------------------------------------------------------------------------------------------------------------------------------ Investment income (loss) -- net 30 (336) (542) 994 (725) ==================================================================================================================================== REALIZED AND UNREALIZED GAIN (LOSS) ON INVESTMENTS -- NET Realized gain (loss) on sales of investments: Proceeds from sales 3,121 49,990 13,095 205,377 13,002 Cost of investments sold 4,015 50,161 18,763 188,294 16,811 ------------------------------------------------------------------------------------------------------------------------------------ Net realized gain (loss) on sales of investments (894) (171) (5,668) 17,083 (3,809) Distributions from capital gains -- -- -- 2,272 -- Net change in unrealized appreciation or depreciation of investments 4,462 2,010 9,828 1,449 15,756 ------------------------------------------------------------------------------------------------------------------------------------ Net gain (loss) on investments 3,568 1,839 4,160 20,804 11,947 ------------------------------------------------------------------------------------------------------------------------------------ Net increase (decrease) in net assets resulting from operations $3,598 $ 1,503 $ 3,618 $ 21,798 $11,222 ==================================================================================================================================== [Enlarge/Download Table] SEGREGATED ASSET SUBACCOUNTS ------------------------------- JANUS ASPEN JANUS ASPEN LG CAP WORLD YEAR ENDED DECEMBER 31, 2004 (CONTINUED) GRO, INST GRO, INST INVESTMENT INCOME Dividend income $ 713 $ 3,253 Variable account expenses 4,975 3,300 ------------------------------------------------------------------------------------------------------------------------------------ Investment income (loss) -- net (4,262) (47) ==================================================================================================================================== REALIZED AND UNREALIZED GAIN (LOSS) ON INVESTMENTS -- NET Realized gain (loss) on sales of investments: Proceeds from sales 75,659 76,507 Cost of investments sold 97,756 106,004 ------------------------------------------------------------------------------------------------------------------------------------ Net realized gain (loss) on sales of investments (22,097) (29,497) Distributions from capital gains -- -- Net change in unrealized appreciation or depreciation of investments 41,549 40,410 ------------------------------------------------------------------------------------------------------------------------------------ Net gain (loss) on investments 19,452 10,913 ------------------------------------------------------------------------------------------------------------------------------------ Net increase (decrease) in net assets resulting from operations $ 15,190 $ 10,866 ==================================================================================================================================== See accompanying notes to financial statements. -------------------------------------------------------------------------------- 6 -- ACL VARIABLE ANNUITY ACCOUNT 1
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[Enlarge/Download Table] STATEMENTS OF CHANGES IN NET ASSETS SEGREGATED ASSET SUBACCOUNTS --------------------------------------------------------------- AXP VP AXP VP AXP VP AXP VP AXP VP STRATEGY YEAR ENDED DECEMBER 31, 2004 CASH MGMT DIV BOND LG CAP EQ MANAGED AGGR OPERATIONS Investment income (loss) -- net $ (27) $ 907 $ (79) $ 942 $ (720) Net realized gain (loss) on sales of investments -- 590 (8,787) (942) (30,869) Distributions from capital gains -- -- -- -- -- Net change in unrealized appreciation or depreciation of investments -- (89) 10,541 5,900 35,669 ------------------------------------------------------------------------------------------------------------------------------------ Net increase (decrease) in net assets resulting from operations (27) 1,408 1,675 5,900 4,080 ==================================================================================================================================== CERTIFICATE TRANSACTIONS Certificate purchase payments 539 2,453 2,384 2,037 3,537 Net transfers(1) -- (36,989) (2,826) (7,626) 4,569 Certificate charges (25) (79) (62) (69) (110) Certificate terminations: Surrender benefits (242) (6,466) (14,277) (249) (33,284) ------------------------------------------------------------------------------------------------------------------------------------ Increase (decrease) from certificate transactions 272 (41,081) (14,781) (5,907) (25,288) ------------------------------------------------------------------------------------------------------------------------------------ Net assets at beginning of year 10,237 68,300 63,128 69,964 80,271 ------------------------------------------------------------------------------------------------------------------------------------ Net assets at end of year $10,482 $ 28,627 $ 50,022 $69,957 $ 59,063 ==================================================================================================================================== ACCUMULATION UNIT ACTIVITY Units outstanding at beginning of year 8,511 52,913 53,421 52,113 91,640 Certificate purchase payments 450 1,874 2,027 1,486 4,096 Net transfers(1) -- (28,399) (2,407) (5,340) 5,333 Certificate charges (21) (60) (53) (50) (129) Certificate terminations: Surrender benefits (202) (4,889) (12,599) (186) (38,686) ------------------------------------------------------------------------------------------------------------------------------------ Units outstanding at end of year 8,738 21,439 40,389 48,023 62,254 ==================================================================================================================================== [Enlarge/Download Table] SEGREGATED ASSET SUBACCOUNTS --------------------------------------------------------------- AIM VI AXP VP CORE STOCK, AC VP CAP AC VP CS GLOBAL YEAR ENDED DECEMBER 31, 2004 (CONTINUED) THDL INTL SER I APPR, CL I VAL, CL I SM CAP OPERATIONS Investment income (loss) -- net $ 30 $ (336) $ (542) $ 994 $ (725) Net realized gain (loss) on sales of investments (894) (171) (5,668) 17,083 (3,809) Distributions from capital gains -- -- -- 2,272 -- Net change in unrealized appreciation or depreciation of investments 4,462 2,010 9,828 1,449 15,756 ------------------------------------------------------------------------------------------------------------------------------------ Net increase (decrease) in net assets resulting from operations 3,598 1,503 3,618 21,798 11,222 ==================================================================================================================================== CERTIFICATE TRANSACTIONS Certificate purchase payments 732 6,996 4,944 2,970 3,489 Net transfers(1) 6,919 (17,882) (53) 89,961 (698) Certificate charges (9) (179) (122) (44) (96) Certificate terminations: Surrender benefits (1,140) (31,900) (11,752) (197,310) (3,670) ------------------------------------------------------------------------------------------------------------------------------------ Increase (decrease) from certificate transactions 6,502 (42,965) (6,983) (104,423) (975) ------------------------------------------------------------------------------------------------------------------------------------ Net assets at beginning of year 15,555 102,121 59,956 249,989 68,223 ------------------------------------------------------------------------------------------------------------------------------------ Net assets at end of year $25,655 $ 60,659 $ 56,591 $ 167,364 $78,470 ==================================================================================================================================== ACCUMULATION UNIT ACTIVITY Units outstanding at beginning of year 17,046 68,423 57,275 134,303 67,463 Certificate purchase payments 779 4,767 4,777 1,520 3,336 Net transfers(1) 7,562 (12,210) (90) 46,612 (789) Certificate charges (9) (121) (117) (23) (92) Certificate terminations: Surrender benefits (1,191) (21,476) (11,088) (103,025) (3,487) ------------------------------------------------------------------------------------------------------------------------------------ Units outstanding at end of year 24,187 39,383 50,757 79,387 66,431 ==================================================================================================================================== See accompanying notes to financial statements. -------------------------------------------------------------------------------- 7 -- ACL VARIABLE ANNUITY ACCOUNT 1
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[Enlarge/Download Table] STATEMENTS OF CHANGES IN NET ASSETS SEGREGATED ASSET SUBACCOUNTS -------------------------------- JANUS ASPEN JANUS ASPEN LG CAP WORLD YEAR ENDED DECEMBER 31, 2004 (CONTINUED) GRO, INST GRO, INST OPERATIONS Investment income (loss) -- net $ (4,262) $ (47) Net realized gain (loss) on sales of investments (22,097) (29,497) Distributions from capital gains -- -- Net change in unrealized appreciation or depreciation of investments 41,549 40,410 ------------------------------------------------------------------------------------------------------------------------------------ Net increase (decrease) in net assets resulting from operations 15,190 10,866 ==================================================================================================================================== CERTIFICATE TRANSACTIONS Certificate purchase payments 22,413 13,843 Net transfers(1) 7,396 (39,558) Certificate charges (538) (532) Certificate terminations: Surrender benefits (55,790) (33,651) ------------------------------------------------------------------------------------------------------------------------------------ Increase (decrease) from certificate transactions (26,519) (59,898) ------------------------------------------------------------------------------------------------------------------------------------ Net assets at beginning of year 506,114 368,294 ------------------------------------------------------------------------------------------------------------------------------------ Net assets at end of year $494,785 $319,262 ==================================================================================================================================== ACCUMULATION UNIT ACTIVITY Units outstanding at beginning of year 364,890 249,736 Certificate purchase payments 16,491 9,527 Net transfers(1) 4,982 (27,237) Certificate charges (400) (365) Certificate terminations: Surrender benefits (41,215) (22,959) ------------------------------------------------------------------------------------------------------------------------------------ Units outstanding at end of year 344,748 208,702 ==================================================================================================================================== (1) Includes transfer activity from (to) other subaccounts and transfers from (to) American Centurion Life's fixed account. See accompanying notes to financial statements. -------------------------------------------------------------------------------- 8 -- ACL VARIABLE ANNUITY ACCOUNT 1
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[Enlarge/Download Table] STATEMENTS OF CHANGES IN NET ASSETS SEGREGATED ASSET SUBACCOUNTS --------------------------------------------------------------- AXP VP AXP VP AXP VP AXP VP AXP VP STRATEGY YEAR ENDED DECEMBER 31, 2003 CASH MGMT DIV BOND LG CAP EQ MANAGED AGGR OPERATIONS Investment income (loss) -- net $ (54) $ 1,355 $ (215) $ 819 $ (735) Net realized gain (loss) on sales of investments -- 160 (3,862) (2,453) (25,690) Net change in unrealized appreciation or depreciation of investments 1 74 18,187 13,224 44,271 ------------------------------------------------------------------------------------------------------------------------------------ Net increase (decrease) in net assets resulting from operations (53) 1,589 14,110 11,590 17,846 ==================================================================================================================================== CERTIFICATE TRANSACTIONS Certificate purchase payments 795 4,940 2,715 2,018 3,683 Net transfers(1) (1,590) 30,713 1,398 (2,437) 4,137 Certificate charges (29) (149) (62) (36) (116) Certificate terminations: Surrender benefits -- (9,775) (5,497) (4,973) (13,733) ------------------------------------------------------------------------------------------------------------------------------------ Increase (decrease) from certificate transactions (824) 25,729 (1,446) (5,428) (6,029) ------------------------------------------------------------------------------------------------------------------------------------ Net assets at beginning of year 11,114 40,982 50,464 63,802 68,454 ------------------------------------------------------------------------------------------------------------------------------------ Net assets at end of year $10,237 $68,300 $63,128 $69,964 $ 80,271 ==================================================================================================================================== ACCUMULATION UNIT ACTIVITY Units outstanding at beginning of year 9,194 32,844 54,631 56,578 99,656 Certificate purchase payments 659 3,880 2,618 1,693 4,875 Net transfers(1) (1,318) 23,986 1,284 (2,229) 4,921 Certificate charges (24) (118) (60) (32) (158) Certificate terminations: Surrender benefits -- (7,679) (5,052) (3,897) (17,654) ------------------------------------------------------------------------------------------------------------------------------------ Units outstanding at end of year 8,511 52,913 53,421 52,113 91,640 ==================================================================================================================================== [Enlarge/Download Table] SEGREGATED ASSET SUBACCOUNTS --------------------------------------------------------------- AIM VI AXP VP CORE STOCK, AC VP CAP AC VP CS GLOBAL YEAR ENDED DECEMBER 31, 2003 (CONTINUED) THDL INTL SER I APPR, CL I VAL, CL I SM CAP OPERATIONS Investment income (loss) -- net $ (13) $ 41 $ (520) $ 315 $ (625) Net realized gain (loss) on sales of investments (3,017) (4,343) (2,610) (4,384) (7,933) Net change in unrealized appreciation or depreciation of investments 6,461 24,470 12,544 60,998 32,973 ------------------------------------------------------------------------------------------------------------------------------------ Net increase (decrease) in net assets resulting from operations 3,431 20,168 9,414 56,929 24,415 ==================================================================================================================================== CERTIFICATE TRANSACTIONS Certificate purchase payments 810 7,420 5,108 1,889 4,065 Net transfers(1) 1 1,495 3,395 (37,679) 1,396 Certificate charges (8) (170) (143) (80) (92) Certificate terminations: Surrender benefits (2,013) (32,390) (3,081) (4,573) (14,348) ------------------------------------------------------------------------------------------------------------------------------------ Increase (decrease) from certificate transactions (1,210) (23,645) 5,279 (40,443) (8,979) ------------------------------------------------------------------------------------------------------------------------------------ Net assets at beginning of year 13,334 105,598 45,263 233,503 52,787 ------------------------------------------------------------------------------------------------------------------------------------ Net assets at end of year $15,555 $102,121 $59,956 $249,989 $ 68,223 ==================================================================================================================================== ACCUMULATION UNIT ACTIVITY Units outstanding at beginning of year 18,527 85,871 51,571 160,172 76,304 Certificate purchase payments 1,089 5,602 5,529 1,224 5,286 Net transfers(1) -- 761 3,688 (24,013) 1,426 Certificate charges (10) (133) (161) (55) (132) Certificate terminations: Surrender benefits (2,560) (23,678) (3,352) (3,025) (15,421) ------------------------------------------------------------------------------------------------------------------------------------ Units outstanding at end of year 17,046 68,423 57,275 134,303 67,463 ==================================================================================================================================== See accompanying notes to financial statements. -------------------------------------------------------------------------------- 9 -- ACL VARIABLE ANNUITY ACCOUNT 1
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[Enlarge/Download Table] STATEMENTS OF CHANGES IN NET ASSETS SEGREGATED ASSET SUBACCOUNTS -------------------------------- JANUS ASPEN JANUS ASPEN LG CAP WORLD YEAR ENDED DECEMBER 31, 2003 (CONTINUED) GRO, INST GRO, INST OPERATIONS Investment income (loss) -- net $ (4,175) $ 378 Net realized gain (loss) on sales of investments (29,943) (39,317) Net change in unrealized appreciation or depreciation of investments 156,702 111,217 ------------------------------------------------------------------------------------------------------------------------------------ Net increase (decrease) in net assets resulting from operations 122,584 72,278 ------------------------------------------------------------------------------------------------------------------------------------ CERTIFICATE TRANSACTIONS Certificate purchase payments 22,526 16,294 Net transfers(1) (2,971) (6,367) Certificate charges (624) (576) Certificate terminations: Surrender benefits (51,452) (57,078) ------------------------------------------------------------------------------------------------------------------------------------ Increase (decrease) from certificate transactions (32,521) (47,727) ------------------------------------------------------------------------------------------------------------------------------------ Net assets at beginning of year 416,051 343,743 ------------------------------------------------------------------------------------------------------------------------------------ Net assets at end of year $506,114 $368,294 ------------------------------------------------------------------------------------------------------------------------------------ ACCUMULATION UNIT ACTIVITY Units outstanding at beginning of year 391,183 286,112 Certificate purchase payments 19,016 12,967 Net transfers(1) (2,764) (5,253) Certificate charges (541) (474) Certificate terminations: Surrender benefits (42,004) (43,616) ------------------------------------------------------------------------------------------------------------------------------------ Units outstanding at end of year 364,890 249,736 ------------------------------------------------------------------------------------------------------------------------------------ (1) Includes transfer activity from (to) other subaccounts and transfers from (to) American Centurion Life's fixed account. See accompanying notes to financial statements. -------------------------------------------------------------------------------- 10 -- ACL VARIABLE ANNUITY ACCOUNT 1
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NOTES TO FINANCIAL STATEMENTS 1. ORGANIZATION ACL Variable Annuity Account 1 (the Account) was established under New York law and the subaccounts are registered together as a single unit investment trust of American Centurion Life under the Investment Company Act of 1940, as amended (the 1940 Act) and exists in accordance with the rules and regulations of the New York State Insurance Department. The Account is used as a funding vehicle for Privileged Assets(R) Select Annuity contracts issued by American Centurion Life. The Account is comprised of various subaccounts. Each subaccount invests exclusively in shares of the following funds or portfolios (collectively, the Funds), which are registered under the 1940 Act as open-end management investment companies. The name of each Fund and the corresponding subaccount name are provided below. [Enlarge/Download Table] SUBACCOUNT FUND ---------------------------------------------------------------------------------------------------------------- AXP VP Cash Mgmt AXP(R) Variable Portfolio - Cash Management Fund AXP VP Div Bond AXP(R) Variable Portfolio - Diversified Bond Fund AXP VP Lg Cap Eq AXP(R) Variable Portfolio - Large Cap Equity Fund (previously AXP(R) Variable Portfolio - Capital Resource Fund) AXP VP Managed AXP(R) Variable Portfolio - Managed Fund AXP VP Strategy Aggr AXP(R) Variable Portfolio - Strategy Aggressive Fund AXP VP THDL Intl AXP(R) Variable Portfolio - Threadneedle International Fund (previously AXP(R) Variable Portfolio - International Fund) AIM VI Core Stock, Ser I AIM V.I. Core Stock Fund, Series I Shares (previously INVESCO VIF - Core Equity Fund, Series I Shares) AC VP Cap Appr, Cl I American Century(R) VP Capital Appreciation, Class I AC VP Val, Cl I American Century(R) VP Value, Class I CS Global Sm Cap Credit Suisse Trust - Global Small Cap Portfolio (previously Credit Suisse Trust - Global Post-Venture Capital Portfolio) Janus Aspen Lg Cap Gro, Inst Janus Aspen Series Large Cap Growth Portfolio: Institutional Shares (previously Janus Aspen Series Growth Portfolio: Institutional Shares) Janus Aspen World Gro, Inst Janus Aspen Series Worldwide Growth Portfolio: Institutional Shares ---------------------------------------------------------------------------------------------------------------- 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 Centurion Life. American Centurion Life serves as issuer of the contracts. On Feb. 1, 2005, American Express Company announced plans to pursue a spin-off of 100% of the common stock of AEFC. AEFC is the parent company of IDS Life. IDS Life is the parent company of American Centurion Life. The spin-off of AEFC, expected to be completed in the third quarter of 2005, is subject to certain regulatory and other approvals, as well as final approval by the board of directors of American Express Company. Upon completion of the spin-off, AEFC will be a publicly traded company separate from American Express Company. AEFC will continue to own all the outstanding stock of IDS Life and will replace American Express Company as the ultimate control person of American Centurion Life. 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. Realized gains and losses on the sales of investments are computed using the average cost method. Income from dividends and gains from realized capital gain distributions 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. FEDERAL INCOME TAXES American Centurion Life is taxed as a life insurance company. The Account is treated as part of American Centurion Life for federal income tax purposes. Under existing tax law, no income taxes are payable with respect to any investment income of the Account to the extent the earnings are credited under the certificates. Based on this, no charge is being made currently to the Account for federal income taxes. American Centurion Life will review periodically the status of this policy in the event of changes in the tax law. A charge may be made in future years for any federal income taxes that would be attributable to the certificates. -------------------------------------------------------------------------------- 11 -- ACL VARIABLE ANNUITY ACCOUNT 1
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USE OF ESTIMATES The preparation of financial statements in conformity with U.S. 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. 3. VARIABLE ACCOUNT EXPENSES American Centurion Life makes contractual assurances to the Account that possible future adverse changes in administrative expenses and mortality experience of the certificate owners and annuitants will not affect the Account. American Centurion Life deducts a daily mortality and expense risk fee equal, on an annual basis, to 1% of the average daily net assets of each subaccount. 4. CERTIFICATE CHARGES American Centurion Life deducts a certificate administrative charge of $30 per year. This charge reimburses American Centurion Life for expenses incurred in establishing and maintaining the annuity records. The charge may be waived based upon the underlying certificate value. 5. RELATED PARTY TRANSACTIONS Management fees were paid indirectly to AEFC, an affiliate of American Centurion Life, in its capacity as investment manager for the American Express(R) Variable Portfolio Funds. The Fund's Investment Management Services Agreement provides for a fee at a percentage of each Fund's average daily net assets that declines annually as each Fund's assets increase. The percentage range for each Fund is as follows: FUND PERCENTAGE RANGE -------------------------------------------------------------------------------- AXP(R) Variable Portfolio - Cash Management Fund 0.510% to 0.440% AXP(R) Variable Portfolio - Diversified Bond Fund 0.610% to 0.535% AXP(R) Variable Portfolio - Large Cap Equity Fund 0.630% to 0.570% AXP(R) Variable Portfolio - Managed Fund 0.630% to 0.550% AXP(R) Variable Portfolio - Strategy Aggressive Fund 0.650% to 0.575% AXP(R) Variable Portfolio - Threadneedle International Fund 0.870% to 0.795% -------------------------------------------------------------------------------- For the following Funds the fee may be adjusted upward or downward by a maximum performance incentive adjustment of 0.08% for AXP(R) Variable Portfolio - Managed Fund and 0.12% for each remaining Fund. The adjustment is based on a comparison of the performance of each Fund to an index of similar funds up to a maximum percentage of each Fund's average daily net assets. AXP(R) Variable Portfolio - Large Cap Equity Fund AXP(R) Variable Portfolio - Managed Fund AXP(R) Variable Portfolio - Strategy Aggressive Fund AXP(R) Variable Portfolio - Threadneedle International Fund The American Express(R) Variable Portfolio Funds also have an agreement with IDS Life, an affiliate of American Centurion Life, for distribution services. Under a Plan and Agreement of Distribution pursuant to Rule 12b-1, each Fund pays a distribution fee at an annual rate up to 0.125% of each Fund's average daily net assets. The American Express(R) Variable Portfolio Funds have an Administrative Services Agreement with AEFC. Under this agreement, each Fund pays AEFC a fee for administration and accounting services at a percentage of each Fund's average daily net assets that declines annually as each Fund's assets increase. The percentage range for each Fund is as follows: FUND PERCENTAGE RANGE -------------------------------------------------------------------------------- AXP(R) Variable Portfolio - Cash Management Fund 0.030% to 0.020% AXP(R) Variable Portfolio - Diversified Bond Fund 0.050% to 0.025% AXP(R) Variable Portfolio - Large Cap Equity Fund 0.050% to 0.030% AXP(R) Variable Portfolio - Managed Fund 0.040% to 0.020% AXP(R) Variable Portfolio - Strategy Aggressive Fund 0.060% to 0.035% AXP(R) Variable Portfolio - Threadneedle International Fund 0.060% to 0.035% -------------------------------------------------------------------------------- The American Express(R) Variable Portfolio Funds pay custodian fees to American Express Trust Company, an affiliate of American Centurion Life. -------------------------------------------------------------------------------- 12 -- ACL VARIABLE ANNUITY ACCOUNT 1
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6. INVESTMENT TRANSACTIONS The subaccounts' purchases of Funds' shares, including reinvestment of dividend distributions, for the year ended Dec. 31, 2004 were as follows: [Enlarge/Download Table] SUBACCOUNT FUND PURCHASES ------------------------------------------------------------------------------------------------------------------------------------ AXP VP Cash Mgmt AXP(R) Variable Portfolio - Cash Management Fund $ 606 AXP VP Div Bond AXP(R) Variable Portfolio - Diversified Bond Fund 5,336 AXP VP Lg Cap Eq AXP(R) Variable Portfolio - Large Cap Equity Fund 4,989 AXP VP Managed AXP(R) Variable Portfolio - Managed Fund 14,482 AXP VP Strategy Aggr AXP(R) Variable Portfolio - Strategy Aggressive Fund 7,944 AXP VP THDL Intl AXP(R) Variable Portfolio - Threadneedle International Fund 9,660 AIM VI Core Stock, Ser I AIM V.I. Core Stock Fund, Series I Shares 6,689 AC VP Cap Appr, Cl I American Century(R) VP Capital Appreciation, Class I 5,570 AC VP Val, Cl I American Century(R) VP Value, Class I 104,220 CS Global Sm Cap Credit Suisse Trust - Global Small Cap Portfolio 11,302 Janus Aspen Lg Cap Gro, Inst Janus Aspen Series Large Cap Growth Portfolio: Institutional Shares 44,878 Janus Aspen World Gro, Inst Janus Aspen Series Worldwide Growth Portfolio: Institutional Shares 16,562 ------------------------------------------------------------------------------------------------------------------------------------ 7. FINANCIAL HIGHLIGHTS The table below shows certain financial information regarding the subaccounts. [Enlarge/Download Table] AXP VP AXP VP AXP VP AXP VP AXP VP AXP VP CASH MGMT DIV BOND LG CAP EQ MANAGED STRATEGY AGGR THDL INTL ---------------------------------------------------------------------------------------------- ACCUMULATION UNIT VALUE At Dec. 31, 2001 $1.21 $1.19 $1.20 $1.31 $1.02 $0.89 At Dec. 31, 2002 $1.21 $1.25 $0.92 $1.13 $0.69 $0.72 At Dec. 31, 2003 $1.20 $1.29 $1.18 $1.34 $0.88 $0.91 At Dec. 31, 2004 $1.20 $1.34 $1.24 $1.46 $0.95 $1.06 ------------------------------------------------------------------------------------------------------------------------------------ UNITS (000S) At Dec. 31, 2001 9 30 62 58 129 18 At Dec. 31, 2002 9 33 55 57 100 19 At Dec. 31, 2003 9 53 53 52 92 17 At Dec. 31, 2004 9 21 40 48 62 24 ------------------------------------------------------------------------------------------------------------------------------------ NET ASSETS (000S) At Dec. 31, 2001 $11 $36 $74 $75 $132 $16 At Dec. 31, 2002 $11 $41 $50 $64 $ 68 $13 At Dec. 31, 2003 $10 $68 $63 $70 $ 80 $16 At Dec. 31, 2004 $10 $29 $50 $70 $ 59 $26 ------------------------------------------------------------------------------------------------------------------------------------ INVESTMENT INCOME RATIO(1) For the year ended Dec. 31, 2001 3.89% 6.44% 0.29% 2.90% 0.20% 1.24% For the year ended Dec. 31, 2002 1.14% 5.10% 0.53% 2.60% -- 0.99% For the year ended Dec. 31, 2003 0.51% 3.53% 0.62% 2.26% -- 0.91% For the year ended Dec. 31, 2004 0.74% 3.82% 0.86% 2.31% -- 1.16% ------------------------------------------------------------------------------------------------------------------------------------ EXPENSE RATIO(2) For the year ended Dec. 31, 2001 1.00% 1.00% 1.00% 1.00% 1.00% 1.00% For the year ended Dec. 31, 2002 1.00% 1.00% 1.00% 1.00% 1.00% 1.00% For the year ended Dec. 31, 2003 1.00% 1.00% 1.00% 1.00% 1.00% 1.00% For the year ended Dec. 31, 2004 1.00% 1.00% 1.00% 1.00% 1.00% 1.00% ------------------------------------------------------------------------------------------------------------------------------------ TOTAL RETURN(3) For the year ended Dec. 31, 2001 2.54% 6.25% (18.92%) (11.49%) (33.77%) (29.37%) For the year ended Dec. 31, 2002 0.00% 5.04% (23.33%) (13.74%) (32.35%) (19.10%) For the year ended Dec. 31, 2003 (0.83%) 3.20% 28.26% 18.58% 27.54% 26.39% For the year ended Dec. 31, 2004 (0.26%) 3.45% 4.83% 8.51% 8.32% 16.24% ------------------------------------------------------------------------------------------------------------------------------------ -------------------------------------------------------------------------------- 13 -- ACL VARIABLE ANNUITY ACCOUNT 1
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[Enlarge/Download Table] AIM VI AC VP AC VP CS GLOBAL JANUS ASPEN JANUS ASPEN CORE STOCK, SER I CAP APPR, CL I VAL, CL I SM CAP LG CAP GRO, INST WORLD GRO, INST ACCUMULATION UNIT VALUE At Dec. 31, 2001 $1.54 $1.13 $1.69 $1.06 $1.46 $1.63 At Dec. 31, 2002 $1.23 $0.88 $1.46 $0.69 $1.06 $1.20 At Dec. 31, 2003 $1.49 $1.05 $1.86 $1.01 $1.39 $1.47 At Dec. 31, 2004 $1.54 $1.12 $2.11 $1.18 $1.44 $1.53 ------------------------------------------------------------------------------------------------------------------------------------ UNITS (000S) At Dec. 31, 2001 126 67 94 74 492 355 At Dec. 31, 2002 86 52 160 76 391 286 At Dec. 31, 2003 68 57 134 67 365 250 At Dec. 31, 2004 39 51 79 66 345 209 ------------------------------------------------------------------------------------------------------------------------------------ NET ASSETS (000S) At Dec. 31, 2001 $194 $76 $159 $78 $720 $578 At Dec. 31, 2002 $106 $45 $234 $53 $416 $344 At Dec. 31, 2003 $102 $60 $250 $68 $506 $368 At Dec. 31, 2004 $ 61 $57 $167 $78 $495 $319 ------------------------------------------------------------------------------------------------------------------------------------ INVESTMENT INCOME RATIO(1) For the year ended Dec. 31, 2001 0.22% -- 0.55% -- 0.07% 0.47% For the year ended Dec. 31, 2002 1.18% -- 0.89% -- -- 0.86% For the year ended Dec. 31, 2003 1.05% -- 1.15% -- 0.09% 1.12% For the year ended Dec. 31, 2004 0.61% -- 1.53% -- 0.14% 0.99% ------------------------------------------------------------------------------------------------------------------------------------ EXPENSE RATIO(2) For the year ended Dec. 31, 2001 1.00% 1.00% 1.00% 1.00% 1.00% 1.00% For the year ended Dec. 31, 2002 1.00% 1.00% 1.00% 1.00% 1.00% 1.00% For the year ended Dec. 31, 2003 1.00% 1.00% 1.00% 1.00% 1.00% 1.00% For the year ended Dec. 31, 2004 1.00% 1.00% 1.00% 1.00% 1.00% 1.00% ------------------------------------------------------------------------------------------------------------------------------------ TOTAL RETURN(3) For the year ended Dec. 31, 2001 (9.41%) (28.48%) 11.92% (29.33%) (25.51%) (23.11%) For the year ended Dec. 31, 2002 (20.13%) (22.12%) (13.61%) (34.91%) (27.40%) (26.38%) For the year ended Dec. 31, 2003 21.14% 19.32% 27.40% 46.38% 31.13% 22.50% For the year ended Dec. 31, 2004 3.20% 6.51% 13.20% 16.82% 3.48% 3.74% ------------------------------------------------------------------------------------------------------------------------------------ (1) These amounts represent the dividends, excluding distributions of capital gains, received by the subaccount from the underlying fund, net of management fees assessed by the fund manager, divided by the average net assets. These ratios exclude variable account expenses that result in direct reductions in the unit values. The recognition of investment income by the subaccount is affected by the timing of the declaration of dividends by the underlying fund in which the subaccounts invest. (2) These ratios represent the annualized certificate expenses of the separate account, consisting primarily of mortality and expense charges, for each period indicated. The ratios include only those expenses that result in a direct reduction to unit values. Charges made directly to certificate owner accounts through the redemption of units and expenses of the underlying fund are excluded. (3) These amounts represent the total return for the periods indicated, including changes in the value of the underlying fund, and reflect deductions for all items included in the expense ratio. The total return does not include any expenses assessed through the redemption of units; inclusion of these expenses in the calculation would result in a reduction in the total return presented. The total return is calculated for the period indicated. -------------------------------------------------------------------------------- 14 -- ACL VARIABLE ANNUITY ACCOUNT 1
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American Centurion Life Assurance Company -------------------------------------------------------------------------------- Report of Independent Registered Public Accounting Firm THE BOARD OF DIRECTORS AMERICAN CENTURION LIFE ASSURANCE COMPANY We have audited the accompanying balance sheets of American Centurion Life Assurance Company (a wholly-owned subsidiary of IDS Life Insurance Company) as of December 31, 2004 and 2003, and the related statements of income, stockholder's equity and cash flows for each of the three years in the period ended December 31, 2004. These financial statements are the responsibility of American Centurion Life Assurance Company's management. Our responsibility is to express an opinion on these financial statements based on our audits. We conducted our audits in accordance with auditing standards generally accepted in the United States. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. We were not engaged to perform an audit of the Company's internal control over financial reporting. Our audits included consideration of internal control over financial reporting as a basis for designing audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the Company's internal control over financial reporting. Accordingly, we express no such opinion. An audit also includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements, 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 Centurion Life Assurance Company at December 31, 2004 and 2003, and the results of its operations and its cash flows for each of the three years in the period ended December 31, 2004, in conformity with accounting principles generally accepted in the United States. As discussed in Note 1 to the financial statements, in 2004 American Centurion Life Assurance Company adopted the provision of the American Institute of Certified Public Accountants Statement of Position 03-1, "Accounting and Reporting by Insurance Enterprises for Certain Nontraditional Long-Duration Contracts and for Separate Accounts," and in 2003 adopted the provisions of Financial Accounting Standards Board Interpretation No. 46 (Revised December 2003), "Consolidation of Variable Interest Entities." /s/ Ernst & Young LLP Minneapolis, Minnesota February 18, 2005 -------------------------------------------------------------------------------- 1
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American Centurion Life Assurance Company -------------------------------------------------------------------------------- [Enlarge/Download Table] BALANCE SHEETS December 31, (In thousands, except share data) 2004 2003 ASSETS Investments: Available-for-Sale: (Note 2) Fixed maturities, at fair value (amortized cost: 2004, $542,451; 2003, $490,584) $558,381 $508,092 Preferred stock, at fair value (cost: 2004, $1,000; 2003, $1,000) 1,041 1,031 Mortgage loans on real estate, at cost (less reserves: 2004, $920; 2003, $920) 71,283 62,619 --------------------------------------------------------------------------------------------------------------------------- Total investments 630,705 571,742 Cash and cash equivalents 5,808 22,554 Amounts recoverable from reinsurers 2,220 2,125 Amounts due from brokers 8 2,145 Accrued investment income 6,729 5,959 Deferred policy acquisition costs (Note 3) 18,342 17,774 Deferred sales inducement costs (Note 4) 2,195 1,965 Other assets 330 124 Separate account assets 55,034 29,900 --------------------------------------------------------------------------------------------------------------------------- Total assets $721,371 $654,258 =========================================================================================================================== LIABILITIES AND STOCKHOLDER'S EQUITY Liabilities: Future policy benefits: Fixed annuities $565,676 $528,165 Variable annuity guarantees (Note 4) 98 -- Traditional life insurance 1,691 1,579 Deferred income taxes, net 971 1,622 Other liabilities 1,975 2,047 Separate account liabilities 55,034 29,900 --------------------------------------------------------------------------------------------------------------------------- Total liabilities 625,445 563,313 Commitments and contingencies Stockholder's equity: Capital stock, $10 par value; 100,000 shares authorized, issued and outstanding 1,000 1,000 Additional paid-in capital 56,600 56,600 Accumulated other comprehensive income, net of tax: Net unrealized securities gains 9,228 10,467 Retained earnings 29,098 22,878 --------------------------------------------------------------------------------------------------------------------------- Total stockholder's equity 95,926 90,945 --------------------------------------------------------------------------------------------------------------------------- Total liabilities and stockholder's equity $721,371 $654,258 =========================================================================================================================== See accompanying Notes to Financial Statements. -------------------------------------------------------------------------------- 2
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American Centurion Life Assurance Company -------------------------------------------------------------------------------- [Enlarge/Download Table] STATEMENTS OF INCOME Years ended December 31, (In thousands) 2004 2003 2002 REVENUES Net investment income $33,875 $29,915 $29,225 Contractholder charges 663 489 615 Mortality and expense risk and other fees 673 339 404 Traditional life insurance premiums 1 1 1 Net realized gain (loss) on investments 274 (369) (5,529) --------------------------------------------------------------------------------------------------------------------------- Total 35,486 30,375 24,716 --------------------------------------------------------------------------------------------------------------------------- BENEFITS AND EXPENSES Interest credited on investment contracts 20,077 20,085 19,739 Amortization of deferred policy acquisition costs 3,215 2,420 2,734 Death and other benefits for investment contracts 439 (48) (20) Other operating expenses 2,221 2,300 1,686 --------------------------------------------------------------------------------------------------------------------------- Total 25,952 24,757 24,139 --------------------------------------------------------------------------------------------------------------------------- Income before income tax provision and accounting change 9,534 5,618 577 Income tax provision 3,291 1,902 216 --------------------------------------------------------------------------------------------------------------------------- Income before accounting change 6,243 3,716 361 Cumulative effect of accounting change, net of tax benefit (Note 1) (23) -- -- --------------------------------------------------------------------------------------------------------------------------- Net income $ 6,220 $ 3,716 $ 361 =========================================================================================================================== See accompanying Notes to Financial Statements. -------------------------------------------------------------------------------- 3
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American Centurion Life Assurance Company -------------------------------------------------------------------------------- [Enlarge/Download Table] STATEMENTS OF CASH FLOWS Years ended December 31, (In thousands) 2004 2003 2002 CASH FLOWS FROM OPERATING ACTIVITIES Net income $ 6,220 $ 3,716 $ 361 Adjustments to reconcile net income to net cash provided by operating activities: Change in amounts recoverable from reinsurers (95) 63 80 Change in accrued investment income (770) (1,118) (11) Change in deferred policy acquisition costs, net (673) (3,459) 286 Change in liabilities for future policy benefits for traditional life and disability income insurance 112 (66) (55) Change in policy claims and other policyholder's funds -- 283 1,823 Deferred income tax provision (benefit) 29 875 (1,115) Change in other assets and liabilities, net (86) (883) (3,624) Amortization of premium (accretion of discount), net 1,869 677 (684) Net realized (gain) loss on investments (274) 369 5,529 Cumulative effect of accounting change, net of tax benefit (Note 1) 23 -- -- --------------------------------------------------------------------------------------------------------------------------- Net cash provided by operating activities 6,355 457 2,590 --------------------------------------------------------------------------------------------------------------------------- CASH FLOWS FROM INVESTING ACTIVITIES Available-for-Sale securities: Sales 25,987 38,080 53,790 Purchases (132,250) (213,462) (146,462) Maturities, sinking fund payments and calls 52,801 91,078 59,959 Mortgage loans on real estate: Sales, maturities, sinking fund payments and calls 1,879 2,375 3,584 Purchases (10,543) (16,605) (13,325) Change in amounts due to and from brokers, net 2,137 (17,557) 5,460 --------------------------------------------------------------------------------------------------------------------------- Net cash used in investing activities (59,989) (116,091) (36,994) --------------------------------------------------------------------------------------------------------------------------- CASH FLOWS FROM FINANCING ACTIVITIES Activity related to investment contracts: Considerations received 72,612 114,369 58,264 Surrenders and other benefits (55,801) (38,855) (28,761) Interest credited to account values 20,077 20,085 19,739 Capital contribution -- 20,000 -- --------------------------------------------------------------------------------------------------------------------------- Net cash provided by financing activities 36,888 115,599 48,242 --------------------------------------------------------------------------------------------------------------------------- Net (decrease) increase in cash and cash equivalents (16,746) (35) 14,838 Cash and cash equivalents at beginning of year 22,554 22,589 7,751 --------------------------------------------------------------------------------------------------------------------------- Cash and cash equivalents at end of year $ 5,808 $ 22,554 $ 22,589 =========================================================================================================================== Supplemental disclosures: Income taxes paid $ 3,864 $ 711 $ 4,297 Interest on borrowings -- 6 3 See accompanying Notes to Financial Statements. -------------------------------------------------------------------------------- 4
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American Centurion Life Assurance Company -------------------------------------------------------------------------------- [Enlarge/Download Table] STATEMENTS OF STOCKHOLDER'S EQUITY Accumulated Other Additional Comprehensive Total Capital Paid-in Income (Loss), Retained Stockholder's For the three years ended December 31, 2004 (In thousands) Stock Capital Net of Tax Earnings Equity ------------------------------------------------------------------------------------------------------------------------------------ Balance, December 31, 2001 $1,000 $36,600 $ 1,271 $18,801 $57,672 Comprehensive income: Net income -- -- -- 361 361 Net unrealized holding gains on Available-for-Sale securities arising during the year, net of deferred policy acquisition costs of ($975) and income tax provision of ($4,177) -- -- 7,756 -- 7,756 Reclassification adjustment for losses on Available-for-Sale securities included in net income, net of income tax benefit of $1,892 -- -- 3,513 -- 3,513 Other comprehensive income -- -- 11,269 -- 11,269 ---------- Total comprehensive income -- -- -- -- 11,630 ------------------------------------------------------------------------------------------------------------------------------------ Balance, December 31, 2002 $1,000 $36,600 $12,540 $19,162 $69,302 Comprehensive income: Net income -- -- -- 3,716 3,716 Net unrealized holding losses on Available-for-Sale securities arising during the year, net of deferred policy acquisition costs of $245 and income tax benefit of $1,022 -- -- (1,897) -- (1,897) Reclassification adjustment for gains on Available-for-Sale securities included in net income, net of income tax provision of ($95) -- -- (176) -- (176) Other comprehensive loss -- -- (2,073) -- (2,073) ---------- Total comprehensive income -- -- -- -- 1,643 Cash contribution from parent -- 20,000 -- -- 20,000 ------------------------------------------------------------------------------------------------------------------------------------ Balance, December 31, 2003 $1,000 $56,600 $10,467 $22,878 $90,945 Comprehensive income: Net income -- -- -- 6,220 6,220 Net unrealized holding losses arising on Available-for-Sale securities during the year, net of income tax benefit of $571 and net of adjustments to deferred policy acquisition costs of ($137) and deferred sales inducement costs of ($201) -- -- (1,061) -- (1,061) Reclassification adjustment for gains on Available-for-Sale securities included in net income, net of income tax provision of ($96) -- -- (178) -- (178) Other comprehensive income -- -- (1,239) -- (1,239) ---------- Total comprehensive income -- -- -- -- 4,981 ------------------------------------------------------------------------------------------------------------------------------------ Balance, December 31, 2004 $1,000 $56,600 $ 9,228 $29,098 $95,926 =================================================================================================================================== See accompanying Notes to Financial Statements -------------------------------------------------------------------------------- 5
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American Centurion Life Assurance Company -------------------------------------------------------------------------------- NOTES TO FINANCIAL STATEMENTS 1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES Nature of business American Centurion Life Assurance Company (American Centurion Life) is a stock life insurance company organized under the laws of the State of New York and licensed to transact insurance business in New York, Alabama and Delaware. American Centurion Life is a wholly-owned subsidiary of IDS Life Insurance Company (IDS Life), a Minnesota corporation. IDS Life is a wholly-owned subsidiary of American Express Financial Corporation (AEFC). AEFC is a wholly-owned subsidiary of American Express Company. American Centurion Life offers fixed and variable annuity contracts directly to American Express(R) Cardmembers and others in New York, as well as fixed and variable annuity contracts for sale through non-affiliated representatives and agents of third party distributors, in New York. American Centurion Life's principal products are deferred annuities, which are issued primarily to individuals. It offers single premium and flexible premium deferred annuities on both a fixed and variable dollar basis. Immediate annuities are offered as well. American Centurion Life's fixed deferred annuities guarantee a relatively low annual interest rate during the accumulation period (the time before the annuity payments begin). However, American Centurion Life has the option of paying a higher rate set at its discretion. Under American Centurion Life's variable annuity products described above, the purchaser may choose among investment options that include American Centurion Life's "general account" as well as from a variety of portfolios including common stocks, bonds, managed assets and/or short-term securities. Basis of presentation The accompanying Financial Statements have been prepared in conformity with accounting principles generally accepted in the U.S. (GAAP) which vary in certain respects from reporting practices prescribed or permitted by the New York Department of Insurance (American Centurion Life's primary regulator) as reconciled in Note 13. Certain prior year amounts have been reclassified to conform to the current year's presentation. The preparation of financial statements in conformity with GAAP 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. Revenues Net investment income Net investment income predominantly consists of interest income earned on fixed maturity securities classified as Available-for-Sale and mortgage loans on real estate. Interest income is accrued as earned using the effective interest method, which makes an adjustment of the yield for security premiums and discounts on all performing fixed maturity securities classified as Available-for-Sale, excluding structured securities, and mortgage loans on real estate so that the related security or loan recognizes a constant rate of return on the outstanding balance throughout its term. Interest income on structured securities is recognized according to Emerging Issues Task Force (EITF) Issue No. 99-20, "Recognition of Interest Income and Impairment on Purchased and Retained Beneficial Interests in Securitized Financial Assets". Contractholder charges Contractholder charges include administrative charges and surrender charges on annuities and are recognized as revenue when collected. Mortality and expense risk and other fees Mortality and expense risk and other fees include risk fees and administrative fees, which are generated directly and indirectly from American Centurion Life's separate account assets. American Centurion Life's mortality and expense risk and other fees are generally computed as a contractual rate based on the underlying asset values and are generally received monthly. Net realized gain (loss) on investments Realized gains and losses are recognized using the specific identification method on a trade date basis, and charges are recorded when securities are determined to be other-than-temporarily impaired. -------------------------------------------------------------------------------- 6
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American Centurion Life Assurance Company -------------------------------------------------------------------------------- Balance Sheet Investments Available-for-Sale fixed maturity and equity securities Available-for-Sale investment securities are carried at fair value on the balance sheet with unrealized gains (losses) recorded in other accumulated comprehensive income (loss) within equity, net of income tax provisions (benefits) and net of adjustments in asset balances, such as deferred policy acquisition costs (DAC), to reflect the expected impact on their carrying values had the unrealized gains (losses) been realized immediately. Gains and losses are recognized in results of operations upon disposition of the securities. In addition, losses are also recognized when management determines that a decline in value is other-than-temporary, which requires judgment regarding the amount and timing of recovery. Indicators of other-than-temporary impairment for debt securities include significant issuer downgrade, default or bankruptcy. American Centurion Life also considers the extent to which cost exceeds fair value, the duration and size of that gap, and management's judgment about the issuer's current and prospective financial condition. Other-than-temporary impairment charges are recorded in net realized gains (losses) on investments within the Statements of Income. Fair value is generally based on quoted market prices. However, American Centurion Life's investment portfolio also contains structured investments of various asset quality, including collateralized debt obligations (CDOs) and securitized loan trusts (SLTs) (backed by high-yield bonds and bank loans), which are not readily marketable. As a result, the carrying values of these structured investments are based on future cash flow projections that require a significant degree of management judgment as to the amount and timing of cash payments, default and recovery rates of the underlying investments and, as such, are subject to change. Mortgage loans on real estate Mortgage loans on real estate reflect principal amounts outstanding less reserves for losses. The estimated fair value of the mortgage loans is determined by discounted cash flow analyses using mortgage interest rates currently offered for mortgages of similar maturities. The reserve for losses 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. Additionally, the level of the reserve for losses considers other factors, including historical experience and current economic and political conditions. Management regularly evaluates the adequacy of the reserve for mortgage loan losses and believes it is adequate to absorb estimated losses in the portfolio. American Centurion Life 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. Cash and cash equivalents American Centurion Life has defined cash equivalents to include other highly liquid investments with original maturities of 90 days or less. Deferred policy acquisition costs Deferred policy acquisition costs (DAC) represent the costs of acquiring new annuity business, principally direct sales commissions and other distribution and underwriting costs that have been deferred on the sale of annuity products. These costs are deferred to the extent they are recoverable from future profits. DAC for certain annuities are amortized as a percentage of estimated gross profits or as a portion of product interest margins depending on the product characteristics. For American Centurion Life's annuity products, the DAC balances at any reporting date are supported by projections that show management expects there to be adequate estimated gross profits or interest margins after that date to amortize the remaining DAC balances. These projections are inherently uncertain because they require management to make assumptions about financial markets, anticipated mortality and morbidity levels, and policyholder behavior over periods extending well into the future. Projection periods used for American Centurion Life's annuity business are typically 10 to 25 years. Management regularly monitors financial market conditions and actual policyholder behavior experience and compares them to its assumptions. For annuity products, the assumptions made in projecting future results and calculating the DAC balance and DAC amortization expense are management's best estimates. Management is required to update these assumptions whenever it appears that, based on actual experience or other evidence, earlier estimates should be revised. When assumptions are changed, the percentage of estimated gross profits or portion of interest margins used to amortize DAC might also change. A change in the required amortization percentage is applied retrospectively; an increase in amortization percentage will result in a decrease in DAC balance and an increase in DAC amortization expense while a decrease in amortization percentage will result in an increase in DAC balance and a decrease in DAC amortization expense. The impact on results of operations of changing assumptions can be either positive or negative in any particular period and is reflected in the period in which such changes are made. -------------------------------------------------------------------------------- 7
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American Centurion Life Assurance Company -------------------------------------------------------------------------------- Deferred sales inducement costs Sales inducement costs consist of bonus interest credits and deposit credits added to certain annuity contract values. These benefits are capitalized to the extent they are incremental to amounts that would be credited on similar contracts without the applicable feature. These costs were previously included in DAC and were reclassified as part of the adoption of the American Institute of Certified Public Accountants Statement of Position 03-1, "Accounting and Reporting by Insurance Enterprises for Certain Nontraditional Long-Duration Contracts and for Separate Accounts" (SOP 03-1). The amounts capitalized are amortized using the same methodology and assumptions used to amortize DAC. Separate account assets and liabilities Separate account assets and liabilities are funds held for exclusive benefit of variable annuity contractholders. American Centurion Life receives fund administrative fees, mortality and expense risk fees, and minimum death benefit guarantee fees from the related accounts. American Centurion Life provides contractual mortality assurances to the variable annuity contractholders that the net assets of 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. American Centurion Life 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. American Centurion Life also guarantees that the rates at which administrative charges are deducted from contract funds will not exceed contractual maximums. Liabilities for future policy benefits Fixed annuities and variable annuity guarantees Liabilities for fixed and variable deferred annuities are equal to accumulation values, which are the cumulative gross deposits, credited interest and fund performance less withdrawals and mortality and expense risk charges. The majority of the variable annuity contracts offered by American Centurion Life contain guaranteed minimum death benefit (GMDB) provisions. When market values of the customer's accounts decline, the death benefit payable on a contract with a GMDB may exceed the contract accumulation value. In addition, American Centurion Life offers contracts containing guaranteed minimum income benefit (GMIB) provisions. Effective January 1, 2004, liabilities for these variable annuity death benefits have been established under SOP 03-1. Actuarial models to simulate various equity market scenarios are used to project these benefits and contract assessments and include making significant assumptions related to customer asset value growth rates, mortality, persistency and investment margins. These assumptions, as well as their periodic review by management, are consistent with those used for DAC purposes. Prior to the adoption of SOP 03-1, amounts paid in excess of contract value were expensed. See Application of Recent Accounting Standards section below for further discussion on SOP 03-1. Liabilities for fixed annuities in a benefit or payout status are based on future estimated payments using established industry mortality tables and interest rates, ranging from 4.6% to 6.9% at December 31, 2004, depending on year of issue, with an average rate of approximately 5.5% at December 31, 2004. Income Taxes American Centurion Life's taxable income is included in the consolidated federal income tax return of American Express Company. American Centurion Life 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. -------------------------------------------------------------------------------- 8
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American Centurion Life Assurance Company -------------------------------------------------------------------------------- Application of recent accounting standards In June 2004, the Financial Accounting Standards Board (FASB) issued FASB Staff Position (FSP) FAS No. 97-1, "Situations in Which Paragraphs 17(b) and 20 of FASB Statement No. 97, Accounting and Reporting by Insurance Enterprises for Certain Long-Duration Contracts and for Realized Gains and Losses from the Sale of Investments (SFAS No. 97), Permit or Require Accrual of an Unearned Revenue Liability" (FSP 97-1). The implementation of SOP 03-1 raised a question regarding the interpretation of the requirements of SFAS No. 97 concerning when it is appropriate to record an unearned revenue liability. FSP 97-1 clarifies that SFAS No. 97 is clear in its intent and language, and requires the recognition of an unearned revenue liability for amounts that have been assessed to compensate insurers for services to be performed over future periods. SOP 03-1 describes one situation, when assessments result in profits followed by losses, where an unearned revenue liability is required. SOP 03-1 does not amend SFAS No. 97 or limit the recognition of an unearned revenue liability to the situation described in SOP 03-1. The guidance in FSP 97-1 is effective for financial statements for fiscal periods beginning after June 18, 2004. The adoption of FSP 97-1 did not have a material impact on American Centurion Life's financial condition or results of operations. In July 2003, the American Institute of Certified Public Accountants (AICPA) issued SOP 03-1 effective for fiscal years beginning after December 15, 2003. SOP 03-1 provides guidance on separate account presentation and accounting for interests in separate accounts. Additionally, SOP 03-1 provides clarifying guidance as to the recognition of bonus interest and other sales inducement benefits and the presentation of any deferred amounts in the financial statements. Lastly, SOP 03-1 requires insurance enterprises to establish additional liabilities for benefits that may become payable under variable annuity death benefit guarantees or other insurance or annuity contract provisions. Where an additional liability is established, the recognition of this liability will then be considered in amortizing DAC and any deferred sales inducement costs associated with those annuity contracts. The adoption of SOP 03-1 as of January 1, 2004, resulted in a cumulative effect of accounting change that reduced the first quarter 2004 results by $23 thousand ($36 thousand pretax). Prior to the adoption of SOP 03-1, amounts paid in excess of contract value were expensed when payable. Amounts expensed in 2004 to establish and maintain additional liabilities for certain variable annuity guaranteed benefits amounted to $60 thousand as compared to amounts expensed in 2003 and 2002 of $34 thousand and $22 thousand, respectively. American Centurion Life's accounting for separate accounts was already consistent with the provisions of SOP 03-1 and, therefore, there was no impact related to this requirement. See Note 4 for a further discussion regarding SOP 03-1. The AICPA released a series of technical practice aids (TPAs) in September 2004 which provide additional guidance related to, among other things, the definition of an insurance benefit feature and the definition of policy assessments in determining benefit liabilities, as described within SOP 03-1. The TPAs did not have a material effect on American Centurion Life's calculation of liabilities that were recorded in the first quarter of 2004 upon adoption of SOP 03-1. In January 2003, the FASB issued Interpretation No. 46, "Consolidation of Variable Interest Entities" (FIN 46), which addresses consolidation by business enterprises of variable interest entities (VIEs) and was subsequently revised in December 2003. The determination as to whether an entity is a VIE is based on the amount and characteristics of the entity's equity. In general, FIN 46 requires a VIE to be consolidated when an enterprise has a variable interest for which it is deemed to be the primary beneficiary which means that it will absorb a majority of the VIE's expected losses or receive a majority of the VIE's expected residual return. The entities considered VIE's under FIN 46 include SLTs for which American Centurion Life has a 1.2% ownership interest in each of two SLT structures which are in the process of being liquidated as of December 31, 2004. The SLTs provide returns to investors primarily based on the performance of an underlying portfolio of high-yield loans, which are managed by a related party. However, American Centurion Life is not required to consolidate the SLTs as it is not the primary beneficiary. As of December 31, 2004 American Centurion Life's pro rata interest in the underlying portfolio consists of $12.4 million in high-yield loans which have a market value of $12.5 million. American Centurion Life's maximum exposure to loss as a result of its investments in SLT's is represented by the carrying value which is $3.4 million. In November 2003, the FASB ratified a consensus on the disclosure provisions of Emerging Issues Task Force Issue 03-1, "The Meaning of Other-Than-Temporary Impairment and Its Application to Certain Investments" (EITF 03-1). American Centurion Life complied with the disclosure provisions of this rule in Note 3 to the Financial Statements for the year ended December 31, 2003. In March 2004, the FASB reached a consensus regarding the application of a three-step impairment model to determine whether investments accounted for in accordance with SFAS No. 115, "Accounting for Certain Investments in Debt and Equity Securities," and other cost method investments are other-than-temporarily impaired. However, with the issuance of FSP EITF 03-1-1 on September 30, 2004, the provisions of the consensus relating to the measurement and recognition of other-than-temporary impairments were deferred pending further clarification from the FASB. The remaining provisions of this rule, which primarily relate to disclosure requirements, are required to be applied prospectively to all current and future investments accounted for in accordance with SFAS No. 115 and other cost method investments. American Centurion Life will evaluate the potential impact of EITF 03-1 after the FASB completes its reassessment. -------------------------------------------------------------------------------- 9
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American Centurion Life Assurance Company -------------------------------------------------------------------------------- 2. INVESTMENTS Available-for-Sale investments Investment classified as Available-for-Sale at December 31, 2004 are distributed by type as presented below: [Enlarge/Download Table] December 31, 2004 --------------------------------------------------------------------------------------------------------------------------- Gross Gross Unrealized Unrealized Fair (Thousands) Cost Gains Losses Value --------------------------------------------------------------------------------------------------------------------------- Fixed maturities: Corporate debt securities $255,507 $11,773 $ (541) $266,739 Mortgage and other asset-backed securities 201,972 3,940 (682) 205,230 Foreign corporate bonds and obligations 46,752 1,883 (221) 48,414 Structured investments(a) 15,212 -- (178) 15,034 U.S. Government and agencies obligations 22,008 72 (80) 22,000 State and municipal obligations 1,000 -- (36) 964 --------------------------------------------------------------------------------------------------------------------------- Total fixed maturities 542,451 17,668 (1,738) 558,381 Preferred stock 1,000 41 -- 1,041 --------------------------------------------------------------------------------------------------------------------------- Total $543,451 $17,709 $(1,738) $559,422 =========================================================================================================================== (a) Includes unconsolidated CDOs and SLTs. Investment classified as Available-for-Sale at December 31, 2003 are distributed by type as presented below: [Enlarge/Download Table] December 31, 2003 --------------------------------------------------------------------------------------------------------------------------- Gross Gross Unrealized Unrealized Fair (Thousands) Cost Gains Losses Value --------------------------------------------------------------------------------------------------------------------------- Fixed maturities: Corporate debt securities $222,788 $12,292 $ (908) $234,172 Mortgage and other asset-backed securities 208,799 5,589 (480) 213,908 Foreign corporate bonds and obligations 37,912 1,810 (445) 39,277 Structured investments(a) 18,070 10 (391) 17,689 U.S. Government and agencies obligations 2,015 75 -- 2,090 State and municipal obligations 1,000 -- (44) 956 --------------------------------------------------------------------------------------------------------------------------- Total fixed maturities 490,584 19,776 (2,268) 508,092 Preferred stock 1,000 31 -- 1,031 --------------------------------------------------------------------------------------------------------------------------- Total $491,584 $19,807 $(2,268) $509,123 =========================================================================================================================== (a) Includes unconsolidated CDOs and SLTs. The following table provides information about Available-for-Sale securities with gross unrealized losses and the length of time that individual securities have been in a continuous unrealized loss position as of December 31, 2004: [Enlarge/Download Table] Less than 12 months 12 months or more Total --------------------------------------------------------------------------------------------------------------------------- Fair Unrealized Fair Unrealized Fair Unrealized (Thousands) Value Losses Value Losses Value Losses --------------------------------------------------------------------------------------------------------------------------- Description of securities: Corporate debt securities $ 33,453 $ (266) $ 9,232 $(275) $ 42,685 $ (541) Mortgage and other asset-backed securities 67,901 (681) -- -- 67,901 (681) Foreign corporate bonds and obligations 9,525 (80) 6,451 (141) 15,976 (221) Structured investments -- -- 11,642 (178) 11,642 (178) U.S. Government and agencies obligations 9,887 (80) -- -- 9,887 (80) State and municipal obligations -- -- 964 (37) 964 (37) --------------------------------------------------------------------------------------------------------------------------- Total $120,766 $(1,107) $28,289 $(631) $149,055 $(1,738) =========================================================================================================================== -------------------------------------------------------------------------------- 10
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American Centurion Life Assurance Company -------------------------------------------------------------------------------- In evaluating potential other-than-temporary impairments, American Centurion Life considers the extent to which amortized costs exceeds fair value and the duration and size of that difference. A key metric in performing this evaluation is the ratio of fair value to amortized cost. The following table summarizes the unrealized losses by ratio of fair value to cost as of December 31, 2004: [Enlarge/Download Table] (Millions, except number of securities) Less than 12 months 12 months or more Total ------------------------------------------------------------------------------------------------------------------------------ Gross Gross Gross Ratio of Fair Value Number of Unrealized Number of Unrealized Number of Unrealized to Amortized Cost Securities Fair Value Losses Securities Fair Value Losses Securities Fair Value Losses ------------------------------------------------------------------------------------------------------------------------------ 95% - 100% 83 $121 $ (1) 18 $ 28 $ (1) 101 $149 $ (2) 90% - 95% -- -- -- -- -- -- -- -- -- 80% - 90% -- -- -- -- -- -- -- -- -- Less than 80% -- -- -- -- -- -- -- -- -- ------------------------------------------------------------------------------------------------------------------------------ Total 83 $121 $ (1) 18 $ 28 $ (1) 101 $149 $ (2) ============================================================================================================================== Substantially all of the gross unrealized losses on the securities are attributable to changes in interest rates. Credit spreads and specific credit events associated with individual issuers can also cause unrealized losses although these impacts are not significant as of December 31, 2004. As noted in the table above, all of the unrealized loss relates to securities that have a fair value to cost ratio of 95% or above resulting in an overall 99% ratio of fair value to cost for all securities with an unrealized loss. The holding with the largest unrealized loss relates to the retained interest in a CDO securitization trust which has $178 thousand of the $631 thousand in unrealized losses for securities with an unrealized loss for twelve months or more. With regard to this security, American Centurion Life estimates future cash flows through maturity (2014) on a quarterly basis using judgment as to the amount and timing of cash payments and defaults and recovery rates of the underlying investments. These cash flows support full recovery of American Centurion Life's carrying value related to the retained interest in the CDO securitization trust as of December 31, 2004. American Centurion Life monitors the investments and metrics discussed above on a quarterly basis to identify and evaluate investments that have indications of possible other-than-temporary impairment. See the Investments section of Note 1 for information regarding American Centurion Life's policy for determining when an investment's decline in value is other-than-temporary. Additionally, American Centurion Life has the ability and intent to hold these securities for a time sufficient to recover its amortized cost and has, therefore, concluded that none are other-than-temporarily impaired at December 31, 2004. The change in net unrealized securities gains (losses) recognized in accumulated other comprehensive income includes three components: (i) unrealized gains (losses) that arose from changes in market value of securities that were held during the period (holding gains (losses)), (ii) gains (losses) that were previously unrealized, but have been recognized in current period net income due to sales and other-than-temporary impairments of Available-for-Sale securities (reclassification for realized (gains) losses) and (iii) other items primarily consisting of adjustments in assets and liability balances such as DAC, to reflect the expected impact on their carrying values had the unrealized gains (losses) been realized immediately. The following is a distribution of investments classified as Available-for-Sale by maturity as of December 31, 2004: [Enlarge/Download Table] Fair (Thousands) Cost Value ------------------------------------------------------------------------------------------------------------------------------ Due within one year $ 8,512 $ 8,687 Due from one to five years 84,110 88,361 Due from five to ten years 199,831 207,757 Due in more than ten years 32,814 33,312 ------------------------------------------------------------------------------------------------------------------------------ 325,267 338,117 Mortgage and other asset-backed securities 201,972 205,230 Structured investments 15,212 15,034 Preferred stock 1,000 1,041 ------------------------------------------------------------------------------------------------------------------------------ Total $543,451 $559,422 ============================================================================================================================== The expected payments on mortgage and other asset-backed securities and structured investments may not coincide with their contractual maturities. As such, these securities, as well as preferred stocks were not included in the maturities distribution. At December 31, 2004 and 2003, bonds carried at $1.0 million were on deposit with the State of New York as required by law. -------------------------------------------------------------------------------- 11
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American Centurion Life Assurance Company -------------------------------------------------------------------------------- At December 31, 2003 and 2004, fixed maturity securities comprised approximately 51 percent and 89 percent of American Centurion Life's total investments. These securities are rated by Moody's and Standard & Poor's (S&P), except for approximately $7.5 million and $12.0 million of securities at December 31, 2004 and 2003, respectively, which are rated by AEFC's internal analysts using criteria similar to Moody's and S&P. Ratings on investment grade securities (excluding net unrealized appreciation and depreciation) are presented using S&P's convention and, if the two agencies' ratings differ, the lower rating is used. A summary, by rating on December 31, is as follows: [Enlarge/Download Table] Rating 2004 2003 --------------------------------------------------------------------------------------------------------------------------- AAA 42% 44% AA 3 2 A 18 18 BBB 29 29 Below investment grade 8 7 --------------------------------------------------------------------------------------------------------------------------- Total 100% 100% --------------------------------------------------------------------------------------------------------------------------- At December 31, 2004 and 2003, approximately 51 and 89 percent, respectively, of the securities rated AAA are GNMA, FNMA and FHLMC mortgage-backed securities. No holdings of any other issuer were greater than ten percent of stockholder's equity. The table below includes sales, maturities and purchases of investments classified as Available-for-Sale for the years ended December 31: [Enlarge/Download Table] (Thousands) 2004 2003 2002 --------------------------------------------------------------------------------------------------------------------------- Sales $ 25,987 $ 38,080 $ 53,790 Maturities $ 52,801 $ 91,078 $ 59,959 Purchases $132,250 $213,462 $146,462 --------------------------------------------------------------------------------------------------------------------------- Included in net realized gains and losses are gross realized gains and losses on sales of securities, as well as other-than-temporary losses on investments, classified as Available-for-Sale as noted in the following table for the years ended December 31: [Enlarge/Download Table] (Thousands) 2004 2003 2002 --------------------------------------------------------------------------------------------------------------------------- Gross realized gains from sales $ 474 $ 2,817 $ 2,123 Gross realized losses from sales $(200) $(1,219) $(4,353) Other-than-temporary impairments $ -- $(1,327) $(3,265) --------------------------------------------------------------------------------------------------------------------------- As of December 31, 2004, American Centurion Life's structured investments, which are classified as Available-for-Sale, include interests in CDOs. CDOs are investments backed by high-yield bonds or loans and are not readily marketable. American Centurion Life invested in CDOs as part of its overall investment strategy in order to offer competitive rates to insurance and annuity contractholders. During 2001, American Centurion Life placed a majority of its rated CDO securities and related accrued interest, (collectively referred to as transferred assets), having an aggregate book value of $14.9 million, into a securitization trust. In return, American Centurion Life received $1.9 million in cash relating to sales to unaffiliated investors and retained interests with allocated book amounts aggregating $12.9 million. As of December 31, 2004, the retained interests had a carrying value of approximately $11.6 million, of which approximately $8.6 million is considered investment grade. The book amount is determined by allocating the previous carrying value of the transferred assets between assets sold and the retained interests based on their relative fair values. Fair values are based on the estimated present value of future cash flows. The retained interests are accounted for in accordance with EITF Issue 99-20 "Recognition of Interest Income and Impairment on Purchased and Retained Beneficial Interests in Securitized Financial Assets". One of the results of this transaction is that increases and decreases in future cash flows of the individual CDOs are combined into one overall cash flow for purposes of determining the carrying value of the retained interests and related impact on results of operations. Mortgage loans on real estate Mortgage loans are first mortgages on real estate. American Centurion Life 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 agreements. 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. Commitments to fund mortgages are made in the ordinary course of business. The estimated fair value of the mortgage commitments as of December 31, 2004 and 2003 was not material. -------------------------------------------------------------------------------- 12
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American Centurion Life Assurance Company -------------------------------------------------------------------------------- The following is a summary of mortgage loans on real estate and syndicated loans at December 31: [Enlarge/Download Table] (Thousands) 2004 2003 --------------------------------------------------------------------------------------------------------------------------- Mortgage loans on real estate $72,203 $63,539 Mortgage loans on real estate reserves (920) (920) --------------------------------------------------------------------------------------------------------------------------- Net mortgage loans $71,283 $62,619 --------------------------------------------------------------------------------------------------------------------------- At December 31, 2004 and 2003, American Centurion Life's recorded investment in impaired mortgage loans on real estate was $nil. During 2004 and 2003, the average recorded investment in impaired mortgage loans on real estate was $nil. American Centurion Life recognized $nil of interest income related to impaired mortgage loans on real estate for the years ended December 31, 2004, 2003 and 2002, respectively. The balances of and changes in the total reserve for mortgage loan losses as of and for the years ended December 31, are as follows: [Enlarge/Download Table] (Thousands) 2004 2003 2002 --------------------------------------------------------------------------------------------------------------------------- Balance, January 1 $920 $278 $149 Provision for mortgage loan losses -- 642 129 --------------------------------------------------------------------------------------------------------------------------- Balance, December 31 $920 $920 $278 --------------------------------------------------------------------------------------------------------------------------- Concentration of credit risk of mortgage loans on real estate by region at December 31, were: [Enlarge/Download Table] (Thousands) December 31, 2004 December 31, 2003 --------------------------------------------------------------------------------------------------------------------------- On Balance Funding On Balance Funding Region Sheet Commitments Sheet Commitments --------------------------------------------------------------------------------------------------------------------------- East North Central $ 4,241 $-- $ 4,335 $ -- West North Central 8,302 -- 8,547 -- South Atlantic 16,154 -- 12,870 1,350 Middle Atlantic 4,892 -- 4,980 -- New England 1,777 -- 1,829 -- Pacific 12,687 -- 11,121 -- West South Central 5,465 -- 5,634 -- East South Central 2,748 -- 2,861 -- Mountain 15,937 -- 11,362 -- --------------------------------------------------------------------------------------------------------------------------- 72,203 -- 63,539 1,350 Less reserves for losses 920 -- 920 -- --------------------------------------------------------------------------------------------------------------------------- Total $71,283 $-- $62,619 $1,350 =========================================================================================================================== Concentration of credit risk of mortgage loans on real estate by property type at December 31 were: [Enlarge/Download Table] (Thousands) December 31, 2004 December 31, 2003 --------------------------------------------------------------------------------------------------------------------------- On Balance Funding On Balance Funding Property type Sheet Commitments Sheet Commitments --------------------------------------------------------------------------------------------------------------------------- Office buildings $25,079 $-- $21,110 $1,350 Department/retail stores 18,180 -- 17,997 -- Apartments 2,550 -- 2,613 -- Industrial buildings 19,821 -- 14,972 -- Medical buildings 2,398 -- 2,560 -- Mixed use 4,175 -- 4,287 -- --------------------------------------------------------------------------------------------------------------------------- 72,203 -- 63,539 1,350 Less reserves for losses 920 -- 920 -- --------------------------------------------------------------------------------------------------------------------------- Total $71,283 $-- $62,619 $1,350 =========================================================================================================================== -------------------------------------------------------------------------------- 13
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American Centurion Life Assurance Company -------------------------------------------------------------------------------- Sources of investment income and realized gains on investments Net investment income for the years ended December 31 is summarized as follows: [Enlarge/Download Table] (Thousands) 2004 2003 2002 --------------------------------------------------------------------------------------------------------------------------- Income on fixed maturities $28,702 $25,649 $25,178 Income on mortgage loans on real estate 4,615 4,278 3,300 Other investments 726 358 1,050 --------------------------------------------------------------------------------------------------------------------------- 34,043 30,285 29,528 Less investment expenses 168 370 303 --------------------------------------------------------------------------------------------------------------------------- Total $33,875 $29,915 $29,225 =========================================================================================================================== Net realized gains (losses) on investments for the years ended December 31 is summarized as follows: [Enlarge/Download Table] (Thousands) 2004 2003 2002 --------------------------------------------------------------------------------------------------------------------------- Fixed maturities $274 $ 271 $(5,405) Mortgage loans on real estate -- (642) (129) Other -- 2 5 --------------------------------------------------------------------------------------------------------------------------- Total $274 $(369) $(5,529) =========================================================================================================================== 3. DEFERRED POLICY ACQUISITION COSTS The balances of and changes in deferred policy acquisition costs as of and for the years ended December 31, were: [Enlarge/Download Table] (Thousands) 2004 2003 2002 --------------------------------------------------------------------------------------------------------------------------- Balance, January 1, $17,744 $14,039 $15,301 Capitalization of expenses 3,950 5,880 2,447 Amortization (3,215) (2,420) (2,734) Change in unrealized investment gains and losses (137) 245 (975) --------------------------------------------------------------------------------------------------------------------------- Balance, December 31, $18,342 $17,744 $14,039 --------------------------------------------------------------------------------------------------------------------------- 4. VARIABLE ANNUITY GUARANTEES AND SALES INDUCEMENT COSTS The majority of the variable annuity contracts offered by American Centurion Life contain GMDB provisions. When market values of the customer's accounts decline, the death benefit payable on a contract with a GMDB may exceed the contract accumulation value. In addition, American Centurion Life offers contracts containing GMIB provisions. If elected by the contract owner and after a stipulated waiting period from contract issuance, a GMIB guarantees a minimum lifetime annuity based on a specified rate of contract accumulation value growth and predetermined annuity purchase rates. American Centurion Life has established additional liabilities for these variable annuity death and GMIB benefits under SOP 03-1. American Centurion Life has not established additional liabilities for other insurance or annuitization guarantees for which the risk is currently immaterial. The variable annuity death benefit liability is determined each period by estimating the expected value of death benefits in excess of the projected contract accumulation value and recognizing the excess over the estimated meaningful life based on expected assessments (e.g., mortality and expense fees, contractual administrative charges and similar fees). Similarly, the GMIB liability is determined each period by estimating the expected value of annuitization benefits in excess of the projected contract accumulation value at the date of annuitization and recognizing the excess over the estimated meaningful life based on expected assessments. The majority of the GMDB contracts provide for six year reset contract values. In determining the additional liabilities for variable annuity death benefits and GMIB, American Centurion Life projects these benefits and contract assessments using actuarial models to simulate various equity market scenarios. Significant assumptions made in projecting future benefits and assessments relate to customer asset value growth rates, mortality, persistency and investment margins and are consistent with those used for DAC asset valuation for the same contracts. As with DAC, management will review, and where appropriate, adjust its assumptions each quarter. Unless management identifies a material deviation over the course of quarterly monitoring, management will review and update these assumptions annually in the third quarter of each year. -------------------------------------------------------------------------------- 14
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American Centurion Life Assurance Company -------------------------------------------------------------------------------- The following provides summary information related to variable annuity contracts for which American Centurion Life has established additional liabilities for death benefits and GMIB as of December 31: [Enlarge/Download Table] Variable Annuity GMDB and GMIB by Benefit Type 2004 2003 (Dollar amounts in millions) --------------------------------------------------------------------------------------------------------------------------- Contracts with GMDB Providing for Return of Premium Total Contract Value $15.1 $15.5 Contract Value in Separate Accounts $ 7.0 $ 3.8 Net Amount at Risk* $ 0.2 $ -- Weighted Average Attained Age 61 61 --------------------------------------------------------------------------------------------------------------------------- Contracts with GMDB Providing for One Year Ratchet Total Contract Value $66.3 $43.0 Contract Value in Separate Accounts $48.0 $26.0 Net Amount at Risk* $ 1.4 $ 2.5 Weighted Average Attained Age 61 61 --------------------------------------------------------------------------------------------------------------------------- Contracts with GMIB Total Contract Value $23.8 $ 7.9 Contract Value in Separate Accounts $20.0 $ 5.3 Net Amount at Risk* $ -- $ -- Weighted Average Attained Age 55 55 --------------------------------------------------------------------------------------------------------------------------- * Represents current death benefit less total contract value for GMDB and accumulated guaranteed minimum benefit base less total contract value for GMIB and assumes the actuarially remote scenario that all claims become payable on the same day. --------------------------------------------------------------------------------------------------------------------------- Additional Liabilities and Incurred Benefits GMDB GMIB --------------------------------------------------------------------------------------------------------------------------- For the year ended December 31, 2004 Liability balance at January 1 $ -- $-- Reported claims $ -- $-- Liability balance at December 31 $ 0.1 $-- Incurred claims (reported + change in liability) $ 0.1 $-- --------------------------------------------------------------------------------------------------------------------------- The additional liabilities for guaranteed benefits established under SOP 03-1 are supported by general account assets. Changes in these liabilities are included in death and other benefits in the Statements of Income. Contract values in separate accounts were invested in various equity, bond and other funds as directed by the contract holder. No gains or losses were recognized on assets transferred to separate accounts for the periods presented. Sales inducement costs consist of bonus interest credits and premium credits added to certain annuity contract values. These benefits are capitalized to the extent they are incremental to amounts that would be credited on similar contracts without the applicable feature. Deferred sales inducement costs were $2.2 million and $2.0 million at December 31, 2004 and 2003, respectively. These costs were previously included in DAC and were reclassified as part of the adoption of SOP 03-1. The amounts capitalized are amortized using the same methodology and assumptions used to amortize DAC. American Centurion Life capitalized $0.8 million and $0.6 million for the years ended December 31, 2004 and 2003, respectively. American Centurion Life amortized $0.4 million and $0.2 million for the years ended December 31, 2004 and 2003, respectively. -------------------------------------------------------------------------------- 15
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American Centurion Life Assurance Company -------------------------------------------------------------------------------- 5. INCOME TAXES American Centurion Life qualifies as a life insurance company for federal income tax purposes. As such, American Centurion Life is subject to the Internal Revenue Code provisions applicable to life insurance companies. The components of income tax provision included in the Statements of Income for the years ended December 31 were as follows: [Enlarge/Download Table] (Thousands) 2004 2003 2002 ---------------------------------------------------------------------------------------------------------------------------- Federal income taxes Current $2,949 $1,053 $ 1,242 Deferred 16 875 (1,115) ---------------------------------------------------------------------------------------------------------------------------- 2,965 1,928 127 State income taxes-current 313 (26) 89 ---------------------------------------------------------------------------------------------------------------------------- Income tax provision before accounting change $3,278 $1,902 $ 216 ============================================================================================================================ A reconciliation of the expected federal income tax provision using the U.S. federal statutory rate of 35% to American Centurion Life's actual income tax provision for the years ended December 31 were as follows: [Enlarge/Download Table] (Thousands) 2004 2003 2002 ---------------------------------------------------------------------------------------------------------------------------- Combined tax at U.S. statutory rate $3,324 35.0% $1,966 35.0% $202 35.0% Changes in taxes resulting from: Tax-exempt interest and dividend income (14) (0.2) (22) (0.4) (6) 1.9 State income tax, net of federal benefit 203 2.2 (17) (0.3) 58 (17.4) All other (235) (2.5) (25) (0.5) (38) 11.1 ---------------------------------------------------------------------------------------------------------------------------- Income tax provision before accounting change $3,278 34.5% $1,902 33.8% $216 30.6% ============================================================================================================================ A portion of American Centurion Life's income earned prior to 1984 was not subject to current taxation but was accumulated, for tax purposes, in a "policyholders' surplus account". At December 31, 2004, American Centurion Life had a policyholders' surplus account balance of $1.1 million. The American Jobs Creation Act of 2004 which was enacted on October 22, 2004, provided a two-year suspension of the tax on policyholders' surplus account distribution. American Centurion Life is evaluating making distributions, which will not be subject to tax under the two-year suspension. Previously the policyholders' surplus account was only taxable if dividends to shareholders exceed the shareholders' surplus account and/or if American Centurion Life is liquidated. Deferred taxes of $379 thousand had not been established because no distributions of such amounts were contemplated. Deferred income tax provision (benefit) results from differences between assets and liabilities measured for financial reporting and for income tax return purposes. The significant components of American Centurion Life's deferred tax assets and liabilities as of December 31, 2004 and 2003 are reflected in the following table: [Enlarge/Download Table] (Thousands) 2004 2003 ---------------------------------------------------------------------------------------------------------------------------- Deferred tax assets: Policy reserves $ 4,276 $ 3,274 Other Investments 5,460 5,559 Other 652 360 ---------------------------------------------------------------------------------------------------------------------------- Total 10,388 9,193 ---------------------------------------------------------------------------------------------------------------------------- Deferred income tax liabilities: Deferred policy acquisition costs 4,845 5,179 Deferred taxes related to net unrealized securities gains 4,969 5,636 Other 1,545 -- ---------------------------------------------------------------------------------------------------------------------------- Total 11,359 10,815 ---------------------------------------------------------------------------------------------------------------------------- Net deferred tax liabilities $ 971 $ 1,622 ============================================================================================================================ American Centurion Life 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 American Centurion Life will realize the benefit of the deferred income tax assets and, therefore, no such valuation allowance has been established. -------------------------------------------------------------------------------- 16
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American Centurion Life Assurance Company -------------------------------------------------------------------------------- 6. STATUTORY CAPITAL AND SURPLUS Statutory capital and surplus available for distribution or dividends to IDS Life are limited to American Centurion Life's surplus as determined in accordance with accounting practices prescribed by state insurance regulatory authorities. American Centurion Life's statutory unassigned surplus aggregated $(8.1) million and $(14.7) million as of December 31, 2004 and 2003, respectively. Statutory net income for the years ended December 31 and capital and surplus as of December 31 are summarized as follows: [Enlarge/Download Table] (Thousands) 2004 2003 2002 ---------------------------------------------------------------------------------------------------------------------------- Statutory net income (loss) $ 7,768 $(11,745) $(5,354) Statutory capital and surplus 49,550 42,904 33,752 7. RELATED PARTY TRANSACTIONS American Centurion Life participates in the American Express Company Retirement Plan which covers all permanent employees age 21 and over who have met certain employment requirements. Company contributions to the plan are based on participants' age, years of service and total compensation for the year. Funding of retirement costs for this plan complies with the applicable minimum funding requirements specified by ERISA. American Centurion Life's share of the total net periodic pension cost was $4 thousand, $5 thousand, and $5 thousand for the years 2004, 2003, and 2002, respectively. American Centurion Life also participates in defined contribution pension plans of American Express Company which cover all employees who have met certain employment requirements. Company contributions to the plans are a percent of either each employee's eligible compensation or basic contributions. Costs of these plans charged to operations in 2004, 2003, and 2002 were $13 thousand, $25 thousand, and $21 thousand, respectively. American Centurion Life participates in defined benefit health care plans of AEFC that provide health care and life insurance benefits to retired employees. The plans include participant contributions and service related eligibility requirements. Upon retirement, such employees are considered to have been employees of AEFC. AEFC expenses these benefits and allocates the expenses to its subsidiaries. Costs of these plans charged to operations in 2004, 2003, and 2002 were $nil. Charges by IDS Life and AEFC for use of joint facilities, technology support, marketing services and other services aggregated $2.6 million, $3.0 million, and $2.2 million for 2004, 2003, and 2002, respectively. Certain of these costs are included in deferred policy acquisition costs. Expenses allocated to American Centurion Life may not be reflective of expenses that would have been incurred by American Centurion Life on a stand-alone basis. Included in other liabilities at December 31, 2004 and 2003 are payables of $474 thousand and $636 thousand, respectively, payable to IDS Life for federal income taxes. 8. LINES OF CREDIT American Centurion Life has an available line of credit with AEFC of $10 million. The interest rate for the line of credit is established by reference to various indices plus 20 to 45 basis points, depending on the term. There were no borrowings outstanding under this agreement at December 31, 2004 and 2003. 9. REINSURANCE American Centurion Life has an agreement whereby it ceded 100 percent of a block of individual life insurance and individual annuities to an unaffiliated company. At December 31, 2004, 2003, and 2002, traditional life insurance in force aggregated $97.2 million, $105.4 million and $119.6 million, respectively, of which $97.1 million, $105.3 million, and $119.6 million, was reinsured at the respective year ends. Under all reinsurance agreements, premiums ceded to reinsurers amounted to $1.2 million, $1.1 million, and $1.3 million and reinsurance recovered from reinsurers amounted to $610 thousand, $920 thousand, and $2.0 million for the years ended December 31, 2004, 2003, and 2002, respectively. Reinsurance contracts do not relieve American Centurion Life from its primary obligation to policyholders. -------------------------------------------------------------------------------- 17
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American Centurion Life Assurance Company -------------------------------------------------------------------------------- 10. FAIR VALUES OF FINANCIAL INSTRUMENTS The following table discloses fair value information for financial instruments. Certain items, such as life insurance obligations, employee benefit obligations, investments accounted for under the equity method, deferred policy acquisition costs and deferred sales inducement costs are specifically excluded by SFAS No. 107, "Disclosure about Fair Value of Financial Instruments". The fair values of financial instruments are estimates based upon market conditions and perceived risks at December 31, 2004 and 2003 and require management judgment. These figures may not be indicative of their future fair values. Additionally, management believes the value of excluded assets and liabilities is significant. The fair value of American Centurion Life, therefore, cannot be estimated by aggregating the amounts presented. The following table discloses fair value information for financial instruments as of December 31: [Enlarge/Download Table] (Thousands) 2004 2003 --------------------------------------------------------------------------------------------------------------------------- Carrying Fair Carrying Fair Financial Assets Amount Value Amount Value --------------------------------------------------------------------------------------------------------------------------- Available for sale investments $559,422 $559,422 $509,123 $509,123 Mortgage loans on real estate, net 71,283 77,127 62,619 68,380 Separate account assets 55,034 55,034 29,900 29,900 Cash and cash equivalents 5,808 5,808 22,554 22,554 Financial Liabilities --------------------------------------------------------------------------------------------------------------------------- Fixed annuities $564,282 $551,784 $527,047 $514,126 Separate account liabilities 55,034 52,957 29,900 28,730 The following methods were used to estimate the fair values of financial assets and financial liabilities. Financial assets Generally, investments are carried at fair value on the Balance Sheets. Gains and losses are recognized in the results of operations upon disposition of the securities. In addition, losses are recognized when management determines that a decline in value is other-than-temporary. See Note 2 for carrying value and fair value information regarding investments. The fair values of mortgage loans on real estate, except those with significant credit deterioration, are estimated using discounted cash flow analysis, based on current interest rates for loans with similar terms to borrowers of similar credit quality. For loans with significant credit deterioration, fair values are based on estimates of future cash flows discounted at rates commensurate with the risk inherent in the revised cash flow projections, or for collateral dependent loans on collateral values. Separate account assets are carried at fair value on the Balance Sheets. The carrying values for cash and cash equivalents approximate fair value due to the short-term nature of these investments. Financial liabilities The fair values of fixed annuities in deferral status are estimated as the accumulated value less applicable surrender charges and loans. For annuities in payout status, fair value is estimated using discounted cash flows, based on current interest rates. The carrying value and fair value of these reserves excludes life insurance related elements of $1.4 million and $1.1 million at December 31, 2004 and 2003, respectively. The fair values of separate account liabilities are estimated as the accumulated value less applicable surrender charges. 11. COMMITMENTS AND CONTINGENCIES At December 31, 2004 and 2003, American Centurion Life had no commitments to purchase investments other than mortgage loan fundings (see Note 2). The Securities and Exchange Commission (SEC), the National Association of Securities Dealers (NASD) and several state attorneys general have brought proceedings challenging several mutual fund and variable account financial practices, including suitability generally, late trading, market timing, disclosure of revenue sharing arrangements and inappropriate sales of B shares. American Centurion Life has received requests for information and has been contacted by regulatory authorities concerning its practices and is cooperating fully with these inquiries. -------------------------------------------------------------------------------- 18
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American Centurion Life Assurance Company -------------------------------------------------------------------------------- American Centurion Life is involved in a number of other legal and arbitration proceedings concerning matters arising in connection with the conduct of their respective business activities. American Centurion Life believes it has meritorious defenses to each of these actions and intends to defend them vigorously. American Centurion Life believes that it is not a party to, nor are any of its properties the subject of, any pending legal or arbitration proceedings that would have a material adverse effect on American Centurion Life's financial condition, results of operations or liquidity. However, it is possible that the outcome of any such proceedings could have a material impact on results of operations in any particular reporting period as the proceedings are resolved. The IRS routinely examines American Centurion Life's federal income tax returns and is currently conducting an audit for the 1993 through 1996 tax years and in February of 2005 began the exam of the 1997 through 2002 tax years. Management does not believe there will be a material adverse effect on American Centurion Life's consolidated financial position as a result of these audits. 12. SUBSEQUENT EVENTS On February 1, 2005, the American Express Company announced plans to pursue a tax-free spin-off of the common stock of American Express Company's AEFC's unit through a special dividend to American Express common shareholders. The final transaction, which is subject to certain conditions including receipt of a favorable tax ruling and approval by American Express Company's Board of Directors, is expected to close in the third quarter of 2005. Also, on February 1, 2005, A.M. Best placed American Centurion Life's financial strength rating of "A+" under review with negative implications, Moody's affirmed American Centurion Life's financial strength rating at "Aa3" and Fitch lowered American Centurion Life's financial strength rating to "AA-" and placed them on "Rating Watch Negative" following American Express Company's announcement that it intends to spin-off its full ownership of AEFC, the holding company for American Centurion Life. In connection with the spin-off, American Express Company intends to provide additional capital to American Centurion Life to confirm its current financial strength ratings. 13. STATUTORY INSURANCE ACCOUNTING PRACTICES Reconciliations of net income for the years ended December 31 and stockholder's equity at December 31, as shown in the accompanying financial statements, to that determined using statutory accounting practices are as follows: [Enlarge/Download Table] (Thousands) 2004 2003 2002 ---------------------------------------------------------------------------------------------------------------------------- Net income (loss), per accompanying financial statements $ 6,220 $ 3,716 $ 361 Deferred policy acquisition costs (687) (3,618) 290 Adjustments of future policy benefit liabilities (236) (11,953) (574) Deferred federal income tax provision (expense) 2,907 875 (1,433) Interest maintenance reserve loss transfer and amortization (535) (1,306) (95) Deferred surrender charge (37) (68) (433) Other, net 135 609 (3,470) ---------------------------------------------------------------------------------------------------------------------------- Statutory-basis net gain (loss) $ 7,767 $(11,745) $ (5,354) ============================================================================================================================ Stockholder's equity, per accompanying financial statements $ 95,926 $ 90,945 $ 69,302 Deferred policy acquisition costs (18,342) (17,744) (14,040) Deferred sales inducement costs (2,195) (1,965) (1,578) Adjustments of future policy benefit liabilities (9,643) (9,983) 5,804 Adjustments of reinsurance ceded reserves (2,220) (2,125) (2,188) Deferred federal income tax provision 4,245 2,519 2,326 Asset valuation reserve (3,888) (2,762) (630) Net unrealized gain on investments (15,051) (16,618) (20,695) Other, net 718 637 (4,549) ---------------------------------------------------------------------------------------------------------------------------- Statutory-basis capital and surplus $ 49,550 $ 42,904 $ 33,752 ============================================================================================================================ -------------------------------------------------------------------------------- 19
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S-6313 C (4/05)
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PART C. Item 24. Financial Statements and Exhibits (a) Financial Statements included in Part B of this Registration Statement: ACL Variable Annuity Account 1 Report of Independent Registered Public Accounting Firm dated March 31, 2005. Statements of Assets and Liabilities as of Dec. 31, 2004. Statements of Operations for the year ended Dec. 31, 2004. Statements of Changes in Net Assets for the years ended Dec. 31, 2004 and 2003. Notes to Financial Statements. American Centurion Life Assurance Company: Report of Independent Registered Public Accounting Firm dated Feb. 18, 2005. Balance Sheets as of Dec. 31, 2004 and 2003. Statements of Income for the years ended Dec. 31, 2004, 2003 and 2002. Statements of Cash Flows for the years ended Dec. 31, 2004, 2003 and 2002. Statements of Stockholder's Equity for the three years ended Dec. 31, 2004. Notes to Financial Statements. (b) Exhibits: 1. Certificate, establishing the ACL Variable Annuity Account 1 dated December 1, 1995, filed electronically as Exhibit 1 to Registrant's Initial Registration Statement No. 333-00041, is incorporated herein by reference. 2. Not Applicable. 3. Variable Annuity and Life Insurance Distribution and Administrative Services Agreement, dated April 10, 1997, is filed electronically as Exhibit 3 to Post-Effective Amendment No. 2 to Registration Statement No. 333-00041, is incorporated herein by reference. 4.1 Form of Group Deferred Annuity Certificate for nonqualified contract (form 38502-NY 10/95), filed electronically as Exhibit 4.1 to Registrant's Initial Registration Statement No. 333-00041, is incorporated herein by reference. 4.2 Form of Group Deferred Annuity Certificate for qualified contract (form 38503-IRA-NY 10/95), filed electronically as Exhibit 4.2 to Registrant's Initial Registration Statement No. 333-00041, is incorporated herein by reference. 4.3 Form of Group Deferred Annuity Contract (form 38501 10/95), filed electronically as Exhibit 4.3 to Registrant's Initial Registration Statement No. 333-00041, is incorporated herein by reference. 4.4 Form of Traditional IRA or SEP-IRA Annuity Endorsement (form 272170 12/02) filed electronically as Exhibit 4.4 to Post-Effective Amendment No. 8 to Registration Statement No. 333-00041 is incorporated herein by reference. 5.1 Form of Group Deferred Variable Annuity Application (form 32041 10/95), filed electronically as Exhibit 5.1 to Registrant's Initial Registration Statement No. 333-00041, is incorporated herein by reference. 5.2 Form of Variable Annuity Participant Enrollment Form (form 32027C 10/95), filed electronically as Exhibit 5.2 to Registrant's Initial Registration Statement No. 333-00041, is incorporated herein by reference. 6.1 Amended and Restated Articles of Incorporation of American Centurion Life, filed electronically as Exhibit 6.1 to Registrant's Initial Registration Statement No. 333-00041, is incorporated herein by reference. 6.2 Amended By-Laws of American Centurion Life, filed electronically as Exhibit 6.2 to Registrant's Initial Registration Statement No. 333-00041, is incorporated herein by reference. 6.3 Emergency By-Laws of American Centurion Life, filed electronically as Exhibit 6.3 to Registrant's Initial Registration Statement No. 333-00041, is incorporated herein by reference. 6.4 Amended and Restated By-Laws of American Centurion Life Assurance Company filed electronically as Exhibit 6.4 to the Initial Registration Statement No. 333-101051, filed on or about February 6, 2003, is incorporated herein by reference.
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7. Not Applicable. 8.1 Participation Agreement, dated Oct. 7, 1996, by and among American Centurion Life and Warburg Pincus Trust and Warburg, Pincus Counsellors, Inc. and Counsellors Securities, Inc., filed electronically as Exhibit 8.1 to Post-Effective Amendment No. 2 to Registration Statement No. 333-00041, is incorporated herein by reference. 8.2 Fund Participation Agreement, dated July 31, 1996, by and among American Centurion Life, TCI Portfolios, Inc. and Investors Research Corporation, filed electronically as Exhibit 8.2 to Post-Effective Amendment No. 2 to Registration Statement No. 333-00041, is incorporated herein by reference. 8.3 Fund Participation Agreement, dated Oct. 23, 1996, between Janus Aspen Series and American Centurion Life, filed electronically as Exhibit 8.3 to Post-Effective Amendment No. 2 to Registration Statement No. 333-00041, is incorporated herein by reference. 8.4 Participation Agreement, dated Dec. 4, 1996, among INVESCO Variable Investment Funds, Inc., INVESCO Funds Group, Inc. and American Centurion Life, filed electronically as Exhibit 8.4 to Post-Effective Amendment No. 2 to Registration Statement No. 333-00041, is incorporated herein by reference. 9. Opinion of counsel and consent to its use as to the legality of the securities being registered is filed electronically herewith. 10. Consent of Independent Registered Public Accounting Firm is filed electronically herewith. 11. None. 12. Not Applicable. 13.1 Power of Attorney to sign Amendments to this Registration Statement, dated April 13, 2005, is filed electronically herewith. 13.2 Power of Attorney to sign Amendments to this Registration Statement, dated July 7, 2004, is filed electronically herewith.
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[Enlarge/Download Table] Item 25. Directors and Officers of the Depositor (American Centurion Life Assurance Company) Name Principal Business Address* Positions and Offices with Depositor ------------------------------- --------------------------------------- ------------------------------------------ Gumer C. Alvero 1765 AXP Financial Center Director, Vice President - Annuities Minneapolis, MN 55474 Timothy V. Bechtold 249 AXP Financial Center Director, President and Chief Executive Minneapolis, MN 55474 Officer Walter S. Berman AMEX Tower W.F.C. Vice President and Treasurer 200 Vesey St. New York, NY Maureen A. Buckley 20 Madison Ave. Extension Director, Vice President, Chief P.O. Box 5555 Operating Officer, Consumer Affairs Albany, NY 12205-0555 Officer and Money Laundering Prevention Officer Rodney P. Burwell Xerxes Corporation Director 7901 Xerxes Ave. So. Suite 201 Bloomington, MN 55431-1253 Robert R. Grew Carter, Ledyard & Milburn Director 2 Wall Street New York, NY 10005-2072 Ronald L. Guzior Bollam, Sheedy, Torani Director & Co. LLP CPA's 26 Computer Drive West Albany, NY 12205 Lorraine R. Hart 257 AXP Financial Center Vice President-Investments Minneapolis, MN 55474 Paul R. Johnston 50605 AXP Financial Center Secretary Minneapolis, MN 55474 Michelle M. Keeley 257 AXP Financial Center Vice President - Investments Minneapolis, MN 55474 Jean B. Keffeler 3820 Grand Way Apt. 409 Director Saint Louis Park, MN 55416 Eric L. Marhoun 50605 AXP Financial Center General Counsel Minneapolis, MN 55474 Thomas R. McBurney 4900 IDS Center Director 80 South Eighth Street Minneapolis, MN 55402 Mary Ellyn Minenko 50607 AXP Financial Center Counsel and Assistant Secretary Minneapolis, MN 55474 Thomas W. Murphy 264 AXP Financial Center Vice President - Investments Minneapolis, MN 55474 Thomas V. Nicolosi American Express Director Financial Advisors Inc. Suite 220 500 Mamaroneck Avenue Harrison, NY 10528 Stephen P. Norman 90 Hudson Street Director Jersey City, NJ 07032 Scott R. Plummer 38a-1 Chief Compliance Officer Richard M. Starr 40 Wall Street Director New York, NY 10005 David K. Stewart Vice President and Controller Heather M. Somers Assistant General Counsel Michael R. Woodward 32 Ellicot St. Director Suite 100 Batavia, NY 14020 * Unless otherwise noted, the principal business address is 70100 AXP Financial Center, Minneapolis, MN 55474.
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Item 26. Persons Controlled by or Under Common Control with the Depositor or Registrant (Continued) The following list includes the names of major subsidiaries of American Express Company. [Enlarge/Download Table] 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 Income Delaware Advisory Capital Partners LLC Delaware Advisory Capital Strategies Group Inc. Minnesota Advisory Convertible Arbitage, LLC Delaware Advisory Credit Opportunities GP LLC Delaware Advisory European (General Partner) LLC George Town Advisory Quantitive Equity (General Partner) LLC Delaware Advisory Select LLC Delaware AEXP Affordable Housing LLC Delaware American Centurion Life Assurance Company New York American Enterprise Investment Services Inc. Minnesota American Enterprise Life Insurance Company Indiana American Enterprise REO 1, LLC Minnesota American Express Asset Management (Australia) NSW Australia American Express Asset Management Company S.A. Luxembourg 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 Certificate Company Delaware American Express Client Service Corporation Minnesota American Express Corporation Delaware American Express Financial Advisors Inc. Delaware American Express Financial Advisors Japan Inc. Delaware American Express Financial Corporation Delaware American Express Insurance Agency of Alabama Inc. Alabama American Express Insurance Agency of Arizona Inc. Arizona American Express Insurance Agency of Idaho Inc. Idaho American Express Insurance Agency of Maryland Inc. Maryland American Express Insurance Agency of Massachusetts Inc. Massachusetts American Express Insurance Agency of Nevada Inc. Nevada American Express Insurance Agency of New Mexico Inc. New Mexico American Express Insurance Agency of Oklahoma Inc. Oklahoma American Express Insurance Agency of Texas Inc. Texas American Express Insurance Agency of Wyoming Inc. Wyoming American Express International Deposit Corporation Cayman Island 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 Mississippi Inc. Mississippi American Express Property Casualty Insurance Agency of Pennsylvania Inc. Pennsylvania American Express Property Casualty Insurance Agency Wisconsin American Express Trust Company Minnesota American Partners Life Insurance Company Arizona AMEX Assurance Company Illinois Attica Asset Management Ltd. United Kingdom Boston Equity General Partner LLC Delaware IDS Cable Corporation Minnesota IDS Cable II Corporation Minnesota IDS Capital Holdings Inc. Minnesota IDS Futures Brokerage Group Minnesota IDS Futures Corporation Minnesota IDS Insurance Agency of Utah, Inc. Utah IDS Life Insurance Company Minnesota IDS REO1, LLC Minnesota IDS REO2, LLC Minnesota IDS Life Insurance Company of New York New York IDS Management Corporation Minnesota IDS Partnership Services Corporation Minnesota IDS Property Casualty Insurance Company Wisconsin IDS Realty Corporation Minnesota Investors Syndicate Development Corporation - NV Nevada Kenwood Capital Management LLC Delaware Northwinds Marketing Group, LLC Delaware Realty Assets, Inc. Nebraska Securities America Financial Corporation Nebraska Securities America Inc. Delaware Securities America Advisors, Inc. Nebraska Threadneedle International Limited England and Wales Item 27. Number of Contract owners As of March 31, 2005, there were 3 certificate owners of qualified certificates and 116 certificate owners of non-qualified certificates. Item 28. Indemnification The amended and restated By-Laws of the depositor provide that the depositor will indemnify, to the fullest extent now or hereafter provided for or permitted by law, each person involved in, or made or threatened to be made a party to, any action, suit, claim or proceeding, whether civil or criminal, including any investigative, administrative, legislative, or other proceeding, and including any action by or in the right of the depositor or any other corporation, or any partnership, joint venture, trust, employee benefit plan, or other enterprise (any such entity, other than the depositor, being hereinafter referred to as an "Enterprise"), and including appeals therein (any such action or process being hereinafter referred to as a "Proceeding"), by reason of the fact that such person, such person's testator or intestate (i) is or was a director or officer of the depositor, or (ii) is or was serving, at the request of the depositor, as a director, officer, or in any other capacity, or any other Enterprise, against any and all judgments, amounts paid in settlement, and expenses, including attorney's fees, actually and reasonably incurred as a result of or in connection with any Proceeding, except as provided below. No indemnification will be made to or on behalf of any such person if a judgment or other final adjudication adverse to such person establishes that such person's acts were committed in bad faith or were the result of active and deliberate dishonesty and were material to the cause of action so adjudicated, or that such person personally gained in fact a financial profit or other advantage to which such person was not legally entitled. In addition, no indemnification will be made with respect to any Proceeding initiated by any such person against the depositor, or a director or officer of the depositor, other than to enforce the terms of this indemnification provision, unless such Proceeding was authorized by the Board of Directors of the depositor. Further, no indemnification will be made with respect to any settlement or compromise of any Proceeding unless and until the depositor has consented to such settlement or compromise. The depositor may, from time to time, with the approval of the Board of Directors, and to the extent authorized, grant rights to indemnification, and to the advancement of expenses, to any employee or agent of the depositor or to any person serving at the request of the depositor as a director or officer, or in any other capacity, of any other Enterprise, to the fullest extent of the provisions with respect to the indemnification and advancement of expenses of directors and officers of the depositor. Insofar as indemnification for liability arising under the Securities Act of 1933 (the "Act") may be permitted to directors, officers and controlling persons of the depositor or 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.
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[Enlarge/Download Table] Item 29. Principal Underwriters. (a) American Express Financial Advisors acts as principal underwriter for the following investment companies: AXP California Tax-Exempt Trust; AXP Dimensions Series, Inc.; AXP Discovery Series, Inc.; AXP Equity Series, Inc.; AXP Fixed Income Series, Inc.; AXP Global Series, Inc.; AXP Government Income Series, Inc.; AXP Growth Series, Inc.; AXP High Yield Income Series, Inc.; AXP High Yield Tax-Exempt Series, Inc.; AXP Income Series, Inc.; AXP International Series, Inc.; AXP Investment Series, Inc.; AXP Managed Series, Inc.; AXP Market Advantage Series, Inc.; AXP Money Market Series, Inc.; AXP Partners Series, Inc.; AXP Partners International Series, Inc.; AXP Progressive Series, Inc.; AXP Sector Series, Inc.; AXP Selected Series, Inc.; AXP Special Tax-Exempt Series Trust; AXP Stock Series, Inc.; AXP Strategy Series, Inc.; AXP Tax-Exempt Series, Inc.; AXP Tax-Free Money Series, Inc.; Growth Trust; Growth and Income Trust; Income Trust; Tax-Free Income Trust; World Trust; American Express Certificate Company; Advisory Hedged Opportunity Fund. (b) As to each director, officer or partner of the principal underwriter: Name and Principal Position and Offices with Business Address* Underwriter Gumer C. Alvero Vice President - General Manager Annuities Ward D. Armstrong Senior Vice President - Retirement Services and Asset Management Group John M. Baker Vice President - Chief Client Service Officer Dudley Barksdale Vice President - Service Development Timothy V. Bechtold Vice President - Insurance Products Arthur H. Berman Senior Vice President Walter S. Berman Director and Senior Vice President Robert C. Bloomer Vice President - Technologies III Leslie H. Bodell Vice President - Technologies I Rob Bohli Group Vice President - 10375 Richmond Avenue #600 South Texas Houston, TX 77042 Walter K. Booker Group Vice President - 61 South Paramus Road New Jersey Mack-Cali Office Center IV, 3rd Floor Paramus, NJ 07652 Bruce J. Bordelon Group Vice President - 1333 N. California Blvd., Northern California Suite 200 Walnut Creek, CA 94596 Randy L. Boser Vice President - Mutual Fund Business Development Kenneth J. Ciak Vice President and IDS Property Casualty General Manager - IDS 1400 Lombardi Avenue Property Casualty Green Bay, WI 54304 Paul A. Connolly Vice President - RL HR/US Retail James M. Cracchiolo Director, President, Chairman of the Board and Chief Executive Officer Colleen Curran Vice President and Assistant General Counsel
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Luz Maria Davis Vice President - Employee Communications Arthur E. DeLorenzo Group Vice President - 4 Atrium Drive, #100 Upstate New York/Vermont Albany, NY 12205 Scott M. DiGiammarino Group Vice President - Suite 500, 8045 Leesburg Washington D.C./Baltimore Pike Vienna, VA 22182 Paul James Dolan Vice President - CAO Product Sales Kenneth Dykman Group Vice President - 6000 28th Street South East Greater Michigan Suite 200 Grand Rapids, MI 49546 William V. Elliot Vice President - Financial Planning and Advice Benjamin R. Field Vice President - Finanace Education and Planning Services Gordon M. Fines Vice President - Senior Portfolio Manager I Giunero Floro Vice President - Creative Services Terrence J. Flynn Vice President - Brokerage Clearing Operations Jeffrey P. Fox Vice President - Investment Accounting Barbara H. Fraser Executive Vice President - AEFA Products and Corporate Marketing Peter A. Gallus Vice President - CAO - AEFA Investment Management Gary W. Gassmann Group Vice President - 2677 Central Park Boulevard Detroit Metro Suite 350 Southfield, MN 48076 Diana T. Gossett Group Vice President - Great Plains John C. Greiber Group Vice President - Minnesota/Iowa Steven Guida Vice President - New Business and Service Teresa A. Hanratty Senior Vice President - Suites 6&7 Field Management 169 South River Road Bedford, NH 03110 Lorraine R. Hart Vice President - Fixed Income Investments Administration Officer Janis K. Heaney Vice President - Incentive Management Brian M. Heath Senior Vice President - Suite 150 Advisor Group 801 E. Campbell Road Richardson, TX 75081 Jon E. Hjelm Group Vice President - 655 Metro Place South Ohio Valley Suite 570 Dublin, OH 43017 David X. Hockenberry Group Vice President - 830 Crescent Centre Drive Mid South Suite 490 Franklin, TN 37067-7217
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Debra A. Hutchinson Vice President - Technologies I Theodore M. Jenkin Group Vice President - 6000 Freedom Square Drive Steel Cities Suite 300 Cleveland, OH 44131 James M. Jensen Vice President - Compensation and Licensing Services Jody M. Johnson Group Vice President - Twin Cities Metro Paul R. Johnston Secretary Nancy E. Jones Vice President - Advisor Marketing William A. Jones Vice President - Technologies III John C. Junek Senior Vice President and General Counsel Ora J. Kaine Vice President - Retail Distribution Services Michelle M. Keeley Senior Vice President - Fixed Income Raymond G. Kelly Group Vice President - Suite 250 Northern Texas 801 East Campbell Road Richardson, TX 75081 Claire Kolmodin Vice President - Strategic Initiatives Christopher J. Kopka Money Laundering Prevention Officer Mitre Kutanovski Group Vice President - 125 South Wacker Drive Chicago Metro Suite 1550 Chicago, IL 60606 Lori J. Larson Vice President - Advisor Field Force Growth and Retention Daniel E. Laufenberg Vice President - Chief U.S. Economist Jane W. Lee Vice President - General Manager Platinum Financial Services Catherine M. Libbe Vice President - Marketing & Product Retirement Services Diane D. Lyngstad Chief Financial Officer and Vice President - Comp and Licensing Services Thomas A. Mahowald Vice President - Equity Research Timothy J. Masek Vice President - Fixed Income Research Frank A. McCarthy Vice President - External Products Group and Personal Trust Services Mark T. McGannon Vice President and General Manager - Products Sales Brian J. McGrane Vice President and LFO Officer - Finance Dean O. McGill Group Vice President - 11835 W. Olympic Blvd Los Angeles Metro Suite 900 East Los Angeles, CA 90064
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Sarah M. McKenzie Vice President - Managed and Brokerage Products Penny J. Meier Vice President - Business Transformation/Six Sigma Paula R. Meyer Senior Vice President and General Manager - Mutual Funds Holly Morris Senior Vice President - Technologies Rebecca A. Nash Vice President - Service Operations Roger Natarajan Vice President - Finance Thomas V. Nicolosi Group Vice President - Suite 220 New York Metro Area 500 Mamaroneck Ave. Harrison, NY 10528 Patrick H. O'Connell Group Vice President - Commerce Center One Southern New England 333 East River Hartford, CT 06108-4200 Francois B. Odouard Vice President - Brokerage Michael J. O'Keefe Vice President - Advisory Business Systems Geoffery Oprandy Group Vice President - Southwest 11811 N. Tatum Blvd. Suite 1030 Phoenix, AZ 85028 Kristi L. Petersen Vice President - ONE Account and Cash John G. Poole Group Vice President - 14755 North Outer Forty Road Gateway/Springfield Suite 500 Chesterfield, MO 63017 Larry M. Post Group Vice President - 2 Constitution Plaza New England Charlestown, MA 02129 Michael J. Rearden Group Vice President - 1800 S. Pine Island Road, Suite 510 Southern Florida Plantation, FL 33324 Ralph D. Richardson III Group Vice President - Suite 800 Carolinas Arboretum Plaza One 9442 Capital of Texas Hyw. N. Austin, TX 78759 Mark A. Riordan Vice President - Finance Emerging Technologies ReBecca K. Roloff Senior Vice President - GFS Maximillian G. Roth Group Vice President - 1400 Lombardi Avenue Wisconsin/Upper Michigan Suite 202 Green Bay, WI 54304 Russell L. Scalfano Group Vice President - Suite 201 Illinois/Indiana/Kentucky 101 Plaza East Blvd. Evansville, IN 47715 Andrew C. Schell Vice President - Strategy and Planning Mark E. Schwarzmann Senior Vice President - Insurance and Annuities Gary A. Scott Vice President - Client Acquisition Marketing and Services
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Jacqueline M. Sinjem Vice President - Plan Sponsor Services Albert L. Soule Group Vice President - 6925 Union Park Center Western Frontier Suite 200 Midvale, UT 84047 Bridget M. Sperl Senior Vice President - Client Service Organization Kathy Stalwick Vice President Paul J. Stanislaw Group Vice President - Suite 1100 Southern California/Hawaii Two Park Plaza Irvine, CA 92614 Lisa A. Steffes Vice President - Marketing Officer Development David K. Stewart Vice President - AEFA Controller and Treasurer Caroline Stockdale-Boon Senior Vice President - Human Resources Jeffrey J. Stremcha Vice President - Technologies I John T. Sweeney Vice President, Lead Financial Officer - Banking, Brokerage and Managed Products Joseph E. Sweeney Senior Vice President, General Manager - U.S. Brokerage and Membership Banking Craig P. Taucher Group Vice President - Suite 150 Georgia/North Florida 4190 Belfort Rd. Jackonville, FL 32216 Neil G. Taylor Group Vice President - 188 106th Avenue NE Pacific Northwest Suite 640 Bellevue, WA 98004-5902 William F. "Ted" Truscott Senior Vice President and Chief Investment Officer George F. Tsafaridis Vice President - Quality & Service Support Janet M. Vandenbark Group Vice President - 3951 Westerre Parkway, Suite 250 Virginia Richmond, VA 23233 Ramanathan Venkataramanan Vice President - Technologies III Peter S. Velardi Senior Vice President - Field Management Andrew O. Washburn Vice President - Mutual Fund Marketing Donald F. Weaver Group Vice President - 3500 Market Street, Eastern Pennsylvania/ Suite 200 Delaware Camp Hill, PA 17011 Beth E. Weimer Vice President and Chief Compliance Officer Phil Wentzel Vice President - Finance Jeffrey A. Williams Senior Vice President - Cross-Sell/Strategic Management William J. Williams Senior Vice President - Field Management Dianne L. Wilson Vice President - Insurance Operations
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Gayle W. Winfree Group Vice President - 1 Galleria Blvd. Suite 1900 Delta States Metairie, LA 70001 Michael D. Wolf Vice President - Equity Senior Portfolio Manager Abraham L. Wons Vice President - Investments Risk Management Michael R. Woodward Senior Vice President - 32 Ellicott St Field Management Suite 100 Batavia, NY 14020
* Business address is: 70100 AXP Financial Center, Minneapolis, MN 55474 unless otherwise noted. Item 29 (c). [Download Table] Net Underwriting Name of Principal Discounts and Compensation on Brokerage Underwriter Commissions Redemption Commissions Compensation ----------- ----------- ---------- ----------- ------------ American Express None None None None Financial Advisors Inc. Item 30. Location of Accounts and Records American Centurion Life Assurance Company 20 Madison Avenue Extension Albany, NY 12203 Item 31. Management Services Not Applicable Item 32. Undertakings (a)(b)&(c) These undertakings were filed with Registrant's Initial Registration Statement, File No. 333-00041. (d) The sponsoring insurance company represents that the fees and charges deducted under the contract, in the aggregate, are reasonable in relation to the services rendered, the expenses expected to be incurred, and the risks assumed by the insurance company.
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SIGNATURES As required by the Securities Act of 1933 and the Investment Company Act of 1940, American Centurion Life Assurance Company, on behalf of the Registrant certifies that it meets the requirements of Securities Act Rule 485(b) for effectiveness of this Amendment to its Registration Statement and has caused this Amendment to its Registration Statement to be signed on its behalf by the undersigned thereunto duly authorized in the City of Minneapolis, and State of Minnesota, on the 28th day of April, 2005. ACL VARIABLE ANNUITY ACCOUNT 1 ------------------------------ (Registrant) By American Centurion Life Assurance Company -------------------------------------------- (Depositor) By /s/ Timothy V. Bechtold* ------------------------------------------ Timothy V. Bechtold President and Chief Executive Officer As required by the Securities Act of 1933, this Amendment to the Registration Statement has been signed by the following persons in the capacities indicated on the 28th day of April, 2005. Signature Title /s/ Gumer C. Alvero* Director and Vice President - Annuities ---------------------- Gumer C. Alvero /s/ Timothy V. Bechtold* Director, President and Chief Executive ---------------------- Officer Timothy V. Bechtold (Chief Executive Officer) /s/ Maureen A. Buckley* Director, Vice President, Chief Operating ---------------------- Officer, Consumer Affairs Officer, Claims Maureen A. Buckley Officer and Money Laundering Prevention Officer /s/ Rodney P. Burwell* Director ---------------------- Rodney P. Burwell /s/ Robert R. Grew* Director ---------------------- Robert R. Grew /s/ Ronald L. Guzior* Director ---------------------- Ronald L. Guzior /s/ Jean B. Keffeler* Director ---------------------- Jean B. Keffeler /s/ Thomas R. McBurney* Director ---------------------- Thomas R. McBurney /s/ Thomas V. Nicolosi* Director ---------------------- Thomas V. Nicolosi
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/s/ Stephen P. Norman* Director ---------------------- Stephen P. Norman /s/ Richard M. Starr* Director ---------------------- Richard M. Starr /s/ David K. Stewart** Vice President and Controller ---------------------- (Principal Accounting Officer) David K. Stewart (Principal Financial Officer) /s/ Michael R. Woodward* Director ---------------------- Michael R. Woodward * Signed pursuant to Power of Attorney, dated April 13, 2005, filed electronically herewith as Exhibit 13.1 to Registrant's Post-Effective Amendment No. 10, by: ** Signed pursuant to Power of Attorney, dated July 7, 2004, filed electronically herewith as Exhibit 13.2 to Registrant's Post-Effective Amendment No. 10, by: /s/ Mary Ellyn Minenko ------------------------------------- Mary Ellyn Minenko Counsel
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CONTENTS OF POST-EFFECTIVE AMENDMENT NO. 10 TO REGISTRATION STATEMENT NO. 333-00041 This Post-Effective Amendment is comprised of the following papers and documents: The Cover Page. Part A. The prospectus. Part B. Statement of Additional Information. Financial Statements. Part C. Other Information. The signatures.

Dates Referenced Herein   and   Documents Incorporated by Reference

Referenced-On Page
This ‘485BPOS’ Filing    Date First  Last      Other Filings
12/31/09724F-2NT,  N-30B-2,  NSAR-U
4/30/067
Effective on:4/29/05130
Filed on:4/28/05
4/13/056575
3/31/053367
2/18/054464
2/1/05362
12/31/0476424F-2NT,  NSAR-U
10/22/0459
9/30/0452
8/31/047
7/7/046575
7/1/047
6/18/0452
1/1/045152
12/31/03386424F-2NT,  NSAR-U
12/15/0352
2/6/0364
12/31/02426424F-2NT,  NSAR-U
12/31/01424824F-2NT,  NSAR-U
4/10/9764
12/4/9665
10/23/9665
10/7/9665
7/31/9665
12/1/951164
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