SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM N-4
REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933
Pre-Effective Amendment No. [ ]
Post-Effective Amendment No. 1 (File No. 333-20217) [X]
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and/or
REGISTRATION STATEMENT UNDER THE INVESTMENT COMPANY ACT 1940
Amendment No. 4 (File No. 811-7195) [X]
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(Check appropriate box or boxes)
AMERICAN ENTERPRISE VARIABLE ANNUITY ACCOUNT
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(Exact Name of Registrant)
American Enterprise Life Insurance Company
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(Name of Depositor)
80 South 8th Street, P.O. Box 534, Minneapolis, MN 55440-0534
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(Address of Depositor's Principal Executive Offices) (Zip Code)
Depositor's Telephone Number, including Area Code (612) 671-7981
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Colin M. Lancaster, IDS Tower 10, Minneapolis, MN 55440-0010
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(Name and Address of Agent for Service)
It is proposed that this filing will become effective: (check appropriate box)
[ ] immediately upon filing pursuant to paragraph (b) of Rule 485
[X] on (May 1, 1998), pursuant to paragraph (b) of Rule 485
[ ] 60 days after filing pursuant to paragraph (a)(1) of Rule 485
[ ] on (date) pursuant to paragraph (a)(1) of Rule 485
If appropriate, check the following box:
[ ] this post-effective amendment designates a new effective date for a
previously filed post-effective amendment.
<PAGE>
CROSS REFERENCE SHEET
Cross reference sheet showing location in the prospectus and Statement of
Additional Information of the information called for by the items enumerated in
Part A and B of Form N-4.
Negative answers omitted from the prospectus and Statement of Additional
Information are so indicated.
PART A
Item No. Section in Prospectus
1 Cover page
2 Key terms
3 (a) Expense summary
(b) The AEL PreferredSM Variable Annuity in brief
4 (a) Condensed financial information
(b) Performance information
(c) Financial statements
5 (a) Cover page; About American Enterprise Life
(b) The variable account
(c) The funds
(d) Cover page; The funds
(e) Voting rights
(f) NA
(g) NA
6 (a) Charges
(b) Expense summary; Charges
(c) Charges
(d) Distribution of the contracts
(e) The funds
(f) NA
7 (a) Buying your annuity; Benefits in case of death; The annuity
payout period
(b) The variable account; Transferring money between subaccounts;
Transfer policies
(c) The funds; Charges
(d) Cover page
8 (a) The annuity payout period
(b) Buying your annuity
(c) The annuity payout period
(d) The annuity payout period
(e) The annuity payout period
(f) The annuity payout period
9 (a) Benefits in case of death
(b) Benefits in case of death
10 (a) Buying your annuity; Valuing your investment
(b) Valuing your investment
(c) Valuing your investment
(d) About American Enterprise Life
11 (a) Withdrawals from your contract
(b) NA
(c) Receiving payment when you request a withdrawal
(d) Buying your annuity
(e) The AEL PreferredSM Variable Annuity in brief
12(a) Taxes
(b) Key terms
(c) NA
13 NA
14 Table of contents of the Statement of Additional Information
PART B
Item No. Section in Statement of Additional Information
15(a) Cover Page
(b) NA
16 Table of Contents
17(a) NA
(b) NA
(c) About American Enterprise Life*
18(a) NA
(b) NA
(c) Independent Auditors
(d) NA
(e) NA
(f) NA
19 (a) Distribution of the contracts*
(b) NA
20(a) Principal Underwriter
(b) Principal Underwriter
(c) NA
(d) NA
21(a) Performance Information
(b) Performance Information
22 Calculating Annuity Payouts
23(a) Financial Statements
(b) Financial Statements
*Designates section in the prospectus, which is hereby incorporated by reference
in this Statement of Additional Information.
<PAGE>
AEL PreferredSM Variable Annuity
May 1, 1998
Variable Annuity Prospectus
The AEL PreferredSM Variable Annuity is a flexible premium variable annuity
contract offered by American Enterprise Life Insurance Company (American
Enterprise Life), a subsidiary of IDS Life Insurance Company (IDS Life), which
is a subsidiary of American Express Financial Corporation (AEFC). Purchase
payments may be allocated among different accounts, providing variable and/or
fixed returns and payouts. The annuity is available for individual retirement
accounts (IRAs), simplified employee pension plans (SEPs), Roth IRAs and
nonqualified retirement plans.
American Enterprise Variable Annuity Account
Sold by: American Enterprise Life Insurance Company
Administrative Office: 80 South Eighth Street, P.O. Box 534,
Minneapolis, MN 55440-0534
Telephone: 800-333-3437
This Prospectus contains information about the variable account that you should
know before investing. Refer to "The variable account" in this prospectus. As in
the case of other annuities, it may not be advantageous to purchase this annuity
as a replacement for, or in addition to an existing annuity.
The Prospectus is accompanied or preceded by the following prospectuses: The
Retirement Annuity Mutual Funds and Putnam Variable Trust. Please read these
documents carefully and keep them for future reference.
These securities have not been approved or disapproved by the Securities and
Exchange Commission, or any state securities commission, nor has the Securities
and Exchange Commission or any state securities commission passed upon the
accuracy or adequacy of this prospectus. Any representation to the contrary is a
criminal offense.
American Enterprise Life is not a bank or financial institution, and the
securities it offers are not deposits or obligations of, backed or guaranteed or
endorsed by any bank or financial institution nor are they insured by the
Federal Deposit Insurance Corporation, the Federal Reserve Board or any other
agency. Investments in this annuity involve investment risk including the
possible loss of principal.
A Statement of Additional Information (SAI), dated May 1, 1998, (incorporated by
reference into this prospectus) filed with the Securities and Exchange
Commission (SEC), is available without charge by contacting American Enterprise
Life at the telephone number above or by completing and sending the order form
on the last page of this prospectus. The table of contents of the SAI is on the
last page of this prospectus.
<PAGE>
Table of contents
Key terms.......................................................................
The AEL PreferredSM Variable Annuity in brief...................................
Expense summary.................................................................
Condensed financial information (Unaudited).....................................
Financial statements............................................................
Performance information.........................................................
The variable account............................................................
The funds.......................................................................
IDS Life Aggressive Growth Fund............................................
IDS Life Capital Resource Fund.............................................
IDS Life Managed Fund......................................................
IDS Life Moneyshare Fund...................................................
IDS Life Special Income Fund...............................................
Putnam VT Diversified Income Fund..........................................
Putnam VT Global Growth Fund...............................................
Putnam VT Growth and Income Fund...........................................
Putnam VT New Opportunities Fund...........................................
Putnam VT Voyager Fund.....................................................
The fixed account...............................................................
Buying your annuity.............................................................
The retirement date........................................................
Beneficiary................................................................
How to make payments.......................................................
Charges.........................................................................
Contract administrative charge.............................................
Variable account administrative charge.....................................
Mortality and expense risk fee.............................................
Withdrawal charge..........................................................
Waiver of withdrawal charges...............................................
Premium taxes..............................................................
Valuing your investment.........................................................
Number of units............................................................
Accumulation unit value....................................................
Net investment factor......................................................
Factors that affect variable subaccount accumulation units.................
Making the most of your annuity.................................................
Automated dollar-cost averaging............................................
Transferring money between subaccounts.....................................
Transfer policies..........................................................
Two ways to request a transfer or a withdrawal.............................
Withdrawals from your contract..................................................
Withdrawal policies........................................................
Receiving payment when you request a withdrawal............................
<PAGE>
Changing ownership..............................................................
Benefits in case of death.......................................................
The annuity payout period.......................................................
Annuity payout plans.......................................................
Death after annuity payouts begin..........................................
Taxes...........................................................................
Voting rights...................................................................
Substitution of investments.....................................................
Distribution of the contracts...................................................
About American Enterprise Life..................................................
Year 2000.......................................................................
Regular and special reports.....................................................
Services...................................................................
Table of contents of the Statement of Additional Information...............
<PAGE>
Key terms
These terms can help you understand details about your annuity.
Accumulation unit - A measure of the value of each variable subaccount before
annuity payouts begin.
Annuitant - The person on whose life or life expectancy the annuity payouts are
based.
Annuity - A contract purchased from an insurance company that offers
tax-deferred growth of the investment until earnings are withdrawn, and that can
be tailored to meet the specific needs of the individual during retirement.
Annuity payouts - An amount paid at regular intervals under one of several plans
available to the owner and/or any other payee. This amount may be paid on a
variable or fixed basis.
Annuity unit - A measure of the value of each variable subaccount used to
calculate the annuity payouts you receive.
Beneficiary - The person designated to receive annuity benefits in case of the
owner's or annuitant's death.
Close of business - When the New York Stock Exchange (NYSE) closes, normally 3
p.m. Central time.
Code - Internal Revenue Code of 1986, as amended.
Contract value - The total value of your annuity before any applicable
withdrawal charge and any contract administrative charge have been deducted.
Contract year - A period of 12 months, starting on the effective date of your
contract and on each anniversary of the effective date.
Fixed account - An account to which you may allocate purchase payments. Amounts
allocated to this account earn interest at rates that are declared periodically
by American Enterprise Life.
Mutual funds (funds) - Mutual funds or portfolios, each with a different
investment objective. You may allocate your purchase payments into variable
subaccounts investing in shares of any or all these funds (See "The funds").
Owner (you, your) - The person who controls the annuity (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 annuity's benefits.
<PAGE>
Purchase payments - Payments made to American Enterprise Life for an annuity.
Qualified annuity - An annuity purchased for one of the following retirement
plans that is subject to applicable federal law and any rules of the plan
itself:
o Individual Retirement Annuities (IRAs), including Roth IRAs
o Simplified Employee Pension Plans (SEPs)
All other annuities are considered nonqualified annuities.
Retirement date - The date when annuity payouts are scheduled to begin. This
date is first established when you start your contract. You can change it in the
future.
Systematic Investment Plan - A payment method you set up with your bank to
automatically make monthly investments to your annuity from your bank account
(SIP).
Valuation date - Any normal business day, Monday through Friday, that the NYSE
is open. The value of each variable subaccount is calculated at the close of
business on each valuation date.
Variable account - Consists of separate subaccounts to which you may allocate
purchase payments; each subaccount invests in shares of one mutual fund (See
"The variable account"). The value of your investment in each variable
subaccount changes with the performance of the underlying mutual fund.
Variable annuity - An insurance contract in which payouts to the owner vary
depending on the performance of the subaccounts. In a variable annuity, payouts
may increase or decrease.
Withdrawal charge - A deferred sales charge that may be applied if you make a
withdrawal from your annuity before the retirement date.
Withdrawal value - The amount you are entitled to receive if you fully withdraw
your annuity. It is the contract value minus any applicable withdrawal charge
and contract administrative charge.
<PAGE>
The AEL PreferredSM Variable Annuity in brief
Purpose: The AEL PreferredSM Variable Annuity is designed to allow you to
accumulate money for retirement. You do this by making one or more investments
(purchase payments) that may earn returns that increase the value of the
annuity. Beginning at a specified future date (the retirement date), the annuity
provides lifetime or other forms of payouts to you or to anyone you designate.
Ten-day free look: You may return your annuity to your agent or to our
Minneapolis administrative office within 10 days after it is delivered to you
and receive a full refund of the contract value. No charges will be deducted.
However, you bear the investment risk from the time of purchase until return of
the contract; the refund amount may be more or less than the payment you made.
(Exceptions: If the law so requires, all of your purchase payments will be
refunded.)
Accounts: You may allocate your purchase payments among any or all of:
o the subaccounts of the variable account, each of which invests in a mutual
fund with a particular investment objective. The value of each variable
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 of purchase payments allocated to the variable
subaccounts. (p. 14)
o one fixed account, which earns interest at a rate that is adjusted
periodically by American Enterprise Life. (p. 18)
Buying the annuity: Your agent will help you complete and submit an application.
Applications are subject to acceptance at our Minneapolis administrative office.
You may buy a nonqualified annuity or a qualified annuity. Payment must be made
in a lump sum with the option of additional payments in the future. (p. 19)
o Minimum initial payment - $2,000 (waived for SIPs)
o Minimum additional payment - $50
o Maximum total payment(s) - $1,000,000 (without prior approval)
Transfers: Subject to certain restrictions, you may redistribute your money
among accounts without charge at any time until annuity payouts begin, and once
per contract year among the variable subaccounts thereafter. You may establish
automated transfers among the fixed account and variable subaccount(s). (p. 28)
Withdrawals: You may withdraw all or part of your contract value at any time
before the retirement date. You also may establish automated partial
withdrawals. Withdrawals may be subject to charges and tax penalties (including
a 10% IRS penalty if withdrawals are made prior to your reaching age 59 1/2) and
may have other tax consequences; also, certain restrictions apply. (p. 31)
Changing ownership: You may change ownership of a nonqualified annuity by
written instruction. However, such changes of nonqualified annuities may have
federal income tax consequences. Certain restrictions apply concerning change of
ownership of a qualified annuity. (p. 32)
<PAGE>
Payment in case of death: If you or the annuitant die before annuity payouts
begin, we will pay the beneficiary an amount at least equal to the contract
value. (p. 33)
Annuity payouts: The contract value of your investment can be applied to an
annuity payout plan that begins on the retirement date. You may choose from a
variety of plans to make sure that payouts continue as long as they are needed.
If you purchased a qualified annuity, the payout schedule must meet requirements
of the qualified plan. Payouts may be made on a fixed or variable basis, or
both. Total monthly payouts may include amounts from each variable subaccount
and the fixed account. (p. 34)
Taxes: Generally, your annuity grows tax-deferred until you fully withdraw it or
begin to receive payouts. (Under certain circumstances, IRS penalty taxes may
apply.) Even if you direct payouts to someone else, you will be taxed on the
income if you are the owner. Roth IRAs, however, may grow tax free, if you meet
certain distribution requirements. (p. 36)
Charges: Your AEL PreferredSM Variable Annuity is subject to a $30 annual
contract administrative charge, a 0.15% variable account administrative charge,
a 1.25% mortality and expense risk fee, a withdrawal charge and any premium
taxes that may be imposed by state or local governments. Premium taxes are
deducted upon total withdrawal or when annuity payouts begin. (p. 21)
Expense summary
The purpose of this table is to help you understand the various costs and
expenses associated with the AEL PreferredSM Variable Annuity.
You pay no sales charge when you purchase the AEL PreferredSM Variable Annuity.
All costs that you bear directly or indirectly for the variable subaccounts and
underlying mutual funds are shown below. Some expenses may vary as explained
under "Charges."
Contract owner expenses:*
Withdrawal charge (contingent deferred sales charge as a percentage of purchase
payment)
Contract years from Withdrawal charge
payment receipt percentage
1 8%
2 7%
3 6%
4 5%
5 4%
6 2%
Thereafter 0%
Annual contract
administrative charge: $30
<PAGE>
Variable account annual expenses
Variable account administrative charge
(as a percentage of average daily
net assets of the underlying fund)................................0.15%
Mortality and expense risk fee
(as a percentage of average daily
net assets of the underlying fund)................................1.25%
Total variable account annual expenses............................1.40%
Annual operating expenses of underlying mutual funds (management fees and other
expenses deducted as a percentage of average net assets as follows):
<TABLE>
<CAPTION>
IDS Life IDS Life IDS Life
Aggressive Capital IDS Life IDS Life Special
Growth Resource Managed Moneyshare Income
<S> <C> <C> <C> <C> <C>
Management fees 0.60% 0.60% 0.59% 0.51% 0.60%
Other expenses 0.07 0.07 0.05 0.06 0.07
Total 0.67% 0.67% 0.64% 0.57% 0.67%
Putnam VT Putnam VT Putnam VT Putnam VT Putnam VT
Diversified Global Growth Growth and New Opportunities Voyager
Income Fund Fund Income Fund Fund Fund
Management fees 0.69% 0.60% 0.47% 0.58% 0.54%
Other expenses 0.11 0.15 0.04 0.05 0.05
Total 0.80% 0.75% 0.51% 0.63% 0.59%
* Premium taxes imposed by some state and local governments are not reflected in this table.
** Annualized operating expenses of underlying mutual funds at Dec. 31, 1996.
+ Operating expenses of the underlying mutual funds at Dec. 31, 1996.
Example:*
IDS Life IDS Life IDS Life
Aggressive Capital IDS Life IDS Life Special
Growth Resource Managed Moneyshare Income
You would pay the following expenses on a $1,000 investment, assuming 5% annual
return and full withdrawal at the end of each time period:
1 year $101.95 $101.95 $101.64 $100.92 $101.95
3 years 127.10 127.70 126.77 124.60 127.70
5 years 156.06 156.06 154.50 150.86 156.06
10 years 249.34 249.34 246.19 238.81 249.34
<PAGE>
You would pay the following expenses on the same investment assuming no
withdrawal or selection of an annuity payout plan at the end of each time
period:
1 year $ 21.95 $ 21.95 $ 21.64 $ 20.92 $ 21.95
3 years 67.70 67.70 66.67 64.60 67.70
5 years 116.06 116.06 114.50 110.86 116.06
10 years 249.34 249.34 246.19 238.81 249.34
Putnam VT Putnam VT Putnam VT Putnam VT Putnam VT
Diversified Global Growth Growth and New Opportunities Voyager Fund
Income Fund Fund Income Fund Fund
You would pay the following expenses on a $1,000 investment, assuming 5% annual
return and full withdrawal at the end of each time period:
1 year $103.28 $102.77 $100.31 $101.54 $101.13
3 years 131.72 130.17 122.74 126.46 125.22
5 years 162.78 160.20 147.74 153.98 151.90
10 years 262.86 257.68 232.45 245.14 240.93
You would pay the following expenses on the same investment assuming no
withdrawal or selection of an annuity payout plan at the end of each time
period:
1 year $ 23.28 $ 22.77 $ 20.31 $ 21.54 $ 21.13
3 years 71.72 70.17 62.74 66.46 65.22
5 years 122.78 120.20 107.74 113.98 111.90
10 years 262.86 257.68 232.45 245.14 240.93
* In this example, the $30 annual contract administrative charge is approximated
as a .071% charge based on the average contract size.
This example should not be considered a representation of past or future
expenses. Actual expenses may be more or less than those shown.
</TABLE>
<PAGE>
Condensed financial information (Unaudited)
The following tables give per-unit information about the financial history of
each variable subaccount.
Year ended Dec. 31,
1997 1996 1995
Subaccount EAG1 (Investing in shares of IDS Life Aggressive Growth Fund)
Accumulation unit $1.47 $1.28 $1.00
value at beginning
of period
Accumulation unit value $1.63 $1.47 $1.28
at end of period
Number of accumulation 2,434 1,324 473
units outstanding at end
of period (000 omitted)
Ratio of operating 1.40% 1.50% 1.50%
expense to average
net assets
Subaccount ECR1 (Investing in shares of IDS Life Capital Resource Fund)
Accumulation unit $1.27 $1.20 $1.00
value at beginning
of period
Accumulation unit value $1.56 $1.27 $1.20
at end of period
Number of accumulation 3,813 2,350 818
units outstanding at end
of period (000 omitted)
Ratio of operating 1.40% 1.50% 1.50%
expense to average
net assets
Subaccount EMG1 (Investing in shares of IDS Life Managed Fund)
Accumulation unit $1.36 $1.18 $1.00
value at beginning
of period
Accumulation unit value $1.60 $1.36 $1.18
at end of period
Number of accumulation 2,944 1,546 589
units outstanding at end
of period (000 omitted)
Ratio of operating 1.40% 1.50% 1.50%
expense to average
net assets
Subaccount EMS1 (Investing in shares of IDS Life Moneyshare Fund)
Accumulation unit $1.07 $1.03 $1.00
value at beginning
of period
Accumulation unit value $1.11 $1.07 $1.03
at end of period
Number of accumulation 231 241 132
units outstanding at end
of period (000 omitted)
Ratio of operating 1.40% 1.50% 1.50%
expense to average
net assets
Simple yield 3.71% 3.26% 3.53%
Compound yield 3.78% 3.32% 3.59%
Subaccount ESI1 (Investing in shares of IDS Life Special Income Fund)
Accumulation unit $1.24 $1.17 $1.00
value at beginning
of period
Accumulation unit value $1.33 $1.24 $1.17
at end of period
Number of accumulation 2,544 1,377 414
units outstanding at end
of period (000 omitted)
Ratio of operating 1.40% 1.50% 1.50%
expense to average
net assets
Subaccount EDI1 (Investing in shares of Putnam VT Diversified Income Fund)
Accumulation unit $1.23 $1.15 $1.00
value at beginning
of period
Accumulation unit value $1.30 $1.23 $1.15
at end of period
Number of accumulation 3,151 1,824 601
units outstanding at end
of period (000 omitted)
Ratio of operating 1.40% 1.50% 1.50%
expense to average
net assets
Subaccount EGG2 (Investing in shares of Putnam VT Global Growth Fund)
Accumulation unit $1.00 -- --
value at beginning
of period
Accumulation unit value $1.00 -- --
at end of period
Number of accumulation 388 -- --
units outstanding at end
of period (000 omitted)
Ratio of operating 1.40% -- --
expense to average
net assets
Subaccount EGI1 (Investing in shares of Putnam VT Growth and Income Fund)
Accumulation unit $1.53 $1.27 $1.00
value at beginning
of period
Accumulation unit value $1.88 $1.53 $1.27
at end of period
Number of accumulation 6,452 3,655 1,152
units outstanding at end
of period (000 omitted)
Ratio of operating 1.40% 1.50% 1.50%
expense to average
net assets
Subaccount ENO1 (Investing in shares of Putnam VT New Opportunities Fund)
Accumulation unit $1.51 $1.39 $1.00
value at beginning
of period
Accumulation unit value $1.84 $1.51 $1.39
at end of period
Number of accumulation 4,575 2,980 691
units outstanding at end
of period (000 omitted)
Ratio of operating 1.40% 1.50% 1.50%
expense to average
net assets
Subaccount EVO2 (Investing in shares of Putnam VT Voyager Fund)
Accumulation unit $1.00 -- --
value at beginning
of period
Accumulation unit value $1.15 -- --
at end of period
Number of accumulation 148 -- --
units outstanding at end
of period (000 omitted)
Ratio of operating 1.40% -- --
expense to average
net assets
1 Inception date was Feb. 21, 1995.
2 Inception date was June 10, 1997.
<PAGE>
Financial statements
The SAI dated May 1, 1998 contains:
the audited financials of the variable account including:
- - statements of net assets as of Dec. 31, 1997;
- - statements of operations for the year ended Dec. 31, 1997;
- - statements of changes in net assets for the years ended Dec. 31, 1997 and
Dec. 31, 1996.
the audited financial statements of American Enterprise Life including:
- - balance sheets as of Dec. 31, 1997 and Dec. 31 1996; and
- - related statements of income, stockholder's equity and cash flows for the
years ended Dec. 31, 1997, 1996, and 1995.
Performance information
Performance information for the variable subaccounts may appear from time to
time in advertisements or sales literature. In all cases, such information
reflects the performance of a hypothetical investment in a particular subaccount
during a particular time period. We show actual performance from the date the
subaccounts began investing in funds. We also show performance from the
commencement date of the funds as if the annuity had existed at that time.
Calculations are performed as follows:
Simple yield - IDS Life Moneyshare Subaccount: Income over a given seven-day
period (not counting any change in the capital value of the investment) is
annualized (multiplied by 52) by assuming that the same income is received for
52 weeks. This annual income is then stated as an annual percentage return on
the investment.
Compound yield - IDS Life Moneyshare Subaccount: Calculated like simple yield,
except that, when annualized, the income is assumed to be reinvested.
Compounding of reinvested returns increases the yield as compared to a simple
yield.
Yield - For Subaccounts investing in income funds: Net investment income (income
less expenses) per accumulation unit during a given 30-day period is divided by
the value of the unit on the last day of the period. The result is converted to
an annual percentage.
Average annual total return: Expressed as an average annual compounded rate of
return of a hypothetical investment over a period of one, five and 10 years (or
up to the life of the subaccount if it is less than 10 years old). This figure
reflects deduction of all applicable charges, including the contract
administrative charge, variable account administrative charge, mortality and
expense risk fee, and withdrawal charge, assuming a full withdrawal at the end
of the illustrated period. Optional average annual total return quotations may
be made that do not reflect a withdrawal charge deduction (assuming no
withdrawal).
<PAGE>
Aggregate total return: Represents the cumulative change in the value of an
investment over a specified period of time (reflecting change in a subaccount's
accumulation unit value). The calculation assumes reinvestment of investment
earnings and reflects the deduction of all applicable charges, including the
contract administrative charge, mortality and expense risk fee, variable account
administrative charge, and withdrawal charge, assuming a withdrawal at the end
of the illustrated period. Optional aggregate total return quotations may be
made that do not reflect a withdrawal charge deduction (assuming no withdrawal).
Aggregate total return may be shown by means of schedules, charts or graphs.
Performance information should be considered in light of the investment
objectives and policies, characteristics and quality of the fund in which the
subaccount invests and the market conditions during the given time period. Such
information is not intended to indicate future performance. Because advertised
yields and total return figures include all annuity charges that have the effect
of decreasing advertised performance, subaccount performance should not be
compared to that of mutual funds that sell their shares directly to the public.
(See the SAI for a further description of methods used to determine yield and
total return for the subaccounts.)
If you would like additional information about actual performance, contact
American Enterprise Life at the address or telephone number on the cover.
The variable account
Purchase payments can be allocated to any or all of the subaccounts of the
variable account that invest in shares of the following funds:
Subaccount
IDS Life Aggressive Growth Fund EAG
IDS Life Capital Resource Fund ECR
IDS Life Managed Fund EMG
IDS Life Moneyshare Fund EMS
IDS Life Special Income Fund ESI
Putnam VT Diversified Income Fund EDI
Putnam VT Global Growth Fund EGG
Putnam VT Growth and Income Fund EGI
Putnam VT New Opportunities Fund ENO
Putnam VT Voyager Fund EVO
Each variable subaccount meets the definition of a separate account under
federal securities laws. Income, capital gains and capital losses of each
subaccount are credited or charged to that subaccount alone. No variable
subaccount will be charged with liabilities of any other variable account or of
our general business. Each variable subaccount's net assets are held in relation
to the contracts described in this prospectus as well as other variable annuity
contracts that we issue that are not described in this prospectus.
The variable account was established under Indiana law on July 15, 1987, and the
subaccounts are registered together as a single unit investment trust under the
Investment Company Act of 1940 (the 1940 Act). This registration does not
involve any supervision of our management or investment practices and policies
by the SEC. All obligations arising under the contracts are general obligations
of American Enterprise Life.
<PAGE>
The funds
IDS Life Aggressive Growth Fund
Objective: capital appreciation. Invests primarily in common stock of small- and
medium-size companies.
IDS Life Capital Resource Fund
Objective: capital appreciation. Invests primarily in U.S. common stocks and
other securities convertible into common stock, diversified over many different
companies in a variety of industries.
IDS Life Managed Fund
Objective: maximum total investment return. Invests primarily in U.S. common
stocks, securities convertible into common stock, warrants, fixed income
securities (primarily high-quality corporate bonds) and money market
instruments.
IDS Life Moneyshare Fund
Objective: maximum current income consistent with liquidity and conservation of
capital. Invests in high-quality money market securities with remaining
maturities of 13 months or less. The fund also will maintain a dollar-weighted
average portfolio maturity not exceeding 90 days. The fund attempts to maintain
a constant net asset value of $1 per share.
IDS Life Special Income Fund
Objective: high level of current income while conserving the value of the
investment for the longest time period. Invests primarily in high-quality,
lower-risk corporate bonds issued by many different companies in a variety of
industries, and in government bonds.
Putnam VT Diversified Income Fund
Objective: high current income consistent with capital preservation by investing
in the following three sectors of the fixed income securities markets: a U.S.
Government Sector, a High Yield Sector (which invests primarily in securities
commonly known as "junk bonds"), and an International Sector. Consult the Putnam
Variable Trust prospectus for further information on the risks associated with
this fund's investments in high-yield higher-risk fixed income securities.
Putnam VT Global Growth Fund
Objective: capital appreciation through a globally diversified portfolio of
common stocks.
Putnam VT Growth and Income Fund
Objective: capital growth and current income by investing primarily in common
stocks that offer potential for capital growth, current income or both.
Putnam VT New Opportunities Fund
Objective: long-term capital appreciation by investing principally in common
stocks of companies in sectors of the economy which Putnam Investment
Management, Inc. ("Putnam Management") believes possess above average long-term
growth potential.
Putnam VT Voyager Fund
Objective: capital appreciation by investing primarily in common stocks of
companies that Putnam Management believes to have potential for capital
appreciation that is significantly greater than that of market averages.
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More comprehensive information regarding each fund is contained in that fund
prospectus. You should read the fund prospectus and consider carefully, and on a
continuing basis, which fund or combination of funds is best suited to your
long-term investment needs. There is no assurance that the investment objectives
of the funds will be attained nor is there any guarantee that the contract value
will equal or exceed the total purchase payments made. Some funds may involve
more risk than others. Please monitor your investment accordingly.
All funds are available to serve as the underlying investment for variable
annuities, and some funds also are available to serve as the underlying
investment for variable life insurance contracts and qualified plans. It is
conceivable that in the future it may be disadvantageous for variable annuity
separate accounts and variable life insurance separate accounts and/or qualified
plans to invest in the available funds simultaneously.
Although American Enterprise Life and the funds do not currently foresee any
such disadvantages, the boards of directors or trustees of the appropriate funds
will monitor events in order to identify any material conflicts between such
contract owners, policy owners and qualified plans and to determine what action,
if any, should be taken in response to a conflict. If a board were to conclude
that separate funds should be established for the variable annuity, variable
life insurance and qualified plans separate accounts, the variable annuity
contract holders would not bear any expenses associated with establishing
separate funds. Please refer to the fund prospectuses for risk disclosure
regarding mixed and shared funding.
The Internal Revenue Service (IRS) has issued final regulations relating to the
diversification requirements under Section 817(h) of the Code. Each mutual fund
intends to comply with these requirements.
The U.S. Treasury and the IRS have indicated that they may provide additional
guidance concerning how many variable subaccounts may be offered and how many
exchanges among variable subaccounts may be allowed before the owner is
considered to have investment control, and thus is currently taxed on income
earned within variable subaccount assets. We do not know at this time what the
additional guidance will be or when action will be taken. We reserve the right
to modify the contract, as necessary, to ensure that the owner will not be
subject to current taxation as the owner of the variable subaccount assets.
We intend to comply with all federal tax laws to ensure that the contract
continues to qualify as an annuity for federal income tax purposes. We reserve
the right to modify the contract as necessary to comply with any new tax laws.
The investment managers for the funds are as follows:
o IDS Life Retirement Annuity Mutual Funds - IDS Life. American Express
Financial Corporation is the investment advisor for the IDS Life Retirement
Annuity Mutual Funds. American Express Asset Management International Inc.,
a wholly-owned subsidiary of AEFC, is the sub-investment advisor for IDS
Life International Equity Fund.
o Putnam Variable Trust - Putnam Investment Management, Inc.
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The investment managers and advisors cannot guarantee that the funds will meet
their investment objectives. Please read the funds' prospectuses for complete
information on investment risks, deductions, expenses and other facts you should
know before investing. These prospectuses are available by contacting American
Enterprise Life at the administrative office address or telephone number on the
front of this prospectus.
The fixed account
Purchase payments also may be allocated to the fixed account. The value of the
fixed account increases as interest is credited to the account. Purchase
payments and transfers to the fixed account become part of the general account
of American Enterprise Life, the company's main portfolio of investments.
Interest is credited and compounded daily to produce an effective annual
interest rate. We may change the interest rate from time to time.
Because of exemptive and exclusionary provisions, interests in the fixed account
have not been registered under the Securities Act of 1933 (1933 Act), nor is the
fixed account registered as an investment company under the 1940 Act.
Accordingly, neither the fixed account nor any interests in it are generally
subject to the provisions of the 1933 or 1940 Acts, and we have been advised
that the staff of the SEC has not reviewed the disclosures in this prospectus
that relate to 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.
Buying your annuity
Your agent will help you prepare and submit your application, and send it along
with your initial purchase payment to our Minneapolis administrative office. As
the owner, you have all rights and may receive all benefits under the contract.
Your annuity can be owned in joint tenancy only in spousal situations. You
cannot buy a nonqualified annuity or become an annuitant if you are 86 or older
(age 76 or older for qualified annuities).
When you apply, you may select:
o the fixed account and/or subaccount(s) 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 retirement date);
and
o a beneficiary.
If your application is complete, we will process it and apply your purchase
payment to the fixed account and subaccount(s) you selected within two business
days after we receive it at our Minneapolis administrative office. If your
application is accepted, we will send you a contract. If we cannot accept your
application within five business days, we will decline it and return your
payment. We will credit additional purchase payments to your account(s) at the
next close of business after we receive your payments at our Minneapolis
administrative office.
You may make monthly payments to your annuity under a Systematic Investment Plan
(SIP). Under the SIP, you will make monthly payments into your annuity. To begin
the SIP, you will complete and send a form and your first payment along with
your application. You can stop your SIP payments at any time. If your contract
value is less than $2,000 and you have not made any SIP payments for six
consecutive months, we
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have the right to give you 30 days written notice that your balance has fallen
below the $2,000 threshold. If no additional payments are made to your annuity,
we may pay you the total value of your annuity and cancel your contract.
The retirement date
Annuity payouts will be scheduled to begin on the retirement date. This date can
be aligned with your actual retirement from a job, or it can be a different
future date, depending on your needs and goals and on certain restrictions. You
can also change the date, provided you send us written instructions at least 30
days before annuity payouts begin.
For nonqualified annuities and Roth IRAs, the retirement date must be:
o no earlier than the 60th day after the contract's effective date; and
o no later than the annuitant's 85th birthday (or the 10th contract
anniversary, if purchased after age 75).
For qualified annuities (except Roth IRAs), to avoid IRS penalty taxes, the
retirement date generally must be:
o on or after the annuitant reaches age 59 1/2; and
o by April 1 of the year following the calendar year when the annuitant
reaches age 70 1/2.
If you are taking the minimum IRA distribution as required by the Code from
another tax-qualified investment, or in the form of partial withdrawals from
this annuity, annuity payouts can start as late as the annuitant's 85th birthday
or the 10th contract anniversary.
Beneficiary
If death benefits become payable before the retirement date, your named
beneficiary will receive all or part of the contract value. If there is no named
beneficiary, then you or your estate will be the beneficiary. (See "Payment in
case of death" for more about beneficiaries.)
Minimum initial payment
If SIP is concurrently set up: $0 with application
If SIP is not concurrently set up: $2,000 with application
Minimum additional purchase payment(s): $50
Maximum payment(s): $1,000,000 of cumulative payments (We
reserve the right to increase
the maximum payment.)
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How to make payments
By letter
Send your check along with your name and contract number to:
Regular mail:
American Enterprise Life Insurance Company
80 South Eighth Street
P.O. Box 534
Minneapolis, MN 55440-0534
Express mail:
American Enterprise Life Insurance Company
Attention: Unit 829
733 Marquette Avenue
Minneapolis, MN 55402
By SIP:
Contact your agent to complete the necessary SIP paperwork.
Charges
Contract administrative charge
This fee is for establishing and maintaining your records. We deduct $30 from
the contract value on your contract anniversary at the end of each contract
year. If you make payments to your annuity under a SIP, we will deduct the
contract administrative charge on any contract anniversary when your contract
value is $2,000 or more but less than $50,000. We will waive this charge when
the contract value is $50,000 or more on the current contract anniversary. If
you take a full withdrawal from your contract, the $30 annual charge will be
deducted at the time of withdrawal regardless of contract value. The annual
charge cannot be increased and does not apply after annuity payouts begin.
Variable account administrative charge
This charge is applied daily to the variable subaccounts and reflected in the
unit values of the subaccounts. Annually, it totals 0.15% of their average daily
net assets. It covers certain administrative and operating expenses of the
subaccounts such as accounting, legal and data processing fees and expenses
involved in the preparation and distribution of reports and prospectuses. The
variable account administrative charge cannot be increased.
Mortality and expense risk fee
This fee is to cover the mortality risk and expense risk and is applied daily to
the variable subaccounts and reflected in the unit values of the subaccounts.
The subaccounts pay this fee at the time dividends are distributed from the
funds in which they invest. Annually, the fee totals 1.25% of the subaccounts'
average daily net assets. 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.
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Mortality risk arises because of our guarantee to pay a death benefit and our
guarantee to make annuity payouts according to the terms of the contract, no
matter how long a specific annuitant lives and no matter how long the entire
group of American Enterprise Life annuitants live. If, as a group, American
Enterprise Life annuitants outlive the life expectancy we have assumed in our
actuarial tables, then we must take money from our general assets to meet our
obligations. If, as a group, American Enterprise Life annuitants do not live as
long as expected, we could profit from the mortality risk fee. Expense risk
arises because the contract administrative charge and variable account
administrative charge cannot be increased and may not cover our expenses. Any
deficit would have to be made up from our general assets.
We may use any profits realized from the mortality and expense risk fee for any
proper corporate purpose, including, among others, payment of distribution
(selling) expenses. We do not expect that the withdrawal charge, discussed in
the following paragraphs, will cover sales and distribution expenses.
Withdrawal charge
If you withdraw part or all of your contract, you may be subject to a withdrawal
charge. The withdrawal amount you request is determined by drawing from your
total contract value in the following order:
1. First, we withdraw up to 10% of your prior anniversary contract value not yet
withdrawn this contract year. There is no withdrawal charge on withdrawals
totaling up to 10% of your prior anniversary contract value each contract year.
2. Next, we withdraw any contract earnings (contract value minus all purchase
payments received and not previously withdrawn) in excess of the annual 10% free
withdrawal amount. There is no withdrawal charge on contract earnings.
3. Next, we withdraw purchase payments received seven or more contract years
before the withdrawal and not previously withdrawn. There is no withdrawal
charge on purchase payments received seven or more contract years before
withdrawal.
4. Finally, if necessary, we withdraw purchase payments received in the six
contract years before the withdrawal. There is a withdrawal charge on these
payments. We determine your withdrawal charges by multiplying each of these
payments by the applicable withdrawal charge percentage, and then totaling the
withdrawal charges.
The new payment charge percentage depends on the number of contract years since
you made the payment(s).
Contract years from Withdrawal charge
payment receipt percentage
- --------------------------------------- --------------------------------
1 8%
2 7%
3 6%
4 5%
5 4%
6 2%
Thereafter 0%
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Withdrawal charge calculation example
The following is an example of the calculation we would make to determine the
withdrawal charge on a contract with this history:
o The contract date is July 1, 1998 with a contract year of July 1 through
June 30 and with an anniversary date of July 1 each year
o We received these payments - $10,000 July 1, 1998, $8,000 Dec. 31, 2004 and
$6,000 Feb. 20, 2006
o The owner withdraws the contract for its total withdrawal value of $38,101
on Aug. 5, 2008 and had not made any other withdrawals during that contract
year
o The prior anniversary (July 1, 2008) contract value was $38,488
<TABLE>
<CAPTION>
Withdrawal charge Explanation
<S> <C> <C>
$0 $3,848.80 is 10% of the prior anniversary value withdrawn without
withdrawal charge; and
$0 $10,252.20 is contract earnings in excess of the 10% free withdrawal amount
withdrawn without withdrawal charge; and
$0 $10,000 July 1, 1998 payment was received seven or more contract years
before withdrawal and is withdrawn without withdrawal charge; and
$320 $8,000 Dec. 31, 2004 payment is in its fifth contract year from receipt,
withdrawn with a 4% withdrawal charge; and
$300 $6,000 Feb. 20, 2006 payment is in its fourth contract year from receipt,
withdrawn with a 5% withdrawal charge.
- ------------------------------
$620
</TABLE>
The withdrawal charge is calculated so that the total amount minus the
withdrawal charge equals the amount you request when you request a partial
withdrawal. If you take a full withdrawal from your contract, the $30 contract
administrative charge also will be deducted.
Waiver of withdrawal charge
There are no withdrawal charges for:
o withdrawals during the year totaling up to 10% of your prior contract
anniversary contract value;
o contract earnings - if any - in excess of the annual 10% free withdrawal
amount;
o required minimum distributions from a qualified annuity after you reach age
70 1/2 (for those amounts required to be distributed from this annuity
only);
o contracts settled using an annuity payout plan; and
o death benefits.
<PAGE>
Your contract includes a "Waiver of Withdrawal Charges" provision. We will waive
withdrawal charges that are normally assessed upon a full or partial withdrawal
if both you and the annuitant are under age 76 on the date we issue the contract
and if you provide proof to us that, as of the date you request the withdrawal,
you or the annuitant are confined to a hospital or nursing home and have been
for the prior 60 days.
To qualify, the nursing home must meet the following criteria:
o be licensed by an appropriate licensing agency to provide nursing care; and
o provide 24-hour-a-day nursing services; and
o have a doctor available for emergency situations; and
o have a nurse on duty or on call at all times; and
o maintain clinical records; and
o have appropriate methods for administering drugs.
Possible group reductions: In some cases, lower sales and administrative
expenses may be incurred due to the size of the group, the average contribution
and the use of group enrollment procedures. In such cases, we may be able to
reduce or eliminate the contract administrative and withdrawal charges.
However, we expect this to occur infrequently.
Premium taxes
Certain state and local governments impose premium taxes (up to 3.5%). These
taxes are dependent upon your state of residence or the state in which the
contract was sold. The deduction is made when you fully withdraw your contract
or when annuity payouts begin.
Valuing your investment
Here is how your fixed account and variable subaccounts are valued:
Fixed account: The amounts allocated to the fixed account are valued directly in
dollars and equal the sum of your purchase payments and transfer amounts plus
interest earned, less any amounts withdrawn or transferred and any contract
administrative charge.
Variable subaccounts: Amounts allocated to the variable subaccounts are
converted into accumulation units. Each time you make a purchase payment or
transfer amounts into one of the variable subaccounts, a certain number of
accumulation units are credited to your contract for that subaccount.
Conversely, each time you take a partial withdrawal, transfer amounts out of a
variable subaccount or are assessed a contract administrative charge, a certain
number of accumulation units are subtracted from your contract. Please remember
that investment performance, expenses, and deductions of certain charges affect
accumulation unit value.
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 underlying fund.
The dollar value of each accumulation unit can rise or fall daily depending on
the performance of the underlying mutual fund and on certain fund expenses. Here
is how unit values are calculated:
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Number of units
To calculate the number of accumulation units for a particular subaccount, we
divide your investment after deduction of any premium taxes, by the current
accumulation unit value.
Accumulation unit value
The current accumulation unit value for each variable subaccount equals the last
value times the subaccount's current net investment factor.
Net investment factor
Determined by:
o adding the underlying mutual fund's current net asset value per share
plus per-share amount of any current dividend or capital gain
distribution; then
o dividing that sum by the previous net asset value per share; and
o subtracting the percentage factor representing the mortality and
expense risk fee and the variable account administrative charge from
the result.
Because the net asset value of the underlying mutual fund may fluctuate, the
accumulation unit value may increase or decrease. You bear this investment risk
in a variable subaccount.
Factors that affect variable subaccount accumulation units
Accumulation units may change in two ways; in number and in value. Here are the
factors that influence those changes:
The number of accumulation units you own may fluctuate due to:
o additional purchase payments allocated to the variable subaccount(s);
o transfers into or out of the variable subaccount(s);
o partial withdrawals;
o withdrawal charges; and/or
o contract administrative charges.
Accumulation unit values will fluctuate due to:
o changes in net asset value of underlying mutual fund(s);
o dividends distributed to the variable subaccount(s);
o capital gains or losses of underlying mutual fund(s);
o mutual fund operating expenses;
o mortality and expense risk fees; and/or
o variable account administrative charges.
Making the most of your annuity
Automated dollar-cost averaging*
You can use automated transfers to take advantage of dollar-cost averaging
(investing a fixed amount at regular intervals). For example, you might have a
set amount transferred monthly from a relatively conservative variable
subaccount to a more aggressive one, or to several others, or from the fixed
account to one or more variable subaccounts. The benefits of dollar-cost
averaging also may be obtained by setting up regular automatic SIP payments.
There is no charge for dollar-cost averaging.
<PAGE>
This systematic approach can help you benefit from fluctuations in accumulation
unit values caused by fluctuations in the market value(s) of the underlying
mutual fund(s). Since you invest the same amount each period, you automatically
acquire more units when the market value falls, fewer units when it rises. The
potential effect is to lower your average cost per unit. For specific features
contact your agent.
How dollar-cost averaging works
Month Amount Accumulation Number of units
invested unit value purchased
By investing an Jan $100 $20 5.00
equal number of
dollars each Feb 100 18 5.56
month...
Mar 100 17 5.88
you automatically Apr 100 15 6.67
buy more units
when the per unit May 100 16 6.25
market price is
low...
Jun 100 18 5.56
Jul 100 17 5.88
Aug 100 19 5.26
and fewer units Sep 100 21 4.76
when the per unit
market price is high Oct 100 20 5.00
You have paid an average price of only $17.91 per unit over the 10 months, while
the average market price actually was $18.10.
Dollar-cost averaging does not guarantee that any variable subaccount will gain
in value nor will it protect against a decline in value if market prices fall.
Because this strategy involves continuous investing, your success with
dollar-cost averaging 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.
* Some restrictions may apply.
Transferring money between subaccounts
You may transfer money from any one subaccount, or the fixed account, to another
before annuity payouts begin. (Certain restrictions apply to transfers involving
the fixed account.) We will process your transfer request at the close of
business after we receive it. There is no charge for transfers. Before making a
transfer, you should consider the risks involved in switching investments.
We may suspend or modify transfer privileges at any time. The right to transfer
contract values between the subaccounts is subject to modification if we
determine, in our sole discretion, that the exercise of that right by one or
more contract owners is, or would be, to the disadvantage of other contract
owners. Any modification could be applied to transfers to or from some or all of
the subaccounts. These modifications could include, but not be limited to, the
requirement of a minimum time period between each transfer, not accepting
transfer requests of an agent acting under a power of attorney on behalf of more
than one contract owner or limiting the dollar amount that may be transferred
between the subaccounts and the fixed account by a contract owner at any one
time. We
<PAGE>
may apply these modifications or restrictions in any manner reasonably designed
to prevent any use of the transfer right we consider to be to the disadvantage
of other contract owners. (For information on transfers after annuity payouts
begin, see "Transfer policies.")
Transfer policies
o You may transfer contract values between the variable subaccounts or from
the subaccount(s) to the fixed account at any time. However, if you have
made a transfer from the fixed account to the subaccount(s), you may not
make a transfer from any subaccount back to the fixed account for six
months following that transfer.
o You may transfer contract values from the fixed account to the variable
subaccount(s) on or within 30 days before or after the contract anniversary
(except for automated transfers, which can be set up for certain transfer
periods subject to certain minimums).
o If we receive your request on or within 30 days before or after the
contract anniversary date, the transfer from the fixed account to the
variable subaccount(s) will be effective on the day we receive it.
o We will not accept requests for transfers from the fixed account at any
other time.
o Once annuity payouts begin no transfers may be made to or from the fixed
account, but transfers may be made once per contract year among the
variable subaccounts.
Two ways to request a transfer or a withdrawal
1 By letter
Send your name, contract number, Social Security number or taxpayer
identification number and signed request for a transfer or withdrawal to:
Regular mail:
American Enterprise Life Insurance Company
80 South Eighth Street
P.O. Box 534
Minneapolis, MN 55440-0534
Express mail:
American Enterprise Life Insurance Company
Attention: Unit 829
733 Marquette Avenue
Minneapolis, MN 55402
Minimum amount
Transfers or withdrawals: $500 or entire variable subaccount or fixed account
balance
Maximum amount
Transfers or withdrawals: Contract value
<PAGE>
2 By automated transfers and automated partial withdrawals
Your agent can help you set up automated transfers among your subaccount(s) or
fixed account or partial withdrawals from the accounts.
You can start or stop this service by written request or other method acceptable
to American Enterprise Life. You must allow 30 days for American Enterprise Life
to change any instructions that are currently in place.
o Automated transfers may not exceed an amount that, if continued, would
deplete the fixed account or subaccount(s) from which you are
transferring within 24 months.
o Automated transfers and automated partial withdrawals are subject to
all of the contract provisions and terms, including transfer of
contract values between accounts. Automated withdrawals may be
restricted by applicable law under some contracts.
o Automated partial withdrawals may result in IRS taxes and penalties on
all or part of the amount withdrawn.
Minimum amount
Automated transfers or withdrawals: $100 monthly/$250 quarterly, semiannually or
annually
Maximum amount
Automated transfers or withdrawals: Contract Value (except for automated
transfers from the fixed account)
Withdrawals from your contract
As owner, you may withdraw all or part of your contract at any time before
annuity payouts begin by sending a written request to American Enterprise Life.
For total withdrawals we will compute the value of your contract at the next
close of business after we receive your request. We may ask you to return the
contract. You may have to pay withdrawal charges (see "Withdrawal charge") and
IRS taxes and penalties (see "Taxes"). No withdrawals may be made after annuity
payouts begin.
Withdrawal policies
If you have a balance in more than one account and request a partial withdrawal,
we will withdraw money from all your subaccounts and/or fixed account in the
same proportion as your value in each correlates to your total contract value,
unless you request otherwise.
<PAGE>
Receiving payment when you request a withdrawal By regular or express mail:
o Payable to owner.
o Normally mailed to address of record within seven days after receiving
your request. However, we may postpone the payment if:
-the withdrawal amount includes a purchase payment check that has not
cleared;
-the NYSE is closed, except for normal holiday and weekend closings;
-trading on the NYSE is restricted, according to SEC rules;
-an emergency, as defined by SEC rules, makes it impractical to sell
securities or value the net assets of the accounts; or
-the SEC permits us to delay payment for the protection of security
holders.
NOTE: You will be charged a fee if you request express mail delivery.
Changing ownership
You may change ownership of your nonqualified annuity at any time by filing a
change of ownership on a form approved by us and sent to our Minneapolis
administrative office. The change will become binding upon us when we receive
and record it. We will honor any change of ownership request believed to be
authentic and will use reasonable procedures to confirm authenticity. If these
procedures are followed, we take no responsibility for the validity of the
change.
If you have a nonqualified annuity, you may lose your tax advantages by
transferring, assigning or pledging any part of it. (See "Taxes.")
If you have a qualified annuity, you may not sell, assign, transfer, discount or
pledge your contract as collateral for a loan, or as security for the
performance of an obligation or for any other purpose to any person except
American Enterprise Life. However, if the owner is a trust or custodian, or an
employer acting in a similar capacity, ownership of a contract may be
transferred to the annuitant.
Benefits in case of death
If you or the annuitant dies (or, for qualified annuities, if the annuitant
dies) before annuity payouts begin, we will pay the beneficiary as follows:
For contracts where both you and the annuitant were 75 or younger on the date
the annuity was issued and if all withdrawals you have made from this contract
have been without withdrawal charges, we will pay the beneficiary the greatest
of:
1. the contract value; or
2. the total purchase payments paid less any amounts withdrawn; or
3. on or after the fifth contract anniversary, the death benefit as of the
most recent fifth contract anniversary adjusted by adding any purchase
payments made since that most recent fifth contract anniversary and by
subtracting any amounts withdrawn since that most recent fifth contract
anniversary.
<PAGE>
For annuities where both you and the annuitant were 75 or younger on the date
the annuity was issued and you have made withdrawals subject to withdrawal
charges, we will pay the beneficiary the contract value.
For annuities where either you or the annuitant were 76 or older on the date the
annuity was issued, we will pay the beneficiary the contract value.
If your spouse is sole beneficiary under a nonqualified annuity and you die
before the retirement date, your spouse may keep the annuity as owner. To do
this your spouse must, within 60 days after we receive proof of death, give us
written instructions to keep the contract in force.
Under a qualified annuity, if the annuitant dies before annuity payouts begin,
and the spouse is the only beneficiary, the spouse may keep the annuity as owner
until the date on which the spouse reaches age 70 1/2 or any other date
permitted by the Code. To do this, the spouse must give us written instructions
within 60 days after we receive proof of death.
Payments: We will pay the beneficiary in a single sum unless you have given us
other written instructions, or the beneficiary may receive payouts under any
annuity payout plan available under this contract if:
o the beneficiary asks us in writing within 60 days after we receive proof of
death; and
o payouts begin no later than one year after death, or other date as
permitted by the Code; and
o the payout period does not extend beyond the beneficiary's life or life
expectancy.
When paying the beneficiary, we will determine the contract's value at the next
close of business after our death claim requirements are fulfilled. Interest, if
any, will be paid from the date of death at a rate no less than required by law.
We will mail payment to the beneficiary within seven days after our death claim
requirements are fulfilled. (See "Taxes.")
The annuity payout period
As owner of the contract, you have the right to decide how and to whom annuity
payouts will be made starting at the retirement date. You may select one of the
annuity payout plans outlined below, or we will mutually agree on other payout
arrangements. The amount available for payouts under the plan you select is the
contract value on your retirement date. No withdrawal charges are deducted under
the payout plans listed below.
You also decide whether annuity payouts are to be made on a fixed or variable
basis, or a combination of fixed and variable. Amounts of fixed and variable
payouts depend on:
o the annuity payout plan you select;
o the annuitant's age and, in most cases, sex;
o the annuity table in the contract; and
o the amounts you allocated to the account(s) at settlement.
<PAGE>
In addition, for variable payouts only, amounts depend on the investment
performance of the subaccount(s) you select. These payouts will vary from month
to month because the performance of the underlying mutual funds will fluctuate.
(In the case of fixed annuities, payouts remain the same from month to month.)
For information with respect to transfers between accounts after annuity payouts
begin, see "Transfer policies."
Annuity payout plans
You may choose any one of these annuity payout plans by giving us written
instructions at least 30 days before contract values are to be used to purchase
the payout plan:
o Plan A - Life annuity - no refund: Monthly payouts are made until the
annuitant's death. Payouts end with the last payout before the annuitant's
death; no further payouts will be made. This means that if the annuitant dies
after only one monthly payout has been made, no more payouts will be made.
o Plan B - Life annuity with five, 10 or 15 years certain: Monthly payouts are
made for a guaranteed payout period of five, 10 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 has expired. The guaranteed
payout period is calculated from the retirement date. If the annuitant outlives
the elected guaranteed payout period, payouts will continue until the
annuitant's death.
o Plan C - Life annuity - installment refund: Monthly payouts are made until the
annuitant's death, with our guarantee that payouts will continue for some period
of time. Payouts will be made 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: Monthly payouts are
made while both the annuitant and a joint annuitant are living. If either
annuitant dies, monthly payouts continue 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 (available as a fixed payout only):
Monthly payouts are made for a specific payout period of 10 to 30 years that you
elect. Payouts will be made only for the number of years specified whether the
annuitant is living or not. Depending on the time period selected, 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.")
Restrictions for some qualified plans: If you purchased a qualified annuity, you
must select a payout plan that provides for payouts:
o over the life of the annuitant;
o over the joint lives of the annuitant and a designated beneficiary;
o for a period not exceeding the life expectancy of the annuitant; or
o for a period not exceeding the joint life expectancies of the annuitant
and a designated beneficiary.
<PAGE>
If we do not receive instructions: You must give us written instructions for the
annuity payouts at least 30 days before the annuitant's retirement date. If you
do not, we will make payouts under Plan B, with 120 monthly payouts guaranteed.
If monthly payouts would be less than $20: We will calculate the amount of
monthly payouts at the time the contract value is used to purchase a payout
plan. If the calculations show that monthly payouts would be less than $20, we
have the right to pay the contract value to the owner in a lump sum or to change
the frequency of the payouts.
Death after annuity payouts begin
If you or the annuitant dies after annuity payouts begin, any amount payable to
the beneficiary will be provided in the annuity payout plan in effect.
Taxes
Generally, under current law, any increase in your contract value is taxable to
you only when you receive a payout or withdrawal. (However, see detailed
discussion below.) Any portion of the annuity payouts and any withdrawals you
request that represent ordinary income are normally taxable. You will receive a
1099 tax information form for any year in which a taxable distribution was made
according to our records. Roth IRAs may grow tax free if you meet certain
distribution requirements.
Annuity payouts under nonqualified annuities: A portion of each payout will be
ordinary income and subject to tax, and a portion of each payout will be
considered a return of part of your investment and will not be taxed. All
amounts received after your investment in the annuity is fully recovered will be
subject to tax.
Tax law requires that all nonqualified deferred annuity contracts issued by the
same company to the same owner during a calendar year are to be taxed as a
single, unified contract when distributions are taken from any one of such
contracts.
Annuity payouts under qualified annuities (except Roth IRAs): Under a qualified
annuity, the entire payout generally will be includable as ordinary income and
subject to tax except to the extent that contributions were made with after-tax
dollars. If you or your employer invested in your contract with pre-tax dollars
as part of a qualified retirement plan, such amounts are not considered to be
part of your investment in the contract and will be taxed when paid to you.
Withdrawals: If you withdraw part or all of your contract before your annuity
payouts begin, your withdrawal payment will be taxed to the extent that the
value of your contract immediately before the withdrawal exceeds your
investment. You also may have to pay a 10% IRS penalty for withdrawals made
prior to age 59 1/2. For qualified annuities, other penalties may apply if you
make withdrawals from your annuity before your plan specifies that you can
receive payouts.
Death benefits to beneficiaries: The death benefit under an annuity (except a
Roth IRA) is not tax exempt. Any amount received by the beneficiary that
represents previously deferred earnings within the contract is taxable as
ordinary income to the beneficiary in the year(s) he or she receives the
payments. The death benefit under a Roth IRA generally is not taxable as
ordinary income to the beneficiary.
<PAGE>
Annuities owned by corporations, partnerships or trusts: For nonqualified
annuities any annual increase in the value of annuities held by such entities
generally will be treated as ordinary income received during that year. This
provision is effective for purchase payments made after Feb. 28, 1986. However,
if the trust was set up for the benefit of a natural person only, the income
will remain tax deferred.
Penalties: If you receive amounts from your contract before reaching age 59 1/2,
you may have to pay a 10% IRS penalty on the amount includable in your ordinary
income. However, this penalty will not apply to any amount received by you or
your beneficiary:
o because of your death;
o because you become disabled (as defined in the Code);
o if the distribution is part of a series of substantially equal periodic
payments, made at least annually, over your life or life expectancy (or
joint lives or life expectancies of you and your beneficiary); or
o if it is allocable to an investment before Aug. 14, 1982 (except for
qualified annuities).
For a qualified annuity, other penalties or exceptions may apply if you make
withdrawals from your annuity before your plan specifies that payouts can be
made.
Withholding, generally: If you receive all or part of the contract value from an
annuity, withholding may be imposed against the taxable income portion of the
payment. Any withholding that is done represents a prepayment of your tax due
for the year. You take credit for such amounts on your annual tax return.
If the payment is part of an annuity payout plan, the amount of withholding
generally is computed using payroll tables. You may provide us with a statement
of how many exemptions to use in calculating the withholding. As long as you
have provided us with a valid Social Security number or taxpayer identification
number, you may elect not to have any withholding occur.
If the distribution is any other type of payment (such as a partial or full
withdrawal) withholding is computed using 10% of the taxable portion. Similar to
above, as long as you have provided us with a valid Social Security number or
taxpayer identification number, you may elect not to have this withholding
occur.
Some states also may impose withholding requirements similar to the federal
withholding described above. If this should be the case, any payment from which
federal withholding is deducted also may have state withholding deducted. The
withholding requirements may differ if payment is being made to a non-U.S.
citizen or if the payment is being delivered outside the United States.
Transfer of ownership of a nonqualified annuity: If you make such a transfer
without receiving adequate consideration, the transfer is considered a gift, and
also may be considered a withdrawal for federal income tax purposes. If the gift
is a currently taxable event for income tax purposes, the amount of deferred
earnings at the time of the transfer will be taxed to the original owner, who
also may be subject to a 10% IRS penalty as discussed earlier. In this case, the
new owner's investment in the annuity will be the value of the annuity at the
time of the transfer.
<PAGE>
Collateral assignment of a nonqualified annuity: If you collaterally assign or
pledge your contract, earnings on purchase payments you made after Aug. 13, 1982
will be taxed to you like a withdrawal.
Important: Our discussion of federal tax laws is based upon our understanding of
these laws as they are currently interpreted. Federal tax laws or current
interpretations of them may change. For this reason and because tax consequences
are complex and highly individual and cannot always be anticipated, you should
consult a tax advisor if you have any questions about taxation of your contract.
Tax qualification
The contract is intended to qualify as an annuity for federal income tax
purposes. To that end, the provisions of the contract are to be interpreted to
ensure or maintain such tax qualification, notwithstanding any other provisions
of the contract. We reserve the right to amend the contract to reflect any
clarifications that may be needed or are appropriate to maintain such
qualification or to conform the contract to any applicable changes in the tax
qualification requirements. We will send you a copy of any such amendments.
Voting rights
As a contract owner with investments in the variable subaccount(s), you may vote
on important mutual fund policies until annuity payouts begin. Once they begin,
the person receiving them has voting rights. We will vote fund shares according
to the instructions of the person with voting rights.
Before annuity payouts begin, the number of votes you have is determined by
applying your percentage interest in each variable subaccount to the total
number of votes allowed to the subaccount.
After annuity payouts begin, the number of votes you have is equal to:
o the reserve held in each subaccount for your contract
o divided by the net asset value of one share of the applicable
underlying mutual fund.
As we make annuity payouts, the reserve for the contract decreases; therefore,
the number of votes also will decrease.
We calculate votes separately for each account. Notice of these meetings, proxy
materials and a statement of the number of votes to which the voter is entitled
will be sent. We will vote shares for which we have not received instructions in
the same proportion as the votes for which we have received instructions. We
also will vote the shares for which we have voting rights in the same proportion
as the votes for which we have received instructions.
Substitution of investments
If shares of any mutual fund should not be available for purchase by the
appropriate variable subaccount or if, in the judgment of American Enterprise
Life's management, further investment in such shares is no longer appropriate,
another registered open-end management investment company may be substituted for
mutual fund shares held in the subaccount(s) when American Enterprise Life
believes it would be in the best interest of
<PAGE>
persons having voting rights under the contract. American Enterprise Life also
reserves the right to change the mutual funds in which the subaccounts invest
and to create new subaccounts that invest in additional funds.
In the event of any such substitution or change, American Enterprise Life,
without the consent or approval of the owners, may amend the contract and take
whatever action is necessary and appropriate. However, no such substitution or
change will be made without the necessary approval of the SEC and state
insurance departments. American Enterprise Life will notify owners of any
substitution or change.
Distribution of the contracts
The contracts will be marketed or sold by broker-dealers that are also insurance
agencies or by broker-dealers associated by contract with insurance agencies.
Many of the broker-dealers and/or insurance agencies are affiliated with
financial institutions or third party marketing companies serving financial
institutions. American Enterprise Life and American Express Financial Advisors
Inc., the principal underwriter for the variable account, will establish
agreements with all entities marketing or selling the contracts. American
Enterprise Life and American Express Financial Advisors Inc. will pay
commissions to the insurance agencies for services performed by the insurance
agencies and broker-dealers under the agreements. The commissions will not be
more than 7.5% of the purchase payments received for the contracts.
From time to time, American Enterprise Life and American Express Financial
Advisors Inc. will pay or permit other promotional incentives, in cash or credit
or other compensation.
About American Enterprise Life
AEL PreferredSM Variable Annuity is issued by American Enterprise Life. American
Enterprise Life is a wholly-owned subsidiary of IDS Life, which is a
wholly-owned subsidiary of AEFC. AEFC is a wholly-owned subsidiary of American
Express Company. American Express Company is a financial services company
principally engaged through subsidiaries (in addition to AEFC) in travel related
services, investment services and international banking services.
American Enterprise Life is a stock life insurance company organized in 1981
under the laws of the state of Indiana. Its administrative office is located at
80 South Eighth Street, Minneapolis, MN 55402. Its statutory address is 100
Capitol Center South, 201 North Illinois Street, Indianapolis, IN 46204.
American Enterprise Life is licensed in the state of Indiana and it conducts a
conventional life insurance business.
American Express Financial Advisors Inc. is the principal underwriter for the
variable account. Its home office is IDS Tower 10, Minneapolis, MN 55440-0010.
American Express Financial Advisors is registered with the SEC under the
Securities Exchange Act of 1934 as a broker-dealer and is a member of the
National Association of Securities Dealers, Inc. American Express Financial
Advisors is a wholly-owned subsidiary of AEFC.
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.
<PAGE>
Other subsidiaries provide investment management and related services for
pension, profit-sharing, employee savings and endowment funds of businesses and
institutions.
Year 2000
The Year 2000 issue is the result of computer programs having been written using
two digits rather than four to define a year, Any programs that have
time-sensitive software may recognize a date using "00" as the year 1900 rather
than 2000. This could result in the failure of major systems or miscalculations,
which could have a material impact on the operations of the variable account.
The variable account has no computer systems of its own but is dependent upon
the systems maintained by AEFC and certain other third parties.
A comprehensive review of AEFC's computer systems and business processes has
been conducted to identify the major systems that could be affected by the Year
2000 issue. Steps are being taken to resolve any potential problems including
modification to existing software and the purchase of new software. These
measures are scheduled to be completed and tested on a timely basis. AEFC's goal
is to complete internal remediation and testing of each system by the end of
1998 and to continue compliance efforts through 1999. The Year 2000 readiness of
unaffiliated investment managers and other third parties whose system failures
could have an impact on the variable account's operations currently is being
evaluated. The potential materiality of any such impact is not known at this
time.
Regular and special reports
Services
To help you track and evaluate the performance of your annuity, American
Enterprise Life provides:
Quarterly statements showing the value of your investment.
Annual reports containing required information on the annuity and its underlying
investments.
<PAGE>
Table of contents of the Statement of Additional Information
Performance Information................................................
Calculating Annuity Payouts............................................
Rating Agencies........................................................
Principal Underwriter..................................................
Independent Auditors...................................................
Saving for Retirement..................................................
Prospectus.............................................................
Financial Statements -
American Enterprise Variable Annuity Account
American Enterprise Life Insurance Company
- --------------------------------------------------------------------------------
Please check the appropriate box to receive a copy of the Statement of
Additional Information for:
.........AEL PreferredSM Variable Annuity
.........IDS Life Retirement Annuity Mutual Funds
.........Putnam Variable Trust
Mail your request to:
American Enterprise Life Insurance Company
80 South Eighth Street
P.O. Box 534
Minneapolis, MN 55440-0534
800-333-3437
American Enterprise Life will mail your request to:
Your name_______________________________________________________________________
Address_________________________________________________________________________
City _________________________________State___________________Zip_______________
<PAGE>
STATEMENT OF ADDITIONAL INFORMATION
for
AEL PREFERREDSM VARIABLE ANNUITY
AMERICAN ENTERPRISE VARIABLE ANNUITY ACCOUNT
May 1, 1998
American Enterprise Variable Annuity Account is a separate account established
and maintained by American Enterprise Life Insurance Company (American
Enterprise Life).
This Statement of Additional Information (SAI), dated May 1, 1998, is not a
prospectus. It should be read together with the prospectus dated May 1, 1998,
which may be obtained from your agent, or by writing or calling American
Enterprise Life at the address or telephone number below.
American Enterprise Life Insurance Company
80 South Eighth Street
P.O. Box 534
Minneapolis, MN 55440-0534
800-333-3437
<PAGE>
TABLE OF CONTENTS
Performance Information.......................................................3
Calculating Annuity Payouts...................................................6
Rating Agencies...............................................................7
Principal Underwriter.........................................................7
Independent Auditors..........................................................8
Saving for Retirement.........................................................8
Prospectus....................................................................8
Financial Statements
American Enterprise Variable Annuity Account
American Enterprise Life Insurance Company
<PAGE>
PERFORMANCE INFORMATION
We show actual performance from the date the subaccounts began investing in
funds. We also show performance from the commencement date of the funds as if
the annuity had existed at that time.
Calculation of Yield for the Subaccount investing in IDS Life Moneyshare Fund
Simple yield for the subaccount investing in the IDS Life Moneyshare Fund will
be based on the: (a) change in the value of a hypothetical investment (exclusive
of capital changes) at the beginning of a seven-day period for which yield is to
be quoted; (b) subtracting a pro rata share of subaccount expenses accrued over
the seven-day period; (c) dividing the difference by the value of the subaccount
at the beginning of the period to obtain the base period return; and (d)
annualizing the results (i.e., multiplying the base period return by 365/7).
The value of the hypothetical subaccount includes the amount of any declared
dividends, the value of any shares purchased with any dividend paid during the
period and any dividends declared for such shares. The variable subaccount's
yield does not include any realized or unrealized gains or losses, nor does it
include the effect of any applicable surrender charge.
Calculation of compound yield begins with the same base period return used in
the calculation of yield, which is then annualized to reflect compounding
according to the following formula:
Compound Yield = [(Base Period Return + 1) x (365/7)] - 1
Annualized Yields based on Seven-Day Period ended Dec. 31, 1997
Subaccount investing in: Simple Yield Compound Yield
IDS Moneyshare Fund 3.13% 3.18%
Calculation of Yield for the subaccounts investing in income funds
For the subaccounts investing in income funds quotations of yield will be based
on all investment income earned during a particular 30-day period, less expenses
accrued during the period (net investment income) and will be computed by
dividing net investment income per accumulation unit by the value of an
accumulation unit on the last day of the period, according to the following
formula:
YIELD = 2[(a-b + 1)6 - 1]
cd
where: a = dividends and investment income earned during the period
b = expenses accrued for the period (net of reimbursements)
c = the average daily number of accumulation units outstanding
during the period that were entitled to receive dividends
d = the maximum offering price per accumulation unit of the
last day of the period
<PAGE>
Yield on the subaccount is earned from the increase in the net asset value of
shares of the fund in which the subaccount invests and from dividends declared
and paid by the fund, which are automatically invested in shares of the fund.
Annualized Yield based on 30-Day Period ended Dec. 31, 1997
Subaccount investing in: Yield
IDS Life Special Income Fund 6.83%
Calculation of Average Annual Total Return
Quotations of average annual total return for a subaccount will be expressed in
terms of the average annual compounded rate of return of a hypothetical
investment in the annuity over a period of one, five and 10 years (or, if less,
up to the life of the account), calculated according to the following formula:
P(1+T)n = ERV
where: P = a hypothetical initial payment of $1,000
T = average annual total return
n = number of years
ERV = Ending Redeemable Value of a hypothetical $1,000
payment made at the beginning of the one-, five-, or
10- year (or other) period at the end of the one-,
five-, or 10- year (or other) period (or fractional
portion thereof)
Average Annual Total Return For Period Ended Dec. 31, 1997
<TABLE>
<CAPTION>
Average Annual Total Return with Withdrawal
Performance Since Performance Since
Commencement of the Commencement of the Fund
Subaccount
- ------------------------------------- ------------------------- --------------------------------------------------------
Since Since
Commencement Commencement
Subaccount investing in: 1 Year (Subaccount) 1 Year 5 Year 10 Year (Fund)
- ------------------------------------- -------- ---------------- ------------- ------------ ------------- ---------------
<S> <C> <C> <C> <C> <C> <C>
IDS LIFE
Aggressive Growth Fund 2.90% 18.66% 2.90% 10.53% - 10.42%
(1/95;1/92)*
Capital Resource Fund 14.24% 16.41% 14.24% 10.04% 12.92% -
(1/95;10/81)
Managed Fund (1/95;4/86) 9.67% 17.82% 9.67% 10.82% 11.91% -
Moneyshare Fund (1/95;10/81) -3.96% 1.59% -3.96% 2.02% 3.65% -
Special Income Fund (1/95;10/81) -0.63% 9.30% -0.63% 7.25% 7.96% -
PUTNAM VT
Diversified Income Fund -1.95% 8.56% -1.95% - - 5.12%
(1/95;9/93)
Global Growth Fund (1/95;5/97) 4.55% -7.61% 4.55% 12.97% - 8.99%
Growth and Income Fund 14.25% 25.53% 14.25% 16.62% - 14.30%
(1/95;2/88)
New Opportunities Fund 13.40% 24.47% 13.40% - - 20.97%
(1/95;5/94)
Voyager Fund (1/95;5/97) 16.58% 7.11% 16.58% 16.99% - 16.33%
*(Commencement date of the subaccount; Commencement date of the fund.)
<PAGE>
Average Annual Total Return without Withdrawal
Performance Since Performance Since
Commencement of the Commencement of the Fund
Subaccount
Since Since
Commencement Commencement
Subaccount investing in: 1 Year (Subaccount) 1 Year 5 Year 10 Year (Fund)
- ------------------------------------- ---------- --------------- ---------- ----------- ----------- ---------------
IDS LIFE
Aggressive Growth Fund 10.90% 20.39% 10.90% 11.06% - 10.63%
(1/95;1/92)*
Capital Resource Fund 22.24% 18.18% 22.24% 10.58% 12.92% -
(1/95;10/81)
Managed Fund (1/95;4/86) 17.67% 19.57% 17.67% 11.34% 11.91% -
Moneyshare Fund (1/95;10/81) 3.52% 3.78% 3.52% 2.75% 3.65% -
Special Income Fund (1/95;10/81) 7.14% 11.26% 7.14% 7.85% 7.96% -
PUTNAM VT
Diversified Income Fund 5.71% 10.54% 5.71% - - 5.91%
(1/95;9/93)
Global Growth Fund (1/95;5/97) - -0.37% 12.55% 13.46% - 8.99%
Growth and Income Fund 22.25% 27.11% 22.25% 17.05% - 14.30%
(1/95;2/88)
New Opportunities Fund 21.40% 26.07% 21.40% - - 21.81%
(1/95;5/94)
Voyager Fund (1/95;5/97) - 15.18% 24.58% 17.41% - 16.33%
*(Commencement date of the subaccount; Commencement date of the fund.)
</TABLE>
Aggregate Total Return
Aggregate total return represents the cumulative change in value of an
investment for a given period (reflecting change in a subaccount's accumulation
unit value) and is computed by the following formula:
ERV - P
P
where: P = a hypothetical initial payment of $1,000
ERV = Ending Redeemable Value of a hypothetical $1,000
payment made at the beginning of the one-, five-, or
10- year (or other) period at the end of the one-,
five-, or 10- year (or other) period (or fractional
portion thereof)
The Securities and Exchange Commission (SEC) requires that an assumption be made
that the contract owner withdraws the entire contract at the end of the one-,
five- and 10- year periods (or, if less, up to the life of the subaccount) for
which performance is required to be calculated. In addition, performance figures
may be shown without the deduction of a withdrawal charge.
Total return figures reflect the deduction of all applicable charges including
the contract administrative charge, the variable account administrative charge,
and mortality and expense risk fee.
Performance of the subaccount may be quoted or compared to rankings, yields, or
returns or used in variable annuity accumulation or settlement illustrations as
published or prepared by independent rating or statistical services or
publishers or publications such as The Bank Rate Monitor National Index,
Barron's, Business Week, CDA Technologies, Donoghue's Money Market Fund Report,
Financial Services Week, Financial Times, Financial World, Forbes, Fortune,
Global Investor, Institutional Investor, Investor's Daily, Kiplinger's Personal
Finance, Lipper Analytical Services, Money, Morningstar,
<PAGE>
Mutual Fund Forecaster, Newsweek, The New York Times, Personal Investor,
Stranger Report, Sylvia Porter's Personal Finance, USA Today, U.S. News & World
Report, The Wall Street Journal and Wiesenberger Investment Companies Service.
CALCULATING ANNUITY PAYOUTS
The Variable Account
The following calculations are done separately for each of the subaccounts of
the variable account. The separate monthly payouts, added together, make up your
total variable annuity payout.
Initial Payout: To compute your first monthly payment, we:
o determine the dollar value of your annuity as of the valuation date
seven days before the retirement date and then deduct any applicable
premium tax; then
o apply the result to the annuity table contained in the contract or
another table at least as favorable. The annuity table shows the amount
of the first monthly payment for each $1,000 of value which depends on
factors built into the table, as described below.
Annuity Units: The value of your subaccount is then converted to annuity units.
To compute the number credited to you, we divide the first monthly payment by
the annuity unit value (see below) on the valuation date on (or next day
preceding) the seventh calendar day before the retirement date. The number of
units in your subaccount is fixed. The value of the units fluctuates with the
performance of the underlying mutual fund.
Subsequent Payouts: To compute later payouts, we multiply:
o the annuity unit value on the valuation date on or immediately
preceding the seventh calendar day before the payout is due; by
o the fixed number of annuity units credited to you.
Annuity Table: The table shows the amount of the first monthly payment for each
$1,000 of contract value according to the age and, when applicable, the sex of
the annuitant. (Where required by law, we will use a unisex table of settlement
rates.) The table assumes that the contract value is invested at the beginning
of the annuity payout period and earns a 5% rate of return, which is reinvested
and helps to support future payouts.
Annuity Unit Values: This value was originally set at $1 for each subaccount. To
calculate later value we multiply the last annuity value by the product of:
o the net investment factor; and
o the neutralizing factor. The purpose of the neutralizing factor is to
offset the effect of the assumed investment rate built into the annuity
table. With an assumed investment rate of 5%, the neutralizing factor
is 0.999866 for a one day valuation period.
<PAGE>
Net Investment Factor:
This value is determined by:
o adding the underlying mutual fund's current net asset value per share
plus per share amount of any current dividend or capital gain
distribution; then
o dividing that sum by the previous net asset value per share; and
o subtracting the percentage factor representing the mortality and
expense risk fee and the variable account administrative charge from
the result.
Because the net asset value of the underlying mutual fund may fluctuate, the net
investment factor may be greater or less than one, and the accumulation unit
value may increase or decrease. You bear this investment risk in a variable
subaccount.
The Fixed Account
Your fixed annuity payout amounts are guaranteed. Once calculated, your payout
will remain the same and never change. To calculate your annuity payouts we:
o take the value of your fixed account at the retirement date or the
date you have selected to begin receiving your annuity payouts; then
o using an annuity table, we apply the value according to the annuity
payout plan you select; and
o the annuity payout table we use will be the one in effect at the time
you choose to begin your annuity payouts. The values in the table will
be equal to or greater than the table in your contract.
RATING AGENCIES
The following chart reflects the ratings given to American Enterprise Life by
independent rating agencies. These agencies evaluate the financial soundness and
claims-paying ability of insurance companies based on a number of different
factors. This information does not relate to the management or performance of
the variable subaccounts of AEL PreferredSM Variable Annuity. This information
relates only to the fixed account and reflects American Enterprise Life's
ability to make annuity payouts and to pay death benefits and other
distributions from the annuity.
Rating agency Rating
A.M. Best A+
(Superior)
Duff & Phelps AAA
Moody's Aa2
PRINCIPAL UNDERWRITER
The principal underwriter for the variable account is American Express Financial
Advisors Inc. which offers the variable contracts on a continuous basis.
<PAGE>
INDEPENDENT AUDITORS
The financial statements of American Enterprise Variable Annuity Account - AEL
PreferredSM Variable Annuity Subaccounts including the statements of net assets
as of Dec. 31, 1997, and the related statements of operations for the year ended
Dec. 31, 1997, and the statements of changes in net assets for the year ended
Dec. 31, 1997, and the year ended Dec. 31, 1996 and the financial statements of
American Enterprise Life Insurance Company (a wholly owned subsidiary of IDS
Life Insurance Company) at Dec. 31, 1997 and 1996 and for each of the three
years in the period ended Dec. 31, 1997, appearing in this SAI, have been
audited by Ernst & Young LLP, independent auditors, as set forth in their
reports thereon appearing elsewhere herein.
SAVING FOR RETIREMENT
You may have to save more for retirement because the average person lives 17
years in retirement. Social security and pensions will not cover your expenses
in retirement. Sixty cents of every retirement dollar must come from your
personal savings.
Sources: Social Security Administration, U.S. Department of Health and Human
Services.
PROSPECTUS
The prospectus, dated May 1, 1998, is hereby incorporated in this SAI by
reference.
<PAGE>
American Enterprise Variable Annuity Account -- AEL Preferred Subaccounts
Annual Financial Information
Report of Independent Auditors
The Board of Directors
American Enterprise Life Insurance Company
We have audited the individual and combined statements of net assets of the
segregated asset subaccounts of American Enterprise Variable Annuity Account --
AEL Preferred Subaccounts (comprised of subaccounts ECR, ESI, EMS, EMG, EAG,
ENO, EGI, EDI, EVO and EGG) as of December 31, 1997, and the related statements
of operations for the year then ended, and the statements of changes in net
assets for each of the two years in the period then ended, except for
subaccounts EVO and EGG which are for the period June 30, 1997 (commencement of
operations) to December 31, 1997. These financial statements are the
responsibility of the management of American Enterprise Life Insurance Company.
Our responsibility is to express an opinion on these financial statements based
on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. Our procedures included
confirmation of securities owned at December 31, 1997 with the affiliated and
unaffiliated mutual fund managers. An audit also includes assessing the
accounting principles used and significant estimates made by management, as well
as evaluating the overall financial statement presentation. We believe that our
audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the individual and combined financial position of the
segregated asset subaccounts of American Enterprise Variable Annuity Account --
AEL Preferred Subaccounts at December 31, 1997 and the individual and combined
results of their operations and the changes in their net assets for the periods
described above, in conformity with generally accepted accounting principles.
ERNST & YOUNG LLP
Minneapolis, Minnesota
March 13, 1998
<PAGE>
<TABLE>
<CAPTION>
American Enterprise Variable Annuity Account -- AEL Preferred Subaccounts
- --------------------------------------------------------------------------------------------------------------------
Statements of Net Assets Dec. 31, 1997
Assets Segregated Asset Subaccount
-------------------------------------------------------------------------
ECR ESI EMS EMG EAG
- --------------------------------------------------------------------------------------------------------------------
Investments in shares of mutual funds,
at market value:(identified cost, $5,428,208,
$3,387,074, $259,264, $4,499,557 and
<S> <C> <C> <C> <C> <C>
$3,921,718, respectively) $5,948,360 $ 3,374,186 $ 259,264 $ 4,718,524 $ 3,974,790
- --------------------------------------------------------------------------------------------------------------------
- --------------------------------------------------------------------------------------------------------------------
Dividends receivable - 20,265 1,249 - -
Accounts receivable from American Enterprise Life
for contract purchase payments 23,164 4,750 - 16,619 24,010
- --------------------------------------------------------------------------------------------------------------------
Total assets 5,971,524 3,399,201 260,513 4,735,143 3,998,800
- --------------------------------------------------------------------------------------------------------------------
Liabilities
- --------------------------------------------------------------------------------------------------------------------
Payable to American Enterprise Life for:
Mortality and expense risk fee 6,603 3,705 298 5,175 4,380
Issue and administrative fee 792 444 36 621 525
Payable to mutual funds for investments
purchased 23,164 20,866 914 16,619 24,026
- --------------------------------------------------------------------------------------------------------------------
Total liabilities 30,559 25,015 1,248 22,415 28,931
- --------------------------------------------------------------------------------------------------------------------
Net assets applicable to contracts in
accumulation period $ 5,940,965 $ 3,374,186 $ 259,265 $ 4,712,728 $ 3,969,869
- --------------------------------------------------------------------------------------------------------------------
Accumulation units outstanding 3,812,754 2,543,718 231,256 2,944,208 2,434,211
- --------------------------------------------------------------------------------------------------------------------
Net asset value per accumulation unit $ 1.56 $ 1.33 $ 1.12 $ 1.60 $ 1.63
- --------------------------------------------------------------------------------------------------------------------
See accompanying notes to financial statements.
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
American Enterprise Variable Annuity Account -- AEL Preferred Subaccounts
- --------------------------------------------------------------------------------------------------------------------
Statements of Net Assets - continued Dec. 31, 1997
Segregated Asset Subaccount
- --------------------------------------------------------------------------------------------------------------------
Assets ENO EGI EDI EVO EGG
- --------------------------------------------------------------------------------------------------------------------
Investments in shares of mutual funds,
at market value:(identified cost, $6,904,520,
$10,204,893, $3,951,105, $164,035 and
<S> <C> <C> <C> <C> <C>
$398,042, respectively) $ 8,409,024 $ 12,128,319 $ 4,113,049 $ 171,390 $ 393,264
- --------------------------------------------------------------------------------------------------------------------
- --------------------------------------------------------------------------------------------------------------------
Dividends receivable - - - - -
Accounts receivable from American Enterprise Life
for contract purchase payments - - - - -
- --------------------------------------------------------------------------------------------------------------------
Total assets 8,409,024 12,128,319 4,113,049 171,390 393,264
- --------------------------------------------------------------------------------------------------------------------
Liabilities
- --------------------------------------------------------------------------------------------------------------------
Payable to American Enterprise Life for:
Mortality and expense risk fee 9,296 13,327 4,527 170 379
Issue and administrative fee 1,116 1,599 543 20 46
Payable to mutual funds for investments
purchased - - - - -
- --------------------------------------------------------------------------------------------------------------------
Total liabilities 10,412 14,926 5,070 190 425
- --------------------------------------------------------------------------------------------------------------------
Net assets applicable to contracts in
accumulation period $ 8,398,612 $ 12,113,393 $ 4,107,979 $ 171,200 $ 392,839
- --------------------------------------------------------------------------------------------------------------------
Accumulation units outstanding 4,575,051 6,452,046 3,150,958 148,486 387,592
- --------------------------------------------------------------------------------------------------------------------
Net asset value per accumulation unit $ 1.84 $ 1.88 $ 1.30 $ 1.15 $ 1.00
- --------------------------------------------------------------------------------------------------------------------
See accompanying notes to financial statements.
</TABLE>
<PAGE>
American Enterprise Variable Annuity Account -- AEL Preferred Subaccounts
- ---------------------------------------------------------
Statements of Net Assets - continued Dec. 31, 1997
Combined
Assets Variable
Account
- ---------------------------------------------------------
Investments in shares of mutual funds,
at market value: $ 43,490,170
- ---------------------------------------------------------
- ---------------------------------------------------------
Dividends receivable 21,514
Accounts receivable from
American Enterprise Life for
contract purchase payments 68,543
- ---------------------------------------------------------
Total assets 43,580,227
- ---------------------------------------------------------
Liabilities
- ---------------------------------------------------------
Payable to American Enterprise Life for:
Mortality and expense risk fee 47,860
Issue and administrative fee 5,742
Payable to mutual funds for investments
purchased 85,589
- ---------------------------------------------------------
Total liabilities 139,191
- ---------------------------------------------------------
Net assets applicable to contracts in
accumulation period $ 43,441,036
- ---------------------------------------------------------
See accompanying notes to financial statements.
<PAGE>
<TABLE>
<CAPTION>
American Enterprise Variable Annuity Account -- AEL Preferred Subaccounts
- --------------------------------------------------------------------------------------------------------------------
Statements of Operations Year ended Dec. 31, 1997
Segregated Asset Subaccount
-------------------------------------------------------------------------
ECR ESI EMS EMG EAG
Investment income
- --------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Dividend income from mutual funds $ 153,199 $ 240,646 $ 14,597 $ 422,131 $ 332,337
- --------------------------------------------------------------------------------------------------------------------
Expenses:
Mortality and expense risk fee 56,486 30,448 3,632 41,336 36,264
Administrative charge 6,805 3,668 438 4,984 4,361
- --------------------------------------------------------------------------------------------------------------------
Total expenses 63,291 34,116 4,070 46,320 40,625
- --------------------------------------------------------------------------------------------------------------------
Investment income (loss) - net 89,908 206,530 10,527 375,811 291,712
- --------------------------------------------------------------------------------------------------------------------
Realized and unrealized gain (loss) on investments - net
- --------------------------------------------------------------------------------------------------------------------
Realized gain (loss) on sales of investments in mutual funds:
Proceeds from sales 158,773 112,045 540,740 89,104 84,947
Cost of investments sold 149,918 111,089 540,740 79,682 79,228
- --------------------------------------------------------------------------------------------------------------------
Net realized gain (loss) on investments 8,855 956 - 9,422 5,719
- --------------------------------------------------------------------------------------------------------------------
Net change in unrealized appreciation or
depreciation of investments 780,121 (31,454) (2) 110,879 52,964
- --------------------------------------------------------------------------------------------------------------------
Net gain (loss) on investments 788,976 (30,498) (2) 120,301 58,683
- --------------------------------------------------------------------------------------------------------------------
Net increase (decrease) in net assets
resulting from operations $ 878,884 $ 176,032 $ 10,525 $ 496,112 $ 350,395
- --------------------------------------------------------------------------------------------------------------------
See accompanying notes to financial statements.
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
American Enterprise Variable Annuity Account -- AEL Preferred Subaccounts
- --------------------------------------------------------------------------------------------------------------------
Statements of Operations - continued Year ended Dec. 31, 1997
Segregated Asset Subaccount
-------------------------------------------------------------------------
ENO EGI EDI EVO* EGG*
Investment income
- --------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Dividend income from mutual funds $ - $ 492,321 $ 172,964 $ - $ -
- --------------------------------------------------------------------------------------------------------------------
Expenses:
Mortality and expense risk fee 78,568 109,993 38,975 547 1,577
Administrative charge 9,454 13,231 4,689 66 189
- --------------------------------------------------------------------------------------------------------------------
Total expenses 88,022 123,224 43,664 613 1,766
- --------------------------------------------------------------------------------------------------------------------
Investment income (loss) - net (88,022) 369,097 129,300 (613) (1,766)
- --------------------------------------------------------------------------------------------------------------------
Realized and unrealized gain (loss) on investments - net
- --------------------------------------------------------------------------------------------------------------------
Realized gain (loss) on sales of investments in mutual funds:
Proceeds from sales 171,581 121,773 243,854 8,959 22,222
Cost of investments sold 159,191 103,014 242,699 8,827 23,155
- --------------------------------------------------------------------------------------------------------------------
Net realized gain (loss) on investments 12,390 18,759 1,155 132 (933)
- --------------------------------------------------------------------------------------------------------------------
Net change in unrealized appreciation or
depreciation of investments 1,339,756 1,259,777 63,866 7,355 (4,778)
- --------------------------------------------------------------------------------------------------------------------
Net gain (loss) on investments 1,352,146 1,278,536 65,021 7,487 (5,711)
- --------------------------------------------------------------------------------------------------------------------
Net increase (decrease) in net assets
resulting from operations $ 1,264,124 $ 1,647,633 $ 194,321 $ 6,874 $ (7,477)
- --------------------------------------------------------------------------------------------------------------------
*For the period June 30, 1997 (commencement of operations) to Dec. 31, 1997.
See accompanying notes to financial statements.
</TABLE>
<PAGE>
American Enterprise Variable Annuity Account -- AEL Preferred Subaccounts
- ---------------------------------------------------------
Statements of Operations - continued
Year ended Dec. 31, 1997
Combined
Variable
Account
Investment income
- ---------------------------------------------------------
Dividend income from mutual funds $ 1,828,195
- ---------------------------------------------------------
Expenses:
Mortality and expense risk fee 397,826
Administrative charge 47,885
- ---------------------------------------------------------
Total expenses 445,711
- ---------------------------------------------------------
- ---------------------------------------------------------
Investment income (loss) - net 1,382,484
- ---------------------------------------------------------
Realized and unrealized gain (loss) on investments - net
- ---------------------------------------------------------
Realized gain (loss) on sales of investments
in mutual funds:
Proceeds from sales 1,553,998
Cost of investments sold 1,497,543
- ---------------------------------------------------------
Net realized gain (loss) on investments 56,455
- ---------------------------------------------------------
Net change in unrealized appreciation or
depreciation of investments 3,578,484
- ---------------------------------------------------------
Net gain (loss) on investments 3,634,939
- ---------------------------------------------------------
Net increase (decrease) in net assets
resulting from operations $ 5,017,423
- ---------------------------------------------------------
See accompanying notes to financial statements.
<PAGE>
<TABLE>
<CAPTION>
American Enterprise Variable Annuity Account -- AEL Preferred Subaccounts
- --------------------------------------------------------------------------------------------------------------------
Statements of Changes in Net Assets Year ended Dec. 31, 1997
Segregated Asset Subaccount
-------------------------------------------------------------------------
Operations ECR ESI EMS EMG EAG
- --------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Investment income (loss) - net $ 89,908 $ 206,530 $ 10,527 $ 375,811 $ 291,712
Net realized gain (loss) on investments 8,855 956 - 9,422 5,719
Net change in unrealized appreciation or
depreciation of investments 780,121 (31,454) (2) 110,879 52,964
- --------------------------------------------------------------------------------------------------------------------
Net increase (decrease) in net assets
resulting from operations 878,884 176,032 10,525 496,112 350,395
- --------------------------------------------------------------------------------------------------------------------
Contract Transactions
- --------------------------------------------------------------------------------------------------------------------
Contract purchase payments 2,409,335 1,670,135 327,812 2,390,284 1,730,513
Net transfers* (33,041) (29,630) (234,808) (72,853) 110,988
Annuity payments (138) - - - (140)
Contract terminations:
Surrender benefits and contract charges (297,350) (139,046) (100,987) (192,773) (160,387)
Death benefits (5,701) (6,105) - (7,254) (3,235)
- --------------------------------------------------------------------------------------------------------------------
Increase (decrease) from contract transactions 2,073,105 1,495,354 (7,983) 2,117,404 1,677,739
- --------------------------------------------------------------------------------------------------------------------
Net assets at beginning of year 2,988,976 1,702,800 256,723 2,099,212 1,941,732
- --------------------------------------------------------------------------------------------------------------------
Net assets at end of year $ 5,940,965 $ 3,374,186 $ 259,265 $ 4,712,728 $ 3,969,869
- --------------------------------------------------------------------------------------------------------------------
Accumulation Unit Activity
- --------------------------------------------------------------------------------------------------------------------
Units outstanding at beginning of year 2,350,045 1,377,190 240,823 1,545,535 1,323,955
Contract purchase payments 1,696,748 1,304,174 302,938 1,581,579 1,158,663
Net transfers* (18,567) (24,030) (215,723) (49,221) 75,131
Contract terminations:
Surrender benefits and contract charges (211,339) (108,787) (96,782) (128,743) (121,302)
Death benefits (4,133) (4,829) - (4,942) (2,236)
- --------------------------------------------------------------------------------------------------------------------
Units outstanding at end of year 3,812,754 2,543,718 231,256 2,944,208 2,434,211
- --------------------------------------------------------------------------------------------------------------------
*Includes transfer activity from (to) other subaccounts and transfers (from) to
American Enterprise Life for conversion from (to) fixed account.
See accompanying notes to financial statements.
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
American Enterprise Variable Annuity Account -- AEL Preferred Subaccounts
- --------------------------------------------------------------------------------------------------------------------
Statements of Changes in Net Assets - continued Year ended Dec. 31, 1997
Segregated Asset Subaccount
-------------------------------------------------------------------------
Operations ENO EGI EDI EVO** EGG**
- --------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Investment income (loss) - net $ (88,022) $ 369,097 $ 129,300 $ (613) $ (1,766)
Net realized gain (loss) on investments 12,390 18,759 1,155 132 (933)
Net change in unrealized appreciation or
depreciation of investments 1,339,756 1,259,777 63,866 7,355 (4,778)
- --------------------------------------------------------------------------------------------------------------------
Net increase (decrease) in net assets
resulting from operations 1,264,124 1,647,633 194,321 6,874 (7,477)
- --------------------------------------------------------------------------------------------------------------------
Contract Transactions
- --------------------------------------------------------------------------------------------------------------------
Contract purchase payments 2,860,597 5,025,579 1,907,829 173,187 420,641
Net transfers* 55,283 294,386 (41,214) (2) 11
Annuity payments - (139) - - -
Contract terminations:
Surrender benefits and contract charges (277,368) (449,047) (193,089) (8,859) (20,336)
Death benefits (3,272) (5,970) (6,062) - -
- --------------------------------------------------------------------------------------------------------------------
Increase (decrease) from contract transactions 2,635,240 4,864,809 1,667,464 164,326 400,316
- --------------------------------------------------------------------------------------------------------------------
Net assets at beginning of year 4,499,248 5,600,951 2,246,194 - -
- --------------------------------------------------------------------------------------------------------------------
Net assets at end of year $ 8,398,612 $ 12,113,393 $ 4,107,979 $ 171,200 $ 392,839
- --------------------------------------------------------------------------------------------------------------------
Accumulation Unit Activity
- --------------------------------------------------------------------------------------------------------------------
Units outstanding at beginning of year 2,979,587 3,655,312 1,824,245 - -
Contract purchase payments 1,731,364 2,886,258 1,520,166 156,493 408,295
Net transfers* 30,592 174,142 (34,583) (2) 10
Contract terminations:
Surrender benefits and contract charges (164,430) (260,212) (154,007) (8,005) (20,713)
Death benefits (2,062) (3,454) (4,863) - -
- --------------------------------------------------------------------------------------------------------------------
Units outstanding at end of year 4,575,051 6,452,046 3,150,958 148,486 387,592
- --------------------------------------------------------------------------------------------------------------------
*Includes transfer activity from (to) other subaccounts and transfers (from) to
American Enterprise Life for conversion from (to) fixed account. ** For period
June 30, 1997 (commencement of operations) to December 31, 1997.
See accompanying notes to financial statements.
</TABLE>
<PAGE>
American Enterprise Variable Annuity Account -- AEL Preferred Subaccounts
- ---------------------------------------------------------
Statements of Changes in Net Assets - continued
Year ended Dec. 31, 1997
Combined
Operations Variable
Account
- ---------------------------------------------------------
Investment income (loss) - net $ 1,382,484
Net realized gain (loss) on investments 56,455
Net change in unrealized appreciation or
depreciation of investments 3,578,484
- ---------------------------------------------------------
Net increase (decrease) in net assets
resulting from operations 5,017,423
- ---------------------------------------------------------
Contract Transactions
- ---------------------------------------------------------
Contract purchase payments 18,915,912
Net transfers* 49,120
Annuity payments (417)
Contract terminations:
Surrender benefits and contract charges (1,839,242)
Death benefits (37,599)
- ---------------------------------------------------------
Increase (decrease) from
contract transactions 17,087,774
- ---------------------------------------------------------
Net assets at beginning of year 21,335,836
- ---------------------------------------------------------
Net assets at end of year $ 43,441,036
- ---------------------------------------------------------
*Includes transfer activity from (to) other subaccounts and transfers (from) to
American Enterprise Life for conversion from (to) fixed account.
See accompanying notes to financial statements.
<PAGE>
<TABLE>
<CAPTION>
American Enterprise Variable Annuity Account -- AEL Preferred Subaccounts
- -------------------------------------------------------------------------------------------------------------------
Statements of Changes in Net Assets* Year ended Dec. 31, 1996
Segregated Asset Subaccount
--------------------------------------------------------------------
Operations ECR ESI EMS EMG EAG
- -------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Investment income (loss) - net $ 416,336 $ 74,742 $ 4,581 $ 139,994 $ 175,562
Net realized gain (loss) on investments (2,094) (1,460) (1) 7,387 5,329
Net change in unrealized appreciation
or depreciation of investments (287,096) 5,443 2 83,860 (25,579)
- -------------------------------------------------------------------------------------------------------------------
Net increase (decrease) in net assets
resulting from operations 127,146 78,725 4,582 231,241 155,312
- -------------------------------------------------------------------------------------------------------------------
Contract Transactions
- -------------------------------------------------------------------------------------------------------------------
Contract purchase payments 1,819,729 1,330,728 277,016 1,299,140 1,188,007
Net transfers** 160,697 (128,604) (160,372) (54,922) 44,944
Contract terminations:
Surrender benefits and contract charges (96,464) (45,696) (67) (52,330) (52,750)
Death benefits - (17,536) - (18,177) -
- -------------------------------------------------------------------------------------------------------------------
Increase (decrease) from contract transactions 1,883,962 1,138,892 116,577 1,173,711 1,180,201
- -------------------------------------------------------------------------------------------------------------------
Net assets at beginning of year 977,868 485,183 135,564 694,260 606,219
- -------------------------------------------------------------------------------------------------------------------
Net assets at end of year $ 2,988,976 $ 1,702,800 $ 256,723 $ 2,099,212 $ 1,941,732
- -------------------------------------------------------------------------------------------------------------------
Accumulation Unit Activity
- -------------------------------------------------------------------------------------------------------------------
Units outstanding at beginning of year 817,655 413,748 131,600 588,760 473,162
Contract purchase payments 1,485,938 1,131,063 263,096 1,062,502 858,107
Net transfers** 129,540 (109,946) (153,809) (44,426) 32,975
Contract terminations:
Surrender benefits and contract charges (83,088) (42,442) (64) (46,345) (40,289)
Death benefits - (15,233) - (14,956) -
- -------------------------------------------------------------------------------------------------------------------
Units outstanding at end of year 2,350,045 1,377,190 240,823 1,545,535 1,323,955
- -------------------------------------------------------------------------------------------------------------------
*Subaccounts EVO and EGG had no activity in the year ended Dec. 31, 1996.
**Includes transfer activity from (to) other subaccounts and transfers (from) to
American Enterprise Life for conversion from (to) fixed account.
See accompanying notes to financial statements.
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
American Enterprise Variable Annuity Account -- AEL Preferred Subaccounts
- -----------------------------------------------------------------------------------------------------
Statements of Changes in Net Assets* - continued Year ended Dec. 31, 1996
Combined
Segregated Asset Subaccount Variable
----------------------------------------
Operations ENO EGI EDI Account
- ------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Investment income (loss) - net $ (45,121) $ 103,252 $ 54,476 $ 923,822
Net realized gain (loss) on investments 7,117 7,642 1,830 25,750
Net change in unrealized appreciation
or depreciation of investments 94,114 575,348 73,352 519,444
- ------------------------------------------------------------------------------------------------------
Net increase (decrease) in net assets
resulting from operations 56,110 686,242 129,658 1,469,016
- ------------------------------------------------------------------------------------------------------
Contract Transactions
- ------------------------------------------------------------------------------------------------------
Contract purchase payments 3,175,961 3,170,351 1,660,528 13,921,460
Net transfers** 411,509 427,988 (184,094) 517,146
Contract terminations:
Surrender benefits and contract charges (102,255) (140,638) (49,780) (539,980)
Death benefits - (9,662) - (45,375)
- ------------------------------------------------------------------------------------------------------
Increase (decrease) from contract transactions 3,485,215 3,448,039 1,426,654 13,853,251
- ------------------------------------------------------------------------------------------------------
Net assets at beginning of year 957,923 1,466,670 689,882 6,013,569
- ------------------------------------------------------------------------------------------------------
Net assets at end of year $ 4,499,248 $ 5,600,951 $ 2,246,194 $ 21,335,836
- ------------------------------------------------------------------------------------------------------
Accumulation Unit Activity
- ---------------------------------------------------------------------------------------
Units outstanding at beginning of year 690,849 1,151,991 600,567
Contract purchase payments 2,086,487 2,299,290 1,425,924
Net transfers** 275,115 310,542 (156,974)
Contract terminations:
Surrender benefits and contract charges (72,864) (99,565) (45,272)
Death benefits - (6,946) -
- ---------------------------------------------------------------------------------------
Units outstanding at end of year 2,979,587 3,655,312 1,824,245
- ---------------------------------------------------------------------------------------
*Subaccounts EVO and EGG had no activity in the year ended Dec. 31, 1996.
**Includes transfer activity from (to) other subaccounts and transfers (from) to
American Enterprise Life for conversion from (to) fixed account.
See accompanying notes to financial statements.
</TABLE>
<PAGE>
American Enterprise Variable Annuity Account -- AEL Preferred Subaccounts
Notes to Financial Statements
- ------------------------------------------------------------------
1. Organization
American Enterprise Variable Annuity Account - AEL Preferred Subaccounts (the
Account) was established under Indiana law on July 15, 1987 and the subaccounts
are registered together as a single unit investment trust of American Enterprise
Life Insurance Company (American Enterprise Life) under the Investment Company
Act of 1940, as amended (the "1940 Act"). Operations of the Account commenced on
Feb. 21, 1995.
The Account is comprised of various subaccounts. The assets of each subaccount
of the Account are not chargeable with liabilities arising out of the business
conducted by any other segregated asset accounts or by American Enterprise Life.
Purchase payments are allocated to any or all of ten subaccounts of the Account
or the fixed account. The purchase payments allocated to the subaccounts are
then invested in shares of five funds of the IDS Life Retirement Annuity Mutual
Funds (collectively, the IDS Life Funds), or in shares of five funds of Putnam
Variable Trust (collectively, Putnam Funds) formerly known as Putnam Capital
Manager Trust.
The IDS Life Funds are registered under the 1940 Act as diversified, open-end
management investment companies. IDS Life Capital Resource Fund, IDS Life
Special Income Fund and IDS Life Moneyshare Fund, Inc. commenced operations Oct.
13, 1981. IDS Life Managed Fund, Inc. commenced operations April 30, 1986. IDS
Life Aggressive Growth Fund commenced operations on Jan. 13, 1992. Purchase
payments allocated to the EAG subaccount invest in shares of IDS Life Aggressive
Growth Fund; the ECR subaccount invests in shares of IDS Life Capital Resource
Fund; the EMG subaccount invests in shares of IDS Life Managed Fund, Inc.; ESI
subaccount invests in shares of IDS Life Special Income Fund; and the EMS
subaccount invests in shares of IDS Life Moneyshare Fund, Inc.
Putnam Variable Trust was organized on Sept. 24, 1987 as a Massachusetts
business trust and is registered under the 1940 Act as a diversified, open-end
management investment company. The Putnam VT Diversified Income Fund commenced
operations on Sept. 15, 1993. The Putnam VT Growth and Income Fund commenced
operations on Feb. 1, 1988. The Putnam VT New Opportunities Fund commenced
operations on May 2, 1994. The Putnam VT Voyager Fund commenced operations on
Feb. 1, 1988. The Putnam VT Global Growth Fund commenced operations on May 1,
1990. Purchase payments allocated to the EDI subaccount invest in shares of the
Putnam VT Diversified Income Fund; the EGI subaccount invests in shares of the
Putnam VT Growth and Income Fund; the ENO subaccount invests in shares of the
Putnam VT New Opportunities Fund; the EVO subaccount invests in shares of the
Putnam VT Voyager Fund and the EGG subaccount invests in shares of the Putnam VT
Global Growth Fund.
American Enterprise Life issues the contracts which are distributed by banks and
financial institutions either directly or through a network of third-party
marketers. IDS Life Insurance Company, parent company of American Enterprise
Life, serves as investment manager and distributor for the IDS Life Funds.
American Express Financial Corporation serves as investment advisor to the IDS
Life Funds. Putnam Investment Management, Inc. serves as the Putnam Funds
investment manager. Putnam Mutual Funds serves as distributor and principal
underwriter for the Putnam Funds.
- ------------------------------------------------------------------
2. Summary of Significant Accounting Policies
Investments in Mutual Funds
Investments in shares of the IDS Life Funds or the Putnam Funds (collectively,
the Funds) are stated at market value which is the net asset value per share as
determined by the respective fund. Investment transactions are accounted for on
the date the shares are purchased and sold. The cost of investments sold and
redeemed is determined on the average cost method. Dividend distributions
received from the Funds are reinvested in additional shares of the Funds and are
recorded as income by the subaccounts on the ex-dividend date.
Unrealized appreciation or depreciation of investments in the accompanying
financial statements represents the subaccounts' share of the Funds'
undistributed net investment income, undistributed realized gain or loss and the
unrealized appreciation or depreciation on their investment securities.
Use of Estimates
The preparation of financial statements in conformity with generally accepted
accounting principles requires management to make estimates and assumptions that
affect the reported amounts of assets and liabilities and disclosures of
contingent assets and liabilities at the date of the financial statements and
the reported amounts of increase and decrease in net assets from operations
during the period. Actual results could differ from those estimates.
Federal Income Taxes
American Enterprise Life is taxed as a life insurance company. The Account is
treated as part of American Enterprise Life for federal income tax purposes.
Under existing federal income tax law, no income taxes are payable with respect
to any investment income of the Account.
- -----------------------------------------------------------------
3. Mortality and Expense Risk Fee
American Enterprise Life makes guarantees to the Account that possible future
adverse changes in administrative expenses and mortality experience of the
annuitants will not affect the Account. The mortality and expense risk fee paid
to American Enterprise Life is computed daily and is equal, on an annual basis,
to 1.25 percent of the subaccounts average daily net assets.
- -----------------------------------------------------------------
4. Administrative Charge
American Enterprise Life deducts a daily charge equal, on an annual basis, to
0.15 percent of the average daily net assets of each subaccount. It covers
certain administrative and operating expenses of the subaccounts incurred by
American Enterprise Life such as accounting, legal and data processing fees and
expenses involved in the preparation and distribution of reports and
prospectuses. This charge cannot be increased.
- ------------------------------------------------------------------
5. Contract Charge
American Enterprise Life deducts a contract charge of $30 per year on each
contract anniversary. This charge reimburses American Enterprise Life for
expenses incurred in establishing and maintaining the annuity records. If you
make payments to your annuity under a simplified employee pension plan (SEP), we
will deduct the contract administrative charge on any contract anniversary when
your contract value is $2,000 or more but less than $50,000. This charge will be
waived when the contract value is $50,000 or more on the current contract
anniversary.
The $30 annual charge will be deducted at the time of any full surrender. This
charge cannot be increased and does not apply after annuity payouts begin.
American Enterprise Life does not expect to profit from this charge.
- ------------------------------------------------------------------
6. Withdrawal Charge
American Enterprise Life will use a withdrawal charge to help it recover certain
expenses relating to the sale of the annuity. The withdrawal charge will be
deducted for withdrawals during the first six payment years following a purchase
payment. Charges by American Enterprise Life for withdrawals are not identified
on an individual segregated asset subaccount basis. Charges for all segregated
asset subaccounts amounted to $79,195 in 1997 and $34,957 in 1996. Such charges
are not treated as a separate expense of the subaccounts. They are ultimately
deducted from contract withdrawal benefits paid by American Enterprise Life.
This charge will be waived if the withdrawal meets certain provisions as stated
in the contract.
- ------------------------------------------------------------------
7. Investment in Shares of Mutual Funds
The subaccounts' investment in shares of Mutual Funds as of December 31, 1997
were as follows:
Subaccount Mutual Fund Shares NAV
- ------------------------------------------------------------------------
ECR IDS Life Capital Resource Fund 208,159 $28.58
ESI IDS Life Special Income Fund 286,067 11.80
EMS IDS Life Moneyshare Fund, Inc. 259,286 1.00
EMG IDS Life Managed Fund, Inc. 261,594 18.04
EAG IDS Life Aggressive Growth Fund 247,332 16.07
ENO Putnam VT New Opportunities Fund 396,092 21.23
EGI Putnam VT Growth and Income Fund 428,260 28.32
EDI Putnam VT Diversified Income Fund 363,665 11.31
EVO Putnam VT Voyager Fund 4,386 39.08
EGG Putnam VT Global Growth Fund 21,443 18.34
- -------------------------------------------------------------------------
8. Investment Transactions
The subaccounts' purchases of Fund shares including reinvestment of dividend
distributions, were as follows:
Year ended Dec. 31,
Subaccount Investment 1997 1996
- ----------------------------------------------------------------------------
ECR IDS Life Capital Resource Fund $ 2,325,297 $ 2,420,544
ESI IDS Life Special Income Fund 1,813,929 1,365,892
EMS IDS Life Moneyshare Fund, Inc. 543,283 274,170
EMG IDS Life Managed Fund, Inc. 2,585,442 1,436,211
EAG IDS Life Aggressive Growth Fund 2,056,784 1,453,339
ENO Putnam VT New Opportunities Fund 2,723,514 3,539,234
EGI Putnam VT Growth and Income Fund 5,363,337 3,681,192
EDI Putnam VT Diversified Income Fund 2,042,776 1,683,881
EVO Putnam VT Voyager Fund 172,862 --*
EGG Putnam VT Global Growth Fund 421,197 --*
- ----------------------------------------------------------------------------
Combined Variable Account $20,048,421 $15,854,463
- ----------------------------------------------------------------------------
*Subaccounts EVO and EGG had no activity in the year ended Dec. 31, 1996.
- ------------------------------------------------------------------
9. Year 2000 Issue (Unaudited)
The Year 2000 issue is the result of computer programs having been written using
two digits rather than four to define a year. Any programs that have
time-sensitive software may recognize a date using "00" as the year 1900 rather
than 2000. This could result in the failure of major systems or miscalculations,
which could have a material impact on the operations of the Variable Account.
The Variable Account has no computer systems of its own but is dependent upon
the systems maintained by AEFC and certain other third parties.
A comprehensive review of AEFC's computer systems and business processes has
been conducted to identify the major systems that could be affected by the Year
2000 issue. Steps are being taken to resolve any potential problems including
modification to existing software and the purchase of new software. These
measures are scheduled to be completed and tested on a timely basis. AEFC's goal
is to complete internal remediation and testing of each system by the end of
1998 and to continue compliance efforts through 1999.
The Year 2000 readiness of unaffiliated investment managers and other third
parties whose system failures could have an impact on Variable Account's
operations is currently being evaluated. The potential materiality of any such
impact is not known at this time.
<PAGE>
Report of Independent Auditors
The Board of Directors
American Enterprise Life Insurance Company
We have audited the accompanying balance sheets of American Enterprise Life
Insurance Company (a wholly owned subsidiary of IDS Life Insurance Company) as
of December 31, 1997 and 1996, and the related statements of income,
stockholder's equity and cash flows for each of the three years in the period
ended December 31, 1997. These financial statements are the responsibility of
the Company's management. Our responsibility is to express an opinion on these
financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the financial position of American Enterprise Life
Insurance Company at December 31, 1997 and 1996, and the results of its
operations and its cash flows for each of the three years in the period ended
December 31, 1997, in conformity with generally accepted accounting principles.
Ernst & Young LLP
February 5, 1998
Minneapolis, Minnesota
<PAGE>
AMERICAN ENTERPRISE LIFE INSURANCE COMPANY
BALANCE SHEETS
December 31,
<TABLE><CAPTION>
ASSETS 1997 1996
- ------ ---------- ----------
<S> <C> <C>
Investments:
Fixed maturities:
Held to maturity, at amortized cost (Fair value:
1997, $1,223,108; 1996, $1,267,947) $1,186,682 $1,256,143
Available for sale, at fair value (Amortized cost:
1997, $2,609,621; 1996, $2,223,457) 2,685,799 2,242,447
----------- ----------
3,872,481 3,498,590
Mortgage loans on real estate 738,052 582,982
Other investments 16,024 3,056
----------- ----------
Total investments 4,626,557 4,084,628
Cash and cash equivalents -- 40,829
Other accounts receivable 563 9,867
Accrued investment income 59,588 51,571
Deferred policy acquisition costs 224,501 203,225
Other assets 117 4,957
Separate account assets 62,087 30,760
----------- ----------
Total assets $4,973,413 $4,425,837
=========== ==========
LIABILITIES AND STOCKHOLDER'S EQUITY
Liabilities:
Future policy benefits for fixed annuities $4,343,213 $3,881,339
Policy claims and other policyholders' funds 11,328 27,427
Deferred income taxes 35,601 18,072
Amounts due to brokers 34,935 88,731
Other liabilities 16,905 15,650
Separate account liabilities 62,087 30,760
------------ ----------
Total liabilities 4,504,069 4,061,979
Stockholder's equity:
Capital stock, $100 par value per share;
100,000 shares authorized,
20,000 shares issued and outstanding 2,000 2,000
Additional paid-in capital 282,872 242,872
Net unrealized gain on investments 49,516 12,343
Retained earnings 134,956 106,643
------------ ----------
Total stockholder's equity 469,344 363,858
------------ ----------
Total liabilities and stockholder's equity $4,973,413 $4,425,837
============ ==========
See accompanying notes.
</TABLE>
<PAGE>
AMERICAN ENTERPRISE LIFE INSURANCE COMPANY
STATEMENTS OF INCOME
Years ended December 31,
<TABLE>
<CAPTION>
1997 1996 1995
------ ------ -----
(thousands)
<S> <C> <C> <C>
Revenues:
Net investment income $332,268 $271,719 $223,706
Contractholder charges 5,688 5,450 4,186
Management and other fees 641 303 28
Net realized loss on investments (509) (5,258) (1,154)
--------- ---------- ---------
Total revenues 338,088 272,214 226,766
--------- ---------- ---------
Benefits and expenses:
Interest credited on investment contracts 231,437 191,672 162,662
Amortization of deferred policy
acquisition costs 36,803 30,674 20,459
Other operating expenses 24,890 14,133 10,205
--------- ---------- ---------
Total benefits and expenses 293,130 236,479 193,326
--------- ---------- ---------
Income before income taxes 44,958 35,735 33,440
Income taxes 16,645 12,912 11,692
--------- ---------- ---------
Net income $ 28,313 $ 22,823 $ 21,748
========= ========== =========
See accompanying notes.
</TABLE>
<PAGE>
AMERICAN ENTERPRISE LIFE INSURANCE COMPANY
STATEMENTS OF STOCKHOLDER'S EQUITY
Three years ended December 31, 1997
(thousands)
<TABLE>
<CAPTION>
Additional Net Unrealized
Capital Paid-In Gain (Loss) on Retained
Stock Capital Investments Earnings Total
<S> <C> <C> <C> <C> <C>
Balance, December 31, 1994 $2,000 $ 142,872 $ (43,689) $ 62,072 $163,255
Net income -- -- -- 21,748 21,748
Change in net unrealized
gain (loss) on investments -- -- 76,813 -- 76,813
Capital contribution from parent -- 35,000 -- -- 35,000
-------- --------- ----------- --------- ----------
Balance, December 31, 1995 2,000 177,872 33,124 83,820 296,816
Net income -- -- -- 22,823 22,823
Change in net unrealized
gain (loss) on investments -- -- (20,781) -- (20,781)
Capital contribution from parent -- 65,000 -- -- 65,000
-------- --------- ----------- --------- ----------
Balance, December 31, 1996 2,000 242,872 12,343 106,643 363,858
Net income -- -- -- 28,313 28,313
Change in net unrealized
gain (loss) on investments -- -- 37,173 -- 37,173
Capital contribution from parent -- 40,000 -- -- 40,000
-------- --------- ---------- --------- ----------
Balance, December 31, 1997 $2,000 $282,872 $ 49,516 $134,956 $469,344
======== ========= ========== ========= ==========
See accompanying notes.
</TABLE>
<PAGE>
AMERICAN ENTERPRISE LIFE INSURANCE COMPANY
STATEMENTS OF CASH FLOWS
Years ended December 31,
<TABLE>
<CAPTION>
1997 1996 1995
-------- -------- ------
(thousands)
<S> <C> <C> <C>
Cash flows from operating activities:
Net income $ 28,313 $ 22,823 $ 21,748
Adjustments to reconcile net income to
net cash (used in) provided by operating activities:
Change in accrued investment income (8,017) (9,692) (7,951)
Change in other accounts receivable 9,304 -- --
Change in deferred policy acquisition
costs, net (21,276) (32,651) (32,926)
Change in other assets 4,840 (10,007) (4,126)
Change in policy claims and other
policyholders' funds (16,099) 15,786 (4,065)
Deferred income tax (benefit) provision (2,485) 5,084 (119)
Change in other liabilities 1,255 8,621 2,698
(Accretion of discount)
amortization of premium, net (2,316) (2,091) (2,321)
Net realized loss on investments 509 5,258 1,154
Other, net 959 (129) --
---------- --------- ---------
Net cash (used in) provided by operating activities (5,013) 3,002 (25,908)
---------- --------- ---------
Cash flows from investing activities: Fixed maturities held to maturity:
Purchases (1,996) (16,967) (252,583)
Maturities 41,221 26,190 25,754
Sales 30,601 27,944 33,849
Fixed maturities available for sale:
Purchases (688,050) (921,914) (485,250)
Maturities 231,419 212,212 85,629
Sales 73,366 47,542 57,576
Other investments:
Purchases (199,593) (212,182) (183,892)
Sales 29,139 19,850 5,543
Change in amounts due to brokers (53,796) 88,568 (48,709)
--------- --------- ---------
Net cash used in investing activities $(537,689) $(728,757) $(762,083)
--------- --------- ---------
</TABLE>
<PAGE>
AMERICAN ENTERPRISE LIFE INSURANCE COMPANY
STATEMENTS OF CASH FLOWS (continued)
Years ended December 31,
<TABLE>
<CAPTION>
1997 1996 1995
-------- -------- ------
(thousands)
Cash flows from financing activities: Activity related to investment contracts:
<S> <C> <C> <C>
Considerations received $ 783,339 $ 846,378 $ 709,127
Surrenders and other benefits (552,903) (312,362) (196,260)
Interest credited to account balances 231,437 191,672 162,662
Change in securities sold under
repurchase agreements -- (67,000) 67,000
Capital contribution from parent 40,000 65,000 35,000
---------- --------- ---------
Net cash provided by financing activities 501,873 723,688 777,529
---------- --------- ---------
Net decrease in cash and cash equivalents (40,829) (2,067) (10,462)
Cash and cash equivalents at beginning of year 40,829 42,896 53,358
---------- --------- ---------
Cash and cash equivalents at end of year $ -- $ $ 42,896
40,829
========== ======== =========
See accompanying notes.
</TABLE>
<PAGE>
AMERICAN ENTERPRISE LIFE INSURANCE COMPANY
NOTES TO FINANCIAL STATEMENTS
($ thousands)
1. Summary of significant accounting policies
Nature of business
American Enterprise Life Insurance Company (the Company) is a stock life
insurance company that is domiciled in Indiana and is licensed to transact
insurance business in 47 states. The Company's principal product is
deferred annuities which are issued primarily to individuals. It offers
single premium and annual premium deferred annuities on both a fixed and
variable dollar basis. Immediate annuities are offered as well.
Basis of presentation
The Company is a wholly owned subsidiary of IDS Life Insurance Company (IDS
Life), which is a wholly owned subsidiary of American Express Financial
Corporation (AEFC). AEFC is a wholly owned subsidiary of American Express
Company. The accompanying financial statements have been prepared in
conformity with generally accepted accounting principles which vary in
certain respects from reporting practices prescribed or permitted by the
Indiana Department of Insurance (see Note 4).
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the
financial statements and the reported amounts of revenues and expenses
during the reporting period. Actual results could differ from those
estimates.
Investments
Fixed maturities that the Company has both the positive intent and the
ability to hold to maturity are classified as held to maturity and carried
at amortized cost. All other fixed maturities are classified as available
for sale and carried at fair value. Unrealized gains and losses on
securities classified as available for sale are reported as a separate
component of stockholder's equity, net of deferred income taxes.
Realized investment gain or loss is determined on an identified cost basis.
Prepayments are anticipated on certain investments in mortgage-backed
securities in determining the constant effective yield used to recognize
interest income. Prepayment estimates are based on information received
from brokers who deal in mortgage-backed securities.
Mortgage loans on real estate are carried at amortized cost less an
allowance for mortgage loan losses. The estimated fair value of the
mortgage loans is determined by a discounted cash flow analysis using
mortgage interest rates currently offered for mortgages of similar
maturities.
Impairment of mortgage loans is measured as the excess of the loan's
recorded investment over its present value of expected principal and
interest payments discounted at the loan's effective interest rate, or the
fair value of collateral. The amount of the impairment is recorded in an
allowance for mortgage loan losses. The allowance for mortgage loan losses
is maintained at a level that management believes is adequate to absorb
estimated losses in the portfolio. The level of the allowance account is
determined based on several factors, including historical experience,
expected future principal and interest payments, estimated collateral
values, and current and anticipated economic and political conditions.
Management regularly evaluates the adequacy of the allowance for mortgage
loan losses.
<PAGE>
1. Summary of significant accounting policies (continued)
The Company generally stops accruing interest on mortgage loans for which
interest payments are delinquent more than three months. Based on
management's judgment as to the ultimate collectibility of principal,
interest payments received are either recognized as income or applied to
the recorded investment in the loan.
The cost of interest rate caps and floors is amortized to investment income
over the life of the contracts and payments received as a result of these
agreements are recorded as investment income when realized. The amortized
cost of interest rate caps and floors is included in other investments.
When evidence indicates a decline, which is other than temporary, in the
underlying value or earning power of individual investments, such
investments are written down to the fair value by a charge to income.
Statements of cash flows
The Company considers investments with a maturity at the date of their
acquisition of three months or less to be cash equivalents. These
securities are carried principally at amortized cost which approximates
fair value.
Supplementary information to the statements of cash flows for the years
ended December 31, is summarized as follows:
<TABLE>
<CAPTION>
1997 1996 1995
------ ------ -----
<S> <C> <C> <C>
Cash paid during the year for:
Income taxes $19,456 $10,317 $11,389
Interest on borrowings 1,832 998 979
</TABLE>
Recognition of profits on fixed annuity contracts
Profits on fixed deferred annuities are recognized by the Company over the
lives of the contracts, using primarily the interest method. Profits
represent the excess of investment income earned from investment of
contract considerations over interest credited to contract owners and other
expenses.
Contractholder charges include fees collected regarding the issue and
administration of annuity contracts.
Deferred policy acquisition costs
The costs of acquiring new business, principally sales compensation, policy
issue costs, and certain sales expenses, have been deferred on annuity
contracts. These costs are amortized in relation to surrender charge
revenue and a portion of the excess of investment income earned from
investment of the contract considerations over the interest credited to
contract owners.
Liabilities for future policy benefits
Liabilities for deferred annuities are accumulation values. Liabilities for
fixed annuities in a benefit status are based on the 1983a Table with
various interest rates ranging from 5.5 percent to 8.75 percent, depending
on year of issue.
<PAGE>
1. Summary of significant accounting policies (continued)
Federal income taxes
The Company's taxable income is included in the consolidated federal income
tax return of American Express Company. The Company provides for income
taxes on a separate return basis, except that, under an agreement between
AEFC and American Express Company, tax benefit is recognized for losses to
the extent they can be used on the consolidated tax return. It is the
policy of AEFC and its subsidiaries that AEFC will reimburse subsidiaries
for all tax benefits.
Included in other liabilities at December 31, 1997 and 1996 are $1,289 and
$787, respectively receivable from IDS Life for federal income taxes.
Separate account business
The separate account assets and liabilities represent funds held for the
exclusive benefit of the variable annuity contract owners. The Company
receives mortality and expense risk fees from the variable annuity separate
accounts.
The Company makes contractual mortality assurances to the variable annuity
contract owners that the net assets of the separate accounts will not be
affected by future variations in the actual life expectancy experience of
the annuitants and the beneficiaries from the mortality assumptions
implicit in the annuity contracts. The Company makes periodic fund
transfers to, or withdrawals from, the separate accounts for such actuarial
adjustments for variable annuities that are in the benefit payment period.
Reclassifications
Certain 1996 and 1995 amounts have been reclassified to conform to the 1997
presentation.
2. Investments
Fair values of investments in fixed maturities represent quoted market
prices and estimated values when quoted prices are not available. Estimated
values are determined by established procedures involving, among other
things, review of market indices, price levels of current offerings of
comparable issues, price estimates and market data from independent brokers
and financial files.
The amortized cost, gross unrealized gains and losses and fair value of
investments in fixed maturities at December 31, 1997 are as follows:
<TABLE>
<CAPTION>
Gross Gross
Amortized Unrealized Unrealized Fair
Held to maturity Cost Gains Losses Value
<S> <C> <C> <C> <C>
U.S. Government agency obligations $ 11,120 $ 710 $ -- $ 11,830
State and municipal obligations 3,003 173 -- 3,176
Corporate bonds and obligations 970,498 38,176 2,763 1,005,911
Mortgage-backed securities 202,061 1,497 1,367 202,191
---------- ------- ------ ----------
$1,186,682 $40,556 $4,130 $1,223,108
========== ======= ====== ==========
Available for sale
U.S. Government agency obligations $ 2,077 $ 13 $ -- $ 2,090
Corporate bonds and obligations 1,273,217 52,207 8,020 1,317,404
Mortgage-backed securities 1,334,327 33,017 1,039 1,366,305
---------- ------- ------ ----------
$2,609,621 $85,237 $9,059 $2,685,799
========== ======= ====== ==========
</TABLE>
<PAGE>
2. Investments (continued)
The amortized cost, gross unrealized gains and losses and fair value of
investments in fixed maturities and equity securities at December 31, 1996
are as follows:
<TABLE>
<CAPTION>
Gross Gross
Amortized Unrealized Unrealized Fair
Held to maturity Cost Gains Losses Value
<S> <C> <C> <C> <C>
U.S. Government agency obligations $ 13,536 $ 415 $ -- $ 13,951
State and municipal obligations 3,003 125 -- 3,128
Corporate bonds and obligations 1,030,649 28,013 11,022 1,047,640
Mortgage-backed securities 208,955 1,076 6,803 203,228
---------- ------- ------- ----------
$1,256,143 $29,629 $17,825 $1,267,947
========== ======= ======= ==========
Available for sale
U.S. Government agency obligations $ 1,666 $ -- $ 63 $ 1,603
Corporate bonds and obligations 942,698 20,678 6,487 956,889
Mortgage-backed securities 1,279,093 16,047 11,185 1,283,955
---------- ------- ------- ----------
$2,223,457 $36,725 $17,735 $2,242,447
========== ======= ======= ==========
</TABLE>
The amortized cost and fair value of investments in fixed maturities at
December 31, 1997 by contractual maturity are shown below. Expected
maturities will differ from contractual maturities because borrowers may
have the right to call or prepay obligations with or without call or
prepayment penalties.
<TABLE>
<CAPTION>
Amortized Fair
Held to maturity Cost Value
<S> <C> <C>
Due in one year or less $ 21,818 $ 22,085
Due from one to five years 156,874 163,378
Due from five to ten years 647,127 671,734
Due in more than ten years 158,802 163,720
Mortgage-backed securities 202,061 202,191
---------- ----------
$1,186,682 $1,223,108
========== ==========
Amortized Fair
Available for sale Cost Value
Due in one year or less $ 37,804 $ 37,930
Due from one to five years 56,938 60,498
Due from five to ten years 689,418 715,717
Due in more than ten years 491,134 505,349
Mortgage-backed securities 1,334,327 1,366,305
---------- ----------
$2,609,621 $2,685,799
========== ==========
</TABLE>
During the years ended December 31, 1997, 1996 and 1995, fixed maturities
classified as held to maturity were sold with amortized cost of $29,561,
$27,969 and $34,809, respectively. Net gains and losses on these sales were
not significant. The sales of these fixed maturities were due to
significant deterioration in the issuers' credit worthiness.
<PAGE>
2. Investments (continued)
In addition, fixed maturities available for sale were sold during 1997 with
proceeds of $73,366 and gross realized gains and losses of $1,081 and
$1,440, respectively. Fixed maturities available for sale were sold during
1996 with proceeds of $47,542 and gross realized gains and losses of $17
and $3,139, respectively. Fixed maturities available for sale were sold
during 1995 with proceeds of $57,576 and gross realized gains and losses of
$nil and $646, respectively.
At December 31, 1997, bonds carried at $3,307 were on deposit with various
states as required by law.
At December 31, 1997, investments in fixed maturities comprised 84 percent
of the Company's total invested assets. These securities are rated by
Moody's and Standard & Poor's (S&P), except for securities carried at
approximately $461 million which are rated by AEFC internal analysts using
criteria similar to Moody's and S&P. A summary of investments in fixed
maturities, at amortized cost, by rating on December 31 is as follows:
<TABLE>
<CAPTION>
Rating 1997 1996
---------------------- ---------- ----------
<S> <C> <C>
Aaa/AAA $1,531,588 $1,489,460
Aa/AA 34,167 32,903
Aa/A 69,775 38,577
A/A 421,733 445,201
A/BBB 222,022 204,402
Baa/BBB 954,962 818,545
Baa/BB 84,053 97,783
Below investment grade 478,003 352,729
----------- ----------
$3,796,303 $3,479,600
=========== ==========
</TABLE>
At December 31, 1997, approximately 95 percent of the securities rated
Aaa/AAA are GNMA, FNMA and FHLMC mortgage-backed securities. No holdings of
any other issuer are greater than one percent of the Company's total
investments in fixed maturities.
At December 31, 1997, approximately 16 percent of the Company's invested
assets were mortgage loans on real estate. Summaries of mortgage loans by
region of the United States and by type of real estate are as follows:
<TABLE>
<CAPTION>
December 31, 1997 December 31, 1996
----------------------- --------------------
On Balance Commitments On Balance Commitments
Region Sheet to Purchase Sheet to Purchase
------------------ ----------- -------------- ---------- -----------
<S> <C> <C> <C> <C>
South Atlantic $186,714 $9,199 $139,630 $22,525
Middle Atlantic 128,239 10,167 111,257 6,257
East North Central 125,018 6,294 105,666 7,508
Mountain 94,061 11,620 82,389 4,380
West North Central 96,701 11,135 54,728 15,017
New England 50,932 -- 50,584 --
Pacific 33,052 -- 18,504 1,877
West South Central 19,573 -- 14,927 5,006
East South Central 7,480 -- 7,667 --
----------- -------------- ---------- -----------
741,770 48,415 585,352 62,570
Less allowance for losses 3,718 -- 2,370 --
----------- -------------- ---------- -----------
$738,052 $48,415 $582,982 $62,570
=========== ============== ========== ===========
<PAGE>
2. Investments (continued)
December 31, 1997 December 31, 1996
------------------- ------------------
On Balance Commitments On Balance Commitments
Property type Sheet to Purchase Sheet to Purchase
----------------------- ---------- ----------- -------- -----------
Department/retail stores $242,307 $9,683 $184,192 $26,905
Apartments 189,752 10,167 172,208 2,816
Office buildings 169,177 7,262 112,430 14,391
Industrial buildings 60,195 17,430 54,117 2,816
Hotels/Motels 33,508 -- 28,189 6,257
Medical buildings 30,103 3,873 18,787 7,508
Nursing/retirement homes
9,552 -- 8,080 1,877
Mixed Use 7,176 -- 7,349 --
---------- ----------- --------- -----------
741,770 48,415 585,352 62,570
Less allowance for losses 3,718 -- 2,370 --
---------- ----------- --------- -----------
$738,052 $48,415 $582,982 $62,570
========== =========== ========= ===========
</TABLE>
Mortgage loan fundings are restricted by state insurance regulatory
authorities to 80 percent or less of the market value of the real estate at
the time of origination of the loan. The Company holds the mortgage
document, which gives it the right to take possession of the property if
the borrower fails to perform according to the terms of the agreement. The
fair value of the mortgage loans is determined by a discounted cash flow
analysis using mortgage interest rates currently offered for mortgages of
similar maturities. Commitments to purchase mortgages are made in the
ordinary course of business. The fair value of the mortgage commitments is
$nil.
At December 31, 1997, the Company's recorded investment in impaired loans
was $4,443 with an allowance of $718. At December 31, 1996, the Company's
recorded investment in impaired loans was $5,515 with an allowance of $870.
During 1997 and 1996, the average recorded investment in impaired loans was
$6,473 and $3,577, respectively.
There were no impaired loans prior to 1996.
The following table presents changes in the allowance for investment losses
related to all loans:
<TABLE>
<CAPTION>
1997 1996
------ ------
<S> <C> <C>
Balance, January 1 $2,370 $ --
Provision for investment losses 1,805 2,370
Loan payoffs (457) --
------ ------
Balance, December 31 $3,718 $2,370
====== ======
</TABLE>
There was no allowance prior to 1996.
Net investment income for the years ended December 31 is summarized as
follows:
<TABLE>
<CAPTION>
1997 1996 1995
--------- --------- -------
<S> <C> <C> <C>
Interest on fixed maturities $278,736 $230,559 $198,829
Interest on mortgage loans 55,085 41,010 24,969
Interest on cash equivalents 1,544 1,402 829
Other 704 1,194 921
--------- -------- --------
336,069 274,165 225,548
Less investment expenses 3,801 2,446 1,842
--------- -------- --------
$332,268 $271,719 $223,706
========= ======== ========
</TABLE>
2. Investments (continued)
Net realized gain (loss) on investments for the years ended December 31 is
summarized as follows:
<TABLE>
<CAPTION>
1997 1996 1995
-------- -------- ------
<S> <C> <C> <C>
Fixed maturities $1,638 $(2,888) $(1,114)
Mortgage loans (1,348) (2,370) --
Other investments (799) -- (40)
------- ------- -------
$ (509) $(5,258) $(1,154)
======= ======= =======
Changes in net unrealized appreciation (depreciation) of investments for
the years ended December 31 are summarized as follows:
1997 1996 1995
------------ ------------ --------
Fixed maturities available for sale $57,188 $(31,970) $118,134
</TABLE>
3. Income taxes
The Company qualifies as a life insurance company for federal income tax
purposes. As such, the Company is subject to the Internal Revenue Code
provisions applicable to life insurance companies.
The income tax expense (benefit) for the years ended December 31, consists
of the following:
<TABLE>
<CAPTION>
1997 1996 1995
-------- -------- -------
<S> <C> <C> <C>
Federal income taxes:
Current $17,668 $7,124 $11,753
Deferred (2,485) 5,084 (119)
------ ------- -------
15,183 12,208 11,634
State income taxes-current 1,462 704 58
------ ------- ------
Income tax expense $16,645 $12,912 $11,692
====== ======= ======
</TABLE>
Increases (decreases) to the federal income tax provision applicable to
pretax income based on the statutory rate, for the years ended December 31,
are attributable to:
<TABLE>
<CAPTION>
1997 1996 1995
----------- -------- ------
Provision Rate Provision Rate Provision Rate
<S> <C> <C> <C> <C> <C> <C>
Federal income taxes based
on the statutory rate $15,735 35.0% $12,507 35.0% $11,704 35.0%
Increases (decreases) are attributable to :
Tax-excluded interest (46) (0.1) (53) (0.1) (69) (0.2)
State tax, net benefit 951 2.1 459 1.3 38 0.1
Other, net 5 -- (1) -- 19 0.1
------- ---- ------- ---- ------- ----
Federal income taxes $16,645 37.0% $12,912 36.2% $11,692 35.0%
======= ==== ======= ==== ======= ====
</TABLE>
<PAGE>
3. Income taxes (continued)
Significant components of the Company's deferred income tax assets and
liabilities as of December 31 are as follows:
<TABLE>
<CAPTION>
Deferred income tax assets: 1997 1996
------- -------
<S> <C> <C>
Policy reserves $54,468 $48,321
Other 1,736 1,851
------- -------
Total deferred income tax assets 56,204 50,172
------- -------
Deferred income tax liabilities:
Deferred policy acquisition costs 63,630 59,162
Investments 28,175 9,082
------- -------
Total deferred income tax liabilities 91,805 68,244
------- -------
Net deferred income tax liabilities $35,601 $18,072
======= =======
</TABLE>
The Company is required to establish a valuation allowance for any portion
of the deferred income tax assets that management believes will not be
realized. In the opinion of management, it is more likely than not that the
Company will realize the benefit of the deferred income tax assets and,
therefore, no such valuation allowance has been established.
4. Stockholder's equity
Retained earnings available for distribution as dividends to IDS Life are
limited to the Company's surplus as determined in accordance with
accounting practices prescribed by state insurance regulatory authorities.
Statutory unassigned surplus aggregated $17,392 and $6,103 as of December
31, 1997 and 1996, respectively. In addition, dividends in excess of
$23,589 would require approval by the Insurance Department of the state of
Indiana.
Statutory net income and stockholder's equity as of December 31, are
summarized as follows:
<TABLE>
<CAPTION>
1997 1996 1995
-------- -------- -------
<S> <C> <C> <C>
Statutory net income $ 23,589 $ 9,138 $ 15,499
Statutory stockholder's equity 302,264 250,975 187,425
</TABLE>
5. Related party transactions
On December 31, 1997, the Company purchased interest rate floors from IDS
Life and entered into an interest rate swap with IDS Life to manage its
exposure to interest rate risk. The interest rate floors had an outstanding
balance of $8,400 at December 31, 1997. The interest rate swap is an off
balance sheet transaction.
The Company has no employees. Charges by IDS Life for services and use of
other joint facilities aggregated $24,535, $17,936 and $10,380 for 1997,
1996 and 1995, respectively. Certain of these costs are included in
deferred policy acquisition costs.
6. Lines of credit
The Company has an available line of credit with AEFC aggregating $50,000.
The rate for the line of credit is the parent's cost of funds, ranging from
20 to 45 basis points over an established index. A $20,000 line of credit
with a bank expired on June 30, 1997 and the Company did not seek renewal.
There were no borrowings outstanding under these agreements at December 31,
1997 or 1996.
<PAGE>
7. Commitments and contingencies
The economy and other factors have caused an increase in the number of
insurance companies that are under regulatory supervision. This
circumstance has resulted in substantial assessments by state guaranty
associations to cover losses to policyholders of insolvent or rehabilitated
companies. The Company expects additional future assessments related to
past insolvencies and rehabilitations. Management has estimated the impact
of future assessments on the Company's financial position and recorded a
reserve for such future assessments.
8. Derivative financial instruments
The Company enters into transactions involving derivative financial
instruments to manage its exposure to interest rate risk, including hedging
specific transactions. The Company does not hold derivative instruments for
trading purposes. The Company manages risks associated with these
instruments as described below.
Market risk is the possibility that the value of the derivative financial
instruments will change due to fluctuations in a factor from which the
instrument derives its value, primarily an interest rate. The Company is
not impacted by market risk related to derivatives held for non-trading
purposes beyond that inherent in cash market transactions. Derivatives held
for purposes other than trading are largely used to manage risk and,
therefore, the cash flow and income effects of the derivatives are inverse
to the effects of the underlying transactions.
Credit risk is the possibility that the counterparty will not fulfill the
terms of the contract. The Company monitors credit risk related to
derivative financial instruments through established approval procedures,
including setting concentration limits by counterparty, and requiring
collateral, where appropriate. A vast majority of the Company's
counterparties are rated A or better by Moody's and Standard & Poor's.
Credit risk related to interest rate caps and floors is measured by
replacement cost of the contracts. The replacement cost represents the fair
value of the instruments.
The notional or contract amount of a derivative financial instrument is
generally used to calculate the cash flows that are received or paid over
the life of the agreement. Notional amounts are not recorded on the balance
sheet. Notional amounts far exceed the related credit exposure.
The Company's holdings of derivative financial instruments are as follows:
<TABLE>
<CAPTION>
Notional Carrying Fair Total Credit
December 31, 1997 Amount Amount Value Exposure
----------------- ------ ------ ----- ------------
<S> <C> <C> <C> <C>
Assets:
Interest rate caps $ 900,000 $ 7,624 $ 5,340 $ 5,340
Interest rate 1,000,000 8,400 8,400 8,400
floors
Interest rate swaps 1,000,000 -- n/a n/a
------- ------- -------
$16,024 $13,740 $13,740
======= ======= =======
Notional Carrying Fair Total Credit
December 31, 1996 Amount Amount Value Exposure
----------------- ------ ------ ----- --------
Assets:
Interest rate caps $400,000 $3,056 $1,621 $ 1,621
====== ====== ======
</TABLE>
The fair values of derivative financial instruments are based on market
values, dealer quotes or pricing models. All interest rate caps, floors and
swaps expire in the year 2000.
<PAGE>
8. Derivative financial instruments (continued)
Interest rate caps, floors and swaps are used to manage the Company's
exposure to interest rate risk. These instruments are used primarily to
protect the margin between interest rates earned on investments and the
interest rates credited to related annuity contract holders.
9. Fair values of financial instruments
The Company discloses fair value information for most on- and off-balance
sheet financial instruments for which it is practicable to estimate that
value. Fair value of life insurance obligations, receivables and all
non-financial instruments, such as deferred acquisition costs are excluded.
Off-balance sheet intangible assets are also excluded. Management believes
the value of excluded assets and liabilities is significant. The fair value
of the Company, therefore, cannot be estimated by aggregating the amounts
presented.
<TABLE>
<CAPTION>
1997 1996
------- ---------
Carrying Fair Carrying Fair
Financial Assets Amount Value Amount Value
Investments:
<S> <C> <C> <C> <C>
Fixed maturities (Note 2):
Held to maturity $1,186,682 $1,223,108 $1,256,143 $1,267,947
Available for sale 2,685,799 2,685,799 2,242,447 2,242,447
Mortgage loans on real estate
(Note 2) 738,052 775,869 582,982 597,053
Derivative financial instruments
(Note 8) 16,024 13,740 3,056 1,621
Cash and cash equivalents (Note 1) -- -- 40,829 40,829
Separate account assets (Note 1) 62,087 62,087 30,760 30,760
Financial Liabilities
Future policy benefits for fixed
annuities 4,330,173 4,152,471 3,871,682 3,702,141
Separate account liabilities 62,087 58,116 30,760 28,990
</TABLE>
At December 31, 1997 and 1996, the carrying amount and fair value of future
policy benefits for fixed annuities exclude life insurance-related
contracts carried at $13,040 and $9,657, respectively. The fair value of
these benefits is based on the status of the annuities at December 31, 1997
and 1996. The fair values of deferred annuities and separate account
liabilities are estimated as the carrying amount less applicable surrender
charges. The fair value for annuities in non-life contingent payout status
is estimated as the present value of projected benefit payments at rates
appropriate for contracts issued in 1997 and 1996.
<PAGE>
10. Year 2000 Issue (unaudited)
The Year 2000 issue is the result of computer programs having been
written using two digits rather than four to define a year. Any programs that
have time-sensitive software may recognize a date using "00" as the year 1900
rather than 2000. This could result in the failure of majsystems or
miscalculations, which could have a material impact on the operations of the
Company. All of the systems used by the Company are maintained by AEFC and are
utilized by multiple subsidiaries and affiliates of AEFC. The Company's business
is heavily dependent upon AEFC's computer systems and has significant
interactions with systems of third parties.
A comprehensive review of AEFC's computer systems and business
processes, including those specific to the Company, has been conducted to
identify the major systems that could be affected by the Year 2000 issue. Steps
are being taken to resolve any potential problems including modification to
existing software and the purchase of new software. These measures are scheduled
to be completed and tested on a timely basis. AEFC's goal is to complete
internal remediation and testing of each system by the end of 1998 and to
continue compliance efforts through 1999.
AEFC is evaluating the Year 2000 readiness of advisors and other third
parties whose system failures could have an impact on the Company's operations.
The potential materiality of any such impact is not known at this time.
<PAGE>
PART C.
Item 24. Financial Statements and Exhibits
(a) Financial statements included in Part B of this Registration Statement:
The audited financial statements of the variable account including:
Statements of net assets as of Dec. 31, 1997;
Statements of operations for the year ended Dec. 31, 1997; and
Statements of changes in net assets for the year ended Dec. 31, 1997
and for the year ended Dec. 31, 1996.
Notes to Financial Statements.
Report of Independent Auditors dated March 13, 1998.
The audited financial statements of American Enterprise Life Insurance
Company including:
Balance sheets as of Dec. 31, 1997 and Dec. 31, 1996 and related
statements of income, stockholder's equity and cash flows for the years
ended Dec. 31, 1997, 1996 and 1995.
Notes to Financial Statements.
Report of Independent Auditors dated February 5, 1998.
(b) Exhibits:
1. Resolution of the Executive Committee of the Board of Directors of American
Enterprise Life dated April 1, 1997, filed electronically as Exhibit 6.1 to
the Pre-Effective Registration Amendment No. 1, 333-20217, is incorporated
herein by reference.
2. Not applicable.
3. Form of General Agent Agreement is filed electronically herewith.
4.1 Form of Deferred Annuity Contract (form 37220), filed electronically as
Exhibit 4.1 to Pre-Effective Amendment No. 2 to Registration Statement No.
811-7195, is incorporated herein by reference.
4.2 Form of Tax-Qualified Endorsement, to be filed by Amendment.
4.3 Form of Annuity Endorsement, to be filed by Amendment.
5.1 Form of Application for AEL Bank Variable Annuity, to be filed by
Amendment.
6.1 Amendment and Restatement of Articles of Incorporation of American
Enterprise Life dated July 29, 1986, filed electronically as Exhibit 6.1 to
the Initial Registration Statement No. 1, filed on or about Jan. 23, 1997,
is incorporated herein by reference.
<PAGE>
6.2 Amended By-Laws of American Enterprise Life, filed electronically as
Exhibit 6.2 to the Initial Registration Statement No. 1, filed on or about
Jan. 23, 1997, is incorporated herein by reference.
7. Not applicable.
8.1 Copy of Participation Agreement among Putnam Capital Manager Trust, Putnam
Mutual Funds Corp. and American Enterprise Life Insurance Company, dated
January 16, 1995, filed electronically as Exhibit 8.2 to Post-Effective
Amendment No. 2 to Registration Statement No.33-54471, is incorporated
herein by reference.
8.2 Copy of Amendment 1 to Schedule A to Participation Agreement among Putnam
Capital Manager Trust (now known as Putnam Variable Trust), Putnam Mutual
Funds Corp. and American Enterprise Life Insurance Company, dated April 30,
1997, is filed electronically herewith.
8.3 Copy of Amendment 2 to Schedule A to Participation Agreement among Putnam
Capital Manager Trust (now known as Putnam Variable Trust), Putnam Mutual
Funds Corp. and American Enterprise Life Insurance Company, dated October
30, 1997, is filed electronically herewith.
9. Opinion of counsel and consent to its use as to the legality of the
securities being registered, is filed electronically herewith.
10. Consent of independent auditors, is filed electronically herewith.
11. Financial Statement Schedules and Report of Independent Auditors, filed
electronically herewith.
Financial Statement Schedules:
Schedule I Summary of Investments Other Than Investments In
Related Parties
Schedule V Valuation and Qualifying Accounts
Report of Independent Auditors dated February 5, 1998.
All other schedules to the Financial Statements required by Article 7
of Regulation S-X are not required under the related instructions or
are inapplicable and, therefore, have been omitted.
12. Not applicable.
13. Copy of schedule for computation of each performance quotation provided in
the Registration Statement in response to Item 21, filed electronically as
Exhibit 13 to the Initial Registration Statement to Registration Statement
No. 33-54471, filed on or about July 5, 1994, is incorporated herein by
reference.
<PAGE>
14. Financial Data Schedules, is filed electronically herewith.
15.1 Power of Attorney to sign amendments to this Registration Statement dated
March 28, 1997, filed electronically as Exhibit 15 to the Pre-Effective
Registration Amendment No. 1, 333-20217, is incorporated herein by
reference.
15.2 Power of Attorney to sign Amendments to this Registration Statement dated
April 9, 1998, is filed electronically herewith.
<TABLE>
<CAPTION>
Item 25. Directors and Officers of the Depositor (American Enterprise Life Insurance Company)
Positions and Offices with Depositor
Name Principal Business Address
- ------------------------------------ -------------------------------------- -------------------------------------
<S> <C> <C>
James E. Choat IDS Tower 10 Director, President and Chief
Minneapolis, MN 55440 Executive Officer
Mark A. Ernst IDS Tower 10 Director
Minneapolis, MN 55440
Lorraine R. Hart IDS Tower 10 Vice President-Investments
Minneapolis, MN 55440
Jeffrey S. Horton IDS Tower 10 Vice President and Treasurer
Minneapolis, MN 55440
Richard W. Kling IDS Tower 10 Director and Chairman of the Board
Minneapolis, MN 55440
Bruce A. Kohn IDS Tower 10 Vice President, Group Counsel and
Minneapolis, MN 55440 Assistant Secretary
Paul S. Mannweiler Indianapolis Power and Light Director
One Monument Circle
P.O. Box 1595
Indianapolis, IN 46206-1595
Mary Ellyn Minenko IDS Tower 10 Vice President, Group Counsel and
Minneapolis, MN 55440 Assistant Secretary
Stuart A. Sedlacek IDS Tower 10 Director and Executive Vice
Minneapolis, MN 55440 President-Assured Assets
F. Dale Simmons IDS Tower 10 Vice President-Real Estate Loan
Minneapolis, MN 55440 Management
<PAGE>
William A. Stoltzmann IDS Tower 10 Director, Vice President, General
Minneapolis, MN 55440 Counsel and Secretary
Philip C. Wentzel IDS Tower 10 Vice President and Controller
Minneapolis, MN 55440
</TABLE>
Item 26. Persons Controlled by or Under Common Control with the
Depositor or Registrant
American Enterprise Life Insurance is a wholly-owned
subsidiary of IDS Life Insurance Company which is a
wholly-owned subsidiary of American Express Financial
Corporation. American Express Financial Corporation is a
wholly-owned subsidiary of American Express Company (American
Express).
The following list includes the names of major subsidiaries of
American Express.
<TABLE>
<CAPTION>
<S> <C>
Jurisdiction of
Name of Subsidiary Incorporation
I. Travel Related Services
American Express Travel Related Services Company, Inc. New York
II. International Banking Services
American Express Bank Ltd. Connecticut
III. Companies engaged in Financial Services
Advisory Capital Strategies Group Inc. Minnesota
American Centurion Life Assurance Company New York
American Enterprise Investment Services Inc. Minnesota
American Enterprise Life Insurance Company Indiana
American Express Asset Management Group Inc. Minnesota
American Express Asset Management International Inc. Delaware
American Express Asset Management International (Japan) Ltd. Japan
American Express Asset Management Ltd. England
American Express Client Service Corporation Minnesota
American Express Corporation Delaware
American Express Financial Advisors Inc. Delaware
American Express Financial Corporation Minnesota
Delaware
American Express Insurance Agency of Arizona Inc. Arizona
American Express Insurance Agency of Idaho Inc. Idaho
American Express Insurance Agency of Nevada Inc. Nevada
American Express Insurance Agency of Oregon Inc. Oregon
American Express Minnesota Foundation Minnesota
American Express Property Casualty Insurance Agency of Kentucky Inc. Kentucky
American Express Property Casualty Insurance Agency of Maryland Inc. Maryland
American Express Property Casualty Insurance Agency of Pennsylvania Inc. Pennsylvania
American Express Trust Company Minnesota
<PAGE>
American Partners Life Insurance Company Arizona
IDS Cable Corporation Minnesota
IDS Cable II Corporation Minnesota
IDS Capital Holdings Inc. Minnesota
IDS Certificate Company Delaware
IDS Futures Corporation Minnesota
IDS Insurance Agency of Alabama Inc. Alabama
IDS Insurance Agency of Arkansas Inc. Arkansas
IDS Insurance Agency of Massachusetts Inc. Massachusetts
IDS Insurance Agency of New Mexico Inc. New Mexico
IDS Insurance Agency of North Carolina Inc. North Carolina
IDS Insurance Agency of Utah Inc. Utah
IDS Insurance Agency of Wyoming Inc. Wyoming
IDS Life Insurance Company Minnesota
IDS Life Insurance Company of New York New York
IDS Management Corporation Minnesota
IDS Partnership Services Corporation Minnesota
IDS Plan Services of California, Inc. Minnesota
IDS Property Casualty Insurance Company Wisconsin
IDS Real Estate Services, Inc. Delaware
IDS Realty Corporation Minnesota
IDS Sales Support Inc. Minnesota
IDS Securities Corporation Delaware
Investors Syndicate Development Corp. Nevada
North Dakota Public Employee Payment Company Minnesota
</TABLE>
Item 27. Number of Contractowners
As of February 28, 1998 there were 156 contract owners of
non-qualified contracts.
Item 28. Indemnification
The By-Laws of the depositor provide that the Corporation
shall have the power to indemnify a director, officer, agent
or employee of the Corporation pursuant to the provisions of
applicable statues or pursuant to contract.
The Corporation may purchase and maintain insurance on behalf
of any director, officer, agent or employee of the Corporation
against any liability asserted against or incurred by the
director, officer, agent or employee in such capacity or
arising out of the director's, officer's, agent's or
employee's status as such, whether or not the Corporation
would have the power to indemnify the director, officer, agent
or employee against such liability under the provisions of
applicable law.
The By-Laws of the depositor provide that it shall indemnify a
director, officer, agent or employee of the depositor pursuant
to the provisions of applicable statutes or pursuant to
contract.
<PAGE>
Insofar as indemnification for liability arising under the
Securities Act of 1933 may be permitted to director, officers
and controlling persons of the registrant pursuant to the
foregoing provisions, or otherwise, the registrant has been
advised that in the opinion of the Securities and Exchange
Commission such indemnification is against public policy as
expressed in the Act and is, therefore, unenforceable. In the
event that a claim for indemnification against such
liabilities (other than the payment by the registrant of
expenses incurred or paid by a director, officer or
controlling person of the registrant in the successful defense
of any action, suit or proceeding) is asserted by such
director, officer or controlling person in connection with the
securities being registered, the registrant will, unless in
the opinion of its counsel the matter has been settled by
controlling precedent, submit to a court of appropriate
jurisdiction the question whether such indemnification by it
is against public policy as expressed in the Act and will be
governed by the final adjudication of such issue.
<PAGE>
Item 29. Principal Underwriters.
(a) American Express Financial Advisors acts as principal underwriter for
the following investment companies:
IDS Bond Fund, Inc.; IDS California Tax-Exempt Trust; IDS Discovery
Fund, Inc.; IDS Equity Select Fund, Inc.; IDS Extra Income Fund, Inc.;
IDS Federal Income Fund, Inc.; IDS Global Series, Inc.; IDS Growth
Fund, Inc.; IDS High Yield Tax-Exempt Fund, Inc.; IDS International
Fund, Inc.; IDS Investment Series, Inc.; IDS Managed Retirement Fund,
Inc.; IDS Market Advantage Series, Inc.; IDS Money Market Series, Inc.;
IDS New Dimensions Fund, Inc.; IDS Precious Metals Fund, Inc.; IDS
Progressive Fund, Inc.; IDS Selective Fund, Inc.; IDS Special
Tax-Exempt Series Trust; IDS Stock Fund, Inc.; IDS Strategy Fund, Inc.;
IDS Tax-Exempt Bond Fund, Inc.; IDS Tax-Free Money Fund, Inc.; IDS
Utilities Income Fund, Inc., Growth Trust; Growth and Income Trust;
Income Trust, Tax-Free Income Trust, World Trust and IDS Certificate
Company.
<TABLE>
<CAPTION>
(b) As to each director, officer or partner of the principal underwriter:
Name and Principal Business Address Position and Offices with Positions with Offices with
Underwriter Registrant
- ----------------------------------------- ------------------------------------ -----------------------------
<S> <C> <C>
Ronald. G. Abrahamson Vice President - Service Quality None
IDS Tower 10 and Reengineering
Minneapolis, MN 55440
Douglas A. Alger Senior Vice President - Human None
IDS Tower 10 Resources
Minneapolis, MN 55440
Peter J. Anderson Senior Vice President - Investment Vice President
IDS Tower 10 Operations
Minneapolis, MN 55440
Ward D. Armstrong Vice President - American Express None
IDS Tower 10 Retirement Services
Minneapolis, MN 55440
John M. Baker Vice President - Plan Sponsor None
IDS Tower 10 Services
Minneapolis, MN 55440
Joseph M. Barksy, III Vice President - Senior Portfolio None
IDS Tower 10 Manager
Minneapolis, MN 55440
Robert C. Basten Vice President - Tax and Business None
IDS Tower 10 Services
Minneapolis, MN 55440
Timothy V. Bechtold Vice President - Risk Management None
IDS Tower 10 Products
Minneapolis, MN 55440
John D. Begley Group Vice President - Ohio/Indiana None
Suite 100
7760 Olentangy River Rd.
Columbus, OH 43235
Jack A. Benjamin Group Vice President - Greater None
Suite 200 Pennsylvania
3500 Market Street
Camp Hill, PA 17011
Brent L. Bisson Group Vice President - Los Angeles None
Suite 900 Metro
E. Westside Twr
11835 West Olympic Blvd.
Los Angeles, CA 90064
John C. Boeder Vice President - Mature Market None
IDS Tower 10 Group
Minneapolis, MN 55440
Walter K. Booker Group Vice President - New Jersey None
IDS Tower 10
Minneapolis, MN 55440
Bruce J. Bordelon Group Vice President - Gulf States None
Galleria One Suite 1900
Galleria Blvd.
Metairie, LA 70001
Charles R. Branch Group Vice President - Northwest None
Suite 200
West 111 North River Dr.
Spokane, WA 99201
Douglas W. Brewers Vice President - Sales Support None
IDS Tower 10
Minneapolis, MN 55440
Karl J. Breyer Senior Vice President - Law and None
IDS Tower 10 Corporate Affairs
Minneapolis, MN 55440
Daniel J. Candura Vice President - Marketing Support None
IDS Tower 10
Minneapolis, MN 55440
Cynthia M. Carlson Vice President - American Express None
IDS Tower 10 Securities Services
Minneapolis, MN 55440
Mark W. Carter Senior Vice President and Chief None
IDS Tower 10 Marketing Officer
Minneapolis, MN 55440
James E. Choat Senior Vice President - Director, President and
IDS Tower 10 Institutional Products Group Chief Executive Officer
Minneapolis, MN 55440
Kenneth J. Ciak Vice President and General Manager None
IDS Property Casualty - DS Property Casualty
1400 Lombardi Avenue
Green Bay, WI 54304
Paul A. Connolly Vice President - Advisor Staffing, None
IDS Tower 10 Training and Support
Minneapolis, MN 55440
Roger C. Corea Group Vice President - Upstate New None
290 Woodcliff Drive York
Fairport, NY 14450
Henry J. Cormier Group Vice President - Connecticut None
Commerce Center One
333 East River Drive
East Hartford, CT 06108
John M. Crawford Group Vice President - None
Suite 200 Arkansas/Springfield/Memphis
10800 Financial Ctr Pkwy
Little Rock, AR 72211
Kevin F. Crowe Group Vice President - None
Suite 312 Carolinas/Eastern Georgia
7300 Carmel Executive Pk
Charlotte, NC 28226
Colleen Curran Vice President and General Counsel None
IDS Tower 10
Minneapolis, MN 55440
Regenia David Vice President - Systems Services None
IDS Tower 10
Minneapolis, MN 55440
Luz Maria Davis Vice President - Communications None
IDS Tower 10
Minneapolis, MN 55440
Scott M. DiGiammarino Group Vice President - None
Suite 500 Washington/Baltimore
8045 Leesburg Pike
Vienna, VA 22182
Bradford L. Drew Group Vice President - Eastern None
Two Datran Center Florida
Penthouse One B
9130 S. Dadeland Blvd.
Miami, FL 33156
Gordon L. Eid Senior Vice President, General None
IDS Tower 10 Counsel and Chief Compliance
Minneapolis, MN 55440 Officer
Robert M. Elconin Vice President - Government None
IDS Tower 10 Relations
Minneapolis, MN 55440
Mark A. Ernst Senior Vice President - Third Director
IDS Tower 10 Party Distribution
Minneapolis, MN 55440
Joseph Evanovich Jr. Group Vice President - None
One Old Mill Nebraska/Iowa/Dakotas
101 South 108th Avenue
Omaha, NE 68154
Louise P. Evenson Group Vice President - San None
Suite 200 Francisco Bay Area
1333 N. California Blvd.
Walnut Creek, CA 94596
Gordon M. Fines Vice President - Mutual Fund None
IDS Tower 10 Equity Investments
Minneapolis, MN 55440
Douglas L. Forsberg Vice President - Institutional None
IDS Tower 10 Products Group
Minneapolis, MN 55440
Jeffrey P. Fox Vice President and Corporate None
IDS Tower 10 Controller
Minneapolis, MN 55440
William P. Fritz Group Vice President - Northern None
Suite 160 Missouri
12855 Flushing Meadows Dr.
St. Louis, MO 63131
Carl W. Gans Group Vice President - Twin City None
8500 Tower Suite 1770 Metro
8500 Normandale Lake Blvd.
Bloomington, MN 55437
David A. Hammer Vice President and Marketing None
IDS Tower 10 Controller
Minneapolis, MN 55440
Teresa A. Hanratty Group Vice President - Northern None
Suites 6&7 New England
169 South River Road
Bedford, NH 03110
Robert L. Harden Group Vice President - Boston Metro None
Two Constitution Plaza
Boston, MA 02129
Lorraine R. Hart Vice President - Insurance Vice President, Investments
IDS Tower 10 Investments
Minneapolis, MN 55440
Scott A. Hawkinson Vice President - Assured Assets None
IDS Tower 10 Product Development and Management
Minneapolis, MN 55440
Brian M. Heath Group Vice President - North Texas None
Suite 150
801 E. Campbell Road
Richardson, TX 75081
Janis K. Heaney Vice President - Incentive None
IDS Tower 10 Compensation
Minneapolis, MN 55440
James G. Hirsh Vice President and Assistant None
IDS Tower 10 General Counsel
Minneapolis, MN 55440
Jon E. Hjelm Group Vice President - Rhode None
310 Southbridge Street Island/Central - Western
Auburn, MA 01501 Massachusetts
David J. Hockenberry Group Vice President - Eastern None
30 Burton Hills Blvd. Tennessee
Suite 175
Nashville, TN 37215
Jeffrey S. Horton Vice President and Treasurer None
IDS Tower 10
Minneapolis, MN 55440
David R. Hubers Chairman, President and Chief Board member
IDS Tower 10 Executive Officer
Minneapolis, MN 55440
Martin G. Hurwitz Vice President - Senior Portfolio None
IDS Tower 10 Manager
Minneapolis, MN 55440
James M. Jensen Vice President - Insurance Product None
IDS Tower 10 Development and Management
Minneapolis, MN 55440
Marietta L. Johns Senior Vice President - Field None
IDS Tower 10 Management
Minneapolis, MN 55440
Nancy E. Jones Vice President - Business None
IDS Tower 10 Development
Minneapolis, MN 55440
James E. Kaarre Vice President - Marketing None
IDS Tower 10 Promotions
Minneapolis, MN 55440
Matthew N. Karstetter Vice President - Investment None
IDS Tower 10 Accounting
Minneapolis, MN 55440
Linda B. Keene Vice President - Market Development None
IDS Tower 10
Minneapolis, MN 55440
G. Michael Kennedy Vice President - Investment None
IDS Tower 10 Services and Investment Research
Minneapolis, MN 55440
Susan D. Kinder Senior Vice President - None
IDS Tower 10 Distribution Services
Minneapolis, MN 55440
Brian Kleinberg Executive Vice President - None
IDS Tower 10 Financial Direct
Minneapolis, MN 55440
Richard W. Kling Senior Vice President - Risk Director and Chairman of
IDS Tower 10 Management Products the Board
Minneapolis, MN 55440
Paul F. Kolkman Vice President - Actuarial Finance None
IDS Tower 10
Minneapolis, MN 55440
Claire Kolmodin Vice President - Service Quality None
IDS Tower 10
Minneapolis, MN 55440
David S. Kreager Group Vice President - Greater None
Suite 108 Michigan
Trestle Bridge V
5126 Lovers Lane
Kalamazoo, MI 49002
Steven C. Kumagai Director and Senior Vice President None
IDS Tower 10 - Field Management and Business
Minneapolis, MN 55440 Systems
Mitre Kutanovski Group Vice President - Chicago None
Suite 680 Metro
8585 Broadway
Merrillville, IN 48410
Edward Labenski Jr. Vice President - Senior Portfolio None
IDS Tower 10 Manager
Minneapolis, MN 55440
Kurt A. Larson Vice President - Senior Portfolio None
IDS Tower 10 Manager
Minneapolis, MN 55440
Lori J. Larson Vice President - Brokerage and None
IDS Tower 10 Direct Services
Minneapolis, MN 55440
Daniel E. Laufenberg Vice President and Chief U.S. None
IDS Tower 10 Economist
Minneapolis, MN 55440
Richard J. Lazarchic Vice President - Senior Portfolio None
IDS Tower 10 Manager
Minneapolis, MN 55440
Peter A. Lefferts Senior Vice President - Corporate None
IDS Tower 10 Strategy and Development
Minneapolis, MN 55440
Douglas A. Lennick Director and Executive Vice None
IDS Tower 10 President - Private Client Group
Minneapolis, MN 55440
Mary J. Malevich Vice President - Senior Portfolio None
IDS Tower 10 Manager
Minneapolis, MN 55440
Fred A. Mandell Vice President - Field Marketing None
IDS Tower 10 Readiness
Minneapolis, MN 55440
Daniel E. Martin Group Vice President - Pittsburgh None
Suite 650 Metro
5700 Corporate Drive
Pittsburgh, PA 15237
Thomas W. Medcalf Vice President - Senior Portfolio None
IDS Tower 10 Manager
Minneapolis, MN 55440
William C. Melton Vice President - International None
IDS Tower 10 Research and Chief International
Minneapolis, MN 55440 Economist
William P. Miller Vice President and Senior None
IDS Tower 10 Portfolio Manager
Minneapolis, MN 55440
James A. Mitchell Executive Vice President - None
IDS Tower 10 Marketing and Products
Minneapolis, MN 55440
Pamela J. Moret Vice President - Variable Assets None
IDS Tower 10
Minneapolis, MN 55440
Alan D. Morgenstern Group Vice President - Central None
Suite 200 California/Western Nevada
3500 Market Street
Camp Hill, NJ 17011
Barry J. Murphy Senior Vice President - Client None
IDS Tower 10 Service
Minneapolis, MN 55440
Mary Owens Neal Vice President - Mature Market None
IDS Tower 10 Segment
Minneapolis, MN 55440
Robert J. Neis Vice President - Technology None
IDS Tower 10 Services
Minneapolis, MN 55440
Thomas V. Nicolosi Group Vice President - New York None
Suite 220 Metro Area
500 Mamaroneck Avenue
Harrison, NY 10528
James R. Palmer Vice President - Taxes None
IDS Tower 10
Minneapolis, MN 55440
Carla P. Pavone Vice President - Compensation and None
IDS Tower 10 Field Administration
Minneapolis, MN 55440
Thomas P. Perrine Senior Vice President - Group None
IDS Tower 10 Relationship Leader / AXP
Minneapolis, MN 55440 Technologies Financial Services
Susan B. Plimpton Vice President - Marketing Services None
IDS Tower 10
Minneapolis, MN 55440
Larry M. Post Group Vice President - None
One Tower Bridge Philadelphia Metro
100 Front Street, 8th Fl
West Conshohocken, PA 19428
Ronald W. Powell Vice President and Assistant None
IDS Tower 10 General Counsel
Minneapolis, MN 55440
James M. Punch Vice President - Special Projects None
IDS Tower 10
Minneapolis, MN 55440
Frederick C. Quirsfeld Senior Vice President - Fixed None
IDS Tower 10 Income
Minneapolis, MN 55440
Debra J. Rabe Vice President - Financial Planning None
IDS Tower 10
Minneapolis, MN 55440
R. Daniel Richardson Group Vice President - Southern None
Suite 800 Texas
Arboretum Plaza One
9442 Capital of Texas Hwy. N
Austin, TX 78759
ReBecca K. Roloff Senior Vice President - Field None
IDS Tower 10 Management and Financial Advisor
Minneapolis, MN 55440 Service
Stephen W. Roszell Senior Vice President - None
IDS Tower 10 Institutional
Minneapolis, MN 55440
Max G. Roth Group Vice President - None
Suite 201 S. IDS Ctr Wisconsin/Upper Michigan
1400 Lombardi Avenue
Green Bay, WI 54304
John P. Ryan Vice President and General Auditor None
IDS Tower 10
Minneapolis, MN 55440
Erven A. Samsel Senior Vice President - Field None
45 Braintree Hill Park Management
Suite 402
Braintree, MA 02184
Russell L. Scalfano Group Vice President - None
Suite 201 Illinois/Indiana/Kentucky
101 Plaza East Blvd.
Evansville, IN 47715
William G. Scholz Group Vice President - Arizona/Las None
Suite 205 Vegas
7333 E. Doubletree Ranch Rd
Scottsdale, AZ 85258
Stuart A. Sedlacek Senior Vice President and Chief Director and Executive Vice
IDS Tower 10 Financial Officer President, Assured Assets
Minneapolis, MN 55440
Donald K. Shanks Vice President - Property Casualty None
IDS Tower 10
Minneapolis, MN 55440
F. Dale Simmons Vice President - Senior Portfolio Vice President, Real Estate
IDS Tower 10 Manager, Insurance Investments Loan Management
Minneapolis, MN 55440
Judy P. Skoglund Vice President - Human Resources None
IDS Tower 10 and Organization Development
Minneapolis, MN 55440
Ben C. Smith Vice President - Workplace None
IDS Tower 10 Marketing
Minneapolis, MN 55440
William A. Smith Vice President and Controller - None
IDS Tower 10 Private Client Group
Minneapolis, MN 55440
James B. Solberg Group Vice President - Eastern None
466 Westdale Mall Iowa Area
Cedar Rapids, IA 52404
Bridget Sperl Vice President - Geographic None
IDS Tower 10 Service Teams
Minneapolis, MN 55440
Paul J. Stanislaw Group Vice President - Southern None
Suite 1100 California
Two Park Plaza
Irvine, CA 92714
Lois A. Stilwell Group Vice President - Outstate None
Suite 433 Minnesota Area/North
9900 East Bren Road Dakota/Western Wisconsin
Minnetonka, MN 55343
William A. Stoltzmann Vice President and Assistant None
IDS Tower 10 General Counsel
Minneapolis, MN 55440
James J. Strauss Vice President - Corporate None
IDS Tower 10 Planning and Analysis
Minneapolis, MN 55440
Jeffrey J. Stremcha Vice President - Information None
IDS Tower 10 Resource Management/ISD
Minneapolis, MN 55440
Barbara Stroup Stewart Vice President - Channel None
IDS Tower 10 Development
Minneapolis, MN 55440
Craig P. Taucher Group Vice President - None
Suite 150 Orlando/Jacksonville
4190 Belfort Road
Jacksonville, FL 32216
Neil G. Taylor Group Vice President - None
Suite 425 Seattle/Tacoma
101 Elliott Avenue West
Seattle, WA 98119
Peter S. Velardi Group Vice President - None
Suite 180 Atlanta/Birmingham
1200 Ashwood Parkway
Atlanta, GA 30338
Charles F. Wachendorfer Group Vice President - Denver/Salt None
Suite 100 Lake City/Albuquerque
Stanford Plaza II
7979 East Tufts Ave. Pkwy
Denver, CO 80237
Wesley W. Wadman Vice President - Senior Portfolio None
IDS Tower 10 Manager
Minneapolis, MN 55440
Norman Weaver Jr. Senior Vice President - Field None
1010 Main St, Suite 2B Management
Huntington Beach, CA 92648
Michael L. Weiner Vice President - Tax Research and None
IDS Tower 10 Audit
Minneapolis, MN 55440
Lawrence J. Welte Vice President - Investment None
IDS Tower 10 Administration
Minneapolis, MN 55440
Jeffrey M. Welter Vice President - Equity and Fixed None
IDS Tower 10 Income Trading
Minneapolis, MN 55440
Thomas L. White Group Vice President - Cleveland None
Suite 200 Metro
28601 Chagrin Blvd.
Woodmere, OH 44122
Eric S. Williams Group Vice President - Virginia None
Suite 250
3951 Westerre Parkway
Richmond, VA 23233
William J. Williams Group Vice President - Western None
Two North Tamiami Trail Florida
Suite 702
Sarasota, FL 34236
Edwin M. Wistrand Vice President and Assistant None
IDS Tower 10 General Counsel
Minneapolis, MN 55440
Michael D. Wolf Vice President - Senior Portfolio None
IDS Tower 10 Manager
Minneapolis, MN 55440
Michael R. Woodward Senior Vice President - Field None
32 Ellicott St. Management
Suite 100
Batavia, NY 14020
Item 29(c).
Net Underwriting
Name of Principal Discounts and Compensation on Brokerage
Underwriter Commissions Redemption Commissions Compensation
American Express $1,798,969 $79,195 None None
Financial Advisors
Inc.
</TABLE>
<PAGE>
Item 30. Location of Accounts and Records
American Enterprise Life Insurance Company
IDS Tower 10
Minneapolis, MN 55402
Item 31. Management Services
Not applicable.
Item 32. Undertakings
(a) Registrant undertakes that it will file a post-effective
amendment to this registration statement as frequently as is
necessary to ensure that the audited financial statements in
the registration statement are never more than 16 months old
for so long as payments under the variable annuity contracts
may be accepted.
(b) Registrant undertakes that it will include either (1) as
part of any application to purchase a contract offered by
the prospectus, a space that an applicant can check to
request a Statement of Additional Information, or (2) a post
card or similar written communication affixed to or included
the prospectus that the applicant can remove to send for a
Statement of Additional Information.
(c) Registrant undertakes to deliver any Statement of Additional
Information and any financial statements required to be made
available under this Form promptly upon written or oral
request to American Enterprise Life Contract Owner Service
at the address or phone number listed in the prospectus.
(d) The sponsoring insurance company represents that the fees
and charges deducted under the contract, in the aggregate,
are reasonable in relation to the services rendered, the
expenses expected to be incurred, and the risks assumed by
the insurance company.
<PAGE>
SIGNATURES
As required by the Securities Act of 1933 and the Investment Company Act of
1940, American Enterprise Life Insurance Company, on behalf of the Registrant
certifies that it meets all of the requirements for effectiveness of this
amendment to its Registration Statement pursuant to Rule 485(b) under the
Securities Act of 1933 and has duly caused this amendment to its Registration
Statement to be signed on its behalf by the undersigned, thereunto duly
authorized in the City of Minneapolis, and State of Minnesota, on the 30th day
of April, 1998.
AMERICAN ENTERPRISE VARIABLE ANNUITY ACCOUNT
(Registrant)
By American Enterprise Life Insurance Company
(Sponsor)
By /s/ James E. Choat*
James E. Choat
President and Chief Executive
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 30th day of April, 1998.
Signature Title
/s/ James E. Choat* Director, President and Chief Executive
James E. Choat Officer
______________________ Director
Mark A. Ernst
/s/ Jeffrey S. Horton** Vice President and Treasurer
Jeffrey S. Horton
/s/ Richard W. Kling* Chairman of the Board
Richard W. Kling
/s/ Paul S. Mannweiler* Director
Paul S. Mannweiler
/s/ Stuart A. Sedlacek* Director and Executive Vice
Stuart A. Sedlacek President-Assured Assets
/s/ William A. Stoltzmann* Director, Vice President,
William A. Stoltzmann General Counsel and Secretary
/s/ Philip C. Wentzel** Vice President and
Philip C. Wentzel Controller
<PAGE>
*Signed pursuant to Power of Attorney dated March 28, 1997, filed electronically
as Exhibit 15 to the Pre-Effective Registration Amendment No. 1, 333-20217, is
incorporated herein by reference.
**Signed pursuant to Power of Attorney dated April 9, 1998, filed electronically
herewith.
By:______________________________
Colin M. Lancaster
<PAGE>
CONTENTS OF POST-EFFECTIVE AMENDMENT NO. 1
TO REGISTRATION STATEMENT NO. 333-20217
This Amendment to the Registration Statement is comprised of the following
papers and documents:
The Cover Page.
Cross-reference sheet.
Part A.
The prospectus.
Part B.
Statement of Additional Information.
Financial Statements.
Part C.
Other Information.
The signatures.
Exhibits.
AMERICAN ENTERPRISE VARIABLE ANNUITY ACCOUNT
Registration Number 333-20217/811-7195
EXHIBIT INDEX
3. Form of General Agent Agreement
8.2 Copy of Amendment 1 to Schedule A to Participation Agreement among Putnam
Capital Manager Trust (now known as Putnam Variable Trust), Putnam Mutual
Funds Corp. and American Enterprise Life Insurance Company, dated April 30,
1997
8.3 Copy of Amendment 2 to Schedule A to Participation Agreement among Putnam
Capital Manager Trust (now known as Putnam Variable Trust), Putnam Mutual
Funds Corp. and American Enterprise Life Insurance Company, dated October
30, 1997
9. Opinion of counsel
10. Consent of independent auditors
11. Financial Statement Schedules and Report of Independent Auditors
14. Financial Data Schedules
15.2 Power of Attorney, dated April 9, 1998
GENERAL AGENT AGREEMENT
FOR AMERICAN ENTERPRISE LIFE INSURANCE COMPANY
VARIABLE ANNUITIES
This AGENCY AGREEMENT ("Agreement") is entered into by and between American
Enterprise Life Insurance Company ("Company"), American Express Financial
Advisors Inc. (Company's Broker-dealer), TCF Securities, Inc. ("General Agent")
and TCF Securities, Inc. (the broker-dealer for General Agent; for purposes of
this Agreement, "General Agent's Broker" ) effective as of June 11, 1997 (the
"Effective Date").
Recitals
The purpose of this Agreement is to establish the terms and conditions
under which General Agent will market and sell Company's variable annuities.
Company and General Agent intend that General Agent will be responsible for
managing and supervising the marketing and sales of Company's variable annuities
pursuant to this Agreement.
In consideration of the mutual covenants contained herein, the parties agree as
follow:
1. DEFINITIONS. As used in this Agreement, the following terms shall have the
following meanings.
1.1 "General Agent" is a financial institution or an insurance agency
affiliated with a financial institution, duly licensed or otherwise
qualified as an insurance agency in the states of the Territory,
which, either itself or through Producers who are its employees or
independent contractors, solicits and sells Products to the general
public.
1.2 "General Agent's Broker" is a broker-dealer registered with the
Securities and Exchange Commission ("SEC"), the National Association
of Securities Dealers ("NASD") and states where required. General
Agent and General Agent's Broker may be the same entity, if properly
registered as broker-dealer as required hereunder.
1.3 "Distributor" is an affiliate of Company which Company has engaged to
serve as principal underwriter and Distributor for Company's variable
annuities.
1.4 "Producer" is a duly licensed individual who sells Products as an
employee or independent contractor of General Agent.
1.5 "Products" are those annuity products issued by Company which will be
marketed or sold by General Agents and Producers under this Agreement
and are forth on Exhibit A and its Addenda attached hereto.
1.6 "Territory" is those states in which General Agent is permitted to
market and sell the Products, either by itself directly or through
Producers, and which states are listed on Exhibit A and its Addenda.
2. TERM OF AGREEMENT. Unless otherwise terminated pursuant to paragraph 8
hereof, the term of this Agreement shall be for a period of one year
commencing immediately upon the Effective Date (the "Term"). This Agreement
shall automatically renew thereafter for successive one year periods (each,
a "Renewal Period"), unless either party (1) notifies the other party
within 30 days of the expiration of the Term or of any Renewal Period of
the intention not to renew, or (2) otherwise terminates this Agreement
pursuant to the terms hereof.
3. APPOINTMENT OF GENERAL AGENT AND GENERAL AGENT'S BROKER.
3.1 Appointment of General Agent and General Agent's Broker. Company and
Distributor hereby appoint and authorize General Agent and General
Agent's Broker to perform the services and responsibilities set forth
in this Agreement on behalf of Company in accordance with the terms
and conditions of this Agreement, and General Agent and General
Agent's Broker hereby accept the appointments. General Agent's and
General Agent's Broker's authority will be nonexclusive, and will be
limited to the performance of the services and responsibilities set
forth in this Agreement.
3.2 Territory. Such appointment shall only extend to those states and
jurisdictions within the Territory in which Company, Distributor,
General Agent and General Agent's Broker are licensed or otherwise
duly qualified to sell the Products.
4. DUTIES, OBLIGATIONS AND LIMITATIONS OF GENERAL AGENT AND GENERAL AGENT'S
BROKER. Commencing on the Effective Date, General Agent and General Agent's
Broker will faithfully perform all of General Agent's and General Agent's
Broker duties within the scope of the agency relationship created under
this Agreement to the best of their knowledge, skill and judgment. General
Agent and General Agent's Broker shall be jointly and severally responsible
and liable to Company for the faithful performance of all obligations and
duties except those which this Agreement specifically identifies as duties
of General Agent's Broker. General Agent's and General Agent's Broker's
duties shall include, but not be limited to the following:
4.1 Recruitment of Producers. General Agent and General Agent's Broker may
recruit Producers to sell under the supervision of General Agent and
General Agent's Broker. Producers so recruited may not solicit or sell
Products prior to their obtaining the required state insurance
license(s) in the states where such Producers will solicit and sell
Products, being appointed as an agent by Company and completing
training conducted by General Agent and General Agent's Broker on the
Products, Product marketing methods, and regulatory and Company policy
compliance requirements.
4.2 Licensing and Appointment of General Agents and Producers. General
Agent shall be responsible for the preparation and submission of
proper insurance agent appointment and licensing forms and the
assurance that all Producers recruited by General Agent and General
Agent's Broker are appropriately licensed as insurance agents in the
states where such Producers will solicit and sell Products. General
Agent's Broker shall be responsible for the preparation and submission
to the NASD of proper representative registration forms and assurance
that all Producers are properly registered as representatives of
General Agent's Broker with the NASD. General Agent and General
Agent's Broker shall recommend Producers for appointment with Company,
but Company shall retain sole authority to make appointments and may,
by written notice to General Agent and General Agent's Broker, refuse
to permit any Producer to solicit contracts for the sale of the
Products.
4.3 Compliance with Company Policies and Applicable Law. General Agent and
General Agent's Broker will use reasonable efforts to comply with all
instructions, rules, bulletins, manuals and underwriting guides issued
in writing by Company ("Company Rules") to General Agent and General
Agent's Broker, and with all applicable federal and state laws and
regulations. Company will not issue any Company Rules that conflict
with this Agreement or any applicable insurance laws or regulations.
4.4 Supervision and Administration. General Agent and General Agent's
Broker shall be responsible for supervising and administering the
marketing, sales and customer service activities of General Agent,
General Agent's Broker and Producers. General Agent and General
Agent's Broker shall be responsible for all acts or omissions of
General Agent, General Agent's Broker and Producer. General Agent's
and General Agent's Broker's supervisory and administrative
responsibilities include, but are not limited to:
(1) ensuring that Producers comply with Company Rules and all federal
and state laws and regulations applicable to the Products;
(2) training Producers on Product features, Product marketing
methods, and requirements for compliance with applicable laws and
regulations and Company Rules prior to allowing a Producer to
sell a Product;
(3) providing Producers with advice and assistance with regard to
marketing and advertising of Products; and ensuring that no
promotional material or advertising is used, other than generic
promotional material and advertising. For the purposes of this
Agreement, "Generic Advertising" is defined as follows:
a) any advertising or promotional material which does not mention
Company by name; or
b) advertising or promotional material which meets the
requirements of SEC Rule 135a.
However, if the promotional material or advertising mentions
variable annuities and General Agent does not offer to the public
more than one variable annuity, such promotional material or
advertising will not be considered "generic advertising", but
shall be submitted in writing to Company for approval in
accordance with paragraph 4.10
(4) supplying to Producers sales literature and application forms
acceptable to General Agent and approved by Company;
(5) assisting Producers in responding to customer inquiries;
(6) promptly delivering to Producers relevant Company communications
and Company Rules concerning Products, such as changes in rates,
regulatory notices or new Product announcements;
(7) ensuring that Producers: (a) submit premium payments directly and
immediately to General Agent in accordance with Paragraph 4.5
herein; and (b) maintain any other documentation reasonably
requested by Company;
(8) maintaining an orderly process to resolve written customer
complaints to ensure Company can meet its obligations under state
insurance laws with respect to Producers and Product customers
according to the following guidelines:
(a) General Agent will maintain a separate log or files of all
such complaints relating to the Products, even those it believes
to be groundless or false, and will make such log or files
available to Company in the event of a request for it by any
regulator having jurisdiction over such complaints, Company or
General Agent within the Territory covered by this Agreement; and
(b) General Agent may make the determination of the validity of
such complaints, and need not inform Company of those which it
deems invalid;
(c) Company shall be entitled to review all files concerning such
complaints (even those which General Agent has determined to be
groundless or false) every quarter, at the General Agent's
principal place of business, during reasonable business hours
and, to make copies thereof and submit written questions to
General Agent thereon;
(d) General Agent will notify Company in the event of any notice
of hearing or filed action alleging wrongdoing of General Agent
or any Producer with respect to the Products or a Producer, by
any regulator with jurisdiction over the subject matter and
Territory. In the event of such a notice or hearing all such
complaint files or logs will become available to Company for
review;
(9) notifying Company if a Producer fails to maintain the required
state licenses, or becomes inactive;
(10) any other duties necessary or appropriate to perform General
Agent and General Agent's Broker obligations under this
Agreement.
(11) General Agent's Broker will itself fully comply and ensure
General Agent's and Producers' compliance with, the requirements
of the NASD, the SEC and all other applicable federal and state
laws, and, General Agent's Broker, will establish and maintain
such rules and procedures as may be necessary to cause diligent
supervision of the securities activities of General Agent and
Producers. General Agent's Broker's duties with respect to
General Agent's and Producers' securities activities include but
are not limited to:
(a) delivering to each person submitting an application a
prospectus to be furnished by Company and Distributor in the
form required by the applicable federal laws or by the acts
or statutes of any applicable state, province or country;
(b) ensuring that all sales literature or advertising used by
General Agent, General Agent's Broker, or Producers, other
than Generic Advertising concerning the Products has been
approved by Company and/or Distributor, in accordance with
Paragraph 4.10 or as mutually agreed in writing by the
parties;
(c) reviewing all Product applications for accuracy and
completeness, and to determine the suitability of the sale;
(d) complying with all applicable requirements of the 1934 Act
and the NASD including the requirements to maintain and
preserve books and records pursuant to Section 17(a) of the
1934 Act and the rules thereunder, and making such records
and files available to staff of Company and Distributor and
personnel of state insurance departments, the NASD, SEC or
other regulatory agencies which have regulatory authority
over Company or Distributor. Any commissions and fees
relating to the Products will be reflected in the quarterly
FOCUS reports and the fee assessment reports filed by
General Agent's Broker with the NASD in accordance with the
NASD Rules of Fair Practice.
(e) maintaining an orderly process to resolve written customer
complaints to ensure that Company and Distributor can meet
their obligations under the NASD and SEC rules and
regulations with respect to Producers and Product customers
according to the following guidelines:
(i) General Agent and General Agent's Broker, will maintain
a separate log or files of all such complaints relating to
the Products, even those it believes to be groundless or
false, and will make such log or files available to Company
or Distributor in the event of a request for it by any
regulator having jurisdiction over such complaints, Company,
Distributor, General Agent or General Agent's Broker within
the Territory covered by this Agreement; and
(ii) General Agent and General Agent's Broker may make the
determination of the validity of such complaints, and need
not inform Company or Distributor of those which it deems
invalid;
(iii) Company and Distributor shall be entitled to review
all files concerning such complaints (even those which
General Agent or General Agent's Broker has determined to be
groundless or false) every quarter, at the General Agent's
or General Agent's Broker's principal place of business,
during reasonable business hours and, to make copies thereof
and submit written questions to General Agent or General
Agent's Broker thereon;
(iv) General Agent and General Agent's Broker will notify
Company or Distributor in the event of any notice of hearing
or filed action alleging wrongdoing of General Agent,
General Agent's Broker or any Producer with respect to the
Products or a Producer, by any regulator with jurisdiction
over the subject matter and Territory. In the event of such
a notice or hearing all such complaint files or logs will
become available to Company or Distributor for review;
4.5 Collection and Submission of Premiums. Gross Sweep (modified). General
Agent will assure its Producers' collection of the initial premium due
on all Products and will timely account for such premiums, directly
depositing them into an account established by the General Agent for
the benefit of Company, at a bank approved by Company, and notifying
Company by the next business day of the gross receipts and of the
purchaser and Product to which such receipts shall be applied. Upon
receipt of notification from General Agent, Company will sweep the
settlement account.
4.6 General Agent and General Agent's Broker Expenses. Except as otherwise
provided in this Agreement, or subsequently agreed to in writing by
the Company, General Agent and General Agent's Broker will be
responsible for all costs and expenses of any kind and nature incurred
by General Agent and General Agent's Broker in the performance of
their duties under this Agreement.
4.7 Solicitation. General Agent and General Agent's Broker, through
Producers, will have the right to solicit applicants who appear to
meet Company's and Distributor's underwriting standards; provided that
nothing in this Agreement shall be deemed to require General Agent or
General Agent's Broker to solicit any persons for a Product.
4.8 Company Property. General Agent, Producers, and General Agent's Broker
will safeguard, maintain and account for all policies, forms, manuals,
equipment, supplies, advertising and sales literature furnished to
General Agent and General Agent's Broker by Company and Distributor
and will destroy or return the same to Company and Distributor
promptly upon request.
4.9 Accurate Record; Audit. General Agent will keep identifiable and
accurate records and accounts of all business and transactions
effected pursuant to this Agreement for seven years beginning as to
any annuity contract, from the date of initial deposit of premium into
the contract. Upon reasonable notice and at reasonable times,
continuing during a period of one year following the termination or
expiration of this Agreement, General Agent and General Agent's Broker
will permit Company or Distributor to visit, inspect, examine, audit
and verify, at General Agent's or General Agent's Broker's offices or
elsewhere, any of the properties, accounts, files, documents, books,
reports, work papers and other records belonging to or in the
possession or control of General Agent or General Agent's Broker
relating to the business covered by this Agreement, and to make copies
thereof and extracts therefrom, provided that such audit shall not
unreasonably interfere with General Agent's or General Agent's
Broker's normal course of business.
4.10 Approved Advertising. No sales promotion materials or advertising
relating to the Products of the Company shall be used by General Agent
or its Producers, other than Generic Advertising, unless the specific
item has been approved in writing by the Company. For the purposes of
this Agreement, promotional materials and advertising shall not
include customer correspondence which is not a form letter (i.e. a
substantially identical letter sent to more than one person).
4.11 Fidelity Bond. General Agent and General Agent's Broker represent that
all directors, officers, employees and Producers of General Agent who
are appointed pursuant to this Agreement as Producers for Company or
who have access to funds of Company, including but not limited to
funds submitted with applications for Products or funds being returned
to owners, are covered by a blanket fidelity bond, including coverage
for larceny and embezzlement, issued by a reputable bonding company
acceptable to Company. The bond shall be maintained by General Agent
at General Agent's Broker's and/or General Agent's expense. It is
understood and agreed that there may be a deductible to the coverage
required hereunder. Company may require evidence, satisfactory to it,
that such coverage is in force. General Agent shall give prompt
written notice to Company of cancellation or change of coverage as
soon as General Agent or General Agent's Broker are informed of any
such event.
4.12 Limitations. General Agent and General Agent's Broker shall have no
authority with respect to Company, nor shall they represent themselves
as having such authority, other than as is specifically set forth in
this Agreement. Without limiting the foregoing, neither General Agent
nor General Agent's Broker shall, without the express written consent
of Company and/or Distributor, as applicable:
(1) make, waive, alter or change any term, rate or condition stated
in any Company contract or Company- or Distributor-approved form,
nor discharge any contract in the name of Company;
(2) waive a forfeiture;
(3) extend the time for the payment of premiums or other moneys due
Company;
(4) institute, prosecute or maintain any legal proceedings on behalf
of Company or Distributor in connection with any matter
pertaining to Company's business nor accept service of process on
behalf of either Company or Distributor;
(5) transact business in contravention of the rules and regulations
of any insurance department and/or other governmental authorities
having jurisdiction over any subject matter embraced by this
Agreement;
(6) make, accept or endorse notes, endorse checks payable to Company
or Distributor, or otherwise incur any expense or liability on
behalf of Company or Distributor, except that General Agent shall
be permitted to use Company's endorsement stamp for purposes of
depositing premium into the bank account established in the
Company's name;
(7) offer to pay or pay directly or indirectly any rebate of premium
or any other inducement not specified in the Products to any
owner or annuitant;
(8) misrepresent the Products for the purpose of inducing an annuity
contract-holder in any other company to lapse, forfeit or
surrender his/her insurance therewith;
(9) give or offer to give as a representative of Company any
individualized advice or opinion regarding the amount of taxation
of any customer's income or estate in connection with the
purchase of any Product, except that the foregoing does not
preclude General Agent or any Producer from giving advice or
opinions as a representative of Company concerning the taxation
of products generally or from giving individualized advice or
opinions regarding taxation in a capacity other than as a
representative of Company;
(10) without the written consent of Company or Distributor, enter into
an agreement with any person or entity, other than Producers
recommended to Company for appointment, to market or sell the
Products;
(11) use Company's names, logos, trademarks, service marks or any
other proprietary designation without the prior written
permission of Company.
5. COMPANY AND DISTRIBUTOR REPRESENTATIONS AND RESPONSIBILITIES.
5.1 Representations.
5.1.1Company represents and warrants that it is duly incorporated in
the state of Indiana and licensed in all states in the Territory,
that all Products have been filed with and approved by
appropriate state insurance departments, and that all sales
literature has been filed with the insurance departments where
required; all Products meet and will meet the requirements of all
applicable laws and regulations of the Territory in which the
Products are available for sale, and with the requirements of the
Securities Act of 1933 and all applicable regulations of the SEC,
and with rules of the NASD, and with any other applicable
insurance and securities laws and regulations.
5.1.2Company and Distributor represents and warrants and agrees that
Distributor is, and will remain during the term of this Agreement
will remain, duly registered as a broker-dealer with the
Securities and SEC, NASD ,all fifty states and the District of
Columbia, and is qualified to do business in all states in which
Company is licensed and qualified to do business.
5.1.3Distributor and Company represent and warrant that Company, as
issuer and on behalf of the underlying investment account(s), has
registered the underlying investment account(s) of the Products
with the SEC as a security under the 1933 Act and as a unit
investment trust under the Investment Company Act of 1940, and
that such investment account(s) will remain so registered during
the term of this agreement and at all relevant times thereafter.
5.1.4Company represents and warrants that the prospectus(es) and
registration statement(s) relating to the Products contain no
untrue statements of material fact or omission to state a
material fact, the omission of which makes any statement
contained in the prospectus(es) and registration statement(s)
misleading, and that during the term of this Agreement and at all
relevant time thereafter the prospectus (es) and registration
statement (s) will contain no such untrue statements of facts or
omissions.
5.1.5Company represents and warrants and agrees that all advertising
and sales literature prepared or approved by Company will meet
the requirements of all applicable laws and regulations of the
Territory in which the Products are available for sale, and with
the requirements of the Securities Act of 1933 and all applicable
regulations of the SEC, and with rules of the NASD, and with any
other applicable laws and regulations, and that such advertising
and sales literature, where required, will be filed with (and not
disproved by) the NASD and, where required, the insurance
regulators or agencies of the Territory where the Products are
available for sale.
5.1.6Company represents and warrants and agrees that the Products are
and at the time of offering by General Agent and General Agent's
Broker will be treated as deferred annuity contracts under
Section 72 of the Internal Revenue Code when held by a natural
person, and as such interest, dividends, capital gains and other
earnings under the contract will be deferred until withdrawn by
the customer. Company further represents and warrants and agrees
that Products designated as individual retirement annuities are
and at the time of offering by General Agent and General Agent's
Broker will qualify as individual retirement annuities as that
term is used in Section 408 (b) of the Internal Revenue Code when
the disclosure required by IRS regulation 1.408-6 (d) (4) is
given to the customer. Company will provide General Agent and
General Agent's Broker with a form of disclosure which meets the
requirement of regulation 1.408-6 (d) (4). Company will provide
General Agent and General Agent's Broker with an option of legal
counsel satisfactory to them confirming the representation,
warranties and covenants in this section.
5.1.7Company represents and warrants and agrees that assets held in
the Product's separate account are and at all time will be
legally separate from Company's general assets and are not
subject to claims of the Company's creditors, and that income,
gains and losses from assets held in the separate account are, in
accordance with the contract, credited to or charged against the
separate account without regard to other income, gains or losses
of the Company. Company will provide General Agent and General
Agent's Broker with an option of in-house legal counsel
satisfactory to them confirming the representations, warranties
and agreements in this section.
5.2 Prospectuses, Sales Literature and Advertising. Company and
Distributor will provide General Agent and General Agent's Broker,
without any expense to General Agent or General Agent's Broker
prospectuses relating to the Products, and such other sales literature
and advertising as Company determines is necessary or desirable for
use in connection with sales of the Products.
5.3 Transmission of Contracts for Delivery to Contract Owners. Company
will transmit contracts for Products for delivery to annuity
contract-holder in accordance with administrative procedures
acceptable to General Agent and General Agent's Broker and Company.
5.4 Confirmations. Company agrees that, upon Company's acceptance of any
payment for a Product, Distributor will deliver to each contract owner
a statement confirming the transaction in accordance with Rule 10b-10
under the Securities and Exchange Act of 1934 .
5.5 Annuity Contract-holder Services. Company shall provide
administrative, accounting and other services to annuity
contract-holders as necessary and appropriate in the same manner as
such services are provided to Company's other annuity
contract-holders.
5.6 Reservation of Rights. Notwithstanding any other provision of this
Agreement or any other agreement between Company, Distributor and
General Agent or General Agent's Broker, Company reserves the
unconditional right to modify any of the Products in any respect
whatsoever or to suspend the sale of any Products in whole or in part
at any time upon ninety (90) days written notice to General Agent.
However, if Company receives a written demand from any regulatory
agency or official having jurisdiction over Company or Products to
modify or suspend the sale of any Products in fewer than ninety (90)
days, then the shorter notice period will apply to notice given by
Company to General Agent. Company reserves the unconditional right to
refuse to accept applications procured by General Agent and General
Agent's Broker or Producers which fail to meet underwriting or other
standards of Company.
5.7 Company Rules. Company shall provide General Agent and General Agent's
Broker with Company Rules issued by Company and/or Distributor as soon
as is practicable. All revisions, modifications and replacements of
such Company Rules shall be provided by Company to General Agent and
General Agent's Broker promptly after issuance by Company and/or
Distributor.
5.8 Compensation. Company shall pay a total commission on premiums
collected pursuant to this Agreement based on the rates of commission
set forth on the attached Exhibit A and its Addenda. Company has the
right to charge General Agent for commissions paid in the event of
certain surrenders of annuity contracts as specified in Exhibit A and
its Addenda. Company will transmit payment of commissions to the
General Agent on the day that Company receives good funds from the
General Agent, if this option is shown in Exhibit A. "The day that
Company receives good funds," for purposes of this Agreement, ends at
2:00 P.M. If good funds are received after 2:00 P.M., the transmittal
of commission payment will occur on the next business day. At General
Agent's option, commission payments will be transmitted by direct
deposit into an account in General Agent's name at a bank designated
by General Agent. No compensation shall be paid unless all of the
following conditions precedent have been met to Company's
satisfaction:
5.8.1Licensing of Producer. Prior to the time of any solicitation of a
sale or a sale of a Product, Producer making such solicitation
and sale shall be licensed and appointed with Company in
accordance with the laws of the state(s) where the sale is being
made and, if applicable under the state insurance laws of the
state, where the customer resides.
5.8.2Licenses and Contracts. No person or entity, except Producers
satisfying the provisions of Paragraph 5.8.1, shall in any way
share in any commissions payable hereunder unless such person or
entity is licensed in accordance with the laws of the state(s) in
which the sale was made and, if applicable under the state
insurance laws of the state, where the customer resides; and
unless such person or entity shall have entered into an agreement
with General Agent which specifies such person or entity's rights
and obligations and makes provision for payment, including
splitting, of commissions. Notwithstanding the preceding
sentence, in those states which permit payment of a commission to
an entity which is not licensed as an insurance agency, Company
will pay commissions to an unlicensed entity which is a party to
this Agreement, but only after such entity has provided evidence
satisfactory to Company as to how Company may make such payments
in accordance with applicable state insurance laws.
6. INDEMNIFICATION.
6.1 Indemnification of Company. General Agent and General Agent's Broker
shall indemnify, defend and hold harmless Company and Distributor from
and against any and all losses, claims, damages, liabilities, actions,
costs or expenses to which Company or Distributor may become subject
(including any legal or other expenses incurred by it in connection
with investigating any claim against it and defending any action; and,
provided General Agent or General Agent's Broker will have given prior
written approval of such settlement or compromise, which approval will
not be unreasonably withheld or delayed, any amounts paid in
settlement or compromise) insofar as such losses, claims, damages,
liabilities, actions, costs or expenses arise out of or are based
upon:
6.1.1The acts or omissions of General Agent, General Agent's Broker or
any employee or agent of General Agent or General Agent's Broker
while acting (whether under actual or apparent authority, or
otherwise) on behalf of General Agent, General Agent's Broker,
Company or Distributor in connection with this Agreement;
6.1.2Any breach of any covenant or agreement made by General Agent or
General Agent's Broker under this Agreement;
6.1.3The inaccuracy or breach of any representation or warranty made
by General Agent or General Agent's Broker under this Agreement.
This indemnification obligation shall not apply to the extent
that such alleged act or omission is attributable to Company
and/or Distributor either because (1) Company and/or Distributor
directed the act or omission; or (2) General Agent's, General
Agent's Broker's, or a Producer's act or omission was the result
of its compliance with the Company Rules.
6.2 Indemnification of General Agent and General Agent's Broker by
Company. Company and Distributor shall indemnify, defend and hold
harmless General Agent and General Agent's Broker from and against any
and all losses, claims, damages, liabilities, actions, costs or
expenses to which General Agent and General Agent's Broker may become
subject (including any legal or other expenses incurred by it in
connection with investigating any claim against it and defending any
action and, provided Company and Distributor will have given prior
written approval of such settlement or compromise, which approval will
not be unreasonably withheld or delayed, any amounts paid in
settlement or compromise) insofar as such losses, claims, damages,
liabilities, actions, costs or expenses arise out of or are based
upon:
6.2.1The acts or omissions of Company and/or Distributor, or any
employee or agent of Company and/or Distributor (excluding
General Agent and General Agent's Broker or Producers) while
acting (whether under actual or apparent authority, or otherwise)
on behalf of Company and/or Distributor in connection with this
Agreement;
6.2.2Any breach of any covenant or agreement made by Company or
Distributor under this Agreement;
6.2.3The inaccuracy or breach of any representation or warranty made
by Company or Distributor under this Agreement.
7. ARBITRATION. The parties agree that any controversy or claim arising
between them relating to this Agreement shall be resolved by binding
arbitration. This agreement to arbitrate shall continue in full force and
effect despite the expiration, rescission or termination of this Agreement.
All arbitration shall be undertaken pursuant to the Federal Arbitration
Act, and the decision of the arbitrator(s) shall be enforceable in any
court of competent jurisdiction. The arbitrator(s) shall apply the law of
the state of Minnesota and the arbitration shall be held in Minneapolis,
Minnesota. Any party may demand arbitration by sending written notice to
the other parties. The arbitration and the selection of arbitrator(s) shall
be conducted in accordance with such rules as may be agreed upon by the
parties, or, failing such agreement within 30 days after arbitration is
demanded, under the Commercial Arbitration Rules of the American
Arbitration Association ("AAA"), as such rules may be modified by this
Agreement. In any dispute which involves more than $100,000 in damages,
three arbitrators shall be used. The arbitrator(s) shall (to the extent
such damages are not otherwise limited or prohibited by the terms of this
Agreement) have the authority to award actual money damages (with interest
on unpaid amounts from the date due), specific performance, and temporary
injunctive relief, but the arbitrator(s) shall not have the authority to
award exemplary, punitive, or consequential damages, and the parties
expressly waive any claimed right to such damages. The costs of the
arbitration, but not the costs and expenses of the parties, shall be shared
equally by the parties. If a party fails to proceed with arbitration,
unsuccessfully challenges the arbitration award, or fails to comply with
the arbitration award, the other parties are entitled to costs, including
reasonable attorney fees, for having to compel the arbitration or defend or
enforce the award. Notwithstanding the foregoing, the parties recognize
that certain business relationships could give rise to the need for a party
to seek certain emergency, provisional, temporary, injunctive or summary
relief. The parties agree that either shall be entitled to judicially
pursue such rights and remedies for emergency, provisional, temporary,
injunctive or summary relief, without thereby being deemed to have waived
its right to arbitration hereunder; however, each party agrees that,
immediately following the issuance of any emergency, provisional,
temporary, injunctive or summary relief, it will consent to the stay of any
further judicial proceedings pending arbitration of all underlying claims
between the parties.
8. TERMINATION.
8.1 Termination for Cause. At any time during the Term of this Agreement
and any Renewal Period, Company and Distributor or General Agent and
General Agent's Broker may terminate this Agreement immediately for
cause upon written notice of such termination to the other party. Such
written notice shall state the "cause" with specificity. As used in
this paragraph, the term "cause" shall include any one or more of the
following:
(1) the conviction of any party, its officers or supervisory
personnel of any felony, of fraud or of any crime involving
dishonesty;
(2) the intentional misappropriation by a party of funds or property
of the other party or funds received for it or for policyholders
by such other party;
(3) the cancellation of or refusal to renew by the issuing insurance
regulatory authority any license, certificate or other regulatory
approval required in order for a party to perform its duties
under this Agreement;
(4) any action by a regulatory authority with jurisdiction over the
activities of a party that would place the party in receivership
or conservatorship or otherwise prevent or substantially
interfere with the ability of such party from continuing to
engage in the lines of business relevant to the subject matter
hereof;
(5) a party becoming a debtor in bankruptcy (whether voluntary or
involuntary) or the subject of an insolvency proceeding; or
(6) the breach by a party of any representation, warranty or covenant
under this Agreement after failure by the party to cure such
breach within 10 days after being given notice of the breach by
the terminating party.
8.2 Termination without Cause. Any party may terminate this Agreement
without cause upon ninety (90) days prior written notice to the other
parties.
8.3 Post Termination Limitations. Upon termination of this Agreement,
Company's obligation to pay commissions to General Agent, General
Agent's Broker or Producers shall immediately cease except as
otherwise provided in this Agreement; provided:
8.3.1Company shall pay commissions, as the same become due and
payable, upon Products for which the application has been taken
and the required initial premium has been collected as of the
date of termination and for which Company subsequently issues a
policy.
8.3.2Company will charge back, in accordance with Exhibit A and
addenda thereto, against those commissions identified in
Paragraph 8.3.1 and Exhibit A and Addenda thereto for surrender
of Products sold by General Agent and General Agent's Broker's or
Producers prior to the termination of this Agreement. After
termination of this Agreement, Company will invoice General Agent
for chargebacks unless General Agent and Company agree upon
another method of payment of such amounts.
8.3.3Company shall pay commissions in accordance with Exhibit A and
its Addenda, attached hereto, on all Products issued prior to
such termination.
8.3.4For a period of one year after termination of this Agreement,
General Agent and General Agent's Broker's shall not, and shall
not permit its Producers to, engage in any concerted effort to
promote, recommend or encourage the termination, surrender, or
cancellation of any Product sold pursuant to this Agreement
unless General Agent has reasonable grounds to believe such
promotion, recommendation or encouragement is in the individual
customer's best interests. In the event of breach of this
paragraph, it is understood that Section 10, Confidentiality,
will be void as regards Company's right to contact present and
former holders of Products old hereunder, with a view to
retaining their accounts.
9. INDEPENDENT CONTRACTOR. This Agreement is not a contract of employment.
Nothing contained in this Agreement shall be construed or deemed to create
the relationship of joint venture, partnership or employer and employee
between Company and Distributor and General Agent and General Agent's
Broker. Each party is an independent contractor and shall be free, subject
to the terms and conditions of this Agreement, to exercise judgment and
discretion with regard to the conduct of business.
10. CONFIDENTIALITY. Each party agrees that, during the term of this Agreement
and at all times thereafter, neither party will disclose to any
unaffiliated person, firm, corporation or other entity, nor use for its own
account, any of the other party's trade secrets or confidential
information, including, without limitation, the terms of this Agreement;
non-public program materials; proprietary information; information as to
the other party's business methods, operations or affairs, or the processes
and systems used in its operations and affairs; or the processes and
systems used in the operation of its business; all whether now known or
subsequently learned by it. It is understood that lists of Product
customers, or individually identifiable customer information, and lists of
current customers of the General Agent or its affiliates, are considered
confidential and proprietary information of General Agent and its
affiliates, as applicable. Therefore, General Agent and its affiliates
retain the exclusive right to solicit such customers for new or additional
business of any kind, except that nothing herein shall preclude Company
from soliciting customers to make additions to Products sold by General
Agent pursuant to this Agreement. Each party shall treat the other party's
confidential information with the same care as it treats its own
confidential information. Nothing in this Agreement shall require either
party to keep confidential any information that:
(1) the party can prove was known to the party prior to any disclosure by
the other;
(2) is or becomes publicly available through no fault of the party;
(3) the party can prove was independently developed by it outside the
scope of this Agreement and with no access to any confidential or
proprietary information of the other party;
(4) is required to be disclosed pursuant to judicial or administrative
process or subpoena;
(5) is mutually agreed upon in writing by the parties to this Agreement to
be not confidential.
If this Agreement is terminated, each party within 60 days after such
termination will return to the other party any and all copies, in whatever
form or medium, of any material disclosing any of the other party's trade
secrets or confidential information as described above.
11. ASSIGNMENT. The parties to this Agreement may not assign, either wholly or
partially, this Agreement or any of the benefits accrued or to accrue under
it, or subcontract their interests or obligations under this Agreement,
without the written approval of all parties.
12. AMENDMENT OF AGREEMENT. Company and Distributor reserve the right to amend
this Agreement at any time, but no amendment shall be effective until
approved in writing by General Agent and General Agent's Broker, subject to
the provisions of Paragraph 5.6 herein.
13. MISCELLANEOUS.
13.1 Applicable Law. Any dispute arising out of this Agreement shall be
governed by and interpreted under the laws of the State of Minnesota.
13.2 Severability. Should any part of this Agreement be declared invalid,
the remainder of this Agreement shall remain in full force and effect
as if the Agreement had originally been executed without the invalid
provisions.
13.3 Notice. Any notice hereunder shall be in writing and shall be deemed
to have been duly given if sent by certified or registered mail,
postage prepaid, to the following addresses:
If to Company: If to General Agent:
American Enterprise Life Insurance Company TCF Securities, Inc.
80 South 8th Street Sixth and Robert Streets
Minneapolis MN 55402 St. Paul, MN 55101
Attention: Compliance Officer Attention: President
Unit 1818
If To Company's Broker-dealer: If to General Agent's Broker-
dealer:
American Express Financial Advisors Inc. TCF Securities, Inc.
80 South Eighth Street Sixth and Robert Streets
Minneapolis, MN 55402 St. Paul, MN 55101
Attention: Compliance Officer Attention: President
Unit 1818
13.4 Binding Effect. This Agreement shall be binding upon and inure to the
benefit of the parties hereto and their respective successors and
assigns, subject to the provisions of this Agreement limiting
assignment.
13.5 Headings. The headings in this Agreement are for convenience only and
are not intended to have any legal effect.
13.6 Defined Terms. The terms defined in this Agreement are to be
interpreted in accordance with this Agreement. Such defined terms are
not intended to conform to specific statutory definitions of any
state.
13.7 Entire Agreement. This Agreement constitutes the entire agreement of
the parties with respect to the subject matter hereof and supersedes
all previous communications, representations, understandings and
agreements, either oral or written, between the parties or any
official representative thereof.
13.8 Survival. All terms and conditions of paragraphs 6, Indemnification,
8.3 Post-Termination Limitations and 10, Confidentiality, will survive
termination of this Agreement.
13.9 Breach. Neither any failure to enforce, nor any waiver or any breach
of any term or condition of this Agreement, shall operate as a waiver
of such term or condition, or of any other term or condition, nor
constitute nor be deemed a waiver or release of any other rights, at
law or in equity, or of claims which any party may have against any
other party for anything arising out of, connected with, or based upon
this Agreement. Any waiver, including a waiver of this Section, must
be in writing and signed by the parties hereto.
13.10Waiver of withdrawal charges. There will be no withdrawal charge to
owner or annuitant on any Products where the owner or annuitant is an
employee of TCF Financial Corporation or of any its direct or indirect
subsidiaries.
IN WITNESS WHEREOF the parties hereto, intending to be legally bound, have
caused this Agreement to be executed by their duly authorized officers.
American Enterprise Life Insurance Company TCF Securities, Inc.
By: _____________________________________ By: ____________________
Title: President Title: President
Date: June 11, 1997 Date: June 11, 1997
American Express Financial Advisors Inc. TCF Securities, Inc.
By: _____________________________________ By: ____________________
Title: Vice-President Title: President
Date: June 11, 1997 Date: June 11, 1997
AMENDMENT 1 TO SCHEDULE A TO
PARTICIPATION AGREEMENT
Among
PUTNAM CAPITAL MANAGER TRUST
(now known as Putnam Variable Trust)
PUTNAM MUTUAL FUNDS CORP.
and
AMERICAN ENTERPRISE LIFE INSURANCE COMPANY
THIS AMENDMENT 1 TO SCHEDULE A TO PARTICIPATION AGREEMENT (Amendment 1 to
Schedule A) is made and entered into this 30th day of April, 1997 by and among
Putnam Variable Trust (formerly Putnam Capital Manager Trust) (the "Fund");
Putnam Mutual Funds Corp. (the "Distributor"); and American Enterprise Life
Insurance Company (the "Company").
WHEREAS, the Company, the Fund and the Distributor are parties to the
Participation Agreement dated January 16th, 1995 (the "Agreement"); and
WHEREAS, the parties now desire to amend Schedule A to the Agreement to add two
funds as Authorized Funds in which American Enterprise Life Insurance Company,
on its own behalf and on behalf of the Accounts set forth on Schedule A, as
amended, may invest;
NOW, THEREFORE, in consideration of their mutual promises, the Company, the Fund
and the Distributor agree as follows:
1. Amendment to Schedule A. In accordance with the terms of the Agreement,
the parties hereby amend Schedule A to include two new funds as
Authorized Funds in which American Enterprise Life Insurance Company,
on its own behalf and on behalf of the Accounts set forth on Schedule
A, as amended, may invest. Schedule A, as amended, specifies which
Authorized Funds are offered as investment options under each of the
variable annuity contracts listed.
2. Counterparts. This Amendment 1 to Schedule A may be executed
simultaneously in two or more counterparts, each of which taken
together will constitute one and the same instrument.
<PAGE>
IN WITNESS WHEREOF, each of the parties hereto has caused this Amendment 1 to
Schedule A to be executed in its name and behalf by its duly authorized
representatives as of the date specified above.
PUTNAM VARIABLE TRUST PUTNAM MUTUAL FUNDS CORP.
By: /s/ John R. Veroni By: /s/ Jeffrey M. Miller
- ------------------------ ----------------------------
Name: John R. Veroni Name: Jeffrey M. Miller
Title: Vice President Title: Managing Director
AMERICAN ENTERPRISE LIFE
INSURANCE COMPANY ATTEST:
By: /s/ Ryan Larson By: /s/ William A. Stoltzmann
Title: VP - Product Development Name: William A. Stoltzmann
---------------------------- -----------------------
Name: Ryan Larson Title: VP
<PAGE>
Schedule A
Contracts
American Enterprise Variable Annuity Account, established July 15, 1987.
AEL Personal Portfoliosm offers the following Authorized Funds as
investment options:
Putnam VT Diversified Income Fund
Putnam VT Growth and Income Fund
Putnam VT New Opportunities Fund
Putnam VT High Yield Fund
AEL variable annuity distributed through TCF offers the following
Authorized Funds as investment options:
Putnam VT Diversified Income Fund
Putnam VT Growth and Income Fund
Putnam VT New Opportunities Fund
Putnam VT Voyager Fund
Putnam VT Global Growth Fund
Date: April 30, 1997
AMENDMENT 2 TO SCHEDULE A TO
PARTICIPATION AGREEMENT
Among
PUTNAM CAPITAL MANAGER TRUST
(now known as Putnam Variable Trust)
PUTNAM MUTUAL FUNDS CORP.
and
AMERICAN ENTERPRISE LIFE INSURANCE COMPANY
THIS AMENDMENT 2 TO SCHEDULE A TO PARTICIPATION AGREEMENT (Amendment 2 to
Schedule A) is made and entered into this 30th day of October, 1997 by and among
Putnam Variable Trust (formerly Putnam Capital Manager Trust) (the "Fund");
Putnam Mutual Funds Corp. (the "Distributor"); and American Enterprise Life
Insurance Company (the "Company").
WHEREAS, the Company, the Fund and the Distributor are parties to the
Participation Agreement dated January 16th, 1995, as amended April 30th, 1997
(the "Agreement"); and
WHEREAS, the parties now desire to amend Schedule A to the Agreement so that an
enhanced flexible premium variable annuity contract may invest in the Authorized
Funds;
NOW, THEREFORE, in consideration of their mutual promises, the Company, the Fund
and the Distributor agree as follows:
<PAGE>
1. Amendment to Schedule A. In accordance with the terms of the Agreement, the
parties hereby amend Schedule A to read as follows:
Schedule A
Contracts
American Enterprise Variable Annuity Account, established July 15, 1987.
AEL Personal Portfoliosm and AEL Personal Portfolio Plus offer the
following Authorized Funds as investment options:
Putnam VT Diversified Income Fund
Putnam VT Growth and Income fund
Putnam VT New Opportunities Fund
Putnam VT High Yield Fund
AEL Preferredsm, distributed through TCF, offers the following
Authorized Funds as investment options:
Putnam VT Diversified Income Fund
Putnam VT Growth and Income Fund
Putnam VT New Opportunities Fund
Putnam VT Voyager Fund
Putnam VT Global Growth Fund
2. Counterparts. This Amendment 2 to Schedule A may be executed simultaneously
in two or more counterparts, each of which taken together will constitute
one and the same instrument.
<PAGE>
IN WITNESS WHEREOF, each of the parties hereto has caused this Amendment 2 to
Schedule A to be executed in its name and behalf by its duly authorized
representatives as of the date specified above.
PUTNAM VARIABLE TRUST PUTNAM MUTUAL FUNDS CORP.
By:/s/ John R. Vereni By:/s/ Jeffrey M. Miller
- ----------------------- ----------------------------
Name: John R. Vereni Name: Jeffrey M. Miller
Title: Vice President Title: Managing Director
AMERICAN ENTERPRISE LIFE
INSURANCE COMPANY ATTEST:
By:/s/ Stuart A. Sedlacek By:/s/ William A. Stoltzmann
- ---------------------------- --------------------------------
Name: Stuart A. Sedlacek Name: William A. Stoltzmann
Title: Executive Vice President Title: Vice President
April 30, 1998
American Enterprise Life Insurance Company
80 South Eighth Street
P.O. Box 534
Minneapolis, MN 55440-0534
RE: Registration Statement on Form N-4
File No.: 333-20217
Ladies and Gentlemen:
I am familiar with the establishment of the American Enterprise Variable Annuity
Account ("Account"), which is a separate account of American Enterprise Life
Insurance Company ("Company") established by the Company's Board of Directors
according to applicable insurance law. I also am familiar with the
above-referenced Registration Statement filed by the Company on behalf of the
Account with the Securities and Exchange Commission.
I have made such examination of law and examined such documents and records as
in my judgment are necessary and appropriate to enable me to give the following
opinion:
The Company is duly incorporated, validly existing and in good standing under
applicable state law and is duly licensed or qualified to do business in each
jurisdiction where it transacts business. The Company has all corporate powers
required to carry on its business and to issue the contracts.
The Account is a validly created and existing separate account of the Company
and is duly authorized to issue the securities registered.
The contracts issued by the Company during the past fiscal year, when offered
and sold in accordance with the prospectus contained in the Registration
Statement and in compliance with applicable law, were legally issued and
represent binding obligations of the Company in accordance with their terms.
I hereby consent to the filing of this opinion as an exhibit to the Registration
Statement.
Sincerely,
Colin M. Lancaster
Associate Counsel
CONSENT OF INDEPENDENT AUDITORS
We consent to the reference to our firm under the caption "Independent Auditors"
and to the use of our reports dated February 5, 1998 on the financial statements
and schedules of American Enterprise Life Insurance Company and our report dated
March 13, 1998 on the financial statements of American Enterprise Variable
Annuity Account - AEL Preferred Variable Annuity Subaccounts in Post-Effective
Amendment No. 1 to the Registration Statement (Form N-4, No. 333-20217) and
related Prospectus for the registration of the AEL Preferred Variable Annuity
for American Enterprise Variable Annuity Account to be offered by American
Enterprise Life Insurance Company.
Ernst & Young LLP
Minneapolis, Minnesota
April 27, 1998
Report of Independent Auditors
The Board of Directors
American Enterprise Life Insurance Company
We have audited the financial statements of American Enterprise Life Insurance
Company (a wholly owned subsidiary of IDS Life Insurance Company) as of December
31, 1997 and 1996, and for each of the three years in the period ended December
31, 1997, and have issued our report thereon dated February 5, 1998 (included
elsewhere in this Registration Statement). Our audits also included the
financial statement schedules listed in Item 24(b) of this Registration
Statement. These schedules are the responsibility of the Company's management.
Our responsibility is to express an opinion based on our audits.
In our opinion, the financial statement schedules referred to above, when
considered in relation to the basic financial statements taken as a whole,
present fairly, in all material respects, the information set forth therein.
Ernst & Young LLP
February 5, 1998
Minneapolis, Minnesota
<PAGE>
AMERICAN ENTERPRISE LIFE INSURANCE COMPANY
SCHEDULE I - CONSOLIDATED SUMMARY OF INVESTMENTS
OTHER THAN INVESTMENTS IN RELATED PARTIES ($ thousands)
AS OF DECEMBER 31, 1997
- -----------------------------------------------------------------------------
Column A Column B Column C Column D
Type of Investment Cost Value Amount at which
shown in the
balance sheet
- -----------------------------------------------------------------------------
Fixed maturities:
Held to maturity:
United States Government and
government agencies and
authorities (a) $ 198,733 $ 199,401 $ 198,733
States, municipalities and
political subdivisions 3,003 3,176 3,003
All other corporate bonds (b) 984,946 1,020,531 984,946
---------- ----------- ----------------
Total held to maturity 1,186,682 1,223,108 1,186,682
Available for sale:
United States Government and
government agencies and
authorities (c) 1,245,323 1,274,729 1,274,729
States, municipalities and
political subdivisions 0 0 0
All other corporate bonds 1,364,298 1,411,070 1,411,070
---------- ----------- ----------------
Total available for sale 2,609,621 2,685,799 2,685,799
Mortgage loans on real estate 738,052 XXXXXXXXX 738,052
Other investments 16,024 XXXXXXXXX 16,024
---------- ----------------
Total investments $ 4,550,379 $XXXXXXXXX $ 4,626,557
========== ================
(a)- Includes mortgage-backed securities with a cost and market value of
$187,613 and $187,571, respectively.
(b)- Includes mortgage-backed securities with a cost and market value of
$14,448 and $14,620, respectively.
(c)- Includes mortgage-backed securities with a cost and market value of
$1,243,246 and $1,272,639, respectively.
(d)- Includes mortgage-backed securities with a cost and market value of $91,081
and $93,666, respectively.
<PAGE>
<TABLE>
<CAPTION>
AMERICAN ENTERPRISE LIFE INSURANCE COMPANY
SCHEDULE V - VALUATION AND QUALIFYING ACCOUNTS ($ thousands)
FOR THE YEARS ENDED DECEMBER 31, 1997, 1996 AND 1995
- -----------------------------------------------------------------------------------------------
Column A Column B Column C Column D Column E
Additions
---------------------------------
Balance at Charged to
Description Beginning Charged to Other Accounts-Deductions- Balance at End
of Period Costs & Expenses Describe Describe of Period
- -----------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
For the year ended
December 31, 1997
- ---------------------------
Reserve for Mortgage Loans . $2,370 $1,348 $ 0 $ 0 $3,718
Reserve for Fixed Maturities $ 16 $ 799 $ 0 $ 0 $ 815
For the year ended
December 31, 1996
- ---------------------------
Reserve for Mortgage Loans . $ 0 $2,370 $ 0 $ 0 $2,370
Reserve for Fixed Maturities $ 9 $ 7 $ 0 $ 0 $ 16
For the year ended
December 31, 1995
- ---------------------------
Reserve for Fixed Maturities $ 0 $ 9 $ 0 $ 0 $ 9
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 6
<MULTIPLIER> 1
<CURRENCY> U.S. DOLLAR
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-START> JAN-01-1997
<PERIOD-END> DEC-31-1997
<EXCHANGE-RATE> 1
<INVESTMENTS-AT-COST> 33690208
<INVESTMENTS-AT-VALUE> 43490170
<RECEIVABLES> 90057
<ASSETS-OTHER> 0
<OTHER-ITEMS-ASSETS> 0
<TOTAL-ASSETS> 43580227
<PAYABLE-FOR-SECURITIES> 0
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> (139191)
<TOTAL-LIABILITIES> (139191)
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 0
<SHARES-COMMON-STOCK> 26680280
<SHARES-COMMON-PRIOR> 15296692
<ACCUMULATED-NII-CURRENT> 0
<OVERDISTRIBUTION-NII> 0
<ACCUMULATED-NET-GAINS> 0
<OVERDISTRIBUTION-GAINS> 0
<ACCUM-APPREC-OR-DEPREC> 0
<NET-ASSETS> 43441036
<DIVIDEND-INCOME> 1828195
<INTEREST-INCOME> 0
<OTHER-INCOME> 0
<EXPENSES-NET> (445711)
<NET-INVESTMENT-INCOME> 1382484
<REALIZED-GAINS-CURRENT> 56455
<APPREC-INCREASE-CURRENT> 3578484
<NET-CHANGE-FROM-OPS> 5017423
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> 0
<DISTRIBUTIONS-OF-GAINS> 0
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 13026553
<NUMBER-OF-SHARES-REDEEMED> (1642965)
<SHARES-REINVESTED> 0
<NET-CHANGE-IN-ASSETS> 22105200
<ACCUMULATED-NII-PRIOR> 0
<ACCUMULATED-GAINS-PRIOR> 0
<OVERDISTRIB-NII-PRIOR> 0
<OVERDIST-NET-GAINS-PRIOR> 0
<GROSS-ADVISORY-FEES> 0
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> (445711)
<AVERAGE-NET-ASSETS> 32388436
<PER-SHARE-NAV-BEGIN> 0
<PER-SHARE-NII> 0
<PER-SHARE-GAIN-APPREC> 0
<PER-SHARE-DIVIDEND> 0
<PER-SHARE-DISTRIBUTIONS> 0
<RETURNS-OF-CAPITAL> 0
<PER-SHARE-NAV-END> 0
<EXPENSE-RATIO> 0
<AVG-DEBT-OUTSTANDING> 0
<AVG-DEBT-PER-SHARE> 0
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 7
<MULTIPLIER> 1000
<CURRENCY> U.S. DOLLAR
<S> <C>
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-START> JAN-01-1997
<PERIOD-END> DEC-31-1997
<PERIOD-TYPE> YEAR
<EXCHANGE-RATE> 1
<DEBT-HELD-FOR-SALE> 2685799
<DEBT-CARRYING-VALUE> 1186682
<DEBT-MARKET-VALUE> 1223108
<EQUITIES> 0
<MORTGAGE> 738052
<REAL-ESTATE> 0
<TOTAL-INVEST> 4626557
<CASH> 0
<RECOVER-REINSURE> 0
<DEFERRED-ACQUISITION> 224501
<TOTAL-ASSETS> 4973413
<POLICY-LOSSES> 4343213
<UNEARNED-PREMIUMS> 0
<POLICY-OTHER> 0
<POLICY-HOLDER-FUNDS> 11328
<NOTES-PAYABLE> 0
<COMMON> 2000
0
0
<OTHER-SE> 467344
<TOTAL-LIABILITY-AND-EQUITY> 4973413
0
<INVESTMENT-INCOME> 332268
<INVESTMENT-GAINS> (509)
<OTHER-INCOME> 6329
<BENEFITS> 231437
<UNDERWRITING-AMORTIZATION> 36803
<UNDERWRITING-OTHER> 24890
<INCOME-PRETAX> 44958
<INCOME-TAX> 16645
<INCOME-CONTINUING> 28313
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 28313
<EPS-PRIMARY> 0
<EPS-DILUTED> 0
<RESERVE-OPEN> 0
<PROVISION-CURRENT> 0
<PROVISION-PRIOR> 0
<PAYMENTS-CURRENT> 0
<PAYMENTS-PRIOR> 0
<RESERVE-CLOSE> 0
<CUMULATIVE-DEFICIENCY> 0
</TABLE>
AMERICAN ENTERPRISE LIFE INSURANCE COMPANY
American Enterprise Variable Account
POWER OF ATTORNEY
City of Minneapolis
State of Minnesota
Each of the undersigned, as a principal financial officer and controller,
respectively, of American Enterprise Life Insurance Company (AEL), sponsor of
the unit investment trust consisting of the American Enterprise Variable Account
in connection with the filing of registration statements on Form N-4 under the
Securities Act of 1933 and the Investment Company Act of 1940, hereby
constitutes and appoints William A. Stoltzmann, Mary Ellyn Minenko, Sherilyn K.
Beck, Colin Lancaster and Timothy S. Meehan or any one of them, as his
attorney-in-fact and agent, to sign for him in his name, place and stead any and
all filings, applications (including applications for exemptive relief),
periodic reports, registration statements (with all exhibits and other documents
required or desirable in connection therewith), other documents, and amendments
thereto and to file such filings, applications, periodic reports, registration
statements, other documents, and amendments thereto with the Securities and
Exchange Commission, and any necessary states, and grants to any or all of them
the full power and authority to do and perform each and every act required or
necessary in connection therewith.
Dated the 9th day of April, 1998.
/s/ Jeffrey S. Horton April 8, 1998
- --------------------------------------------
Jeffrey S. Horton
Vice President and Treasurer
/s/ Philip C. Wentzel April 9, 1998
- --------------------------------------------
Philip C. Wentzel
Controller
