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AEL Personal PortfolioSM/AEL Personal Portfolio Plus
May 1, 1998
Variable Annuity Prospectus
The flexible premium variable annuity contracts described in the prospectus are
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 annuities are available for individual retirement
annuities (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 Offices: 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: AIM
Variable Insurance Funds, Inc.; GT Global Variable Investment Funds; IDS Life
Retirement Annuity Mutual Funds; Janus Aspen Series; OCC Accumulation Trust;
Oppenheimer Variable Account 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.
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A Statement of Additional Information (SAI), dated May 1, 1998 (incorporated by
reference into this prospectus) and 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.
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Table of contents
Key terms......................................................................
The annuities in brief.........................................................
Expense summary................................................................
Condensed financial information (Unaudited)....................................
Financial statements...........................................................
Performance information........................................................
The variable account...........................................................
The funds......................................................................
AIM V.I. Growth and Income Fund...........................................
AIM V.I. International Equity Fund........................................
AIM V.I. Value Fund.......................................................
GT Global Variable Latin America Fund.....................................
GT Global Variable New Pacific Fund.......................................
IDS Life Aggressive Growth Fund...........................................
IDS Life Capital Resource Fund............................................
IDS Life Growth Dimensions Fund...........................................
IDS Life International Equity Fund........................................
IDS Life Managed Fund.....................................................
IDS Life Moneyshare Fund..................................................
IDS Life Special Income Fund..............................................
Janus Aspen Series Balanced Portfolio.....................................
Janus Aspen Series Worldwide Growth Portfolio.............................
OCC Accumulation Trust Equity Portfolio...................................
OCC Accumulation Trust Managed Portfolio..................................
OCC Accumulation Trust Small Cap Portfolio................................
OCC Accumulation Trust U.S. Government Income Portfolio...................
Oppenheimer Variable Account Growth Fund..................................
Oppenheimer Variable Account High Income Fund.............................
Putnam VT Diversified Income Fund.........................................
Putnam VT Growth and Income Fund..........................................
Putnam VT High Yield Fund.................................................
Putnam VT New Opportunities Fund..........................................
The fixed account..............................................................
Buying your annuity............................................................
The retirement date.......................................................
Beneficiary...............................................................
How to make payments......................................................
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Charges........................................................................
Contract administrative charge............................................
Variable account administrative charge....................................
Mortality and expense risk fee............................................
Withdrawal charge.........................................................
Waiver of withdrawal charge...............................................
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...........................
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..........
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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 of 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
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annuitant. The owner is responsible for taxes, regardless of whether he or she
receives the annuity's benefits.
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 (SIP) - A payment method you set up with your bank to
automatically make monthly investments to your annuity from your bank account.
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.
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.
The annuities in brief
Purpose: Each 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 offices within 10 days after it is delivered to you
and receive a full refund
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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. )
o one fixed account, which earns interest at a rate that is adjusted
periodically by American Enterprise Life. (p. )
Buying the annuity: Your agent will help you complete and submit an application.
Applications are subject to acceptance at our Minneapolis administrative
offices. 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. In
some states there are time limitations for making additional payments. (p. )
o Minimum initial payment - $2,000 (without prior approval)
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. )
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. )
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. )
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. )
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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. )
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.)
Charges: Your 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. )
Expense summary
The purpose of this table is to help you understand the various costs and
expenses associated with your annuity.
You pay no sales charge when you purchase your 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 7%
2 6%
3 5%
4 4%
5 3%
6 2%
7 1%
Thereafter 0%
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Annual contract administrative charge $30
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>
GT Global GT Global
AIM V.I. Variable Latin Variable
Growth AIM V.I. America New Pacific IDS Life IDS Life IDS Life
and International AIM V.I. (after expense (after expense Aggressive Capital Growth
Income+ Equity+ Value+ reimbursement) reimbursement) Growth Resource Dimensions
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Management fees 0.63% 0.75% 0.62% 1.00% 1.00% 0.60% 0.60% 0.63%
Other expenses 0.06 0.18 0.08 0.25 0.09 0.07 0.07 0.08
Total 0.69%+ 0.93%+ 0.70%+ 1.25%++ 1.09%++ 0.67%** 0.67%** 0.71%**
Janus Janus Aspen
Aspen Series
Series Worldwide OCC
IDS Life IDS Life Balanced Growth OCC Accumulation
International IDS Life IDS Life Special (after fee (after fee Accumulation Trust
Equity Managed Moneyshare Income reductions) reductions) Trust Equity Managed
Management fees 0.83% 0.59% 0.51% 0.60% 0.76% 0.66% 0.80% 0.80%
Other expenses 0.11 0.05 0.06 0.07 0.07 0.08 0.19 0.07
Total 0.94%** 0.64%** 0.57%** 0.67%** 0.83%+++ 0.74%+++ 0.99%*** 0.87%***
OCC
Accumulation Putnamm
Trust U.S. VT Growth Putnam
OCC Government Oppenheimer Oppenheimer Putnam VT and IncomeVT High Putnam VT
Accumulation Income Variable Variable Diversified Fund Yield New
Trust Small (after Account Account High Income Fund Opportunities
Cap expense Growth Income Fund Fund
limitations)
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Management fees 0.80% 0.47% 0.73% 0.75% 0.69% 0.47% 0.66% 0.58%
Other expenses 0.17 0.46 0.02 0.07 0.11 0.04 0.06 0.05
Total 0.97%*** 0.93%*** 0.75%+ 0.82%+ 0.80%+ 0.51%+ 0.72%+ 0.63%+
</TABLE>
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+ Operating expenses of the underlying funds at Dec. 31, 1997. A I M
Advisers, Inc. ("AIM") may from time to time voluntarily waive or reduce
its respective fees. Effective May 1, 1998, the Funds reimburse AIM in an
amount up to 0.25% of the average net asset value of each Fund, for
expenses incurred in providing, or assuring that participating insurance
companies provide, certain administrative services. Currently, the fee only
applies to the average net asset value of each Fund in excess of the net
asset value of each Fund as calculated on April 30, 1998.
* Premium taxes imposed by some state and local governments are not
reflected in this table.
** Annualized operating expenses of underlying funds at Dec. 31, 1997.
*** Total portfolio Expenses of the OCC Accumulation Trust Portfolios are
limited by OpCap Advisors so that their respective annualized operating
expenses (net of any expense offsets) do not exceed 1.00% of average
daily net assets for the Equity, Managed, Small Cap and U.S. Government
Income Portfolios. Without such limitation and without giving effect to
any expense offsets, the Management Fees, Other Expenses and Total
Portfolio Expenses would have been, .80%, .19% and .99%, respectively,
for the Equity Portfolio; .80%, .07% and .87%, respectively,
for the Managed Portfolio; .80%, .17% and .97%, respectively, for the Small
Cap Portfolio; and .60%, .46% and 1.06%, respectively, for the U.S.
Government Income Portfolio for the fiscal year ended December 31, 1997.
+ Operating expenses of the underlying funds at Dec. 31, 1997.
++ Figures in the "Other expenses" and "Total" columns are restated from the
amounts you would have incurred in 1997 to reflect fee and reimbursement or
waiver arrangements. If there had been no reimbursement of expenses by
Chancellor LGT Asset Management and no expense reductions, the actual
expenses of each fund, expressed as a percentage of net assets, with
"Management fees" stated first, then "Other expenses," followed by "Total,"
would have been as follows: GT Global Variable Latin America Fund, 1.00%,
.40%, 1.40%; and GT Global Variable New Pacific Fund, 1.00%, .43%, 1.43%.
+++ The figures given above are based on gross expenses before expense offset
arrangements, if any, during 1997, for these funds. As of the date of this
prospectus, certain fees are being reduced by the respective investment
managers or service providers for certain of the underlying funds, in each
case on a voluntary basis. Without such reductions, the "Management fees",
"Other expenses" and "Total" that would have been incurred for the last
completed fiscal year would be: .77%, .06% and .83%, respectively, for
Janus Aspen Series Balanced Portfolio, and .72%, .09% and .81%,
respectively, for Janus Aspen Series Worldwide Growth Portfolio. See the
Portfolios' prospectuses for a discussion of fee reductions.
Example:*
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<TABLE>
<CAPTION>
GT Global GT Global
AIM V.I. AIM V.I. Variable Variable IDS Life IDS Life IDS Life
Growth and International AIM V.I. Latin New Aggressive Capital Growth
Income Equity Value America Pacific Growth Resource Dimensions
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:
<S> <C> <C> <C> <C> <C> <C> <C> <C>
1 year $ 92.72 $ 95.18 $ 92.83 $ 98.46 $ 96.82 $ 92.52 $ 92.52 $ 92.93
3 years 120.05 127.44 120.36 137.24 132.35 119.43 119.43 120.67
5 years 149.99 162.33 150.51 178.58 170.48 148.96 148.96 151.02
10 years 257.26 281.91 258.30 313.87 298.02 255.18 255.18 259.34
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 $ 22.72 $ 25.18 $ 22.83 $ 28.46 $ 26.82 $ 22.52 $ 22.52 $ 22.93
3 years 70.05 77.44 70.36 87.24 82.35 69.43 69.43 70.67
5 years 119.99 132.33 120.51 148.58 140.48 118.96 118.96 121.02
10 years 257.26 281.91 258.30 313.87 298.02 255.18 255.18 259.34
Janus Janus Aspen OCC
IDS Life IDS Life Aspen Series OCC Accumulation
International IDS Life IDS Life Special Series Worldwide Accumulation Trust
Equity Managed Moneyshare Income Balanced Growth Trust Equity Managed
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:
<S> <C> <C> <C> <C> <C> <C> <C> <C>
1 year $ 95.29 $ 92.21 $ 91.49 $ 92.52 $ 94.16 $ 93.24 $ 95.80 $ 94.57
3 years 127.75 118.50 116.34 119.43 124.37 121.59 129.29 125.60
5 years 162.84 147.40 143.78 148.96 157.20 152.57 165.39 159.26
10 years 282.92 252.05 244.72 255.18 271.71 262.45 287.98 275.80
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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 $ 25.29 $ 22.21 $ 21.49 $ 22.52 $ 24.16 $ 23.24 $ 25.80 $ 24.57
3 years 77.75 68.50 66.34 69.43 74.37 71.59 79.29 75.60
5 years 132.84 117.40 113.78 118.96 127.20 122.57 135.39 129.26
10 years 282.92 252.05 244.72 255.18 271.71 262.45 287.98 275.80
</TABLE>
<TABLE>
<CAPTION>
OCC Putnam VT
OCC Accumulation Oppenheimer Oppenheimer DiversifiedPutnam Putnam VT Putnam
Accumulation Trust U.S. Variable Variable Income VT Growth High VT New
Trust Small Cap Government Account Account High Fund and Income Yield Fund Opportunities
Income Growth 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:
<S> <C> <C> <C> <C> <C> <C> <C> <C>
1 year $ 95.59 $ 95.18 $ 93.34 $ 94.06 $ 93.85 $ 90.88 $ 93.03 $ 92.11
3 years 128.67 127.44 121.90 124.06 123.44 114.48 120.98 118.19
5 years 164.37 162.33 153.09 156.69 155.66 140.66 151.54 146.89
10 years 285.96 281.91 263.48 270.69 268.63 238.39 260.38 251.01
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 $ 25.59 $ 25.18 $ 23.34 $ 24.06 $ 23.85 $ 20.88 $ 23.03 $ 22.11
3 years 78.67 77.44 71.90 74.06 73.44 64.48 70.98 68.19
5 years 134.37 132.33 123.09 126.69 125.66 110.66 121.54 116.89
10 years 285.96 281.91 263.48 270.69 268.63 238.39 260.38 251.01
</TABLE>
* In this example, the $30 annual contract administrative charge is
approximated as a .127% charge based on the average contract size. IDS Life
has entered into certain arrangements under which it is compensated by the
funds' advisers and/or distributors for the administrative services it
provides to the funds.
This example should not be considered a representation of past or future
expenses. Actual expenses may be more or less than those shown.
Condensed financial information (Unaudited)
The following tables give per-unit information about the financial history of
each variable subaccount.
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Year ended Dec. 31,
1997 1996 1995
Subaccount EGN3 (Investing in shares of Aim V.I. Growth and Income Fund)
Accumulation unit $1.00 -- --
value at beginning
of period
Accumulation unit value $1.03 -- --
at end of period
Number of accumulation 69 -- --
units outstanding at end
of period (000 omitted)
Ratio of operating 1.40% -- --
expense to average
net assets
Subaccount EIN3 (Investing in shares of Aim V.I. International Equity Fund)
Accumulation unit $1.00 -- --
value at beginning
of period
Accumulation unit value $1.02 -- --
at end of period
Number of accumulation 57 -- --
units outstanding at end
of period (000 omitted)
Ratio of operating 1.40% -- --
expense to average
net assets
Subaccount EVA3 (Investing in shares of Aim V.I. Value Fund)
Accumulation unit $1.00 -- --
value at beginning
of period
Accumulation unit value $1.03 -- --
at end of period
Number of accumulation 66 -- --
units outstanding at end
of period (000 omitted)
Ratio of operating 1.40% -- --
expense to average
net assets
Subaccount ELA1 (Investing in shares of GT Global Variable Latin America Fund)
Accumulation unit $1.19 $0.98 $1.00
value at beginning
of period
Accumulation unit value $1.34 $1.19 $0.98
at end of period
Number of accumulation 1,004 663 303
units outstanding at end
of period (000 omitted)
Ratio of operating 1.40% 1.50% 1.50%
expense to average
net assets
Subaccount EPA1 (Investing in shares of GT Global Variable New Pacific Fund)
Accumulation unit $1.38 $1.07 $1.00
value at beginning
of period
Accumulation unit value $0.80 $1.38 $1.07
at end of period
Number of accumulation 980 530 193
units outstanding at end
of period (000 omitted)
Ratio of operating 1.40% 1.50% 1.50%
expense to average
net assets
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 EGD2 (Investing in shares of IDS Life Growth Dimensions Fund)
Accumulation unit $1.00 -- --
value at beginning
of period
Accumulation unit value $1.05 -- --
at end of period
Number of accumulation 69 -- --
units outstanding at end
of period (000 omitted)
Ratio of operating 1.40% -- --
expense to average
net assets
Subaccount EIE1 (Investing in shares of IDS Life International Equity Fund)
Accumulation unit $1.26 $1.17 $1.00
value at beginning
of period
Accumulation unit value $1.28 $1.26 $1.17
at end of period
Number of accumulation 1,413 675 220
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 ESB3 (Investing in shares of Janus Aspen Series Balanced Portfolio)
Accumulation unit $1.00 -- --
value at beginning
of period
Accumulation unit value $1.02 -- --
at end of period
Number of accumulation 69 -- --
units outstanding at end
of period (000 omitted)
Ratio of operating 1.40% -- --
expense to average
net assets
Subaccount EWG3 (Investing in shares of
Janus Aspen Series Worldwide Growth Portfolio)
Accumulation unit $1.00 -- --
value at beginning
of period
Accumulation unit value $1.03 -- --
at end of period
Number of accumulation 62 -- --
units outstanding at end
of period (000 omitted)
Ratio of operating 1.40% -- --
expense to average
net assets
Subaccount EEQ3 (Investing in shares of
OCC Accumulation Trust Equity Portfolio)
Accumulation unit $1.00 -- --
value at beginning
of period
Accumulation unit value $1.07 -- --
at end of period
Number of accumulation 63 -- --
units outstanding at end
of period (000 omitted)
Ratio of operating 1.40% -- --
expense to average
net assets
Subaccount EMD1 (Investing in shares of
OCC Accumulation Trust Managed Portfolio)
Accumulation unit $1.58 $1.31 $1.00
value at beginning
of period
Accumulation unit value $1.91 $1.58 $1.31
at end of period
Number of accumulation 4,134 2,462 436
units outstanding at end
of period (000 omitted)
Ratio of operating 1.40% 1.50% 1.50%
expense to average
net assets
Subaccount ESC3 (Investing in shares of
OCC Accumulation Trust Small Cap Portfolio)
Accumulation unit $1.00 -- --
value at beginning
of period
Accumulation unit value $1.01 -- --
at end of period
Number of accumulation 87 -- --
units outstanding at end
of period (000 omitted)
Ratio of operating 1.40% -- --
expenses to average
net assets
Subaccount EUS1 (Investing in shares of
OCC Accumulation Trust U.S. Government Income Portfolio)
Accumulation unit $1.10 $1.09 $1.00
value at beginning
of period
Accumulation unit value $1.17 $1.10 $1.09
at end of period
Number of accumulation 2,253 1,252 413
units outstanding at end
of period (000 omitted)
Ratio of operating 1.40% 1.50% 1.50%
expense to average
net assets
Subaccount EGR3 (Investing in shares of
Oppenheimer Variable Account Growth Portfolio)
Accumulation unit $1.00 -- --
value at beginning
of period
Accumulation unit value $1.02 -- --
at end of period
Number of accumulation 67 -- --
units outstanding at end
of period (000 omitted)
Ratio of operating 1.40% -- --
expense to average
net assets
Subaccount EHI3 (Investing in shares of
Oppenheimer Variable Account High Income Fund)
Accumulation unit $1.00 -- --
value at beginning
of period
Accumulation unit value $1.01 -- --
at end of period
Number of accumulation 77 -- --
units outstanding at end
of period (000 omitted)
Ratio of operating 1.40% -- --
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 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 EHY1 (Investing in shares of Putnam VT High Yield Fund)
Accumulation unit $1.27 $1.14 $1.00
value at beginning
of period
Accumulation unit value $1.43 $1.27 $1.14
at end of period
Number of accumulation 2,321 1,270 480
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
1 Inception date was Feb. 21, 1995.
2 Inception date was Oct. 29, 1997.
3 Inception date was Oct. 30, 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.
<PAGE>
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).
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
AIM V.I. Growth and Income Fund EGN
AIM V.I. International Equity Fund EIN
AIM V.I. Value Fund EVA
GT Global Variable Latin America Fund ELA
GT Global Variable New Pacific Fund EPA
IDS Life Aggressive Growth Fund EAG
IDS Life Capital Resource Fund ECR
IDS Life Growth Dimensions Fund EGD
<PAGE>
Subaccount
IDS Life International Equity Fund EIE
IDS Life Managed Fund EMG
IDS Life Moneyshare Fund EMS
IDS Life Special Income Fund ESI
Janus Aspen Series Balanced Portfolio ESB
Janus Aspen Series Worldwide Growth Portfolio EWG
OCC Accumulation Trust Equity Portfolio EEQ
OCC Accumulation Trust Managed Portfolio EMD
OCC Accumulation Trust Small Cap Portfolio ESC
OCC Accumulation Trust U.S. Government Income Portfolio EUS
Oppenheimer Variable Account Growth Fund EGR
Oppenheimer Variable Account High Income Fund EHI
Putnam VT Diversified Income Fund EDI
Putnam VT Growth and Income Fund EGI
Putnam VT High Yield Fund EHY
Putnam VT New Opportunities Fund ENO
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 subaccount 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.
The funds
AIM V.I. Growth and Income Fund
Objective: growth of capital, with current income as a secondary objective. The
fund seeks to achieve its objective by generally investing at least 65% of its
net assets in stocks of companies believed by management to have the potential
for above average growth in revenues and earnings.
AIM V.I. International Equity Fund
Objective: long-term growth of capital. Invests in international equity
securities, the issuers of which are considered by AIM to have strong earnings
momentum.
<PAGE>
AIM V.I. Value Fund
Objective: long-term growth of capital. Invests primarily in equity securities
judged by AIM to be undervalued relative to the current or projected earnings of
the companies issuing the securities or relative to the equity markets
generally. Income is a secondary objective.
GT Global Variable Latin America Fund
Objective: capital appreciation. Normally invests at least 65% of its total
assets in the securities of a broad range of Latin American issuers. The Fund
may invest in common stock, preferred stock, rights, warrants and securities
convertible into common stock, and other substantially similar forms of equity
securities with comparable risk characteristics, as well as bonds, notes,
debentures or other forms of indebtedness that may be developed in the future.
GT Global Variable New Pacific Fund
Objective: long-term growth of capital. Normally invests at least 65% of its
total assets in equity securities of issuers domiciled in Australia, Hong Kong,
India, Indonesia, Malaysia, New Zealand, Pakistan, the Philippines, Singapore,
South Korea, Taiwan and Thailand. Equity securities in which the Fund may invest
include common stock, preferred stock, convertible debt securities and warrants
to acquire such securities.
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 Growth Dimensions Fund
Objective: long-term growth of capital. Invests primarily in common stocks of
U.S. and foreign companies showing potential for significant growth.
IDS Life International Equity Fund
Objective: capital appreciation. Invests primarily in common stock of foreign
issuers and foreign securities convertible into common stock.
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.
<PAGE>
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.
Janus Aspen Series Balanced Portfolio
Objective: long-term growth of capital, balanced by current income. The
Portfolio normally invests 40-60% of its assets in securities selected primarily
for their growth potential and 40-60% of its assets in securities selected
primarily for their income potential.
Janus Aspen Series Worldwide Growth Portfolio
Objective: long-term growth of capital in a manner consistent with the
preservation of capital. Invests primarily in common stocks of foreign and
domestic issuers.
OCC Accumulation Trust Equity Portfolio
Objective: long term capital appreciation. Invests in a diversified portfolio of
equity securities selected on the basis of a value-oriented approach to
investing.
OCC Accumulation Trust Managed Portfolio
Objective: growth of capital over time. Invests primarily in common stocks,
bonds and money market and cash equivalent securities, the percentages of which
will vary based on management's assessment of relative investment values.
OCC Accumulation Trust Small Cap Portfolio
Objective: capital appreciation. Invests in a diversified portfolio of equity
securities of companies with market capitalizations of under $1 billion.
OCC Accumulation Trust U.S. Government Income Portfolio
Objective: high level of current income together with protection of capital.
Invests exclusively in debt obligations, including mortgage-backed securities,
issued or guaranteed by the United States government, its agencies or
instrumentalities.
Oppenheimer Variable Account Growth Fund
Objective: capital appreciation. Invests in securities of well-known established
companies.
<PAGE>
Oppenheimer Variable Account High Income Fund
Objective: high level of current income. Invests in high-yield, fixed-income
securities, including unrated securities or high-risk securities in the lower
rating categories, commonly known as "junk bonds". These securities are subject
to a greater risk of loss of principal and nonpayment of interest than
higher-rated securities.
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 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 High Yield Fund
Objective: high current income and, when consistent with this objective, a
secondary objective of capital growth, by investing primarily in high-yielding,
lower-rated fixed income securities constituting a portfolio which Putnam
Investment Management, Inc. ("Putnam Management") believes does not involve
undue risk to income or principal. See the special considerations for
investments in high yield securities described in the Putnam Variable Trust
prospectus.
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 Management believes
possess above average long-term growth potential.
More comprehensive information regarding each fund is contained in that fund's
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.
<PAGE>
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 plan 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 each 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 AIM Variable Insurance Funds - A I M Advisors, Inc.
o GT Global Variable Investment Funds - Chancellor LGT Asset Management, Inc.
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 Janus Aspen Series Portfolios - Janus Capital Corporation.
o OCC Accumulation Trust Portfolios - OpCap Advisors.
<PAGE>
o Oppenheimer Variable Account Funds - OppenheimerFunds, Inc.
o Putnam Variable Trust - Putnam Investment Management, Inc.
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 offices 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). (In Pennsylvania, the annuitant must
be under age 81.)
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.
<PAGE>
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 offices. 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 offices.
You may make monthly payments to your annuity under a Systematic Investment Plan
(SIP). To begin the SIP, you will complete and send a form and your first
payment along with your application. There is no charge for SIP. You can stop
your SIP payments at any time.
In most states, additional purchase payments may be made to nonqualified and
qualified annuities until the retirement date. In Maryland and Washington,
additional purchase payments may be made to nonqualified annuities until the
later of the annuitant's 63rd birthday or the third contract anniversary, and
additional purchase payments may be made to qualified annuities until the
annuitant's 63rd birthday. In Massachusetts, additional purchase payments may be
made for ten years only.
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); or
o no later than the annuitant's 82nd birthday (or the eighth contract
anniversary, if purchased after age 74) for annuities purchased in
Pennsylvania.
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.
<PAGE>
(In Pennsylvania, annuity payouts must start no later than the annuitant's 82nd
birthday or the eighth 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 payment amounts
Initial payment (includes SIPs): $2,000 (We reserve the right to
decrease the minimum payment.)
Minimum additional purchase payment(s)(includes SIPs): $50
Maximum payment(s): $1,000,000 of cumulative payments (We reserve
the right to increase the maximum payment.)
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. We will
<PAGE>
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.
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.
<PAGE>
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 eight or more contract years
before the withdrawal and not previously withdrawn. There is no withdrawal
charge on purchase payments received eight or more contract years before
withdrawal.
4. Finally, if necessary, we withdraw purchase payments received in the seven
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.
There is a withdrawal charge on payments received seven or less contract years
before withdrawal. We determine your withdrawal charge by multiplying each of
these payments by the applicable withdrawal charge percentage, and then totaling
the withdrawal charges.
The withdrawal charge percentage depends on the number of contract years since
you made the payment(s).
Contract years from payment Withdrawal charge
receipt percentage
1 7%
2 6%
3 5%
4 4%
5 3%
6 2%
7 1%
Thereafter 0%
Withdrawal charge calculation example
The following is an example of the calculation we would make to determine the
withdrawal charge on a contract with 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; and
o We received these payments - $10,000 July 1, 1998, $8,000
Dec. 31, 2004 and $6,000 Feb. 20, 2006; and
<PAGE>
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; and
o The prior anniversary July 1, 2008 contract value was $38,488.
Withdrawal charge Explanation
$0 $3,848.80 is 10% of the prior anniversary
contract value withdrawn without
withdrawal charge; and
0 $10,252.20 is contract earnings in excess
of the 10% free withdrawal amount
withdrawn without withdrawal charge; and
0 $10,000 July 1, 1998 payment was received
eight or more contract years before
withdrawal and is withdrawn without
withdrawal charge; and
240 $8,000 Dec. 31, 2004 payment is in its
fifth contract year from receipt, withdrawn
with a 3% withdrawal charge; and
240 $6,000 Feb. 20, 2006 payment is in its
fourth contract year from receipt withdrawn
with a 4% withdrawal charge.
- ------------------------------------
$480
The withdrawal charge is calculated so that the total amount minus any
withdrawal charge equals the amount you request. If you take a full withdrawal
from your contract, the $30 contract 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
the annuities described in this prospectus);
o contracts settled using an annuity payout plan; and
o death benefits.
<PAGE>
If your contract includes a "Waiver of Withdrawal Charges" Annuity Endorsement
or provision, we will waive withdrawal charges that are normally assessed upon
full or partial withdrawal if you provide proof satisfactory to us that, as of
the date you request the withdrawal, you or the annuitant are confined to a
hospital or nursing home and have been for the prior 60 days.
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.
To the extent permitted by state law, this endorsement is included in contracts
issued when the owner and annuitant are under age 76 on the date that we issue
the contract.
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.
<PAGE>
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:
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);
<PAGE>
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.
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
<PAGE>
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 next 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 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.
<PAGE>
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
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 12 months.
<PAGE>
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 the fixed account in the
same proportion as your value in each correlates to your total contract value,
unless you request otherwise.
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;
<PAGE>
-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 offices. 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
Your annuity includes one of the two death benefits decribed below. Please see
your contract, together with all endorsements, for details of the benefit that
applies.
If you or the annuitant die before annuitization while this contract is in
force, and both you and the annuitant are age 80 or younger on the date of
death, we will pay the beneficiary the greatest of:
1. the contract value; or
2. the total purchase payments paid less any "adjusted partial
withdrawals"; or
3. the highest contract value on any prior contract anniversary, plus any
purchase payments paid and less any "adjusted partial withdrawals" since
that contract anniversary.
The "adjusted partial withdrawal" is calculated for each partial withdrawal as
the product of (a) times (b) where:
<PAGE>
(a) is the ratio of the amount of the partial withdrawal to the
contract value immediately before the partial withdrawal; and
(b) is the death benefit immediately before the partial withdrawal.
If either you or the annuitant is age 81 or older on the date of death, we will
pay the beneficiary the contract value.
Example:
o The contract is purchased with a payment of $20,000 on January 1, 1999.
o On January 1, 2000 (the first contract anniversary) the contract value has
grown to $24,000.
o On March 1, 2000 the contract value has fallen to $22,000, at which
point the owner takes a $1,500 partial withdrawal, leaving a
contract value of $20,500.
The death benefit on March 1, 2000 is calculated as follows:
<TABLE>
<S> <C>
The highest contract value on any prior contract anniversary: $24,000.00
plus any purchase payments paid since that anniversary: + 0.00
less any "adjusted partial withdrawal" taken since that anniversary,
calculated as: 1,500 x 24,000 = - 1,636.36
----- -------------
22,000
for a death benefit of: $22,363.64
</TABLE>
OR
If you or the annuitant die before annuitization while this contract is in
force, and both you and the annuitant were 75 or younger on the date the annuity
was issued and 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.
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.
<PAGE>
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.
Example:
o The owner purchases an annuity contract for $20,000 on January 1, 1999.
o On January 1, 2004 the contract value has grown to $33,000.
o On June 1, 2004 the owner takes a $1,500 partial withdrawal, leaving a
contract value of $31,500.
o On July 15, 2004 the owner makes an additional payment of $1,000.
o On March 1, 2005 the contract value has fallen to $31,000.
The death benefit on March 1, 2005 is calculated as follows:
The closest fifth anniversary contract value: $33,000.00
plus any purchase payments paid since that anniversary: + 1,000.00
less any partial withdrawals taken since that anniversary: - 1,500.00
------------
for a death benefit of: $32,500.00
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
<PAGE>
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.
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.
<PAGE>
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.
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 die 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
<PAGE>
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.
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);
<PAGE>
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've
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.
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
<PAGE>
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
Each contract is intended to qualify as an annuity for federal income tax
purposes. To that end, the provisions of the contracts 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 contracts 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
<PAGE>
subaccount(s) when American Enterprise Life believes it would be in the best
interest of 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 distributed by banks and financial institutions either
directly or through a network of third-party marketers. American Express
Financial Advisors Inc., the principal underwriter for the variable account,
will pay commissions for the distribution of the contracts to the broker-dealers
of the banks or financial institutions or the broker-dealers of the third-party
marketers who have entered into distribution agreements with American Express
Financial Advisors Inc. These commissions will not be more than 7.5% of purchase
payments received on the contracts.
From time to time, American Enterprise Life will pay or permit other promotional
incentives, in cash or credit or other compensation.
About American Enterprise Life
The annuities are 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 offices are located
at 80 South Eighth Street, Minneapolis, MN 55402. Its statutory address is 100
Capitol Center South, 201 North Illinois Street, Indianapolis, IN 46204.
American Enterprise Life 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.
<PAGE>
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.
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.
Table of contents of the Statement of Additional Information
Performance Information................................................
Calculating Annuity Payouts............................................
Rating Agencies........................................................
Principal Underwriter..................................................
<PAGE>
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 Personal PortfolioSM/AEL Personal Portfolio Plus
AIM Variable Insurance Funds, Inc.
GT Global Variable Investment Funds
IDS Life Retirement Annuity Mutual Funds
Janus Aspen Series Portfolios
OCC Accumulation Trust Portfolios
Oppenheimer Variable Account 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 PERSONAL PORTFOLIOSM/AEL Personal Portfolio Plus
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>
AEL Personal PortfolioSM/AEL Personal Portfolio Plus
TABLE OF CONTENTS
Performance Information.....................................................3
Calculating Annuity Payouts.................................................7
Rating Agencies.............................................................9
Principal Underwriter.......................................................9
Independent Auditors........................................................9
Saving for Retirement......................................................10
Prospectus.................................................................10
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 Life Moneyshare Fund 3.71% 3.78%
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
<PAGE>
where: a = dividends and investment income earned during the period
b = expenses accrued for the period (net of reimbursements)
c = the average daily number of accumulation units
outstanding during the period that were entitled to
receive dividends
d = the maximum offering price per accumulation unit on the
last day of the period
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 either 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
EVR = 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)
<PAGE>
<TABLE>
<CAPTION>
Average Annual Total Return For Period Ended Dec. 31, 1997
Average Annual Total Return with Withdrawal
Performance Since
Commencement of the Performance Since
Subaccount Commencement of the Fund**
Since Since
Commencement Commencement
Subaccount investing in: 1 Year (Subaccount) 1 Year 5 Year 10 Year (Fund)
- -----------------------
<S> <C> <C> <C> <C> <C> <C>
AIM V.I.
Growth and Income Fund (10/97;5/94)* -- -3.48% 16.82% -- -- 19.68%
International Equity Fund (10/97;5/93) -- -4.73% -1.37% -- -- 10.47%
Value Fund (10/97;5/93) -- -3.82% 14.87% -- -- 17.45%
GT GLOBAL
Variable Latin America Fund (2/95;2/93) 5.76% 9.23% 5.76% -- -- 9.13%
Variable New Pacific Fund (2/95;2/93) -45.46% -9.79% -45.46% -- -- -5.39%
IDS LIFE
Aggressive Growth Fund (2/95;1/92) 3.90% 17.20% 3.90% 10.66% -- 10.42%
Capital Resource Fund (2/95;10/81) 15.24% 15.30% 15.24% 10.17% 12.92% --
Growth Dimensions Fund (10/97;4/96) -- -2.54% 15.46% -- -- 17.20%
International Equity Fund (2/95;1/92) -5.27% 7.23% -5.27% 8.19% -- 6.49%
Managed Fund (2/95;4/86) 10.67% 16.44% 10.67% 10.95% 11.91% --
Moneyshare Fund (2/95;10/81) -3.02% 1.78% -3.02% 2.20% 3.65% --
Special Income Fund (2/95;10/81) 0.34% 8.77% 0.34% 7.40% 7.96% --
JANUS ASPEN SERIES
Balanced Portfolio (10/97;9/93) -- -4.55% 13.28% -- -- 13.07%
Worldwide Growth Portfolio (10/97;9/93) -- -4.13% 13.33% -- -- 20.05%
OCC ACCUMULATION TRUST
Equity Portfolio (10/97;8/88) -- 0.46% 17.74% 17.27% -- 16.22%
Managed Portfolio (2/95;8/88) 13.42% 24.05% 13.42% 17.60% -- 18.61%
Small Cap Portfolio (10/97;8/88) -- -5.51% 13.42% 12.40% -- 14.05%
U.S. Government Income Portfolio -1.29% 3.75% -1.29% -- -- 4.16%
(2/95;1/95)
OPPENHEIMER VARIABLE ACCOUNT
Growth Fund (10/97;4/85) -- -5.02% 17.80% 16.47% 14.53% --
High Income Fund (10/97;4/86) -- -5.18% 3.56% 11.62% 12.36% --
PUTNAM VT
Diversified Income Fund (2/95;9/93) -0.99% 8.10% -0.99% -- -- 5.32%
Growth and Income Fund (2/95;2/88) 15.25% 23.35% 15.25% 16.73% -- 14.30%
High Yield Fund (2/95;2/88) 5.58% 11.72% 5.58% 10.45% -- 9.82%
New Opportunities Fund (2/95;5/94) 14.40% 22.40% 14.40% -- -- 21.14%
</TABLE>
* (Commencement date of the subaccount; Commencement date of the fund)
** Current applicable charges deducted from fund performance include a 1.25%
mortality and expense risk fee and a 0.15% variable account administrative
charge.
<PAGE>
<TABLE>
<CAPTION>
Average Annual Total Return without Withdrawal
Performance Since
Commencement of the Performance Since
Subaccount Commencement of the Fund**
Since Since
Commencement Commencement
Subaccount investing in: 1 Year (Subaccount) 1 Year 5 Year 10 Year (Fund)
- -----------------------
<S> <C> <C> <C> <C> <C> <C>
AIM V.I.
Growth and Income Fund (10/97;5/94)* -- 3.20% 23.82% -- -- 20.37%
International Equity Fund (10/97;5/93) -- 1.85% 5.30% -- -- 10.92%
Value Fund (10/97;5/93) -- 2.83% 21.87% -- -- 17.81%
GT GLOBAL
Variable Latin America Fund (2/95;2/93) 12.76% 10.70% 12.76% -- -- 9.57%
Variable New Pacific Fund (2/95;2/93) -42.11% -7.71% -42.11% -- -- -4.90%
IDS LIFE
Aggressive Growth Fund (2/95;1/92) 10.90% 18.49% 10.90% 11.06% -- 10.63%
Capital Resource Fund (2/95;10/81) 22.24% 16.63% 22.24% 10.58% 12.92% --
Growth Dimensions Fund (10/97;4/96) -- 4.20% 22.46% -- -- 20.62%
International Equity Fund (2/95;1/92) 1.11% 8.75% 1.11% 8.63% -- 6.74%
Managed Fund (2/95;4/86) 17.67% 17.75% 17.67% 11.34% 11.91% --
Moneyshare Fund (2/95;10/81) 3.52% 3.45% 3.52% 2.75% 3.65% --
Special Income Fund (2/95;10/81) 7.14% 10.25% 7.14% 7.85% 7.96% --
JANUS ASPEN SERIES
Balanced Portfolio (10/97;9/93) -- 2.05% 20.28% -- -- 13.54%
Worldwide Growth Portfolio (10/97;9/93) -- 2.49% 20.33% -- -- 20.43%
OCC ACCUMULATION TRUST
Equity Portfolio (10/97;8/88) -- 7.43% 24.74% 17.59% -- 16.22%
Managed Portfolio (2/95;8/88) 20.42% 25.22% 20.42% 17.91% -- 18.61%
Small Cap Portfolio (10/97;8/88) -- 1.01% 20.42% 12.77% -- 14.05%
U.S. Government Income Portfolio 5.39% 5.37% 5.39% -- -- 5.72%
(2/95;1/95)
OPPENHEIMER VARIABLE ACCOUNT
Growth Fund (10/97;4/85) -- 1.53% 24.80% 16.79% 14.53% --
High Income Fund (10/97;4/86) -- 1.37% 10.56% 12.01% 12.36% --
PUTNAM VT
Diversified Income Fund (2/95;9/93) 5.71% 9.59% 5.71% -- -- 5.91%
Growth and Income Fund (2/95;2/88) 22.25% 24.53% 22.25% 17.05% -- 14.30%
High Yield Fund (2/95;2/88) 12.58% 13.13% 12.58% 10.85% -- 9.82%
New Opportunities Fund (2/95;5/94) 21.40% 23.59% 21.40% -- -- 21.81%
</TABLE>
*(Commencement date of the subaccount; Commencement date of the fund)
**Current applicable charges deducted from fund performance include a 1.25%
mortality and expense risk fee and a 0.15% variable account administrative
charge.
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
<PAGE>
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, Mutual Fund Forecaster,
Newsweek, The New York Times, Personal Investor, Stanger 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.
<PAGE>
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.
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.
<PAGE>
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 the annuities. 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 annuities.
Rating agency Rating
A.M. Best A+
(Superior)
Duff & Phelps AAA
Moody's Aa2
PRINCIPAL UNDERWRITER
The principal underwriter for the variable accounts is American Express
Financial Advisors Inc. which offers the variable contracts on a continuous
basis.
INDEPENDENT AUDITORS
The financial statements of American Enterprise Variable Annuity Account
including the statements of net assets 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 the years ended December 31, 1997 and December 31, 1996 and
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
<PAGE>
period ended December 31, 1997 appearing in this Statement of Additional
Information have been audited by Ernst & Young LLP, independent auditors, as
stated in their reports appearing 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
Annual Financial Information
Report of Independent Auditors
The Board of Directors
American Enterprise Life Insurance Company
We have audited the individual and combined statements of net assets of the
segregated asset subaccounts of American Enterprise Variable Annuity Account
(comprised of subaccounts ECR, ESI, EMS, EMG, EIE, EAG, EMD, EUS, EPA, ELA, ENO,
EGI, EHY, EDI, EGD, ESC, EEQ, EGR, EHI, EIN, EVA, EGN, EWG and ESB) as of
December 31, 1997, and the related statements of operations for the year then
ended, except for subaccounts EGO, ESC, EEQ, EGR, EHI, EIN, EVA, EGN, EWG and
ESB which are for the period October 30, 1997 (commencement of operations) to
December 31, 1997 and the statements of changes in net assets for each of the
two years in the year then ended, except for subaccounts EGO, ESC, EEQ, EGR,
EHI, EIN, EVA, EGN, EWG and ESB which are for the period October 30, 1997
(commencement of operations) to December 31, 1997. These financial statements
are the responsibility of the management of American Enterprise Life Insurance
Company. Our responsibility is to express an opinion on these financial
statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. Our procedures included
confirmation of securities owned at December 31, 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 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
- --------------------------------------------------------------------------------------------------------------------
Statements of Net Assets Dec. 31, 1997
Assets Segregated Asset Subaccount
-------------------------------------------------------------------------
ECR ESI EMS EMG EIE
- --------------------------------------------------------------------------------------------------------------------
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>
$1,835,588, respectively) $ 5,948,360 $ 3,374,186 $ 259,264 $ 4,718,524 $ 1,808,618
- --------------------------------------------------------------------------------------------------------------------
- --------------------------------------------------------------------------------------------------------------------
Dividends receivable - 20,265 1,249 - -
Accounts receivable from American Enterprise Life
for contract purchase payments 23,164 4,750 - 16,619 803
- --------------------------------------------------------------------------------------------------------------------
Total assets 5,971,524 3,399,201 260,513 4,735,143 1,809,421
- --------------------------------------------------------------------------------------------------------------------
Liabilities
- --------------------------------------------------------------------------------------------------------------------
Payable to American Enterprise Life for:
Mortality and expense risk fee 6,603 3,705 298 5,175 1,974
Issue and administrative fee 792 444 36 621 237
Payable to mutual funds for investments
purchased 23,164 20,866 914 16,619 813
- --------------------------------------------------------------------------------------------------------------------
Total liabilities 30,559 25,015 1,248 22,415 3,024
- --------------------------------------------------------------------------------------------------------------------
Net assets applicable to contracts in
accumulation period $ 5,940,965 $ 3,374,186 $ 259,265 $ 4,712,728 $ 1,806,397
- --------------------------------------------------------------------------------------------------------------------
Accumulation units outstanding 3,812,754 2,543,718 231,256 2,944,208 1,413,420
- --------------------------------------------------------------------------------------------------------------------
Net asset value per accumulation unit $ 1.56 $ 1.33 $ 1.12 $ 1.60 $ 1.28
- --------------------------------------------------------------------------------------------------------------------
See accompanying notes to financial statements.
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
American Enterprise Variable Annuity Account
- --------------------------------------------------------------------------------------------------------------------
Statements of Net Assets - continued Dec. 31, 1997
Segregated Asset Subaccount
-------------------------------------------------------------------------
EAG EMD EUS EPA ELA
- --------------------------------------------------------------------------------------------------------------------
Investments in shares of mutual funds,
at market value:(identified cost, $3,921,718,
$6,612,376, $2,609,097, $1,154,625 and
<S> <C> <C> <C> <C> <C>
$1,158,175, respectively) $ 3,974,790 $ 7,900,201 $ 2,637,088 $ 783,562 $ 1,349,108
- --------------------------------------------------------------------------------------------------------------------
- --------------------------------------------------------------------------------------------------------------------
Dividends receivable - - - - -
Accounts receivable from American Enterprise Life
for contract purchase payments 24,010 - 3 - -
- --------------------------------------------------------------------------------------------------------------------
Total assets 3,998,800 7,900,201 2,637,091 783,562 1,349,108
- --------------------------------------------------------------------------------------------------------------------
Liabilities
- --------------------------------------------------------------------------------------------------------------------
Payable to American Enterprise Life for:
Mortality and expense risk fee 4,380 8,797 2,914 873 1,508
Issue and administrative fee 525 1,056 350 105 181
Payable to mutual funds for investments
purchased 24,026 - 3 - -
- --------------------------------------------------------------------------------------------------------------------
Total liabilities 28,931 9,853 3,267 978 1,689
- --------------------------------------------------------------------------------------------------------------------
Net assets applicable to contracts in
accumulation period $ 3,969,869 $ 7,890,348 $ 2,633,824 $ 782,584 $ 1,347,419
- --------------------------------------------------------------------------------------------------------------------
Accumulation units outstanding 2,434,211 4,133,891 2,252,972 979,513 1,004,189
- --------------------------------------------------------------------------------------------------------------------
Net asset value per accumulation unit $ 1.63 $ 1.91 $ 1.17 $ 0.80 $ 1.34
- --------------------------------------------------------------------------------------------------------------------
See accompanying notes to financial statements.
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
American Enterprise Variable Annuity Account
- --------------------------------------------------------------------------------------------------------------------
Statements of Net Assets - continued Dec. 31, 1997
Segregated Asset Subaccount
-------------------------------------------------------------------------
Assets ENO EGI EHY EDI EGD
- --------------------------------------------------------------------------------------------------------------------
Investments in shares of mutual funds,
at market value:(identified cost, $6,904,520,
$10,204,893, $3,079,122, $3,951,105 and
<S> <C> <C> <C> <C> <C>
$70,723, respectively) $ 8,409,024 $ 12,128,319 $ 3,321,608 $ 4,113,049 $ 72,101
- --------------------------------------------------------------------------------------------------------------------
- --------------------------------------------------------------------------------------------------------------------
Dividends receivable - - - - -
Accounts receivable from American Enterprise Life
for contract purchase payments - - - - 358
- --------------------------------------------------------------------------------------------------------------------
Total assets 8,409,024 12,128,319 3,321,608 4,113,049 72,459
- --------------------------------------------------------------------------------------------------------------------
Liabilities
- --------------------------------------------------------------------------------------------------------------------
Payable to American Enterprise Life for:
Mortality and expense risk fee 9,296 13,327 3,670 4,527 47
Issue and administrative fee 1,116 1,599 440 543 6
Payable to mutual funds for investments
purchased - - - - 358
- --------------------------------------------------------------------------------------------------------------------
Total liabilities 10,412 14,926 4,110 5,070 411
- --------------------------------------------------------------------------------------------------------------------
Net assets applicable to contracts in
accumulation period $ 8,398,612 $ 12,113,393 $ 3,317,498 $ 4,107,979 $ 72,048
- --------------------------------------------------------------------------------------------------------------------
Accumulation units outstanding 4,575,051 6,452,046 2,321,011 3,150,958 68,572
- --------------------------------------------------------------------------------------------------------------------
Net asset value per accumulation unit $ 1.84 $ 1.88 $ 1.43 $ 1.30 $ 1.05
- --------------------------------------------------------------------------------------------------------------------
See accompanying notes to financial statements.
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
American Enterprise Variable Annuity Account
- --------------------------------------------------------------------------------------------------------------------
Statements of Net Assets - continued Dec. 31,1997
Segregated Asset Subaccount
-------------------------------------------------------------------------
Assets ESC EEQ EGR EHI EIN
- --------------------------------------------------------------------------------------------------------------------
Investments in shares of mutual funds, at market value:(identified cost, $86,338
$65,479, $67,321, $78,673 and $58,904,
<S> <C> <C> <C> <C> <C>
respectively) $ 87,741 $ 67,253 $ 67,843 $ 78,069 $ 58,594
- --------------------------------------------------------------------------------------------------------------------
- --------------------------------------------------------------------------------------------------------------------
Dividends receivable - - - - -
Accounts receivable from American Enterprise Life
for contract purchase payments - - - - -
- --------------------------------------------------------------------------------------------------------------------
Total assets 87,741 67,253 67,843 78,069 58,594
- --------------------------------------------------------------------------------------------------------------------
Liabilities
- --------------------------------------------------------------------------------------------------------------------
Payable to American Enterprise Life for:
Mortality and expense risk fee 64 50 50 59 43
Issue and administrative fee 8 6 6 7 5
Payable to mutual funds for investments
purchased - - - - -
- --------------------------------------------------------------------------------------------------------------------
Total liabilities 72 56 56 66 48
- --------------------------------------------------------------------------------------------------------------------
Net assets applicable to contracts in
accumulation period $ 87,669 $ 67,197 $ 67,787 $ 78,003 $ 58,546
- --------------------------------------------------------------------------------------------------------------------
Accumulation units outstanding 86,771 62,532 66,744 76,928 57,468
- --------------------------------------------------------------------------------------------------------------------
Net asset value per accumulation unit $ 1.01 $ 1.07 $ 1.02 $ 1.01 $ 1.02
- --------------------------------------------------------------------------------------------------------------------
See accompanying notes to financial statements.
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
American Enterprise Variable Annuity Account
- --------------------------------------------------------------------------------------------------------------------
Statements of Net Assets - continued Dec. 31, 1997
Segregated Asset Subaccount
--------------------------------------------------------- Combined
Assets EVA EGN EWG ESB Variable
Account
- --------------------------------------------------------------------------------------------------------------------
Investments in shares of mutual funds,
at market value:(identified cost, $68,804,
<S> <C> <C> <C> <C> <C>
$70,635, $62,556 and $70,424, respectively) $ 67,813 $ 71,349 $ 63,446 $ 70,839 $ 61,430,749
- --------------------------------------------------------------------------------------------------------------------
- --------------------------------------------------------------------------------------------------------------------
Dividends receivable - - - - 21,514
Accounts receivable from American Enterprise Life
for contract purchase payments - - - - 69,707
- --------------------------------------------------------------------------------------------------------------------
Total assets 67,813 71,349 63,446 70,839 61,521,970
- --------------------------------------------------------------------------------------------------------------------
Liabilities
- --------------------------------------------------------------------------------------------------------------------
Payable to IDS Life for:
Mortality and expense risk fee 50 53 46 53 67,562
Issue and administrative fee 6 6 5 6 8,106
Payable to mutual funds for investments
purchased - - - - 86,763
- --------------------------------------------------------------------------------------------------------------------
Total liabilities 56 59 51 59 162,431
- --------------------------------------------------------------------------------------------------------------------
Net assets applicable to contracts in
accumulation period $ 67,757 $ 71,290 $ 63,395 $ 70,780 $ 61,359,539
- --------------------------------------------------------------------------------------------------------------------
Accumulation units outstanding 65,875 69,062 61,836 69,342
- ----------------------------------------------------------------------------------------------------
Net asset value per accumulation unit $ 1.03 $ 1.03 $ 1.03 $ 1.02
- ----------------------------------------------------------------------------------------------------
See accompanying notes to financial statements.
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
American Enterprise Variable Annuity Account
- --------------------------------------------------------------------------------------------------------------------
Statements of Operations Year ended Dec. 31, 1997
Segregated Asset Subaccount
-------------------------------------------------------------------------
ECR ESI EMS EMG EIE
Investment income
- --------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Dividend income from mutual funds $ 153,199 $ 240,646 $ 14,597 $ 422,131 $ 51,846
- --------------------------------------------------------------------------------------------------------------------
Expenses:
Mortality and expense risk fee 56,486 30,448 3,632 41,336 15,037
Administrative charge 6,805 3,668 438 4,984 1,811
- --------------------------------------------------------------------------------------------------------------------
Total expenses 63,291 34,116 4,070 46,320 16,848
- --------------------------------------------------------------------------------------------------------------------
Investment income (loss) - net 89,908 206,530 10,527 375,811 34,998
- --------------------------------------------------------------------------------------------------------------------
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 95,716
Cost of investments sold 149,918 111,089 540,740 79,682 93,841
- --------------------------------------------------------------------------------------------------------------------
Net realized gain (loss) on investments 8,855 956 - 9,422 1,875
- --------------------------------------------------------------------------------------------------------------------
Net change in unrealized appreciation or
depreciation of investments 780,121 (31,454) (2) 110,879 (56,555)
- --------------------------------------------------------------------------------------------------------------------
Net gain (loss) on investments 788,976 (30,498) (2) 120,301 (54,680)
- --------------------------------------------------------------------------------------------------------------------
Net increase (decrease) in net assets
resulting from operations $ 878,884 $ 176,032 $ 10,525 $ 496,112 $ (19,682)
- --------------------------------------------------------------------------------------------------------------------
See accompanying notes to financial statements.
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
American Enterprise Variable Annuity Account
- --------------------------------------------------------------------------------------------------------------------
Statements of Operations - continued Year ended Dec. 31, 1997
Segregated Asset Subaccount
-------------------------------------------------------------------------
EAG EMD EUS EPA ELA
Investment income
- --------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Dividend income from mutual funds $ 332,337 $ 194,154 $ 112,380 $ 9,300 $ -
- --------------------------------------------------------------------------------------------------------------------
Expenses:
Mortality and expense risk fee 36,264 75,498 24,979 10,585 14,813
Administrative charge 4,361 9,082 3,005 1,274 1,782
- --------------------------------------------------------------------------------------------------------------------
Total expenses 40,625 84,580 27,984 11,859 16,595
- --------------------------------------------------------------------------------------------------------------------
Investment income (loss) - net 291,712 109,574 84,396 (2,559) (16,595)
- --------------------------------------------------------------------------------------------------------------------
Realized and unrealized gain (loss) on investments - net
- --------------------------------------------------------------------------------------------------------------------
Realized gain (loss) on sales of investments in mutual funds:
Proceeds from sales 84,947 904,854 136,389 116,991 72,398
Cost of investments sold 79,228 727,329 137,102 108,626 61,646
- --------------------------------------------------------------------------------------------------------------------
Net realized gain (loss) on investments 5,719 177,525 (713) 8,365 10,752
- --------------------------------------------------------------------------------------------------------------------
Net change in unrealized appreciation or
depreciation of investments 52,964 813,585 34,690 (477,894) 102,825
- --------------------------------------------------------------------------------------------------------------------
Net gain (loss) on investments 58,683 991,110 33,977 (469,529) 113,577
- --------------------------------------------------------------------------------------------------------------------
Net increase (decrease) in net assets
resulting from operations $ 350,395 $ 1,100,684 $ 118,373 $ (472,088) $ 96,982
- --------------------------------------------------------------------------------------------------------------------
See accompanying notes to financial statements.
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
American Enterprise Variable Annuity Account
- --------------------------------------------------------------------------------------------------------------------
Statements of Operations - continued Year ended Dec. 31, 1997
Segregated Asset Subaccount
-------------------------------------------------------------------------
ENO EGI EHY EDI EGD*
Investment income
- --------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Dividend income from mutual funds $ - $ 492,321 $ 182,008 $ 172,964 $ 30
- --------------------------------------------------------------------------------------------------------------------
Expenses:
Mortality and expense risk fee 78,568 109,993 31,628 38,975 51
Administrative charge 9,454 13,231 3,804 4,689 6
- --------------------------------------------------------------------------------------------------------------------
Total expenses 88,022 123,224 35,432 43,664 57
- --------------------------------------------------------------------------------------------------------------------
Investment income (loss) - net (88,022) 369,097 146,576 129,300 (27)
- --------------------------------------------------------------------------------------------------------------------
Realized and unrealized gain (loss) on investments - net
- --------------------------------------------------------------------------------------------------------------------
Realized gain (loss) on sales of investments in mutual funds:
Proceeds from sales 171,581 121,773 383,788 243,854 -
Cost of investments sold 159,191 103,014 377,010 242,699 -
- --------------------------------------------------------------------------------------------------------------------
Net realized gain(loss) on investments 12,390 18,759 6,778 1,155 -
- --------------------------------------------------------------------------------------------------------------------
Net change in unrealized appreciation or
depreciation of investments 1,339,756 1,259,777 153,236 63,866 1,378
- --------------------------------------------------------------------------------------------------------------------
Net gain (loss) on investments 1,352,146 1,278,536 160,014 65,021 1,378
- --------------------------------------------------------------------------------------------------------------------
Net increase (decrease) in net assets
resulting from operations $ 1,264,124 $ 1,647,633 $ 306,590 $ 194,321 $ 1,351
- --------------------------------------------------------------------------------------------------------------------
*For the period Oct. 30, 1997 (commencement of operations) to Dec. 31, 1997.
See accompanying notes to financial statements.
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
American Enterprise Variable Annuity Account
- --------------------------------------------------------------------------------------------------------------------
Statements of Operations - continued Year ended Dec. 31, 1997
Segregated Asset Subaccount
-------------------------------------------------------------------------
ESC* EEQ* EGR* EHI* EIN*
Investment income
- --------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Dividend income from mutual funds $ - $ - $ - $ 1,098 $ 713
- --------------------------------------------------------------------------------------------------------------------
Expenses:
Mortality and expense risk fee 72 55 55 60 47
Administrative charge 8 6 6 7 6
- --------------------------------------------------------------------------------------------------------------------
Total expenses 80 61 61 67 53
- --------------------------------------------------------------------------------------------------------------------
Investment income (loss) - net (80) (61) (61) 1,031 660
- --------------------------------------------------------------------------------------------------------------------
Realized and unrealized gain (loss) on investments - net
- --------------------------------------------------------------------------------------------------------------------
Realized gain (loss) on sales of investments in mutual funds:
Proceeds from sales - - - - -
Cost of investments sold - - - - -
- --------------------------------------------------------------------------------------------------------------------
Net realized gain(loss) on investments - - - - -
- --------------------------------------------------------------------------------------------------------------------
Net change in unrealized appreciation or
depreciation of investments 1,403 1,774 522 (604) (310)
- --------------------------------------------------------------------------------------------------------------------
Net gain (loss) on investments 1,403 1,774 522 (604) (310)
- --------------------------------------------------------------------------------------------------------------------
Net increase (decrease) in net assets
resulting from operations $ 1,323 $ 1,713 $ 461 $ 427 $ 350
- --------------------------------------------------------------------------------------------------------------------
*For the period Oct. 30, 1997 (commencement of operations) to Dec. 31, 1997.
See accompanying notes to financial statements.
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
American Enterprise Variable Annuity Account
- --------------------------------------------------------------------------------------------------------------------
Statements of Operations - continued Year ended Dec. 31, 1997
Segregated Asset Subaccount
--------------------------------------------------------- Combined
EVA* EGN* EWG* ESB* Variable
Investment income Account
- --------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Dividend income from mutual funds $ 1,468 $ 57 $ 133 $ 593 $ 2,381,975
- --------------------------------------------------------------------------------------------------------------------
Expenses:
Mortality and expense risk fee 54 56 49 55 568,796
Administrative charge 6 7 6 7 68,453
- --------------------------------------------------------------------------------------------------------------------
Total expenses 60 63 55 62 637,249
- --------------------------------------------------------------------------------------------------------------------
Investment income (loss) - net 1,408 (6) 78 531 1,744,726
- --------------------------------------------------------------------------------------------------------------------
Realized and unrealized gain (loss) on investments - net
- --------------------------------------------------------------------------------------------------------------------
Realized gain (loss) on sales of investments in mutual funds:
Proceeds from sales - - - - 3,232,953
Cost of investments sold - - - - 2,971,115
- --------------------------------------------------------------------------------------------------------------------
Net realized gain(loss) on investments - - - - 261,838
- --------------------------------------------------------------------------------------------------------------------
Net change in unrealized appreciation or
depreciation of investments (991) 714 890 415 4,150,985
- --------------------------------------------------------------------------------------------------------------------
Net gain (loss) on investments (991) 714 890 415 4,412,823
- --------------------------------------------------------------------------------------------------------------------
Net increase (decrease) in net assets
resulting from operations $ 417 $ 708 $ 968 $ 946 $ 6,157,549
- --------------------------------------------------------------------------------------------------------------------
*For the period Oct. 30, 1997 (commencement of operations) to Dec. 31, 1997.
See accompanying notes to financial statements.
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
American Enterprise Variable Annuity Account
- --------------------------------------------------------------------------------------------------------------------
Statements of Changes in Net Assets Year ended Dec. 31, 1997
Segregated Asset Subaccount
-------------------------------------------------------------------------
Operations ECR ESI EMS EMG EIE
- --------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Investment income (loss) - net $ 89,908 $ 206,530 $ 10,527 $ 375,811 $ 34,998
Net realized gain (loss) on investments 8,855 956 - 9,422 1,875
Net change in unrealized appreciation or
depreciation of investments 780,121 (31,454) (2) 110,879 (56,555)
- --------------------------------------------------------------------------------------------------------------------
Net increase (decrease) in net assets
resulting from operations 878,884 176,032 10,525 496,112 (19,682)
- --------------------------------------------------------------------------------------------------------------------
Contract Transactions
- --------------------------------------------------------------------------------------------------------------------
Variable annuity contract purchase payments 2,409,335 1,670,135 327,812 2,390,284 978,359
Net transfers** (33,041) (29,630) (234,808) (72,853) 62,561
Annuity payments (138) - - - (133)
Contract terminations:
Surrender benefits and contract charges (297,350) (139,046) (100,987) (192,773) (63,562)
Death benefits (5,701) (6,105) - (7,254) (1,267)
- --------------------------------------------------------------------------------------------------------------------
Increase (decrease) from contract transactions 2,073,105 1,495,354 (7,983) 2,117,404 975,958
- --------------------------------------------------------------------------------------------------------------------
Net assets at beginning of year 2,988,976 1,702,800 256,723 2,099,212 850,121
- --------------------------------------------------------------------------------------------------------------------
Net assets at end of year $ 5,940,965 $ 3,374,186 $ 259,265 $ 4,712,728 $ 1,806,397
- --------------------------------------------------------------------------------------------------------------------
Accumulation Unit Activity
- --------------------------------------------------------------------------------------------------------------------
Units outstanding at beginning of year 2,350,045 1,377,190 240,823 1,545,535 675,237
Contract purchase payments 1,696,748 1,304,174 302,938 1,581,579 746,548
Net transfers** (18,567) (24,030) (215,723) (49,221) 44,803
Contract terminations:
Surrender benefits and contract charges (211,339) (108,787) (96,782) (128,743) (52,181)
Death benefits (4,133) (4,829) - (4,942) (987)
- --------------------------------------------------------------------------------------------------------------------
Units outstanding at end of year 3,812,754 2,543,718 231,256 2,944,208 1,413,420
- --------------------------------------------------------------------------------------------------------------------
**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
- --------------------------------------------------------------------------------------------------------------------
Statements of Changes in Net Assets - continued Year ended Dec. 31, 1997
Segregated Asset Subaccount
-------------------------------------------------------------------------
Operations EAG EMD EUS EPA ELA
- --------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Investment income (loss) - net $ 291,712 $ 109,574 $ 84,396 $ (2,559) $ (16,595)
Net realized gain (loss) on investments 5,719 177,525 (713) 8,365 10,752
Net change in unrealized appreciation or
depreciation of investments 52,964 813,585 34,690 (477,894) 102,825
- --------------------------------------------------------------------------------------------------------------------
Net increase (decrease) in net assets
resulting from operations 350,395 1,100,684 118,373 (472,088) 96,982
- --------------------------------------------------------------------------------------------------------------------
Contract Transactions
- --------------------------------------------------------------------------------------------------------------------
Variable annuity contract purchase payments 1,753,076 3,105,291 1,258,037 521,520 524,916
Net transfers* * 110,988 106,370 45,942 50,856 20,467
Annuity payments (140) (139) (280) - -
Contract terminations:
Surrender benefits and contract charges (182,947) (309,146) (161,220) (45,870) (81,703)
Death benefits (3,235) (7,479) (9,210) (1,252) (1,371)
- --------------------------------------------------------------------------------------------------------------------
Increase (decrease) from contract transactions 1,677,742 2,894,897 1,133,269 525,254 462,309
- --------------------------------------------------------------------------------------------------------------------
Net assets at beginning of year 1,941,732 3,894,767 1,382,182 729,418 788,128
- --------------------------------------------------------------------------------------------------------------------
Net assets at end of year $ 3,969,869 $ 7,890,348 $ 2,633,824 $ 782,584 $ 1,347,419
- --------------------------------------------------------------------------------------------------------------------
Accumulation Unit Activity
- --------------------------------------------------------------------------------------------------------------------
Units outstanding at beginning of year 1,323,955 2,462,112 1,252,181 530,176 663,497
Contract purchase payments 1,158,663 1,773,647 1,120,325 410,360 387,161
Net transfers** 75,131 58,720 39,842 79,558 16,318
Contract terminations:
Surrender benefits and contract charges (121,302) (156,347) (151,142) (39,670) (61,787)
Death benefits (2,236) (4,241) (8,234) (911) (1,000)
- --------------------------------------------------------------------------------------------------------------------
Units outstanding at end of year 2,434,211 4,133,891 2,252,972 979,513 1,004,189
- --------------------------------------------------------------------------------------------------------------------
**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
- --------------------------------------------------------------------------------------------------------------------
Statements of Changes in Net Assets - continued Year ended Dec. 31, 1997
Segregated Asset Subaccount
-------------------------------------------------------------------------
Operations ENO EGI EHY EDI EGD*
- --------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Investment income (loss) - net $ (88,022) $ 369,097 $ 146,576 $ 129,300 $ (27)
Net realized gain (loss) on investments 12,390 18,759 6,778 1,155 -
Net change in unrealized appreciation or
depreciation of investments 1,339,756 1,259,777 153,236 63,866 1,378
- --------------------------------------------------------------------------------------------------------------------
Net increase (decrease) in net assets
resulting from operations 1,264,124 1,647,633 306,590 194,321 1,351
- --------------------------------------------------------------------------------------------------------------------
Contract Transactions
- --------------------------------------------------------------------------------------------------------------------
Contract purchase payments 2,860,597 5,025,579 1,607,690 1,907,829 70,697
Net transfers** 55,283 294,386 (64,211) (41,214) -
Annuity payments - (139) (141) - -
Contract terminations:
Surrender benefits and contract charges (277,368) (449,047) (133,971) (193,089) -
Death benefits (3,272) (5,970) (6,245) (6,062) -
- --------------------------------------------------------------------------------------------------------------------
Increase (decrease) from contract transactions 2,635,240 4,864,809 1,403,122 1,667,464 70,697
- --------------------------------------------------------------------------------------------------------------------
Net assets at beginning of year 4,499,248 5,600,951 1,607,786 2,246,194 -
- --------------------------------------------------------------------------------------------------------------------
Net assets at end of year $ 8,398,612 $ 12,113,393 $ 3,317,498 $ 4,107,979 $ 72,048
- --------------------------------------------------------------------------------------------------------------------
Accumulation Unit Activity
- --------------------------------------------------------------------------------------------------------------------
Units outstanding at beginning of year 2,979,587 3,655,312 1,270,037 1,824,245 -
Contract purchase payments 1,731,364 2,886,258 1,201,158 1,520,166 68,572
Net transfers** 30,592 174,142 (42,259) (34,583) -
Contract terminations:
Surrender benefits and contract charges (164,430) (260,212) (103,191) (154,007) -
Death benefits (2,062) (3,454) (4,734) (4,863) -
- --------------------------------------------------------------------------------------------------------------------
Units outstanding at end of year 4,575,051 6,452,046 2,321,011 3,150,958 68,572
- --------------------------------------------------------------------------------------------------------------------
*For the period Oct. 30, 1997 (commencement of operations) to Dec. 31, 1997.
**Includes transfer activity from (to) other subaccounts and transfers (from) to
American Enterprise Life for conversion from (to) fixed account.
See accompanying notes to financial statements.
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
American Enterprise Variable Annuity Account
- --------------------------------------------------------------------------------------------------------------------
Statements of Changes in Net Assets - continued Year ended Dec. 31, 1997
Segregated Asset Subaccount
-------------------------------------------------------------------------
Operations ESC* EEQ* EGR* EHI* EIN*
- --------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Investment income (loss) - net $ (80) $ (61) $ (61) $ 1,031 $ 660
Net realized gain (loss) on investments - - - - -
Net change in unrealized appreciation or
depreciation of investments 1,403 1,774 522 (604) (310)
- --------------------------------------------------------------------------------------------------------------------
Net increase (decrease) in net assets
resulting from operations 1,323 1,713 461 427 350
- --------------------------------------------------------------------------------------------------------------------
Contract Transactions
- --------------------------------------------------------------------------------------------------------------------
Contract purchase payments 86,346 65,484 67,326 77,576 58,196
Net transfers** - - - - -
Annuity payments - - - - -
Contract terminations:
Surrender benefits and contract charges - - - - -
Death benefits - - - - -
- --------------------------------------------------------------------------------------------------------------------
Increase (decrease) from contract transactions 86,346 65,484 67,326 77,576 58,196
- --------------------------------------------------------------------------------------------------------------------
Net assets at beginning of year - - - - -
- --------------------------------------------------------------------------------------------------------------------
Net assets at end of year $ 87,669 $ 67,197 $ 67,787 $ 78,003 $ 58,546
- --------------------------------------------------------------------------------------------------------------------
Accumulation Unit Activity
- --------------------------------------------------------------------------------------------------------------------
Units outstanding at beginning of year - - - - -
Contract purchase payments 86,771 62,532 66,744 76,928 57,468
Net transfers** - - - - -
Contract terminations:
Surrender benefits and contract charges - - - - -
Death benefits - - - - -
- --------------------------------------------------------------------------------------------------------------------
Units outstanding at end of year 86,771 62,532 66,744 76,928 57,468
- --------------------------------------------------------------------------------------------------------------------
*For the period Oct. 30, 1997 (commencement of operations) to Dec. 31, 1997.
**Includes transfer activity from (to) other subaccounts and transfers (from) to
American Enterprise Life for conversion from (to) fixed account.
See accompanying notes to financial statements.
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
American Enterprise Variable Annuity Account
- --------------------------------------------------------------------------------------------------------------------
Statements of Changes in Net Assets - continued Year ended Dec. 31, 1997
Segregated Asset Subaccount
--------------------------------------------------------- Combined
Operations EVA* EGN* EWG* ESB* Variable
Account
- --------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Investment income (loss) - net $ 1,408 $ (6) $ 78 $ 531 $ 1,744,726
Net realized gain (loss) on investments - - - - 261,838
Net change in unrealized appreciation or
depreciation of investments (991) 714 890 415 4,150,985
- --------------------------------------------------------------------------------------------------------------------
Net increase (decrease) in net assets
resulting from operations 417 708 968 946 6,157,549
- --------------------------------------------------------------------------------------------------------------------
Contract Transactions
- --------------------------------------------------------------------------------------------------------------------
Contract purchase payments 66,156 70,582 59,091 69,834 27,031,748
Net transfers** 1,184 - 3,336 - 275,616
Annuity payments - - - - (1,110)
Contract terminations:
Surrender benefits and contract charges - - - - (2,147,594)
Death benefits - - - - (64,423)
- --------------------------------------------------------------------------------------------------------------------
Increase (decrease) from contract transactions 67,340 70,582 62,427 69,834 24,613,752
- --------------------------------------------------------------------------------------------------------------------
Net assets at beginning of year - - - - 30,588,238
- --------------------------------------------------------------------------------------------------------------------
Net assets at end of year $ 67,757 $ 71,290 $ 63,395 $ 70,780 $ 61,359,539
- --------------------------------------------------------------------------------------------------------------------
Accumulation Unit Activity
- ----------------------------------------------------------------------------------------------------
Units outstanding at beginning of year - - - -
Contract purchase payments 64,716 69,062 58,509 69,342
Net transfers** 1,159 - 3,327 -
Contract terminations:
Surrender benefits - - - -
Death benefits - - - -
- ----------------------------------------------------------------------------------------------------
Units outstanding at end of year 65,875 69,062 61,836 69,342
- ----------------------------------------------------------------------------------------------------
*For the period Oct. 30, 1997 (commencement of operations) to Dec. 31, 1997.
**Includes transfer activity from (to) other subaccounts and transfers (from) to
American Enterprise Life for conversion from (to) fixed account.
See accompanying notes to financial statements.
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
American Enterprise Variable Annuity Account
- ------------------------------------------------------------------------------------------------------------------------------------
Statements of Changes in Net Assets Year ended Dec. 31, 1996
Segregated Asset Subaccount
-------------------------------------------------------------------------------------------
Operations ECR ESI EMS EMG EIE EAG EMD EUS
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Investment income (loss) - net $ 416,336 $ 74,742 $ 4,581 $ 139,994 $ 15,631 $ 175,562 $ (15,949) $ 35,255
Net realized gain (loss) on investments (2,094) (1,460) (1) 7,387 1,062 5,329 6,782 (206)
Net change in unrealized appreciation or
depreciation of investments (287,096) 5,443 2 83,860 19,999 (25,579) 442,091 (10,368)
- ------------------------------------------------------------------------------------------------------------------------------------
Net increase (decrease) in net assets
resulting from operations 127,146 78,725 4,582 231,241 36,692 155,312 432,924 24,681
- ------------------------------------------------------------------------------------------------------------------------------------
Contract Transactions
- ------------------------------------------------------------------------------------------------------------------------------------
Contract purchase payments 1,819,729 1,330,728 277,016 1,299,140 578,213 1,188,007 2,973,800 981,238
Net transfers** 160,697 (128,604) (160,372) (54,922) 699 44,944 (25,217) (41,299)
Contract terminations:
Surrender benefits and contract charges (96,464) (45,696) (67) (52,330) (21,597) (52,750) (56,812) (31,888)
Death benefits - (17,536) - (18,177) - - - -
- ------------------------------------------------------------------------------------------------------------------------------------
Increase (decrease) from contract transact1,883,962 1,138,892 116,577 1,173,711 557,315 1,180,201 2,891,771 908,051
- ------------------------------------------------------------------------------------------------------------------------------------
Net assets at beginning of year 977,868 485,183 135,564 694,260 256,114 606,219 570,072 449,450
- ------------------------------------------------------------------------------------------------------------------------------------
Net assets at end of year $ 2,988,976$ 1,702,800 $ 256,723 $ 2,099,212 $ 850,121 $ 1,941,732 $ 3,894,767 $ 1,382,182
- ------------------------------------------------------------------------------------------------------------------------------------
Accumulation Unit Activity
- ------------------------------------------------------------------------------------------------------------------------------------
Units outstanding at beginning of year 817,655 413,748 131,600 588,760 219,594 473,162 435,846 413,258
Contract purchase payments 1,485,938 1,131,063 263,096 1,062,502 476,859 858,107 2,078,911 909,198
Net transfers** 129,540 (109,946) (153,809) (44,426) 56 32,975 (17,730) (38,115)
Contract terminations:
Surrender benefits and contract charges (83,088) (42,442) (64) (46,345) (21,272) (40,289) (34,915) (32,160)
Death benefits - (15,233) - (14,956) - - - -
- ------------------------------------------------------------------------------------------------------------------------------------
Units outstanding at end of year 2,350,045 1,377,190 240,823 1,545,535 675,237 1,323,955 2,462,112 1,252,181
- ------------------------------------------------------------------------------------------------------------------------------------
**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
- -------------------------------------------------------------------------------------------------------------------------
Statements of Changes in Net Assets - continued Year ended Dec. 31, 1996
Segregated Asset Subaccount
------------------------------------------------------------------- Combined
Operations EPA ELA ENO EGI EHY EDI Variable
Account
- -------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
Investment income (loss) - net $ (1,295) $ 7,685 $ (45,121) $ 103,252 $ 42,196 $ 54,476 $ 1,007,345
Net realized gain (loss) on investments 4,392 3,609 7,117 7,642 3,559 1,830 44,948
Net change in unrealized appreciation or
depreciation of investments 101,035 79,322 94,114 575,348 73,912 73,352 1,225,435
- -------------------------------------------------------------------------------------------------------------------------
Net increase (decrease) in net assets
resulting from operations 104,132 90,616 56,110 686,242 119,667 129,658 2,277,728
- -------------------------------------------------------------------------------------------------------------------------
Contract Transactions
- -------------------------------------------------------------------------------------------------------------------------
Contract purchase payments 467,758 437,491 3,175,961 3,170,351 1,223,297 1,660,528 20,583,257
Net transfers** (27,205) (19,722) 411,509 427,988 (249,459) (184,094) 154,943
Contract terminations:
Surrender benefits and contract charges (20,943) (18,679) (102,255) (140,638) (33,017) (49,780) (722,916)
Death benefits - - - (9,662) - - (45,375)
- -------------------------------------------------------------------------------------------------------------------------
Increase (decrease) from
contract transactions 419,610 399,090 3,485,215 3,448,039 940,821 1,426,654 19,969,909
- -------------------------------------------------------------------------------------------------------------------------
Net assets at beginning of year 205,676 298,422 957,923 1,466,670 547,298 689,882 8,340,601
- -------------------------------------------------------------------------------------------------------------------------
Net assets at end of year $ 729,418 $ 788,128 $ 4,499,248$ 5,600,951$ 1,607,786$ 2,246,194$ 30,588,238
- -------------------------------------------------------------------------------------------------------------------------
Accumulation Unit Activity
- ------------------------------------------------------------------------------------------------------------
Units outstanding at beginning of year 192,917 303,151 690,849 1,151,991 480,470 600,567
Contract purchase payments 377,258 396,610 2,086,487 2,299,290 1,030,697 1,425,924
Net transfers** (21,947) (17,905) 275,115 310,542 (210,240) (156,974)
Contract terminations:
Surrender benefits and contract charges (18,052) (18,359) (72,864) (99,565) (30,890) (45,272)
Death benefits - - - (6,946) - -
- ------------------------------------------------------------------------------------------------------------
Units outstanding at end of year 530,176 663,497 2,979,587 3,655,312 1,270,037 1,824,245
- ------------------------------------------------------------------------------------------------------------
**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
Notes to Financial Statements
- ------------------------------------------------------------------
1. Organization
American Enterprise Variable Annuity Account (the Account) was established under
Indiana law on July 15, 1987 as a separate account of American Enterprise Life
Insurance Company (American Enterprise Life). The Account is registered together
as a single unit investment trust under the Investment Company Act of 1940, as
amended. Operations of the Account commenced on Feb. 21, 1995.
The Account is comprised of various subaccounts. Each subaccount invests
exclusively in shares of the following funds or portfolios, which are registered
under the Investment Company Act of 1940 as a diversified (non-diversified for
GT Global Variable Latin America Fund), open-end management investment company.
and has the following investment manager.
<TABLE>
<CAPTION>
Subaccount Invests exclusively in shares of Investment Manager
<S> <C> <C>
ECR IDS Life Capital Resource Fund IDS Life Insurance Company*
ESI IDS Life Special Income Fund IDS Life Insurance Company*
EMS IDS Life Moneyshare Fund, Inc. IDS Life Insurance Company*
EMG IDS Life Managed Fund, Inc. IDS Life Insurance Company*
EIE IDS Life International Equity Fund IDS Life Insurance Company**
EAG IDS Life Aggressive Growth Fund IDS Life Insurance Company*
EMD OCC Accumulation Trust Managed Portfolio OpCap Advisors
EUS OCC Accumulation Trust U.S. Government Income Portfolio OpCap Advisors
EPA GT Global Variable New Pacific Fund Chancellor LGT Asset Management, Inc.
ELA GT Global Variable Latin America Fund Chancellor LGT Asset Management, Inc.
ENO Putnam VT New Opportunities Fund Putnam Investment Management, Inc.
EGI Putnam VT Growth and Income Fund Putnam Investment Management, Inc.
EHY Putnam VT High Yield Fund Putnam Investment Management, Inc.
EDI Putnam VT Diversified Income Fund Putnam Investment Management, Inc.
EGD IDS Life Growth Dimensions Fund *** IDS Life Insurance Company*
ESC OCC Accumulation Trust Small Cap Portfolio OpCap Advisors
EEQ OCC Accumulation Trust Equity Portfolio OpCap Advisors
EGR Oppenheimer Variable Account Growth Fund OppenheimerFunds, Inc.
EHI Oppenheimer Variable Account High Income Fund OppenheimerFunds, Inc.
EIN AIM V.I. International Equity Fund A I M Advisors, Inc.
EVA AIM V.I. Value Fund A I M Advisors, Inc.
EGN AIM V.I. Growth and Income Fund A I M Advisors, Inc.
EWG Janus Aspen Series Worldwide Growth Portfolio Janus Capital Corporation
ESB Janus Aspen Series Balanced Portfolio Janus Capital Corporation
</TABLE>
* American Express Financial Corporation is the investment advisor.
** American Express Asset Management International Inc. is the sub-investment
advisor.
*** Commencement of operations was April 30, 1996.
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.
American Enterprise Life issues the contracts that are distributed by banks and
financial institutions either directly or through a network of third-party
marketers.
<PAGE>
- ------------------------------------------------------------------
2. Summary of Significant Accounting Policies
Investments in Mutual Funds
Investments in shares of the IDS Life Funds, the OCC Portfolios, the G.T. Global
Funds, the AIM Funds, the Janus Portfolios, the Oppenheimer Funds, and 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 average daily net assets of the Account.
- ------------------------------------------------------------------
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 as an
administrative charge. This charge covers certain administrative and operating
expenses of the subaccounts incurred by American Enterprise Life such as
accounting, legal and data processing fees, and expenses involved in the
preparation and distribution of reports and prospectuses. This charge cannot be
increased.
- ------------------------------------------------------------------
5. Contract 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. 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. Surrender Charge
American Enterprise Life will use a surrender charge to help it recover certain
expenses relating to the sale of the annuity. The surrender charge will be
deducted for surrenders up to the first seven payment years following a
purchasepayment. Charges by American Enterprise Life for surrenders are not
identified on an individual segregated asset account basis. Charges for all
segregated asset accounts 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 surrender benefits paid by American Enterprise
Life.
<PAGE>
<TABLE>
<CAPTION>
- ------------------------------------------------------------------
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
- --------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
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
EIE IDS Life International Equity Fund 132,704 13.63
EAG IDS Life Aggressive Growth Fund 247,332 16.07
EMD OCC Accumulation Trust Managed Portfolio 186,413 42.38
EUS OCC Accumulation Trust U.S. Government Income Portfolio 250,912 10.51
EPA G.T. Global Variable New Pacific Fund 74,554 10.51
ELA G.T. Global Variable Latin America Fund 79,593 16.95
ENO Putnam VT New Opportunities Fund 396,092 21.23
EGI Putnam VT Growth and Income Fund 428,260 28.32
EHY Putnam VT High Yield Fund 243,877 13.62
EDI Putnam VT Diversified Income Fund 363,665 11.31
EGD IDS Life Growth Dimensions Fund 5,265 13.69
ESC OCC Accumulation Trust Small Cap Portfolio 3,327 26.37
EEQ OCC Accumulation Trust Equity Portfolio 1,842 36.52
EGR Oppenheimer Variable Account Growth Fund 2,091 32.44
EHI Oppenheimer Variable Account High Income Fund 6,777 11.52
EIN AIM V.I. International Equity Fund 3,421 17.13
EVA AIM V.I. Value Fund 3,256 20.83
EGN AIM V.I. Growth and Income Fund 3,781 18.87
EWG Janus Aspen Series Worldwide Growth Portfolio 2,713 23.39
ESB Janus Aspen Series Balanced Portfolio 4,055 17.47
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
- ------------------------------------------------------------------
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
-------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
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
EIE IDS Life International Equity Fund 1,107,778 608,493
EAG IDS Life Aggressive Growth Fund 2,056,784 1,453,339
EMD OCC Accumulation Trust Managed Portfolio 3,914,139 2,954,380
EUS OCC Accumulation Trust U.S. Government Income Portfolio 1,355,577 1,012,684
EPA GT Global Variable New Pacific Fund 639,715 457,523
ELA GT Global Variable Latin America Fund 518,777 443,537
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
EHY Putnam VT High Yield Fund 1,935,558 1,171,624
EDI Putnam VT Diversified Income Fund 2,042,776 1,683,881
EGD IDS Life Growth Dimensions Fund 70,723 --
ESC OCC Accumulation Trust Small Cap Portfolio 86,338 --
EEQ OCC Accumulation Trust Equity Portfolio 65,479 --
EGR Oppenheimer Variable Account Growth Fund 67,321 --
EHI Oppenheimer Variable Account High Income Fund 78,673 --
EIN AIM V.I. International Equity Fund 58,904 --
EVA AIM V.I. Value Fund 68,804 --
EGN AIM V.I. Growth and Income Fund 70,635 --
EWG Janus Aspen Series Worldwide Growth Portfolio 62,556 --
ESB Janus Aspen Series Balanced Portfolio 70,424 --
- ------------------------------------------------------------------------------------------------------
Combined Variable Account $29,625,763 $22,502,704
- ------------------------------------------------------------------------------------------------------
</TABLE>
<PAGE>
- ------------------------------------------------------------------
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>
STATEMENT OF DIFFERENCES
Difference Description
1) Headings. 1) The headings in the prospectus
are placed in a strip at the top
of the page.
2) Page Numbers 2) Page numbers have been inserted
in the printed version.
3) Changes have been made 3) Within the total return tables in the
to the financial tables Statement of Additional Information,
where redlined performance numbers "Since commencement
of the Subaccount" have been revised.
4) A footnote has been added 4) A footnote has been added to the
total return tables in the
Statement of Additional Information.
