2 0 01 A N N UA L R E P O R T 2 0 0 1 A N N U A L R E P O R T P E O P L E S E R V I C E F U T U R E Synergy may be defined as individuals working together to achieve a common goal. The synergy among our employees creates a unified organization that can achieve efficiencies greater than those of our competitors, ultimately benefiting our shareholders, policyholders, and producers. By emphasizing productivity at every level of our operation, we will remain an efficient, flexible leader in our industry, operating at competitive levels with distinctive products and services. Recognizing that the whole is only as great as the sum of its parts, we encourage—and expect—all associates to challenge themselves to grow and reach their maximum professional potential. In the face of technological challenges, The keys to our continued growth and changing family structures and an profitability are the shared values that evolving social and economic form the common link for our people. environment, we must remain We must run as a cohesive whole in thoroughly responsive to the needs of order to achieve the service levels set our customers. Each employee is an forth. We will continue to create key integral component in the delivery of marketing alliances and establish superior personal service, and precision marketing initiatives. We contributes to our overall success in intend to build the highest value for achieving this important goal. Our our shareholders via sound long term excellent service record can only be investment strategies and consistent attributed to the knowledge, delivery of innovative experience, and professionalism of our products—ultimately fulfilling our people. responsibility to you and positioning us well for the future. W E ’ R E T H E O N E Individual commitment to excellence and achievement is a non-negotiable standard. By testing new ways to meet challenges and achieve excellence, we will better serve our shareholders, policyholders, and producers. A M E R I C A N E Q U I T Y I N V E S T M E N T L I F E H O L D I N G C O M P A N Y H I G H L I G H T S (cid:1) Surpassed $$4 BBillion iin aassets; (cid:1) Production oof $$2.4 BBillion oof nnew aannuity ddeposits; (cid:1) Total llicensed aagents eexceeded 333,000; (cid:1) Licensed aa NNew YYork ssubsidiary; (cid:1) Updated AAmerican EEquity’s aannuity pproduct lline vvia ““2001 IIntegrity SSeries”; (cid:1) Continued tto pprovide ssuperior sservice tto aall oof oour ccustomers; (cid:1) Continued ccapital rraising aactivities; (cid:1) Maintained aa lliquid aasset pposition oof aapproximately 225% oof ttotal aassets from SSeptember 112 tthrough bbalance oof tthe yyear. 1 A M E R I C A N E Q U I T Y 2001 P E O P L E S E R V I C E F U T U R E W E ’ R E T H E O N E ! 2001 “TRULY AN EXCELLENT, TREMENDOUS, EXCITING, AND CHALLENGING YEAR!” Every year since our inception in 1995, American Equity has undergone phenomenal success. The year 2001 was “TRULY AN EXCELLENT, TREMENDOUS, EXCITING, AND CHALLENGING YEAR” for our dynamic company. Relationships continued to strengthen and develop...annuity deposits continued to increase over prior years and key business strategies, technology and initiatives were implemented throughout the (cid:2) - D.J. NOBLE Chairman and Chief Executive Officer organization... positioning American Equity for future growth. ASSET LIQUIDITY Fund rate by one-half point. When the unprecedented terrorist attack occurred on September 11, a number of significant and far-reaching events were put in Because of the utter paralyzing of financial markets during motion for American Equity. Several members of American various periods of the 4th quarter, American Equity maintained Equity's senior management, along with six of the top ten nearly 25% of its assets in immediately liquid securities. This national marketing organization principals and nine top agents, percentage, which approached the $1 Billion level, was were in New York City. Several of these individuals were in the continued through most of the 4th quarter. The financial effect downtown "ground zero" area and observed the second plane reduced American Equity's investment income in excess of $8 strike. We spent the next many hours attempting to locate various Million in the 4th quarter earnings and thus the full year's members of the group, communicating to their families the fact earnings. that all were safe and listening intently to the information which was available to the public. As you might imagine, a high sense Had we chosen to invest substantially all liquid funds during the of survival prevailed for both ourselves as individuals and our 4th quarter, assets were clearly available to us. In fact, we companies. invested $550 Million in government agency assets with a calculable yield in excess of 7.15% during the 4th quarter. These After September 11, the Federal Reserve immediately instituted a securities could have been of a magnitude to maintain a fully policy of injecting massive funds into the banking system to cut invested position. American Equity did not suffer a "run on the off any panic over liquidity. This policy was in effect until mid- bank" or liquidity crisis. American Equity's liquid position was October when the war unfolded. On Monday, September 17 communicated directly to agents and policyholders, which when the markets reopened, Chairman of the Federal Reserve resulted in accelerated production because people were looking Board, Alan Greenspan, announced an adjustment on the Federal for security. A M E R I C A N E Q U I T Y 2001 P E O P L E S E R V I C E F U T U R E W E ’ R E T H E O N E ! 2 We must emphasize that the decline of investment income, in Million. American Equity’s consolidated assets approached $4.4 excess of $8 Million, was for the 4th quarter only and not a Billion under accounting principles generally accepted in the permanent impairment on the investment yield generated by United States with income, before tax and minority interests, those assets when in a investment posture consistent with our estimated to be $9.5 Million. Business Plan. MARKETING CULTURE CAPITAL RAISING Our marketing plan, as we have said so many times, is very It is my judgment that absent the September 11 event, a capital aggressive, focusing on our core "Principles of Excellence". raising venture would have gone forward successfully and we American Equity continues its aggressive marketing campaign, would have written another great chapter in American Equity's targeting existing and new National Marketing Organizations Business Plan. I think everyone will agree that the capital (NMO’s) and agents while focusing on a diversified fixed financial markets were in disarray during the 4th quarter of 2001. annuity product line including Equity-Indexed, Traditional Declared Interest and Multi-Year Guaranteed annuities. Late in 2001, we filed a Form S-1 with the Securities and Exchange Commission to avail ourselves of all appropriate To maximize recruiting and productivity efforts, American public capital raising opportunities. We expect to vigorously Equity implemented the “We’re the One” internal marketing pursue capital raising through this avenue early in the 2nd quarter campaign in 1998. Our ongoing commitment to this program has of 2002. We certainly will be exploring other capital raising greatly enhanced American Equity market recognition for opportunities that are available. SUPERIOR SERVICE and innovative products. In 2002, we will continue to fine-tune the “We’re the One” campaign to Discussions had been occurring throughout the year 2001 with aggressively pursue corporate production and recruiting goals. FBL Financial Group regarding potential co-insurance of the dramatic production that American Equity was experiencing. A co-insurance transaction was successfully completed late in December. Although not improving the 4th quarter financial operating results, it materially enhanced the asset-liability position at year-end. This program provides additional enhancements through co-insurance for the years 2002 and 2003. FINANCIALS The Life Companies assets grew to over $3.9 BILLION, based on statutory accounting, up 84% from year-end 2000. The statutory result, before federal income tax, was an operating loss of $5.7 Million, excluding capital gains and losses. Gross revenues were up 234% when compared to the prior year. General insurance -L to R: JJaammeess MM.. GGeerrllaacchh,, KKeevviinn RR.. WWiinnggeerrtt,, JJaacckk WW.. SScchhrrooeeddeerr aanndd RRoonnaalldd JJ.. GGrreennsstteeiinneerr.. “We understand that by putting service first, expenses were up 33% on a statutory basis, resulting in a very we have gone beyond ordinary success. satisfactory ratio when compared to gross revenue. Statutory capital and surplus for the Life Companies approached $178 We have set the stage for the future.” 3 A M E R I C A N E Q U I T Y 2001 P E O P L E S E R V I C E F U T U R E W E ’ R E T H E O N E ! FINANCIAL RATINGS compared to $842 Million for the same period of 2000. This is a Our commitment to sound business principles has been very dynamic increase. The first three months of 2002 continue recognized by A.M. Best and Standard and Poor’s, both to demonstrate very significant increases when compared to the nationally recognized industry rating authorities. American same period in 2001. I am of the firm opinion that American Equity is proud of our A.M. Best rating of “A-” (Excellent) and Equity's unique position in the marketplace is causing agents to our “A-” from Standard and Poor’s. The relationships and seek our company as a carrier. Consolidation in the insurance communications between both rating agencies and American industry over the past years, market volatility and a lack of Equity are and will continue to be a high priority with a goal to awareness of the customer needs by other companies continue to maintain or strengthen these ratings. offer dramatic production opportunities for American Equity. “Our excellent service record can only be attributed to the knowledge, experience, and professionalism of our people. PEOPLE Long-term success requires discipline. At American Equity n o i l l i M $$33,,000000 $$22,,550000 $$22,,000000 $$11,,550000 $$11,,000000 $$550000 $$00 PRODUCTION $$22,,443322 $$881155 $$884422 $$337788 $$114422 11999977 11999988 11999999 22000000 22000011 Year discipline is maintained every day, of every month, of every year. Effective March 9, 2002, due to current interest rate levels, the Our focus will always be maintained on the needs of our base crediting rate on new fixed-interest annuity products was shareholders, policyholders and agents. By emphasizing reduced with comparable adjustments being made to renewal productivity at every level of our operation, we will remain an crediting rates. Investments made during the first quarter of efficient, flexible leader in our industry, operating at competitive 2002, all of which are government agency paper, are paying a levels with distinctive products and services. gross yield sufficient to meet our target spread. This gross spread is favorable in trend for the company and may have an impact on At American Equity, we challenge all associates to grow and production for the balance of the year 2002. reach their maximum potential. American Equity currently employs approximately 180 employees. This is an excellent ratio to either policy in force, processing of applications or assets administered. American Equity’s excellent service record can only be attributed to the knowledge, experience, and professionalism of our people. Production results and a growing agency force confirm that we have succeeded in delivering a service-based relationship. In 2002, we will continue to focus on providing the best marketing support and annuity services to our agents and policyholders. PRODUCTION LICENSED AGENTS Recruiting additional agents is vital to the growth of American Equity and has always been an integral part of our Business Plan. As of year-end 2001, American Equity had licensed over 33,000 agents, up 55% for the year. AGENTS 40,000 30,000 20,000 10,000 0 10,525 4,487 33,984 21,908 17,855 Annuity deposits for the year 2001 exceeded $2.4 Billion, 1997 1998 11999 22000 22001 Year A M E R I C A N E Q U I T Y 2001 P E O P L E S E R V I C E F U T U R E W E ’ R E T H E O N E ! 4 products. We expect significant additional events in the product area TECHNOLOGY for year 2002. We consider technology to be a strategic asset shaping the way we do business and helping us to become a more significant NICHE MARKETS player in the industry. From the beginning, American Equity has Variable invested in cutting edge technology. This investment has Variable products continue to be a challenging area of the provided us with enhanced internal efficiencies and improved financial services service for both agents and policyholders. Our interactive web industry. Like fixed site has played an important role in the development of consumer annuities, variable and agent relations. annuities offer tax The introduction of deferral. Variable American Equity’s annuity products Interactive Agent, allow a consumer business-to-business to participate in the web site will further equity market. enhance these marketing efforts by allowing Our variable product alliance with FBL Financial Group, us to identify the established in 1998, continues to offer opportunities strategically product and service beneficial for both companies. Our broker/dealer, American needs of our most Equity Capital, Inc. currently has licensing authority in 30 states. productive agents. We have made considerable progress in laying the groundwork to We will use key market this area and will continue to examine product structures, information from this sales techniques, and other areas of importance to enhance our site to effectively future opportunities for success. market American Equity’s products. We continue to urge you to visit our web site at www.american-equity.com. National Guard PRODUCTS PORTFOLIO National Guard Associations. American Equity remains the American Equity has continued to introduce new annuity products. largest life insurance carrier for members of the National Guard Production during the 1st quarter of 2002 is approximately 15-17% offering a program of group term life insurance. We currently One of our long-term successes is our relationship with state multi-year rate service 26 state National Guard Associations. Our efforts are g u a r a n t e e focused on exploring new opportunities for expansion of our products with the Association program to additional states and to offer an array of balance split products. between equity- indexed linked PRODUCT APPROVALS products and American Equity offers a broad portfolio of products available in annually adjusted many states known for challenging approval processes. Our interest rate Compliance Department has a proven track record for product 5 A M E R I C A N E Q U I T Y 2001 P E O P L E S E R V I C E F U T U R E W E ’ R E T H E O N E ! approval success in these states, which gives us a tremendous I am pleased to welcome two new additions to the American edge over our competition. Equity senior management team. Robert Laughton will serve as Senior Vice President of our Investment Department. Mr. The Compliance Department’s objective has always been to Laughton brings with him over 20 years of experience in the support the corporate business plan by obtaining product investment arena. He previously served as senior investment approvals quickly and providing information and methods to manager to a major player in the insurance industry. keep our company in line with the regulatory environment. Not only must our products meet regulatory standards, they must Ted Johnson has joined American Equity as Vice President of also deliver the profitability we expect for our shareholders. Accounting. Mr. Johnson brings strong leadership abilities and a INVESTMENTS solid technical background in financial reporting and accounting. He previously served as Senior Manager Audit with Ernst & Our estimated investment yield on current permanent Young, LLP, of Des Moines, Iowa. These talented and investments is 7.10%, based on cost. This is a reduction of experienced individuals will be a positive factor in our future approximately .5 of a percent for the year 2001 and is a direct plans for success. result of reduced rates available on new investments. The fixed income assets are 98.4% investment grade. Earned net statutory During 2001, we began a commercial mortgage loan program. At investment income reached in excess of $142 Million, compared December 31, 2001, we held $108 Million of mortgage loans. to prior year of $81 Million. These mortgage loans are diversified as to property type, location and loan size. TOTAL CASH AND INVESTMENTS NAIC-2 10.68% NAIC-3 1.40% NAIC-4 .20% Mtg Loan 2.80% Cash & Other 5.80% NAIC-1 79.32% NAIC-3 Designation Rating Agency Equivalent 1 2 3 4 5 6 Aaa/Aa/A Baa Ba B Caa and lower In or near default STATE LICENSING With the addition of New Hampshire in March 2002, we currently are licensed in 46 states and the District of Columbia. We will continue to work with Connecticut, North Carolina, Rhode Island and Vermont insurance departments to further our geographic coverage. In June 2001, the New York Insurance Department approved the formation of American Equity Investment Life Insurance Company of New York. This Company is a wholly-owned subsidiary of our Life Company. We believe great opportunities for growth exists in this region. A M E R I C A N E Q U I T Y 2001 P E O P L E S E R V I C E F U T U R E W E ’ R E T H E O N E ! 6 FUTURE I assure you, we will implement these strategies with a strong Our 2002 Business Plan is focused on steady growth and strong sense of purpose. Our entire organization will speak as one principles of excellence at all levels of American Equity. Our voice, act as one being, and focus on our core principles. On comprehensive marketing plan includes an intensive effort to behalf of our board of directors and employees, thank you for recruit the best National Marketing Organizations (NMO’s) your confidence and support. across the nation and most importantly, to enhance relationships with our current NMO’s. We will implement stronger Sincerely, relationship-building strategies. We will continue to have a strong presence in the field, motivating and training our NMO'S through personal visits, direct mailings, teleconferences and videoconferences. We will continue to deliver superior personal service to our policyholders and agents and we will remain a D.J. Noble Chairman and President dynamic, disciplined leader in our industry. OUR GOAL AT AMERICAN EQUITY IS TO CONTINUE PROVIDING CUSTOMER SERVICE THAT IS, WITHOUT QUESTION, SECOND TO NO ONE ELSE." This goal could never have been considered, let alone accomplished, without the level of competence, experience and commitment that the American Equity staff dedicates to SERVICE. “Our business philosophy is simple...Through sound financial management, prudent investment and development of innovative products and services, we will position ourselves as one of the leaders within the insurance and financial services industry.” 7 A M E R I C A N E Q U I T Y 2001 P E O P L E S E R V I C E F U T U R E W E ’ R E T H E O N E ! A M E R I C A N E Q U I T Y I N V E S T M E N T L I F E H O L D I N G C O M P A N Y THE BESTInsurance Management Team L E A D I N G T H E W A Y (cid:2) LIFE COMPANY MANAGEMENT TEAM Front Row - L to R: JJaammeess MM.. GGeerrllaacchh, Executive Vice President and Chief Marketing Officer; BBrreenntt MMaarrddiiss, FFSSRR,, MMAAAAPP,, Vice President & Chief Actuary; DDeebbrraa JJ.. RRiicchhaarrddssoonn, Senior Vice President and Corporate Secretary; KKeevviinn RR.. WWiinnggeerrtt, CCLLUU, CCHHFFCC, FFLLMMII, President ; TTeerrrryy AA.. RReeiimmeerr, CCPPAA, FFLLMMII, Executive Vice President, Chief Operating Officer and Treasurer; WWeennddyy LL.. CCaarrllssoonn, JJDD, CCPPAA, Chief Financial Officer and General Counsel and Assistant Secretary; RRoonnaalldd JJ.. GGrreennsstteeiinneerr, CCLLUU, Senior Vice President and National Marketing Director. Back Row - L to R: JJeeaann BBuurrtt, Assistant Vice President & Assistant Treasurer, HHaarrlleeyy AA.. WWhhiittffiieelldd JJrr.., Assistant Vice President of Market Conduct & Assistant Secretary; JJuuddiitthh ZZ.. KKaarrcchheerr, Vice President of Compliance; PPaauulleettttee PPhhiillppootttt, Vice President Personnel & Group Administration; CCaarrll DDaavviiss, Regional Vice President of Marketing; JJooee WWaannzzeekk, Vice President of Information Systems; JJeerrrryy HHoollttzz, Vice President of National Guard; DDaavviidd JJ.. RRooeeppsscchh, Regional Vice President of Marketing; TTiimm WWoommaacckk, Assistant Vice President & Senior Investment Analyst; DDaavviidd LLoowwee, Assistant Vice President of Actuarial; BBrruuccee LL.. NNoorrttoonn, Assistant Vice President of Technical Support; LLiissaa MMccQQuueerrrreeyy, Assistant Vice President; AAaarroonn LL.. CCoottttrreellll, Assistant Vice President of Information Technology; LLiinnddaa LL.. BBeennnneetttt, Assistant Vice President of General Services; JJaammiiee DD.. MMoohheerr, Vice President of Annuity Administration. “We will speak as one voice, act as one being, put one and only one face forward for all to see. That face will be developed to bring maximum impact and favorable response in the marketplace.” A M E R I C A N E Q U I T Y 2001 P E O P L E S E R V I C E F U T U R E W E ’ R E T H E O N E ! 8 A M E R I C A N E Q U I T Y I N V E S T M E N T L I F E H O L D I N G C O M P A N Y OUR PEOPLE Deliver THE BOARD of Directors H O L D I N G C O M P A N Y “We value the ongoing leadership of our D.J. Noble, 70, Chairman of the Board, President and Treasurer distinguished Board of Directors, who provide James M. Gerlach, 59, Executive Vice President Robert L. Hilton, 73, Insurance Consultant American Equity with sound counsel, personal John M. Matovina, 47, Private Investor integrity and solid judgment drawing from extensive experience.” THE BOARD of Directors Ben T. Morris, 55, President, CEO and Director, Sanders Morris Harris, Inc. David S. Mulcahy, 49, Principal, MABSCO Capital, Inc. and Chairman, Monarch Manufacturing Company A.J. Strickland, III, 60, Professor of Strategic Management at the University of Alabama Harley A. Whitfield, 71, Of Counsel, Whitfield & Eddy, P.L.C. L I F E C O M P A N Y (cid:3)(cid:3) (cid:3)(cid:3)(cid:3)(cid:3) [ L E F T T O R I G H T, F R O N T T O B A C K ] Jack W. Schroeder, 76, Vice Chairman. Over 50 years’ experience in the insurance industry. D. J. Noble, 70, Chairman of the Board, Chief Executive Officer. Over 50 years’ experience in the insurance industry. William J. Oddy, 57, Chief Executive Officer, Farm Bureau Life Insurance Company. Over 30 years’ experience in the insurance industry. James M. Gerlach, 59, Executive Vice President and Chief Marketing Officer. Over 35 years’ financial and management experience. Debra J. Richardson, 45, Senior Vice President and Secretary. Over 20 years’ experience in the insurance industry. Terry A. Reimer, 56, Executive Vice President, Treasurer and Chief Operating Officer. Over 30 years’ accounting and management experience. David S. Mulcahy, 49, Principal, MABSCO Capital, Inc. and Chairman, Monarch Manufacturing Company. Over 20 years’ experience in the accounting industry. Kevin Wingert, 44, President. Over 20 years’ marketing experience. [inset] 9 A M E R I C A N E Q U I T Y 2001 P E O P L E S E R V I C E F U T U R E W E ’ R E T H E O N E ! A M E R I C A N E Q U I T Y I N V E S T M E N T L I F E H O L D I N G C O M P A N Y (cid:3)(cid:3) (cid:3)(cid:3)(cid:3)(cid:3) S h a r e h o l d e r a n d G r o u p I n f o r m a t i o n American Equity welcomes your comments and interest. For change of name or address, to replace lost stock certificates or any other questions contact: TRANSFER AGENT Debra J. Richardson, Senior Vice President & Secretary American Equity Investment Life Holding Company 5000 Westown Parkway, Suite 440 West Des Moines, Iowa 50266 (515) 457-1704 or 1-888-221-1234 ext. 1704 Cusip Numbers: 025676 10 7 Common Stock (cid:3)(cid:3) (cid:3)(cid:3)(cid:3)(cid:3) AMERICAN EQUITY GROUP OF COMPANIES A M E R I C A N EE Q U I T Y II N V E S T M E N T LL I F E HH O L D I N G CC O M P A N Y A M E R I C A N EE Q U I T Y II N V E S T M E N T LL I F E II N S U R A N C E CC O M P A N Y A M E R I C A N EE Q U I T Y II N V E S T M E N T LL I F E II N S U R A N C E CC O M P A N Y OO F NN E W YY O R K , II N C . A M E R I C A N EE Q U I T Y II N V E S T M E N T PP R O P E R T I E S , LL C A M E R I C A N EE Q U I T Y CC A P I T A L , II N C . A M E R I C A N EE Q U I T Y CC A P I T A L TT R U S T II A M E R I C A N EE Q U I T Y CC A P I T A L TT R U S T II I (cid:3)(cid:3) (cid:3)(cid:3)(cid:3)(cid:3) STREET ADDRESS 5000 Westown Parkway Suite 440 West Des Moines, Iowa 50266 PREFERRED MAILING ADDRESS P.O. Box 71216 Des Moines, Iowa 50325 TELEPHONE NUMBERS (515) 221-0002 WATS: 1-888-221-1234 FAX: (515) 221-9989 INDEPENDENT AUDITORS Ernst & Young LLP 801 Grand Avenue, Suite 3400 Des Moines, IA 50309 (515) 243-2727 CONTACT AMERICAN EQUITY 1-888-221-1234 Fax (515) 221-9989 WEB SITE www.american-equity.com A M E R I C A N E Q U I T Y 2001 P E O P L E S E R V I C E F U T U R E W E ’ R E T H E O N E ! 1 0 A M E R I C A N E Q U I T Y I N V E S T M E N T L I F E H O L D I N G C O M P A N Y S e l e c t e d F i n a n c i a l D a t a 11 A M E R I C A N E Q U I T Y 2001 P E O P L E S E R V I C E F U T U R E W E ’ R E T H E O N E ! A M E R I C A N E Q U I T Y I N V E S T M E N T L I F E H O L D I N G C O M P A N Y M a n a g e m e n t ’ s D i s c u s s i o n a n d A n a l y s i s o f F i n a n c i a l C o n d i t i o n a n d R e s u l t s o f O p e r a t i o n s A M E R I C A N E Q U I T Y 2001 P E O P L E S E R V I C E F U T U R E W E ’ R E T H E O N E ! 1 2 A M E R I C A N E Q U I T Y I N V E S T M E N T L I F E H O L D I N G C O M P A N Y M a n a g e m e n t ’ s D i s c u s s i o n a n d A n a l y s i s o f F i n a n c i a l C o n d i t i o n a n d R e s u l t s o f O p e r a t i o n s 13 A M E R I C A N E Q U I T Y 2001 P E O P L E S E R V I C E F U T U R E W E ’ R E T H E O N E ! A M E R I C A N E Q U I T Y I N V E S T M E N T L I F E H O L D I N G C O M P A N Y M a n a g e m e n t ’ s D i s c u s s i o n a n d A n a l y s i s o f F i n a n c i a l C o n d i t i o n a n d R e s u l t s o f O p e r a t i o n s A M E R I C A N E Q U I T Y 2001 P E O P L E S E R V I C E F U T U R E W E ’ R E T H E O N E ! 1 4 A M E R I C A N E Q U I T Y I N V E S T M E N T L I F E H O L D I N G C O M P A N Y M a n a g e m e n t ’ s D i s c u s s i o n a n d A n a l y s i s o f F i n a n c i a l C o n d i t i o n a n d R e s u l t s o f O p e r a t i o n s 15 A M E R I C A N E Q U I T Y 2001 P E O P L E S E R V I C E F U T U R E W E ’ R E T H E O N E ! A M E R I C A N E Q U I T Y I N V E S T M E N T L I F E H O L D I N G C O M P A N Y M a n a g e m e n t ’ s D i s c u s s i o n a n d A n a l y s i s o f F i n a n c i a l C o n d i t i o n a n d R e s u l t s o f O p e r a t i o n s A M E R I C A N E Q U I T Y 2001 P E O P L E S E R V I C E F U T U R E W E ’ R E T H E O N E ! 1 6 A M E R I C A N E Q U I T Y I N V E S T M E N T L I F E H O L D I N G C O M P A N Y M a n a g e m e n t ’ s D i s c u s s i o n a n d A n a l y s i s o f F i n a n c i a l C o n d i t i o n a n d R e s u l t s o f O p e r a t i o n s 17 A M E R I C A N E Q U I T Y 2001 P E O P L E S E R V I C E F U T U R E W E ’ R E T H E O N E ! A M E R I C A N E Q U I T Y I N V E S T M E N T L I F E H O L D I N G C O M P A N Y M a n a g e m e n t ’ s D i s c u s s i o n a n d A n a l y s i s o f F i n a n c i a l C o n d i t i o n a n d R e s u l t s o f O p e r a t i o n s A M E R I C A N E Q U I T Y 2001 P E O P L E S E R V I C E F U T U R E W E ’ R E T H E O N E ! 1 8 A M E R I C A N E Q U I T Y I N V E S T M E N T L I F E H O L D I N G C O M P A N Y M a n a g e m e n t ’ s D i s c u s s i o n a n d A n a l y s i s o f F i n a n c i a l C o n d i t i o n a n d R e s u l t s o f O p e r a t i o n s 19 A M E R I C A N E Q U I T Y 2001 P E O P L E S E R V I C E F U T U R E W E ’ R E T H E O N E ! A M E R I C A N E Q U I T Y I N V E S T M E N T L I F E H O L D I N G C O M P A N Y M a n a g e m e n t ’ s D i s c u s s i o n a n d A n a l y s i s o f F i n a n c i a l C o n d i t i o n a n d R e s u l t s o f O p e r a t i o n s A M E R I C A N E Q U I T Y 2001 P E O P L E S E R V I C E F U T U R E W E ’ R E T H E O N E ! 20 A M E R I C A N E Q U I T Y I N V E S T M E N T L I F E H O L D I N G C O M P A N Y M a n a g e m e n t ’ s D i s c u s s i o n a n d A n a l y s i s o f F i n a n c i a l C o n d i t i o n a n d R e s u l t s o f O p e r a t i o n s 21 A M E R I C A N E Q U I T Y 2001 P E O P L E S E R V I C E F U T U R E W E ’ R E T H E O N E ! A M E R I C A N E Q U I T Y I N V E S T M E N T L I F E H O L D I N G C O M P A N Y M a n a g e m e n t ’ s D i s c u s s i o n a n d A n a l y s i s o f F i n a n c i a l C o n d i t i o n a n d R e s u l t s o f O p e r a t i o n s A M E R I C A N E Q U I T Y 2001 P E O P L E S E R V I C E F U T U R E W E ’ R E T H E O N E ! 2 2 A M E R I C A N E Q U I T Y I N V E S T M E N T L I F E H O L D I N G C O M P A N Y M a n a g e m e n t ’ s D i s c u s s i o n a n d A n a l y s i s o f F i n a n c i a l C o n d i t i o n a n d R e s u l t s o f O p e r a t i o n s 23 A M E R I C A N E Q U I T Y 2001 P E O P L E S E R V I C E F U T U R E W E ’ R E T H E O N E ! A M E R I C A N E Q U I T Y I N V E S T M E N T L I F E H O L D I N G C O M P A N Y M a n a g e m e n t ’ s D i s c u s s i o n a n d A n a l y s i s o f F i n a n c i a l C o n d i t i o n a n d R e s u l t s o f O p e r a t i o n s A M E R I C A N E Q U I T Y 2001 P E O P L E S E R V I C E F U T U R E W E ’ R E T H E O N E ! 2 4 A M E R I C A N E Q U I T Y I N V E S T M E N T L I F E H O L D I N G C O M P A N Y M a n a g e m e n t ’ s D i s c u s s i o n a n d A n a l y s i s o f F i n a n c i a l C o n d i t i o n a n d R e s u l t s o f O p e r a t i o n s 25 A M E R I C A N E Q U I T Y 2001 P E O P L E S E R V I C E F U T U R E W E ’ R E T H E O N E ! REPORT OF MANAGEMENT To Our Shareholders Management is responsible for the integrity of the financial information contained in this annual report. The accompanying consolidated financial statements have been prepared in conformity with generally accepted accounting principles appropriate in the circumstances and have been audited by Ernst & Young LLP. A copy of their audit opinion follows this letter. The financial information contained elsewhere in this annual report is consistent with that of the financial statements except for information described as being in accordance with statutory accounting practices. Certain financial information presented depends on management’s estimates and judgements regarding the ultimate outcome of transactions, which are not yet complete. Management believes these estimates and judgements are fair and reasonable based upon available information. Management maintains a system of internal control designed to meet its responsibilities for preparing reliable financial statements. The system is designed to provide reasonable assurance that assets are safeguarded and transactions are properly authorized and reported. Reasonable assurance is based upon the premise that the cost of controls should not exceed the benefits derived from them. The Audit Committee of the Board of Directors, meets periodically with management and Ernst & Young LLP to review internal accounting control, audit activities and financial reporting matters. Ernst & Young LLP have free access to the Audit Committee with and without the presence of management, to discuss and review the quality of financial reporting. D.J Noble Wendy Carlson Chairman and President Chief Financial Officer Terry A. Reimer Executive Vice President & Chief Accounting Officer REPORT OF INDEPENDENT Auditors The Board of Directors and Stockholders American Equity Investment Life Holding Company We have audited the accompanying consolidated balance sheets of American Equity Investment Life Holding Company as of December 31, 2001 and 2000, and the related consolidated statements of income, changes in stockholders' equity, and cash flows for each of the three years in the period ended December 31, 2001. These financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on these financial statements based on our audits. We conducted our audits in accordance with auditing standards generally accepted in the United States. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion. In our opinion, the financial statements referred to above present fairly, in all material respects, the consolidated financial position of American Equity Investment Life Holding Company at December 31, 2001 and 2000, and the consolidated results of its operations and its cash flows for each of the three years in the period ended December 31, 2001, in conformity with accounting principles generally accepted in the United States. As discussed in Note 1 to the consolidated financial statements, the Company changed its method of accounting for derivative instruments and hedging activities in response to a new accounting standard that became effective January 1, 2001. Des Moines, Iowa March 8, 2002 A M E R I C A N E Q U I T Y 2001 P E O P L E S E R V I C E F U T U R E W E ’ R E T H E O N E ! 2 6 A M E R I C A N E Q U I T Y I N V E S T M E N T L I F E H O L D I N G C O M P A N Y C o n s o l i d a t e d B a l a n c e S h e e t s 27 A M E R I C A N E Q U I T Y 2001 P E O P L E S E R V I C E F U T U R E W E ’ R E T H E O N E ! A M E R I C A N E Q U I T Y I N V E S T M E N T L I F E H O L D I N G C O M P A N Y C o n s o l i d a t e d B a l a n c e S h e e t s ( c o n t ’ d ) A M E R I C A N E Q U I T Y 2001 P E O P L E S E R V I C E F U T U R E W E ’ R E T H E O N E ! 2 8 A M E R I C A N E Q U I T Y I N V E S T M E N T L I F E H O L D I N G C O M P A N Y C o n s o l i d a t e d S t a t e m e n t s o f I n c o m e 29 A M E R I C A N E Q U I T Y 2001 P E O P L E S E R V I C E F U T U R E W E ’ R E T H E O N E ! A M E R I C A N E Q U I T Y I N V E S T M E N T L I F E H O L D I N G C O M P A N Y C o n s o l i d a t e d S t a t e m e n t o f C h a n g e s i n S t o c k h o l d e r s ’ E q u i t y A M E R I C A N E Q U I T Y 2001 P E O P L E S E R V I C E F U T U R E W E ’ R E T H E O N E ! 3 0 A M E R I C A N E Q U I T Y I N V E S T M E N T L I F E H O L D I N G C O M P A N Y C o n s o l i d a t e d S t a t e m e n t s o f C a s h F l o w s 31 A M E R I C A N E Q U I T Y 2001 P E O P L E S E R V I C E F U T U R E W E ’ R E T H E O N E ! A M E R I C A N E Q U I T Y I N V E S T M E N T L I F E H O L D I N G C O M P A N Y C o n s o l i d a t e d S t a t e m e n t s o f C a s h F l o w s ( c o n t ’ d ) A M E R I C A N E Q U I T Y 2001 P E O P L E S E R V I C E F U T U R E W E ’ R E T H E O N E ! 3 2 A M E R I C A N E Q U I T Y I N V E S T M E N T L I F E H O L D I N G C O M P A N Y N o t e s t o C o n s o l i d a t e d F i n a n c i a l S t a t e m e n t s 33 A M E R I C A N E Q U I T Y 2001 P E O P L E S E R V I C E F U T U R E W E ’ R E T H E O N E ! A M E R I C A N E Q U I T Y I N V E S T M E N T L I F E H O L D I N G C O M P A N Y N o t e s t o C o n s o l i d a t e d F i n a n c i a l S t a t e m e n t s ( c o n t ’ d ) A M E R I C A N E Q U I T Y 2001 P E O P L E S E R V I C E F U T U R E W E ’ R E T H E O N E ! 3 4 A M E R I C A N E Q U I T Y I N V E S T M E N T L I F E H O L D I N G C O M P A N Y N o t e s t o C o n s o l i d a t e d F i n a n c i a l S t a t e m e n t s ( c o n t ’ d ) 35 A M E R I C A N E Q U I T Y 2001 P E O P L E S E R V I C E F U T U R E W E ’ R E T H E O N E ! A M E R I C A N E Q U I T Y I N V E S T M E N T L I F E H O L D I N G C O M P A N Y N o t e s t o C o n s o l i d a t e d F i n a n c i a l S t a t e m e n t s ( c o n t ’ d ) A M E R I C A N E Q U I T Y 2001 P E O P L E S E R V I C E F U T U R E W E ’ R E T H E O N E ! 3 6 A M E R I C A N E Q U I T Y I N V E S T M E N T L I F E H O L D I N G C O M P A N Y N o t e s t o C o n s o l i d a t e d F i n a n c i a l S t a t e m e n t s ( c o n t ’ d ) 37 A M E R I C A N E Q U I T Y 2001 P E O P L E S E R V I C E F U T U R E W E ’ R E T H E O N E ! A M E R I C A N E Q U I T Y I N V E S T M E N T L I F E H O L D I N G C O M P A N Y N o t e s t o C o n s o l i d a t e d F i n a n c i a l S t a t e m e n t s ( c o n t ’ d ) A M E R I C A N E Q U I T Y 2001 P E O P L E S E R V I C E F U T U R E W E ’ R E T H E O N E ! 3 8 A M E R I C A N E Q U I T Y I N V E S T M E N T L I F E H O L D I N G C O M P A N Y N o t e s t o C o n s o l i d a t e d F i n a n c i a l S t a t e m e n t s ( c o n t ’ d ) 39 A M E R I C A N E Q U I T Y 2001 P E O P L E S E R V I C E F U T U R E W E ’ R E T H E O N E ! A M E R I C A N E Q U I T Y I N V E S T M E N T L I F E H O L D I N G C O M P A N Y N o t e s t o C o n s o l i d a t e d F i n a n c i a l S t a t e m e n t s ( c o n t ’ d ) A M E R I C A N E Q U I T Y 2001 P E O P L E S E R V I C E F U T U R E W E ’ R E T H E O N E ! 4 0 A M E R I C A N E Q U I T Y I N V E S T M E N T L I F E H O L D I N G C O M P A N Y N o t e s t o C o n s o l i d a t e d F i n a n c i a l S t a t e m e n t s ( c o n t ’ d ) 41 A M E R I C A N E Q U I T Y 2001 P E O P L E S E R V I C E F U T U R E W E ’ R E T H E O N E ! A M E R I C A N E Q U I T Y I N V E S T M E N T L I F E H O L D I N G C O M P A N Y N o t e s t o C o n s o l i d a t e d F i n a n c i a l S t a t e m e n t s ( c o n t ’ d ) A M E R I C A N E Q U I T Y 2001 P E O P L E S E R V I C E F U T U R E W E ’ R E T H E O N E ! 4 2 A M E R I C A N E Q U I T Y I N V E S T M E N T L I F E H O L D I N G C O M P A N Y N o t e s t o C o n s o l i d a t e d F i n a n c i a l S t a t e m e n t s ( c o n t ’ d ) 43 A M E R I C A N E Q U I T Y 2001 P E O P L E S E R V I C E F U T U R E W E ’ R E T H E O N E ! A M E R I C A N E Q U I T Y I N V E S T M E N T L I F E H O L D I N G C O M P A N Y N o t e s t o C o n s o l i d a t e d F i n a n c i a l S t a t e m e n t s ( c o n t ’ d ) A M E R I C A N E Q U I T Y 2001 P E O P L E S E R V I C E F U T U R E W E ’ R E T H E O N E ! 4 4 A M E R I C A N E Q U I T Y I N V E S T M E N T L I F E H O L D I N G C O M P A N Y N o t e s t o C o n s o l i d a t e d F i n a n c i a l S t a t e m e n t s ( c o n t ’ d ) 45 A M E R I C A N E Q U I T Y 2001 P E O P L E S E R V I C E F U T U R E W E ’ R E T H E O N E ! A M E R I C A N E Q U I T Y I N V E S T M E N T L I F E H O L D I N G C O M P A N Y N o t e s t o C o n s o l i d a t e d F i n a n c i a l S t a t e m e n t s ( c o n t ’ d ) A M E R I C A N E Q U I T Y 2001 P E O P L E S E R V I C E F U T U R E W E ’ R E T H E O N E ! 4 6 A M E R I C A N E Q U I T Y I N V E S T M E N T L I F E H O L D I N G C O M P A N Y N o t e s t o C o n s o l i d a t e d F i n a n c i a l S t a t e m e n t s ( c o n t ’ d ) 47 A M E R I C A N E Q U I T Y 2001 P E O P L E S E R V I C E F U T U R E W E ’ R E T H E O N E ! A M E R I C A N E Q U I T Y I N V E S T M E N T L I F E H O L D I N G C O M P A N Y N o t e s t o C o n s o l i d a t e d F i n a n c i a l S t a t e m e n t s ( c o n t ’ d ) A M E R I C A N E Q U I T Y 2001 P E O P L E S E R V I C E F U T U R E W E ’ R E T H E O N E ! 4 8 A M E R I C A N E Q U I T Y I N V E S T M E N T L I F E H O L D I N G C O M P A N Y N o t e s t o C o n s o l i d a t e d F i n a n c i a l S t a t e m e n t s ( c o n t ’ d ) 49 A M E R I C A N E Q U I T Y 2001 P E O P L E S E R V I C E F U T U R E W E ’ R E T H E O N E ! A M E R I C A N E Q U I T Y I N V E S T M E N T L I F E H O L D I N G C O M P A N Y N o t e s t o C o n s o l i d a t e d F i n a n c i a l S t a t e m e n t s ( c o n t ’ d ) A M E R I C A N E Q U I T Y 2001 P E O P L E S E R V I C E F U T U R E W E ’ R E T H E O N E ! 5 0 A M E R I C A N E Q U I T Y I N V E S T M E N T L I F E H O L D I N G C O M P A N Y N o t e s t o C o n s o l i d a t e d F i n a n c i a l S t a t e m e n t s ( c o n t ’ d ) 51 A M E R I C A N E Q U I T Y 2001 P E O P L E S E R V I C E F U T U R E W E ’ R E T H E O N E ! A M E R I C A N E Q U I T Y I N V E S T M E N T L I F E H O L D I N G C O M P A N Y N o t e s t o C o n s o l i d a t e d F i n a n c i a l S t a t e m e n t s ( c o n t ’ d ) A M E R I C A N E Q U I T Y 2001 P E O P L E S E R V I C E F U T U R E W E ’ R E T H E O N E ! 5 2 A M E R I C A N E Q U I T Y I N V E S T M E N T L I F E H O L D I N G C O M P A N Y N o t e s t o C o n s o l i d a t e d F i n a n c i a l S t a t e m e n t s ( c o n t ’ d ) 53 A M E R I C A N E Q U I T Y 2001 P E O P L E S E R V I C E F U T U R E W E ’ R E T H E O N E ! A M E R I C A N E Q U I T Y I N V E S T M E N T L I F E H O L D I N G C O M P A N Y N o t e s t o C o n s o l i d a t e d F i n a n c i a l S t a t e m e n t s ( c o n t ’ d ) A M E R I C A N E Q U I T Y 2001 P E O P L E S E R V I C E F U T U R E W E ’ R E T H E O N E ! 5 4 A M E R I C A N E Q U I T Y I N V E S T M E N T L I F E H O L D I N G C O M P A N Y N o t e s t o C o n s o l i d a t e d F i n a n c i a l S t a t e m e n t s ( c o n t ’ d ) 55 A M E R I C A N E Q U I T Y 2001 P E O P L E S E R V I C E F U T U R E W E ’ R E T H E O N E ! A M E R I C A N E Q U I T Y I N V E S T M E N T L I F E H O L D I N G C O M P A N Y N o t e s t o C o n s o l i d a t e d F i n a n c i a l S t a t e m e n t s ( c o n t ’ d ) A M E R I C A N E Q U I T Y 2001 P E O P L E S E R V I C E F U T U R E W E ’ R E T H E O N E ! 5 6 A M E R I C A N E Q U I T Y I N V E S T M E N T L I F E H O L D I N G C O M P A N Y N o t e s t o C o n s o l i d a t e d F i n a n c i a l S t a t e m e n t s ( c o n t ’ d ) 57 A M E R I C A N E Q U I T Y 2001 P E O P L E S E R V I C E F U T U R E W E ’ R E T H E O N E ! A M E R I C A N E Q U I T Y I N V E S T M E N T L I F E H O L D I N G C O M P A N Y N o t e s t o C o n s o l i d a t e d F i n a n c i a l S t a t e m e n t s ( c o n t ’ d ) A M E R I C A N E Q U I T Y 2001 P E O P L E S E R V I C E F U T U R E W E ’ R E T H E O N E ! 5 8 A M E R I C A N E Q U I T Y I N V E S T M E N T L I F E H O L D I N G C O M P A N Y N o t e s t o C o n s o l i d a t e d F i n a n c i a l S t a t e m e n t s ( c o n t ’ d ) 59 A M E R I C A N E Q U I T Y 2001 P E O P L E S E R V I C E F U T U R E W E ’ R E T H E O N E ! A M E R I C A N E Q U I T Y I N V E S T M E N T L I F E H O L D I N G C O M P A N Y N o t e s t o C o n s o l i d a t e d F i n a n c i a l S t a t e m e n t s ( c o n t ’ d ) A M E R I C A N E Q U I T Y 2001 P E O P L E S E R V I C E F U T U R E W E ’ R E T H E O N E ! 6 0 5000 WESTOWN PARKWAY, SUITE 440 WEST DES MOINES, IOWA 50266 (515) 221-0002 (888) 221-1234 w w w. a m e r i c a n - e q u i t y. c o m