AMERICAN ENTERPRISE VARIABLE ANNUITY ACCOUNT
485BPOS, 2000-04-27
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                       SECURITIES AND EXCHANGE COMMISSION

                             Washington, D.C. 20549

                                    FORM N-4

REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933

Pre-Effective Amendment No.                                                 [ ]

Post-Effective Amendment No.  3        (File No. 333-20217)                 [X]
                            _____

                                     and/or

          REGISTRATION STATEMENT UNDER THE INVESTMENT COMPANY ACT 1940

Amendment No. 6 (File No. 811-7195)                                         [X]
             ____

                        (Check appropriate box or boxes)

                  AMERICAN ENTERPRISE VARIABLE ANNUITY ACCOUNT
- --------------------------------------------------------------------------------
                           (Exact Name of Registrant)

                   American Enterprise Life Insurance Company
- --------------------------------------------------------------------------------
                               (Name of Depositor)

                829 AXP Financial Center, Minneapolis, MN 55474
- --------------------------------------------------------------------------------
(Address of Depositor's Principal Executive Offices)     (Zip Code)

Depositor's Telephone Number, including Area Code        (612) 671-7981
- --------------------------------------------------------------------------------

       Mary Ellyn Minenko, 200 AXP Financial Center, Minneapolis, MN 55474
- --------------------------------------------------------------------------------
                     (Name and Address of Agent for Service)

It  is proposed that this filing will become effective:  (check appropriate box)

[ ] immediately upon filing pursuant to paragraph (b) of Rule 485

[X]  on May 1, 2000, pursuant to paragraph (b) of Rule 485

[ ] 60 days after filing pursuant to paragraph (a)(1)of Rule 485

[ ] on (date) pursuant to paragraph (a)(1) of Rule 485

If appropriate, check the following box:

[ ] this  post-effective  amendment  designates  a new  effective  date for a
     previously filed post-effective amendment.

<PAGE>


<PAGE>
PROSPECTUS
MAY 1, 2000

AEL PREFERRED(SM) VARIABLE ANNUITY
INDIVIDUAL FLEXIBLE PREMIUM DEFERRED COMBINATION FIXED/VARIABLE ANNUITY.

AMERICAN ENTERPRISE VARIABLE ANNUITY ACCOUNT

ISSUED BY:  AMERICAN ENTERPRISE LIFE INSURANCE COMPANY (AMERICAN ENTERPRISE
LIFE)
       829 AXP Financial Center
       Minneapolis, MN 55474
       Telephone: 800-333-3437

This prospectus contains information that you should know before investing. You
also will receive the following prospectuses:

- - American Express-Registered Trademark- Variable Portfolio Funds, and

- - Putnam Variable Trust.

Please read the prospectuses carefully and keep them for future reference.

THE SECURITIES AND EXCHANGE COMMISSION (SEC) HAS NOT APPROVED OR DISAPPROVED
THESE SECURITIES OR PASSED UPON THE ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY
REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE.

AN INVESTMENT IN THIS CONTRACT IS NOT A DEPOSIT OF A BANK OR FINANCIAL
INSTITUTION AND IS NOT INSURED OR GUARANTEED BY THE FEDERAL DEPOSIT INSURANCE
CORPORATION OR ANY OTHER GOVERNMENT AGENCY. AN INVESTMENT IN THIS CONTRACT
INVOLVES INVESTMENT RISK INCLUDING THE POSSIBLE LOSS OF PRINCIPAL.

A Statement of Additional Information (SAI), dated the same date as this
prospectus, is incorporated by reference into this prospectus. It is filed with
the SEC, and is available without charge by contacting American Enterprise Life
at the telephone number above or by completing and sending the order form on the
last page of this prospectus. The table of contents of the SAI is on the last
page of this prospectus.

- --------------------------------------------------------------------------------

                                                     PROSPECTUS -- MAY 1, 2000 1
<PAGE>
TABLE OF CONTENTS

KEY TERMS....................................     3
THE CONTRACT IN BRIEF........................     4
EXPENSE SUMMARY..............................     6
CONDENSED FINANCIAL INFORMATION
  (UNAUDITED)................................     8
FINANCIAL STATEMENTS.........................    10
PERFORMANCE INFORMATION......................    10
THE VARIABLE ACCOUNT AND THE FUNDS...........    11
THE FIXED ACCOUNT............................    13
BUYING YOUR CONTRACT.........................    13
CHARGES......................................    15
VALUING YOUR INVESTMENT......................    18
MAKING THE MOST OF YOUR CONTRACT.............    20
WITHDRAWALS..................................    23
CHANGING OWNERSHIP...........................    23
BENEFITS IN CASE OF DEATH....................    24
THE ANNUITY PAYOUT PERIOD....................    25
TAXES........................................    27
VOTING RIGHTS................................    29
SUBSTITUTION OF INVESTMENTS..................    30
ABOUT THE SERVICE PROVIDERS..................    30
YEAR 2000....................................    31
TABLE OF CONTENTS OF THE STATEMENT OF
  ADDITIONAL INFORMATION.....................    32

- --------------------------------------------------------------------------------

2      AEL PREFERRED(SM) VARIABLE ANNUITY
<PAGE>
KEY TERMS

THESE TERMS CAN HELP YOU UNDERSTAND DETAILS ABOUT YOUR CONTRACT.

ACCUMULATION UNIT: A measure of the value of each subaccount before annuity
payouts begin.

ANNUITANT: The person on whose life or life expectancy the annuity payouts are
based.

ANNUITY PAYOUTS: An amount paid at regular intervals under one of several plans.

BENEFICIARY: The person you designate to receive benefits in case of the owner's
or annuitant's death while the contract is in force and before annuity payouts
begin.

CLOSE OF BUSINESS: When the New York Stock Exchange (NYSE) closes, normally 4
p.m. Eastern time.

CONTRACT: A deferred annuity contract that permits you to accumulate money for
retirement by making one or more purchase payments. It provides for lifetime or
other forms of payouts beginning at a specified time in the future.

CONTRACT VALUE: The total value of your contract before we deduct any applicable
charges.

CONTRACT YEAR: A period of 12 months, starting on the effective date of your
contract and on each anniversary of the effective date.

FIXED ACCOUNT: An account to which you may allocate purchase payments. Amounts
you allocate to this account earn interest at rates that we declare
periodically.

FUNDS: Investment options under your contract. You may allocate your purchase
payments into subaccounts investing in shares of any or all of these funds.

OWNER (YOU, YOUR): The person who controls the contract (decides on investment
allocations, transfers, payout options, etc.). Usually, but not always, the
owner is also the annuitant. The owner is responsible for taxes, regardless of
whether he or she receives the contract's benefits.

QUALIFIED ANNUITY: A contract that you purchase to fund one of the following
tax-deferred retirement plans that is subject to applicable federal law and any
rules of the plan itself:

- - Individual Retirement Annuities (IRAs) under Section 408(b) of the Internal
  Revenue Code of 1986, as amended (the Code)

- - Roth IRAs under Section 408A of the Code

- - Simplified Employee Pension (SEP) plans under Section 408(k) of the Code

A qualified annuity will not provide any necessary or additional tax deferral it
is used to fund a retirement plan that is already
tax-deferred.

All other contracts are considered NONQUALIFIED ANNUITIES.

RETIREMENT DATE: The date when annuity payouts are scheduled to begin.

VALUATION DATE: Any normal business day, Monday through Friday, that the NYSE is
open. Each valuation date ends at the close of business. We calculate the value
of each subaccount at the close of business on each valuation date.

- --------------------------------------------------------------------------------

                                                     PROSPECTUS -- MAY 1, 2000 3
<PAGE>
VARIABLE ACCOUNT: Consists of separate subaccounts to which you may allocate
purchase payments; each invests in shares of one fund. The value of your
investment in each subaccount changes with the performance of the particular
fund.

WITHDRAWAL VALUE: The amount you are entitled to receive if you make a full
withdrawal from your contract. It is the contract value minus any applicable
charges.

THE CONTRACT IN BRIEF

PURPOSE: The purpose of the contract is to allow you to accumulate money for
retirement. You do this by making one or more purchase payments; you may
allocate your purchase payments to the fixed account and/or subaccounts under
the contract. These accounts, in turn, may earn returns that increase the value
of the contract. Beginning at a specified time in the future called the
retirement date, the contract provides lifetime or other forms of payouts of
your contract value (less any applicable premium tax). As in the case of other
annuities, it may not be advantageous for you to purchase this contract as a
replacement for, or in addition to, an existing annuity.

A qualified annuity will not provide any necessary or additional tax deferral if
it is used to fund a retirement plan that is tax-deferred. However, the contract
has features other than tax deferral that may make it an appropriate investment
for your retirement plan. You should compare these features and their costs with
other investment options before deciding to purchase
this contract.

FREE LOOK PERIOD: You may return your contract to your sales representative or
to our office within the time stated on the first page of your contract and
receive a full refund of the contract value. We will not deduct any charges.
However, you bear the investment risk from the time of purchase until you return
the contract; the refund amount may be more or less than the payment you made.
(Exception: If the law requires, we will refund all of your purchase payments.)

ACCOUNTS: Currently, you may allocate your purchase payments among any or all
of:

- - the subaccounts, each of which invests in a fund with a particular investment
  objective. The value of each subaccount varies with the performance of the
  particular fund in which it invests. We cannot guarantee that the value at the
  retirement date will equal or exceed the total purchase payments you allocate
  to the subaccounts. (p. 11)

- - the fixed account, which earns interest at a rate that we adjust periodically.
  (p. 13)

BUYING YOUR CONTRACT: Your sales representative will help you complete and
submit an application. Applications are subject to acceptance at our office. You
may buy a nonqualified annuity or a qualified annuity. After your initial
purchase payment, you have the option of making additional purchase payments in
the future. (p. 13)

- - Minimum initial purchase payment -- $2,000 (waived for Systematic Investment
  Plan payments)

- - Minimum additional purchase payment -- $50

- - Maximum total purchase payments -- $1,000,000 (without prior approval)

TRANSFERS: Subject to certain restrictions you currently may redistribute your
money among the accounts without charge at any time until annuity payouts begin,
and once per contract year among the subaccounts after annuity payouts begin.
You may establish automated transfers among the accounts. Fixed account
transfers are subject to special restrictions. (p. 20)

- --------------------------------------------------------------------------------

4      AEL PREFERRED(SM) VARIABLE ANNUITY
<PAGE>
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. 23)

CHANGING OWNERSHIP: You may change ownership of a nonqualified annuity by
written instruction, but this may have federal income tax consequences.
Restrictions apply to changing ownership of a qualified annuity. (p. 23)

BENEFITS IN CASE OF DEATH: If you or the annuitant die before annuity payouts
begin, we will pay the beneficiary an amount at least equal to the contract
value. (p. 24)

ANNUITY PAYOUTS: You can apply your contract value to an annuity payout plan
that begins on the retirement date. You may choose from a variety of plans to
make sure that payouts continue as long as you like. If you purchased a
qualified annuity, the payout schedule must meet the requirements of the
qualified plan. We can make payouts on a fixed or variable basis, or both. Total
monthly payouts may include amounts from each subaccount and the fixed account.
(p. 25)

TAXES: Generally, your contract grows tax-deferred until you make withdrawals
from it or begin to receive payouts. (Under certain circumstances, IRS penalty
taxes may apply.) Even if you direct payouts to someone else, you will be taxed
on the income if you are the owner. However, Roth IRAs may grow and be
distributed tax-free, if you meet certain distribution requirements. (p. 27)

CHARGES: We assess certain charges in connection with your contract:

- - $30 annual contract administrative charge;

- - 0.15% variable account administrative charge;

- - 1.25% mortality and expense risk fee (if you allocate money to one or more
  subaccounts);

- - withdrawal charge;

- - any premium taxes that may be imposed on us by state or local governments,
  (Currently, we deduct any applicable premium tax when annuity payouts begin
  but we reserve the right to deduct this tax at other times such as when you
  make purchase payments or when you make a total withdrawal from your
  contract); and

- - the operating expenses of the funds in which the subaccounts invest.

- --------------------------------------------------------------------------------

                                                     PROSPECTUS -- MAY 1, 2000 5
<PAGE>
EXPENSE SUMMARY

The purpose of the following information is to help you understand the various
costs and expenses associated with your contract.

You pay no sales charge when you purchase your contract. We show all costs that
we deduct directly from your contract or indirectly from the subaccounts and
funds below. Some expenses may vary as we explain under "Charges." Please see
the funds prospectuses for more information on the operating expenses for each
fund.

CONTRACT OWNER EXPENSES

WITHDRAWAL CHARGE (contingent deferred sales charge as a percentage of purchase
payment withdrawn)

<TABLE>
<CAPTION>
                                       YEARS FROM PURCHASE  WITHDRAWAL CHARGE
                                         PAYMENT RECEIPT       PERCENTAGE
                                       <S>                  <C>
                                                1                       8%
                                                2                       7
                                                3                       6
                                                4                       5
                                                5                       4
                                                6                       2
                                           Thereafter                   0
</TABLE>

ANNUAL CONTRACT ADMINISTRATIVE CHARGE  $30*

*We will waive this charge when your contract value is $50,000 or more on the
current contract anniversary.

ANNUAL VARIABLE ACCOUNT EXPENSES
(as a percentage of average subaccount value):

VARIABLE ACCOUNT ADMINISTRATIVE CHARGE 0.15%
MORTALITY AND EXPENSE RISK FEE         1.25%
                                       ----
TOTAL ANNUAL VARIABLE ACCOUNT EXPENSES 1.40%

 ANNUAL OPERATING EXPENSES OF THE FUNDS (AFTER FEE WAIVERS AND/OR EXPENSE
 REIMBURSEMENTS, IF APPLICABLE, AS A PERCENTAGE OF AVERAGE DAILY NET ASSETS):
- --------------------------------------------------------------------------------

<TABLE>
<CAPTION>
                                MANAGEMENT  12B-1   OTHER
                                   FEES     FEES   EXPENSES   TOTAL
<S>                             <C>         <C>    <C>       <C>
 AXP(SM) Variable Portfolio -
    Bond Fund                       .60%     .13       .08      .81%(1)
    Capital Resource Fund           .60%     .13       .06      .79%(1)
    Cash Management Fund            .51%     .13       .05      .69%(1)
    Managed Fund                    .59%     .13       .04      .76%(1)
    Strategy Aggressive Fund        .60%     .13       .07      .80%(1)
 Putnam Variable Trust
    Putnam VT Diversified
      Income Fund - Class IA
      Shares                        .68%      --       .10      .78%(2)
    Putnam VT Global Growth
      Fund - Class IA Shares        .61%      --       .12      .73%(2)
    Putnam VT Growth and
      Income Fund - Class IA
      Shares                        .46%      --       .04      .50%(2)
    Putnam VT New
      Opportunities Fund -
      Class IA Shares               .54%      --       .05      .59%(2)
    Putnam VT Voyager Fund -
      Class IA Shares               .53%      --       .04      .57%(2)
</TABLE>

(1)  The fund's expense figures are based on actual expenses for the fiscal year
     ended Aug. 31, 1999 restated to include a Rule 12b-1 distribution fee of
     .125% that went into effect Sept. 21, 1999.
(2)  Figures in "Management Fees", "12b-1 Fees", "Other Expenses" and "Total"
     are based on actual expenses for the fiscal year ended Dec. 31, 1999.

- --------------------------------------------------------------------------------

6      AEL PREFERRED(SM) VARIABLE ANNUITY
<PAGE>
EXAMPLE:*

You would pay the following expenses on a $1,000 investment, assuming a 5%
annual return and....

<TABLE>
<CAPTION>
                                                                    NO WITHDRAWAL OR SELECTION
                                 TOTAL WITHDRAWAL AT THE         OF AN ANNUITY PAYOUT PLAN AT THE
                                 END OF EACH TIME PERIOD             END OF EACH TIME PERIOD
                           1 YEAR   3 YEARS  5 YEARS  10 YEARS  1 YEAR  3 YEARS  5 YEARS  10 YEARS
<S>                        <C>      <C>      <C>      <C>       <C>     <C>      <C>      <C>
 AXP(SM) Variable
   Portfolio -
    Bond Fund              $103.38  $132.02  $163.29  $263.89   $23.38  $72.02   $123.29  $263.89
    Capital Resource Fund   103.18   131.41   162.26   261.83    23.18   71.41    122.26   261.83
    Cash Management Fund    102.15   128.32   157.09   251.43    22.15   68.32    117.09   251.43
    Managed Fund            102.87   130.48   160.71   258.72    22.87   70.48    120.71   258.72
    Strategy Aggressive
      Fund                  103.28   131.72   162.78   262.86    23.28   71.72    122.78   262.86
 Putnam Variable Trust
    Putnam VT Diversified
      Income Fund -
      Class IA Shares       103.07   131.10   161.75   260.79    23.07   71.10    121.75   260.79
    Putnam VT Global
      Growth Fund -
      Class IA Shares       102.56   129.55   159.16   255.60    22.56   69.55    119.16   255.60
    Putnam VT Growth and
      Income Fund -
      Class IA Shares       100.20   122.43   147.22   231.39    20.20   62.43    107.22   231.39
    Putnam VT New
      Opportunities
      Fund - Class IA
      Shares                101.13   125.22   151.90   240.93    21.13   65.22    111.90   240.93
    Putnam VT Voyager
      Fund - Class IA
      Shares                100.92   124.60   150.86   238.81    20.92   64.60    110.86   238.81
</TABLE>

  *  In this example, the $30 contract administrative charge is approximated as
     a 0.071% charge based on our average contract size. Premium taxes imposed
     by some state and local governments are not reflected in this table. We
     entered into certain arrangements under which we are compensated by the
     funds' advisors and/or distributors for the administrative services we
     provide to the funds.

YOU SHOULD NOT CONSIDER THIS EXAMPLE AS A REPRESENTATION OF PAST OR FUTURE
EXPENSES. ACTUAL EXPENSES MAY BE MORE OR LESS THAN THOSE SHOWN.

- --------------------------------------------------------------------------------

                                                     PROSPECTUS -- MAY 1, 2000 7
<PAGE>
CONDENSED FINANCIAL INFORMATION
(UNAUDITED)

The following tables give per-unit information about the financial history of
each subaccount.

<TABLE>
<CAPTION>
YEAR ENDED DEC. 31,          1999      1998      1997      1996         1995
- ----------------------------------------------------------------------------------
<S>                        <C>       <C>       <C>       <C>       <C>

SUBACCOUNT ESI(1) (INVESTING IN SHARES OF AXP(SM) VARIABLE PORTFOLIO -- BOND FUND)
Accumulation unit value
  at beginning of period     $1.33     $1.33     $1.24     $1.17        $1.00
Accumulation unit value
  at end of period           $1.33     $1.33     $1.33     $1.24        $1.17
Number of accumulation
  units outstanding at
  end of period (000
  omitted)                   8,127     5,689     2,544     1,377          414
Ratio of operating
  expense to average net
  assets                      1.40%     1.40%     1.40%     1.50%        1.50%
- ----------------------------------------------------------------------------------

SUBACCOUNT ECR(1) (INVESTING IN SHARES OF AXP(SM) VARIABLE PORTFOLIO -- CAPITAL
RESOURCE FUND)
Accumulation unit value
  at beginning of period     $1.91     $1.56     $1.27     $1.20        $1.00
Accumulation unit value
  at end of period           $2.33     $1.91     $1.56     $1.27        $1.20
Number of accumulation
  units outstanding at
  end of period (000
  omitted)                   5,864     5,163     3,813     2,350          818
Ratio of operating
  expense to average net
  assets                      1.40%     1.40%     1.40%     1.50%        1.50%
- ----------------------------------------------------------------------------------

SUBACCOUNT EMS(1) (INVESTING IN SHARES OF AXP(SM) VARIABLE PORTFOLIO -- CASH
MANAGEMENT FUND)
Accumulation unit value
  at beginning of period     $1.15     $1.11     $1.07     $1.03        $1.00
Accumulation unit value
  at end of period           $1.18     $1.15     $1.11     $1.07        $1.03
Number of accumulation
  units outstanding at
  end of period (000
  omitted)                     941       749       231       241          132
Ratio of operating
  expense to average net
  assets                      1.40%     1.40%     1.40%     1.50%        1.50%
Simple yield(2)               4.52%     3.29%     3.71%     3.26%        3.53%
Compound yield(2)             4.62%     3.34%     3.78%     3.32%        3.59%
- ----------------------------------------------------------------------------------

SUBACCOUNT EMG(1) (INVESTING IN SHARES OF AXP(SM) VARIABLE PORTFOLIO -- MANAGED
FUND)
Accumulation unit value
  at beginning of period     $1.83     $1.60     $1.36     $1.18        $1.00
Accumulation unit value
  at end of period           $2.07     $1.83     $1.60     $1.36        $1.18
Number of accumulation
  units outstanding at
  end of period (000
  omitted)                   5,985     4,684     2,944     1,546          589
Ratio of operating
  expense to average net
  assets                      1.40%     1.40%     1.40%     1.50%        1.50%
- ----------------------------------------------------------------------------------

SUBACCOUNT EAG(1) (INVESTING IN SHARES OF AXP(SM) VARIABLE PORTFOLIO -- STRATEGY
AGGRESSIVE FUND)
Accumulation unit value
  at beginning of period     $1.65     $1.63     $1.47     $1.28        $1.00
Accumulation unit value
  at end of period           $2.78     $1.65     $1.63     $1.47        $1.28
Number of accumulation
  units outstanding at
  end of period (000
  omitted)                   3,961     3,453     2,434     1,324          473
Ratio of operating
  expense to average net
  assets                      1.40%     1.40%     1.40%     1.50%        1.50%
- ----------------------------------------------------------------------------------

SUBACCOUNT EDI(1) (INVESTING IN SHARES OF PUTNAM VT DIVERSIFIED INCOME FUND --
CLASS IA SHARES)
Accumulation unit value
  at beginning of period     $1.27     $1.30     $1.23     $1.15        $1.00
Accumulation unit value
  at end of period           $1.27     $1.27     $1.30     $1.23        $1.15
Number of accumulation
  units outstanding at
  end of period (000
  omitted)                   6,356     5,963     3,151     1,824          601
Ratio of operating
  expense to average net
  assets                      1.40%     1.40%     1.40%     1.50%        1.50%
- ----------------------------------------------------------------------------------
</TABLE>

- --------------------------------------------------------------------------------

8      AEL PREFERRED(SM) VARIABLE ANNUITY
<PAGE>

<TABLE>
<CAPTION>
YEAR ENDED DEC. 31,          1999      1998      1997      1996         1995
- ----------------------------------------------------------------------------------
<S>                        <C>       <C>       <C>       <C>       <C>

SUBACCOUNT EGG(3) (INVESTING IN SHARES OF PUTNAM VT GLOBAL GROWTH FUND --
CLASS IA SHARES)
Accumulation unit value
  at beginning of period     $1.28     $1.00     $1.00        --           --
Accumulation unit value
  at end of period           $2.08     $1.28     $1.00        --           --
Number of accumulation
  units outstanding at
  end of period (000
  omitted)                   1,412       996       388        --           --
Ratio of operating
  expense to average net
  assets                      1.40%     1.40%     1.40%       --           --
- ----------------------------------------------------------------------------------

SUBACCOUNT EGI(1) (INVESTING IN SHARES OF PUTNAM VT GROWTH AND INCOME FUND --
CLASS IA SHARES)
Accumulation unit value
  at beginning of period     $2.14     $1.88     $1.53     $1.27        $1.00
Accumulation unit value
  at end of period           $2.14     $2.14     $1.88     $1.53        $1.27
Number of accumulation
  units outstanding at
  end of period (000
  omitted)                   9,311     9,161     6,452     3,655        1,152
Ratio of operating
  expense to average net
  assets                      1.40%     1.40%     1.40%     1.50%        1.50%
- ----------------------------------------------------------------------------------

SUBACCOUNT ENO(1) (INVESTING IN SHARES OF PUTNAM VT NEW OPPORTUNITIES FUND --
CLASS IA SHARES)
Accumulation unit value
  at beginning of period     $2.25     $1.84     $1.51     $1.39        $1.00
Accumulation unit value
  at end of period           $3.76     $2.25     $1.84     $1.51        $1.39
Number of accumulation
  units outstanding at
  end of period (000
  omitted)                   5,476     5,798     4,575     2,980          691
Ratio of operating
  expense to average net
  assets                      1.40%     1.40%     1.40%     1.50%        1.50%
- ----------------------------------------------------------------------------------

SUBACCOUNT EVO(3) (INVESTING IN SHARES OF PUTNAM VT VOYAGER FUND -- CLASS IA
SHARES)
Accumulation unit value
  at beginning of period     $1.41     $1.15     $1.00        --           --
Accumulation unit value
  at end of period           $2.21     $1.41     $1.15        --           --
Number of accumulation
  units outstanding at
  end of period (000
  omitted)                     743       440       148        --           --
Ratio of operating
  expense to average net
  assets                      1.40%     1.40%     1.40%       --           --
- ----------------------------------------------------------------------------------
</TABLE>

(1)  Operations commenced on Feb. 21, 1995.
(2)  Net of annual contract administrative charge and mortality and expense risk
     fee.
(3)  Operations commenced on June 10, 1997.

- --------------------------------------------------------------------------------

                                                     PROSPECTUS -- MAY 1, 2000 9
<PAGE>
FINANCIAL STATEMENTS

You can find our audited financial statements and the audited financial
statements of the subaccounts in the SAI.

PERFORMANCE INFORMATION

Performance information for the subaccounts may appear from time to time in
advertisements or sales literature. This information reflects the performance of
a hypothetical investment in a particular subaccount during a specified time
period. We show actual performance from the date the subaccounts began investing
in funds. We also show performance from the commencement date of the funds as if
the contract existed at that time which it did not. Although we base performance
figures on historical earnings, past performance does not guarantee future
results.

We include non-recurring charges (such as withdrawal charges) in total return
figures, but not in yield quotations. Excluding non-recurring charges in yield
calculations increases the reported value.

Total return figures reflect deduction of all applicable charges, including:

- - 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).

We also show optional total return quotations that do not reflect a withdrawal
charge deduction (assuming no withdrawal). We may show total return quotations
by means of schedules, charts or graphs.

AVERAGE ANNUAL TOTAL RETURN is the average annual compounded rate of return of
the investment over a period of one, five and ten years (or up to the life of
the subaccount if it is less than ten years old).

CUMULATIVE TOTAL RETURN is the cumulative change in the value of an investment
over a specified time period. We assume that income earned by the investment is
reinvested. Cumulative total return generally will be higher than average annual
total return.

ANNUALIZED SIMPLE YIELD (FOR SUBACCOUNTS INVESTING IN MONEY MARKET
FUNDS) "annualizes" the income generated by the investment over a given
seven-day period. That is, we assume the amount of income generated by the
investment during the period will be generated each seven-day period for a year.
We show this as a percentage of the investment.

ANNUALIZED COMPOUND YIELD (FOR SUBACCOUNTS INVESTING IN MONEY MARKET FUNDS) is
calculated like simple yield except that we assume the income is reinvested when
we annualize it. Compound yield will be higher than the simple yield because of
the compounding effect of the assumed reinvestment.

ANNUALIZED YIELD (FOR SUBACCOUNTS INVESTING IN INCOME FUNDS) divides the net
investment income (income less expenses) for each accumulation unit during a
given 30-day period by the value of the unit on the last day of the period. We
then convert the result to an annual percentage.

You should consider performance information in light of the investment
objectives, policies, characteristics and quality of the fund in which the
subaccount invests and the market conditions during the specified time period.
Advertised yields and total return figures include charges that reduce
advertised performance. Therefore, you should not compare subaccount performance
to that of mutual funds that sell their shares directly to the public. (See the
SAI for a further description of methods used to determine total return and
yield.)

If you would like additional information about actual performance, please
contact us at the address or telephone number on the first page of this
prospectus.

- --------------------------------------------------------------------------------

10      AEL PREFERRED(SM) VARIABLE ANNUITY
<PAGE>
THE VARIABLE ACCOUNT AND THE FUNDS

You may allocate payments to any or all of the subaccounts of the variable
account that invest in shares of the following funds:

<TABLE>
<CAPTION>
SUBACCOUNT  INVESTING IN                         INVESTMENT OBJECTIVES AND POLICIES        INVESTMENT ADVISOR OR MANAGER
<C>         <S>                                  <C>                                       <C>
   ESI      AXP(SM) Variable Portfolio - Bond    Objective: high level of current income   IDS Life Insurance Company (IDS Life),
            Fund                                 while conserving the value of the         investment manager; American Express
                                                 investment and continuing a high level    Financial Corporation (AEFC),
                                                 of income for the longest time period.    investment advisor.
                                                 Invests primarily in bonds and other
                                                 debt securities.
   ECR      AXP(SM) Variable Portfolio -         Objective: capital appreciation. Invests  IDS Life, investment manager; AEFC
            Capital Resource Fund                primarily in U.S. common stocks.          investment advisor.
   EMS      AXP(SM) Variable Portfolio - Cash    Objective: maximum current income         IDS Life, investment manager; AEFC
            Management Fund                      consistent with liquidity and             investment advisor.
                                                 conservation of capital. Invests
                                                 primarily in money market securities.
   EMG      AXP(SM) Variable Portfolio -         Objective: maximum total investment       IDS Life, investment manager; AEFC
            Managed Fund                         return through a combination of capital   investment advisor.
                                                 growth and current income. Invests
                                                 primarily in stocks, convertible
                                                 securities, bonds and a combination of
                                                 other securities common and preferred.
   EAG      AXP(SM) Variable Portfolio -         Objective: capital appreciation. Invests  IDS Life, investment manager; AEFC
            Strategy Aggressive Fund             primarily in common stocks of small- and  investment advisor.
                                                 medium-size companies.
   EDI      Putnam VT Diversified Income         Objective: high current income            Putnam Investment Management, Inc.
            Fund - Class IA Shares               consistent with capital preservation.
                                                 The fund invests in higher-yielding,
                                                 lower-rated securities commonly referred
                                                 to as "junk bonds". See special
                                                 considerations for investments in these
                                                 securities described in the fund
                                                 prospectus.
   EGG      Putnam VT Global Growth Fund -       Objective: capital appreciation. Invests  Putnam Investment Management, Inc.
            Class IA Shares                      in diversified portfolio of common
                                                 stocks.
   EGI      Putnam VT Growth and Income Fund -   Objective: capital growth and current     Putnam Investment Management, Inc.
            Class IA Shares                      income. Invests primarily in common
                                                 stocks that offer potential of capital
                                                 growth, current income or both.
   ENO      Putnam VT New Opportunities Fund -   Objective: long-term capital              Putnam Investment Management, Inc.
            Class IA Shares                      appreciation. Invests primarily in
                                                 common stocks of companies in sectors of
                                                 the economy that Putnam Investment
                                                 Management, Inc. (Putnam Management)
                                                 believes possess above average long-term
                                                 growth potential.
   EVO      Putnam VT Voyager Fund - Class IA    Objective: capital appreciation. Invests  Putnam Investment Management, Inc.
            Shares                               primarily in common stocks of companies
                                                 that Putnam Management believes have
                                                 potential for capital appreciation that
                                                 is significantly greater than that of
                                                 market averages.
</TABLE>

The investment objectives and policies of some of the funds are similar to the
investment objectives and policies of other mutual funds that an investment
advisor or its affiliates manage. Although the objectives and policies may be
similar, each fund will have its own portfolio holdings and its own fees and
expenses. Accordingly, each fund will have its own investment results and those
results may differ significantly from other funds with similar investment
objectives and policies.

The investment managers and advisors cannot guarantee that the funds will meet
their investment objectives. Please read the fund prospectuses for facts you
should know before investing. These prospectuses are also available by
contacting us at the address or telephone number on the first page of this
prospectus.

All funds are available to serve as the underlying investments for variable
annuities. Some funds also are available to serve as investment options for
variable life insurance policies and tax-deferred retirement plans. It is
possible that in the future, it may be

- --------------------------------------------------------------------------------

                                                    PROSPECTUS -- MAY 1, 2000 11
<PAGE>
disadvantageous for variable annuity accounts and variable life insurance
accounts and/or tax-deferred retirement plans to invest in the available funds
simultaneously.

Although the insurance company and the funds do not currently foresee any such
disadvantages, the boards of directors or trustees of the appropriate funds will
monitor events in order to identify any material conflicts between annuity
owners, policy owners and tax-deferred retirement plans and to determine what
action, if any, should be taken in response to a conflict. If a board were to
conclude that it should establish separate funds for the variable annuity,
variable life insurance and tax-deferred retirement plan accounts, you would not
bear any expenses associated with establishing separate funds. Please refer to
the fund prospectuses for risk disclosure regarding simultaneous investments by
variable annuity, variable life insurance and tax-deferred retirement
plan accounts.

The Internal Revenue Service (IRS) issued final regulations relating to the
diversification requirements under Section 817(h) of the Code. Each fund intends
to comply with these requirements.

The variable account was established under Indiana law on July 15, 1987, and the
subaccounts are registered together as a single unit investment trust under the
Investment Company Act of 1940 (the 1940 Act). This registration does not
involve any supervision of our management or investment practices and policies
by the SEC. All obligations arising under the contracts are general obligations
of American Enterprise Life.

The variable account meets the definition of a separate account under federal
securities laws. We credit or charge income, capital gains and capital losses of
each subaccount only to that subaccount. State insurance law prohibits us from
charging a subaccount with liabilities of any other subaccount or of our general
business. The variable account includes other subaccounts that are available
under contracts that are not described in this prospectus.

The U.S. Treasury and IRS indicated that they may provide additional guidance on
investment control. This concerns how many variable subaccounts an insurance
company may offer and how many exchanges among subaccounts it may allow before
the contract owner would be currently taxed on income earned within subaccount
assets. At this time, we do not know what the additional guidance will be or
when action will be taken. We reserve the right to modify the contract, as
necessary, so that the owner will not be subject to current taxation as the
owner of the subaccount assets.

We intend to comply with all federal tax laws so that the contract continues to
qualify as an annuity for federal income tax purposes. We reserve the right to
modify the contract as necessary to comply with any new tax laws.

- --------------------------------------------------------------------------------

12      AEL PREFERRED(SM) VARIABLE ANNUITY
<PAGE>
THE FIXED ACCOUNT

You also may allocate purchase payments to the fixed account. We back the
principal and interest guarantees relating to the fixed account. The value of
the fixed account increases as we credit interest to the account. Purchase
payments and transfers to the fixed account become part of our general account.
We credit and compound interest daily. We will change the interest rates from
time to time at our discretion. These rates will be based on various factors
including, but not limited to, the interest rate environment, returns earned on
investments backing these annuities, the rates currently in effect for new and
existing company annuities, product design, competition, and the company's
revenues and expenses.

Interests in the fixed account are not required to be registered with the SEC.
The SEC staff does not review the disclosures in this prospectus on the fixed
account. Disclosures regarding the fixed account, however, may be subject to
certain generally applicable provisions of the federal securities laws relating
to the accuracy and completeness of statements made in prospectuses. (See
"Making the Most of Your Contract -- Transfer policies" for restrictions on
transfers involving the fixed account.)

BUYING YOUR CONTRACT

You can fill out an application and send it along with your initial purchase
payment to our office. As the owner, you have all rights and may receive all
benefits under the contract. You can own a nonqualified annuity in joint tenancy
with rights of survivorship only in spousal situations. You cannot own a
qualified annuity in joint tenancy. You can buy a nonqualified annuity or become
an annuitant if you are 85 or younger (age 75 or younger for qualified
annuities).

When you apply, you may select:

- - the fixed account and/or subaccounts in which you want to invest;

- - how you want to make purchase payments;

- - the date you want to start receiving annuity payouts (the retirement date);
  and

- - a beneficiary.

If your application is complete, we will process it and apply your purchase
payment to the fixed account and subaccounts you selected within two business
days after we receive it at our office. If we accept your application, we will
send you a contract. If we cannot accept your application within five business
days, we will decline it and return your payment. We will credit additional
purchase payments you make to your accounts on the valuation date after we
receive them. We will value the additional payments at the next accumulation
unit value calculated after we receive your payments at our office.

You may make monthly payments to your 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.

If your contract value is less than $2,000 and you have not made any SIP
payments for six consecutive months, we have the right to give you 30 days
written notice that your balance has fallen below the $2,000 threshold. If you
do not make additional payments to your contract , we may pay you the total
contract value and cancel your contract.

- --------------------------------------------------------------------------------

                                                    PROSPECTUS -- MAY 1, 2000 13
<PAGE>
THE RETIREMENT DATE
Annuity payouts are to begin on the retirement date. You can align this date
with your actual retirement from a job, or it can be a different future date,
depending on your needs and goals and on certain restrictions. You also can
change the date, provided you send us written instructions at least 30 days
before annuity payouts begin.

FOR NONQUALIFIED ANNUITIES AND ROTH IRAS, the retirement date must be:

- - no earlier than the 60th day after the contract's effective date; and

- - no later than the annuitant's 85th birthday or the tenth contract anniversary,
  if purchased after age 75.

FOR QUALIFIED ANNUITIES EXCEPT ROTH IRAS, to avoid IRS penalty taxes, the
retirement date generally must be:

- - on or after the annuitant reaches age 59 1/2; and

- - by April 1 of the year following the calendar year when the annuitant reaches
  age 70 1/2.

If you take the minimum IRA distribution as required by the Code from another
tax-qualified investment, or in the form of partial withdrawals from this
contract, annuity payouts can start as late as the annuitant's 85th birthday or
the 10th contract anniversary, if later.

BENEFICIARY
If death benefits become payable before the retirement date while the contract
is in force and before annuity payouts begin, we will pay your named beneficiary
all or part of the contract value. If there is no named beneficiary, then you or
your estate will be the beneficiary. (See "Benefits in Case of Death" for more
about beneficiaries.)

PURCHASE PAYMENTS
MINIMUM ALLOWABLE PURCHASE PAYMENTS:
Initial purchase payment:

If SIP is concurrently set up, there is no minimum with application

If SIP is not concurrently set up -- $2,000 with application

Additional purchase payments:  $50

MAXIMUM ALLOWABLE PURCHASE PAYMENTS:
$1,000,000 of cumulative payments (We reserve the right to increase the maximum
payment.)

HOW TO MAKE PURCHASE PAYMENTS

 1 BY LETTER
- --------------------------------------------------------------------------------
Send your check along with your name and contract number to:

AMERICAN ENTERPRISE LIFE INSURANCE COMPANY
829 AXP FINANCIAL CENTER
MINNEAPOLIS, MN 55474

- --------------------------------------------------------------------------------

14      AEL PREFERRED(SM) VARIABLE ANNUITY
<PAGE>
 2 BY SIP
- --------------------------------------------------------------------------------
Contact your sales representative to complete the necessary SIP paperwork.

CHARGES

CONTRACT ADMINISTRATIVE CHARGE
We charge this fee for establishing and maintaining your records. We deduct $30
from the contract value on your contract anniversary at the end of each contract
year. We prorate this charge among the subaccounts and the fixed account in the
same proportion your interest in each account bears to your total contract
value. If you make payments to your annuity under a SIP, we will deduct the
contract administrative charge on any contract anniversary when your contract
value is $2,000 or more but less than $50,000.

We will waive this charge when your contract value, or total purchase payments
less any payments withdrawn, is $50,000 or more on the current contract
anniversary.

If you take a full withdrawal from your contract, this charge will be deducted
at the time of withdrawal regardless of the contract value or purchase payments
made. We cannot increase the annual contract administrative charge and it does
not apply after annuity payouts begin or when we pay death benefits.

VARIABLE ACCOUNT ADMINISTRATIVE CHARGE
We apply this charge daily to the subaccounts. It is reflected in the unit
values of your subaccounts and it totals 0.15% of their average daily net assets
on an annual basis. It covers certain administrative and operating expenses of
the subaccounts such as accounting, legal and data processing fees and expenses
involved in the preparation and distribution of reports and prospectuses. We
cannot increase the variable account administrative charge.

MORTALITY AND EXPENSE RISK FEE
We charge this fee daily to the subaccounts. The unit values of your subaccounts
reflect this fee and it totals 1.25% of their average daily net assets on an
annual basis. This fee covers the mortality and expense risk that we assume.
Approximately two-thirds of this amount is for our assumption of mortality risk,
and one-third is for our assumption of expense risk. 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 our entire
group of annuitants live. If, as a group, annuitants outlive the life expectancy
we assumed in our actuarial tables, then we must take money from our general
assets to meet our obligations. If, as a group, annuitants do not live as long
as expected, we could profit from the mortality risk fee.

Expense risk arises because we cannot increase the contract administrative
charge or variable account administrative charge and these charges may not cover
our expenses. We would have to make up any deficit from our general assets. We
could profit from the expense risk fee if future expenses are less than
expected.

The subaccounts pay us the mortality and expense risk fee they accrued as
follows:

- - first, to the extent possible, the subaccounts pay this fee from any dividends
  distributed from the funds in which they invest;

- --------------------------------------------------------------------------------

                                                    PROSPECTUS -- MAY 1, 2000 15
<PAGE>
- - then, if necessary, the funds redeem shares to cover any remaining fees
  payable.

We may use any profits we realize from the subaccounts' payment to us of the
mortality and expense risk fee for any proper corporate purpose, including,
among others, payment of distribution (selling) expenses. We do not expect that
the withdrawal charge, discussed in the following paragraphs, will cover sales
and distribution expenses.

WITHDRAWAL CHARGE
If you withdraw part or all of your contract, you may be subject to a withdrawal
charge. We calculate the withdrawal charge by drawing from your total contract
value in the following order:

- - First, in each contract year, we withdraw amounts totaling up to 10% of your
  prior anniversary contract value. (We consider your initial purchase payment
  to be the prior anniversary contract value during the first contract year.) We
  do not assess a withdrawal charge on this amount.

- - Next, we withdraw contract earnings, if any, that are greater than the annual
  10% free withdrawal amount described above. Contract earnings equal contract
  value less purchase payments received and not previously withdrawn. We do not
  assess a withdrawal charge on contract earnings.

NOTE: We determine contract earnings by looking at the entire contract value,
not the earnings of any particular subaccount or the fixed account.

- - Next, we withdraw purchase payments received seven or more years before the
  withdrawal and not previously withdrawn. We do not assess a withdrawal charge
  on these purchase payments.

- - Finally, if necessary, we withdraw purchase payments received in the six years
  before the withdrawal on a "first-in, first-out" (FIFO) basis. There is a
  withdrawal charge on these payments. We determine your withdrawal charges by
  multiplying each of these payments by the applicable withdrawal charge
  percentage, and then totaling the withdrawal charges.

The new payment charge percentage depends on the number of contract years since
you made the payments withdrawn.

<TABLE>
<CAPTION>
                                     YEARS FROM PURCHASE  WITHDRAWAL CHARGE
                                       PAYMENT RECEIPT       PERCENTAGE
                                     <S>                  <C>
                                              1                       8%
                                              2                       7
                                              3                       6
                                              4                       5
                                              5                       4
                                              6                       2
                                         Thereafter                   0
</TABLE>

For a partial withdrawal that is subject to a withdrawal charge, the amount
deducted for the withdrawal charge will be a percentage of the total amount
withdrawn. We will deduct the charge from the value remaining after we pay you
the amount you requested. Example: Assume you request a withdrawal of $1,000 and
there is a 7% withdrawal charge. The withdrawal charge is $75.26 for a total
withdrawal amount of $1,075.26. This charge represents 7% of the total amount
withdrawn and we deduct it from the contract value remaining after we pay you
the $1,000 you requested.

- --------------------------------------------------------------------------------

16      AEL PREFERRED(SM) VARIABLE ANNUITY
<PAGE>
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:

- - The contract date is July 1, 2000 with a contract year of July 1 through
June 30 and with an anniversary date of July 1 each
 year; and

- - We received these payments:

- -- $10,000 July 1, 2000;

- -- $8,000 Dec. 31, 2005;

- -- $6,000 Feb. 20, 2008; and

- - The owner withdraws the contract for its total withdrawal value of $38,101 on
  Aug. 5, 2010 and had not made any other withdrawals during that contract year;
  and

- - The prior anniversary July 1, 2010 contract value was $38,488.

<TABLE>
<CAPTION>
            WITHDRAWAL CHARGE                     EXPLANATION
            <C>                <S>
                               $3,848.80 is 10% of the prior anniversary value
                    $0         withdrawn without withdrawal charge; and
                               $10,252.20 is contract earnings in excess of the
                               10% free withdrawal amount withdrawn without
                     0         withdrawal charge; and
                               $10,000 July 1, 2000 payment was received seven or
                               more contract years before withdrawal and is
                     0         withdrawn without withdrawal charge; and
                               $8,000 Dec. 31, 2005 payment is in its fifth
                               contract year from receipt, withdrawn with a 4%
                   320         withdrawal charge; and
                               $6,000 Feb. 20, 2008 payment is in its fourth
                               contract year from receipt, withdrawn with a 5%
                   300         withdrawal charge.
                  ----
                  $620
</TABLE>

WAIVER OF WITHDRAWAL CHARGE
We do not assess withdrawal charges for:

- - amounts totaling up to 10% of your prior contract anniversary contract value;

- - contract earnings, if any, in excess of the annual 10% free withdrawal amount;

- - required minimum distributions from a qualified annuity (for those amounts
  required to be distributed from the contract described in this prospectus);

- - contracts settled using an annuity payout plan;

- - death benefits; and

- - withdrawals you make under your contract's "Waiver of Withdrawal Charges"
  provision. We will waive withdrawal charges that are normally assessed upon a
  full or partial withdrawal if both you and the annuitant are under age 76 on
  the date we issue the contract and if you provide proof to us that, as of the
  date you request the withdrawal, you or the annuitant are confined to a
  hospital or nursing home and have been for the prior 60 days. (See your
  endorsement for additional conditions and restrictions on this waiver.)

- --------------------------------------------------------------------------------

                                                    PROSPECTUS -- MAY 1, 2000 17
<PAGE>
POSSIBLE GROUP REDUCTIONS: In some cases we may incur lower sales and
administrative expenses due to the size of the group, the average contribution
and the use of group enrollment procedures. In such cases, we may be able to
reduce or eliminate the contract administrative and withdrawal charges. However,
we expect this to occur infrequently.

PREMIUM TAXES
Certain state and local governments impose premium taxes on us (up to 3.5%).
These taxes depend upon your state of residence or the state in which the
contract was sold. Currently, we deduct any applicable premium tax when annuity
payouts begin, but we reserve the right to deduct this tax at other times such
as when you make purchase payments or when you make a full withdrawal from your
contract.

VALUING YOUR INVESTMENT

We value your accounts as follows:

FIXED ACCOUNT
We value the amounts you allocated to the fixed account directly in dollars. The
fixed account value equals:

- - the sum of your purchase payments and transfer amounts allocated to the fixed
  account;

- - plus interest credited;

- - minus the sum of amounts withdrawn (including any applicable withdrawal
  charges) and amounts transferred out; and

- - minus any prorated contract administrative charge.

SUBACCOUNTS
We convert amounts you allocated to the subaccounts into accumulation units.
Each time you make a purchase payment or transfer amounts into one of the
subaccounts, we credit a certain number of accumulation units to your contract
for that subaccount. Conversely, each time you take a partial withdrawal,
transfer amounts out of a subaccount or we assess a contract administrative
charge, we subtract a certain number of accumulation units from your contract.

The accumulation units are the true measure of investment value in each
subaccount during the accumulation period. They are related to, but not the same
as, the net asset value of the fund in which the subaccount invests. The dollar
value of each accumulation unit can rise or fall daily depending on the variable
account expenses, performance of the fund and on certain fund expenses. Here is
how we calculate accumulation unit values:

NUMBER OF UNITS: to calculate the number of accumulation units for a particular
subaccount we divide your investment by the current accumulation unit value.

ACCUMULATION UNIT VALUE: the current accumulation unit value for each variable
subaccount equals the last value times the subaccount's current net investment
factor.

- --------------------------------------------------------------------------------

18      AEL PREFERRED(SM) VARIABLE ANNUITY
<PAGE>
WE DETERMINE THE NET INVESTMENT FACTOR BY:

- - adding the fund's current net asset value per share, plus the per share amount
  of any accrued income or capital gain dividends to obtain a current adjusted
  net asset value per share; then

- - dividing that sum by the previous adjusted net asset value per share; and

- - 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 fund may fluctuate, the accumulation unit
value may increase or decrease. You bear all the investment risk in a
subaccount.

FACTORS THAT AFFECT SUBACCOUNT ACCUMULATION UNITS: Accumulation units may change
in two ways -- in number and in value. Here are the factors that influence those
changes:

The number of accumulation units you own may fluctuate due to:

- - additional purchase payments you allocated to the subaccounts;

- - transfers into or out of the subaccounts;

- - partial withdrawals;

- - withdrawal charges; and/or

- - prorated portions of contract administrative charge.

Accumulation unit values will fluctuate due to:

- - changes in funds' net asset value;

- - dividends distributed to the subaccounts;

- - capital gains or losses of funds;

- - fund operating expenses;

- - mortality and expense risk fees; and/or

- - variable account administrative charges.

- --------------------------------------------------------------------------------

                                                    PROSPECTUS -- MAY 1, 2000 19
<PAGE>
MAKING THE MOST OF YOUR CONTRACT

AUTOMATED DOLLAR-COST AVERAGING
Currently, you can use automated transfers to take advantage of dollar-cost
averaging (investing a fixed amount at regular intervals). For example, you
might transfer a set amount monthly from a relatively conservative subaccount to
a more aggressive one, or to several others, or from the fixed account to one or
more subaccounts. You also can obtain the benefits of dollar-cost averaging by
setting up regular automatic SIP payments. There is no charge for dollar-cost
averaging.

This systematic approach can help you benefit from fluctuations in accumulation
unit values caused by fluctuations in the market values of the funds. Since you
invest the same amount each period, you automatically acquire more units when
the market value falls and fewer units when it rises. The potential effect is to
lower your average cost per unit.

                                HOW DOLLAR-COST AVERAGING WORKS
- --------------------------------------------------------------------------------

<TABLE>
<CAPTION>
                                           AMOUNT   ACCUMULATION  NUMBER OF UNITS
                        MONTH             INVESTED   UNIT VALUE      PURCHASED
                        <S>               <C>       <C>           <C>
By investing an             Jan             $100        $20               5.00
equal number of             Feb              100         18               5.56
dollars each month...       Mar              100         17               5.88

you automatically           Apr              100         15               6.67
buy more units              May              100         16               6.25
when the per unit           Jun              100         18               5.56
market price is low...      Jul              100         17               5.88

and fewer units             Aug              100         19               5.26
when the per unit           Sept             100         21               4.76
market price is high.       Oct              100         20               5.00
</TABLE>

You paid an average price of only $17.91 per unit over the 10 months, while the
average market price actually was $18.10.

Dollar-cost averaging does not guarantee that any subaccount will gain in value
nor will it protect against a decline in value if market prices fall. Because
dollar-cost averaging involves continuous investing, your success will depend
upon your willingness to continue to invest regularly through periods of low
price levels. Dollar-cost averaging can be an effective way to help meet your
long-term goals. For specific features contact your sales representative. Some
restrictions may apply.

TRANSFERRING MONEY BETWEEN ACCOUNTS
You may transfer money from any one subaccount, or the fixed account, to another
subaccount before annuity payouts begin. (Certain restrictions apply to
transfers involving the fixed account.) We will process your transfer on the
valuation date we receive your request. We will value your transfer at the next
accumulation unit value calculated after we receive your request. There is no
charge for transfers. Before making a transfer, you should consider the risks
involved in switching investments.

We may suspend or modify transfer privileges at any time. Excessive trading
activity can disrupt fund management strategy and increase expenses, which are
borne by all contract owners who allocated purchase payments to the fund
regardless of their transfer

- --------------------------------------------------------------------------------

20      AEL PREFERRED(SM) VARIABLE ANNUITY
<PAGE>
activity. We may apply modifications or restrictions in any reasonable manner to
prevent transfers we believe will disadvantage other contract owners. These
modifications could include, but not be limited to:

- - requiring a minimum time period between each transfer;

- - not accepting transfer requests of an agent acting under power of attorney on
  behalf of more than one contract owner; or

- - limiting the dollar amount that a contract owner may transfer at any one time.

For information on transfers after annuity payouts begin, see "Transfer
policies" below.

TRANSFER POLICIES

- - You may transfer contract values between the subaccounts or from the
  subaccounts to the fixed account at any time. However, if you made a transfer
  from the fixed account to the subaccounts, you may not make a transfer from
  any subaccount back to the fixed account for six months following that
  transfer.

- - You may transfer contract values from the fixed account to the subaccounts on
  or within 30 days before or after the contract anniversary (except for
  automated transfers, which can be set up at any time for certain transfer
  periods subject to certain minimums).

- - 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 subaccounts will
  be effective on the valuation date we receive it.

- - We will not accept requests for transfers from the fixed account at any other
  time.

- - Once annuity payouts begin, you may not make transfers to or from the fixed
  account, but you may make transfers once per contract year among the
  subaccounts. During the annuity payout period, we reserve the right to limit
  the number of subaccounts in which you may invest.

HOW TO REQUEST A TRANSFER OR 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:

AMERICAN ENTERPRISE LIFE INSURANCE COMPANY
829 AXP FINANCIAL CENTER
MINNEAPOLIS, MN 55474

MINIMUM AMOUNT
Transfers or withdrawals:    $500 or entire account balance

MAXIMUM AMOUNT
Transfers or withdrawals:    Contract value or the entire account balance

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                                                    PROSPECTUS -- MAY 1, 2000 21
<PAGE>
 2 BY AUTOMATED TRANSFERS AND AUTOMATED PARTIAL WITHDRAWALS
- --------------------------------------------------------------------------------
Your sales representative can help you set up automated transfers among your
subaccounts or fixed account or partial withdrawals from the accounts.

You can start or stop this service by written request or other method acceptable
to us. You must allow 30 days for us to change any instructions that are
currently in place.

- - Automated transfers may not exceed an amount that, if continued, would deplete
  the fixed account or subaccounts from which you are transferring within 12
  months.

- - 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.

- - Automated partial withdrawals may result in IRS taxes and penalties on all or
  part of the amount withdrawn.

MINIMUM AMOUNT
Transfers or withdrawals:
                      $100 monthly

                      $250 quarterly, semiannually or annually

MAXIMUM AMOUNT
Transfers or withdrawals:
                      Contract value (except for automated transfers from the
fixed account)

 3 BY PHONE
- --------------------------------------------------------------------------------
Call between 8 a.m. and 6 p.m. Central time:
1-800-333-3437

MINIMUM AMOUNT
Transfers or withdrawals:
                      $500 or entire subaccount or fixed account balance

MAXIMUM AMOUNT
Transfers:            Contract value or the entire subaccount or fixed account
balance

Withdrawals:          $25,000

We answer telephone requests promptly, but you may experience delays when the
call volume is unusually high. If you are unable to get through, use the mail
procedure as an alternative.

We will honor any telephone transfer or withdrawal requests that we believe are
authentic and we will use reasonable procedures to confirm that they are. This
includes asking identifying questions and tape recording calls. We will not
allow a telephone surrender within 30 days of an address change. As long as we
follow the procedures, we (and our affiliates) will not be liable for any loss
resulting from fraudulent requests.

Telephone transfers and withdrawals are automatically available. You may request
that telephone transfers and withdrawals NOT be authorized from your account by
writing to us.

- --------------------------------------------------------------------------------

22      AEL PREFERRED(SM) VARIABLE ANNUITY
<PAGE>
WITHDRAWALS

You may withdraw all or part of your contract at any time before annuity payouts
begin by sending us a written request or calling us. We will process your
withdrawal request on the valuation date we receive it. For total withdrawals,
we will compute the value of your contract at the next accumulation unit value
calculated after we receive your request. We may ask you to return the contract.
You may have to pay withdrawal charges (see "Charges -- Withdrawal charge") and
IRS taxes and penalties (see "Taxes"). You cannot make withdrawals after annuity
payouts begin.

WITHDRAWAL POLICIES

If you have a balance in more than one account and you request a partial
withdrawal, we will withdraw money from all your subaccounts and/or the fixed
account in the same proportion as your value in each account correlates to your
total contract value, unless you request otherwise.

RECEIVING PAYMENT

By regular or express mail:

- - payable to you.

- - mailed to address of record.

NOTE: We will charge you a fee if you request express mail delivery.

Normally, we will send the payment within seven days after receiving your
request. However, we may postpone the payment if:

  -- the withdrawal amount includes a purchase payment check that has not
  cleared;

  -- the NYSE is closed, except for normal holiday and weekend closings;

  -- trading on the NYSE is restricted, according to SEC rules;

  -- an emergency, as defined by SEC rules, makes it impractical to sell
  securities or value the net assets of the accounts; or

  -- the SEC permits us to delay payment for the protection of security holders.

CHANGING OWNERSHIP

You may change ownership of your nonqualified annuity at any time by completing
a change of ownership form we approve and sending it to our office. The change
will become binding upon us when we receive and record it. We will honor any
change of ownership request that we believe is authentic and we will use
reasonable procedures to confirm authenticity. If we follow these procedures, we
will not take any responsibility for the validity of the change.

If you have a nonqualified annuity, you may incur income tax liability by
transferring, assigning or pledging any part of it. (See "Taxes.")

If you have a qualified annuity, you may not sell, assign, transfer, discount or
pledge your contract as collateral for a loan, or as security for the
performance of an obligation or for any other purpose except as required or
permitted by the Code. However, if the owner is a trust or custodian, or an
employer acting in similar capacity, ownership of the contract may be
transferred to
the annuitant.

- --------------------------------------------------------------------------------

                                                    PROSPECTUS -- MAY 1, 2000 23
<PAGE>
BENEFITS IN CASE OF DEATH

We will pay the death benefit to your beneficiary upon the earlier of your death
or the annuitant's death. If a contract has more than one person as the owner,
we will pay benefits upon the first to die of any owner or the annuitant.

If you or the annuitant die before annuity payouts begin while this contract is
in force, we will pay the beneficiary as follows:

For contracts where both you and the annuitant were 75 or younger on the date we
issued the contract and you made withdrawals subject to withdrawal charges, we
will pay the beneficiary the contract value.

For annuities where either you or the annuitant were 76 or older on the date we
issue the contract, we will pay the beneficiary the contract value.

If both you and the annuitant were age 75 or younger on the date the contract
was issued and if all withdrawals from this contract have been without
withdrawal charges, we will pay the beneficiary the greatest of:

- - the contract value;

- - the total purchase payments less any amounts withdrawn; or

- - 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

  -- subtracting any amounts withdrawn since that most recent fifth contract
  anniversary.

If a contract has more than one person as owner, we will pay benefits upon the
first to die of any owner or the annuitant.

EXAMPLE:

- - You purchase contract for $20,000 on January 1, 2000.

- - On June 1, 2005 the contract value reaches $33,000.

- - On June 1, 2005 you take a $1,500 partial withdrawal, leaving a contract value
  of $31,500.

- - On July 15, 2005 you make an additional payment of $1,000.

- - On March 1, 2006 the contract value falls to $31,000.

We calculate the death benefit on March 1, 2006 as follows:

  The closest fifth anniversary contract value:                $33,000.00

  plus any purchase payments since that anniversary            + 1,000.00

  less any partial withdrawals taken since that anniversary:   - 1,500.00
                                                               ----------

  resulting in a death benefit of:                             $32,500.00

- --------------------------------------------------------------------------------

24      AEL PREFERRED(SM) VARIABLE ANNUITY
<PAGE>
IF YOUR SPOUSE IS SOLE BENEFICIARY under a nonqualified annuity and you die
before the retirement date, your spouse may keep the contract as owner. 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 the Code requires
distributions to begin, and the spouse is the only beneficiary, the spouse may
keep the contract as owner. To do this, the spouse must give us written
instructions within 60 days after we receive proof of death.

PAYMENTS: Under a nonqualified annuity we will pay the beneficiary in a single
sum unless you give us other written instructions. We must fully distribute the
death benefit within five years of your death. However, the beneficiary may
receive payouts under any annuity payout plan available under this contract if:

- - the beneficiary asks us in writing within 60 days after we receive proof of
  death; and

- - payouts begin no later than one year after your death, or other date as
  permitted by the Code; and

- - the payout period does not extend beyond the beneficiary's life or life
  expectancy.

When paying the beneficiary, we will process the death claim on the valuation
date our death claim requirements are fulfilled. We will determine the
contract's value at the next accumulation unit value calculated after our death
claim requirements are fulfilled. We pay interest, if any, from the date of
death at a rate no less than required by law. We will mail payment to the
beneficiary within seven days after our death claim requirements are fulfilled.

Other rules may apply to qualified annuities. (See "Taxes.")

THE ANNUITY PAYOUT PERIOD

As owner of the contract, you have the right to decide how and to whom annuity
payouts will be made starting at the retirement date. You may select one of the
annuity payout plans outlined below, or we may mutually agree on other payout
arrangements. We do not deduct withdrawal charges under the payout plans listed
below.

You also decide whether we will make annuity payouts on a fixed or variable
basis, or a combination of fixed and variable. The amount available to purchase
payouts under the plan you select is the contract value on your retirement date
(less any applicable premium tax). You may reallocate this contract value to the
fixed account to provide fixed dollar payouts and/or among the subaccounts to
provide variable annuity payouts. During the annuity payout period, we reserve
the right to limit the number of subaccounts in which you may invest.

Amounts of fixed and variable payouts depend on:

- - the annuity payout plan you select;

- - the annuitant's age and, in most cases, sex;

- - the annuity table in the contract; and

- - the amounts you allocated to the accounts at settlement.

- --------------------------------------------------------------------------------

                                                    PROSPECTUS -- MAY 1, 2000 25
<PAGE>
In addition, for variable payouts only, amounts depend on the investment
performance of the subaccounts you select. These payouts will vary from month to
month because the performance of the underlying funds will fluctuate. (In the
case of fixed annuities, payouts remain the same from month to month).

For information with respect to transfers between accounts after annuity payouts
begin, see "Making the Most of Your Contract --  Transfer policies."

ANNUITY TABLE
The annuity table in your contract shows the amount of the first monthly payment
for each $1,000 of contract value according to the age and, when applicable, the
sex of the annuitant. (Where required by law, we will use a unisex table of
settlement rates). The table assumes that the contract value is invested at the
beginning of the annuity payout period and earns a 5% rate of return, which is
reinvested and helps to support future payouts.

SUBSTITUTION OF 3.5% TABLE
If you ask us at least 30 days before the retirement date, we will substitute an
annuity table based on an assumed 3.5% investment rate for the 5% table in the
contract. The assumed investment rate affects both the amount of the first
payout and the extent to which subsequent payouts increase or decrease. Using
the 5% table results in a higher initial payment, but later payouts will
increase more slowly when annuity unit values are rising and decrease more
rapidly when they decline.

ANNUITY PAYOUT PLANS
You may choose any one of these annuity payout plans by giving us written
instructions at least 30 days before contract values are used to purchase the
payout plan:

PLAN A -- LIFE ANNUITY -- NO REFUND: We make monthly payouts until the
annuitant's death. Payouts end with the last payout before the annuitant's
death. We will not make any further payouts. This means that if the annuitant
dies after we made only one monthly payout, we will not make any more payouts.

PLAN B -- LIFE ANNUITY WITH FIVE, TEN OR 15 YEARS CERTAIN: We make monthly
payouts for a guaranteed payout period of five, ten or 15 years that you elect.
This election will determine the length of the payout period to the beneficiary
if the annuitant should die before the elected period expires. We calculate the
guaranteed payout period from the retirement date. If the annuitant outlives the
elected guaranteed payout period, we will continue to make payouts until the
annuitant's death.

PLAN C -- LIFE ANNUITY -- INSTALLMENT REFUND: We make monthly payouts until the
annuitant's death, with our guarantee that payouts will continue for some period
of time. We will make payouts for at least the number of months determined by
dividing the amount applied under this option by the first monthly payout,
whether or not the annuitant is living.

PLAN D -- JOINT AND LAST SURVIVOR LIFE ANNUITY -- NO REFUND: We make monthly
payouts while both the annuitant and a joint annuitant are living. If either
annuitant dies, we will continue to make monthly payouts at the full amount
until the death of the surviving annuitant. Payouts end with the death of the
second annuitant.

PLAN E -- PAYOUTS FOR A SPECIFIED PERIOD (AVAILABLE AS A FIXED PAYOUT ONLY): We
make monthly payouts for a specific payout period of ten to 30 years that you
elect. We will make payouts only for the number of years specified whether the
annuitant is living or not. Depending on the selected time period, it is
foreseeable that an annuitant can outlive the payout period selected. In
addition, a 10% IRS penalty tax could apply under this payout plan. (See
"Taxes.")

- --------------------------------------------------------------------------------

26      AEL PREFERRED(SM) VARIABLE ANNUITY
<PAGE>
RESTRICTIONS FOR SOME TAX-DEFERRED PLANS: If you purchased a qualified annuity,
you may be required to select a payout plan that provides for payouts:

- - over the life of the annuitant;

- - over the joint lives of the annuitant and a designated beneficiary;

- - for a period not exceeding the life expectancy of the annuitant; or

- - for a period not exceeding the joint life expectancies of the annuitant and a
  designated beneficiary.

You have the responsibility for electing a payout plan that complies with your
contract and with applicable law.

IF WE DO NOT RECEIVE INSTRUCTIONS: You must give us written instructions for the
annuity payouts at least 30 days before the annuitant's retirement date. If you
do not, we will make payouts under Plan B, with 120 monthly payouts guaranteed.
Contract values that you allocated to the fixed account will provide fixed
dollar payouts and contract values that you allocated among the subaccounts will
provide variable annuity payouts.

IF MONTHLY PAYOUTS WOULD BE LESS THAN $20: We will calculate the amount of
monthly payouts at the time the contract value is used to purchase a payout
plan. If the calculations show that monthly payouts would be less than $20, we
have the right to pay the contract value to 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, we will pay any amount
payable to the beneficiary as provided in the annuity payout plan in effect.

TAXES

Generally, under current law, your contract has a tax deferral feature. This
means, any increase in the contract value of the fixed account and/or
subaccounts in which you invest is taxable to you only when you receive a payout
or withdrawal (see detailed discussion below). Any portion of the annuity
payouts and any withdrawals you request that represent ordinary income normally
are taxable. We will send you a tax information reporting form for any year in
which we made a taxable distribution according to our records. Roth IRAs may
grow and be distributed 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 you receive after your investment in the contract is fully recovered
will be subject to tax.

Tax law requires that all nonqualified deferred annuity contracts issued by the
same company (and possibly its affiliates) to the same owner during a calendar
year be taxed as a single, unified contract when you take distributions from any
one of
those contracts.

QUALIFIED ANNUITIES: Your contract may be used to fund a tax-deferred retirement
plan that is already tax-deferred under the Code. The contract will not provide
any necessary or additional tax deferral if it is used to fund a retirement plan
that is tax-deferred. Special rules apply to these retirement plans. Your rights
to benefits may be subject to the terms and conditions of these retirement plans
regardless of the terms of the contract.

- --------------------------------------------------------------------------------

                                                    PROSPECTUS -- MAY 1, 2000 27
<PAGE>
Adverse tax consequences may result if you do not ensure that contributions,
distributions and other transactions under the contract comply with the law.
Qualified annuities have minimum distribution rules that govern the timing and
amount of distributions during your life (except for Roth IRAs) and after your
death. You should refer to your retirement plan or adoption agreement, or
consult a tax advisor for more information about these distribution rules.

ANNUITY PAYOUTS UNDER QUALIFIED ANNUITIES (EXCEPT ROTH IRAS): Under a qualified
annuity, the entire payout generally is includable as ordinary income and is
subject to tax except to the extent that contributions were made with after-tax
dollars. If you or your employer invested in your contract with deductible or
pre-tax dollars as part of a qualified retirement plan, such amounts are not
considered to be part of your investment in the contract and will be taxed when
paid to you.

WITHDRAWALS: If you withdraw part or all of your contract before your annuity
payouts begin, your withdrawal payment will be taxed to the extent that the
value of your contract immediately before the withdrawal exceeds your
investment. You also may have to pay a 10% IRS penalty for withdrawals you make
before reaching age 59 1/2 unless certain exceptions apply. For qualified
annuities, other penalties may apply if you make withdrawals from your contract
before your plan specifies that you can receive payouts.

DEATH BENEFITS TO BENEFICIARIES: The death benefit under a contract (except a
Roth IRA) is not tax exempt. Any amount your beneficiary receives that
represents previously deferred earnings within the contract is taxable as
ordinary income to the beneficiary in the years he or she receives the payments.
The death benefit under a Roth IRA generally is not taxable as ordinary income
to the beneficiary if certain distribution requirements are met.

ANNUITIES OWNED BY CORPORATIONS, PARTNERSHIPS OR TRUSTS: For nonqualified
annuities any annual increase in the value of annuities held by such entities
generally will be treated as ordinary income received during that year. This
provision is effective for purchase payments made after Feb. 28, 1986. However,
if the trust was set up for the benefit of a natural person only, the income
will remain tax deferred.

PENALTIES: If you receive amounts from your contract before reaching age 59 1/2,
you may have to pay a 10% IRS penalty on the amount includable in your ordinary
income. However, this penalty will not apply to any amount received by you or
your beneficiary:

- - because of your death;

- - because you become disabled (as defined in the Code);

- - 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

- - if it is allocable to an investment before Aug. 14, 1982 (except for qualified
  annuities).

For a qualified annuity, other penalties or exceptions may apply if you make
withdrawals from your contract before your plan specifies that payouts can be
made.

WITHHOLDING, GENERALLY: If you receive all or part of the contract value, we may
deduct withholding against the taxable income portion of the payment. Any
withholding represents a prepayment of your tax due for the year. You take
credit for these amounts on your annual tax return.

If the payment is part of an annuity payout plan, we generally compute the
amount of withholding using payroll tables. You may provide us with a statement
of how many exemptions to use in calculating the withholding. As long as you've
provided us with a valid Social Security Number or Taxpayer Identification
Number, you can elect not to have any withholding occur.

- --------------------------------------------------------------------------------

28      AEL PREFERRED(SM) VARIABLE ANNUITY
<PAGE>
If the distribution is any other type of payment (such as a partial or full
withdrawal) we compute withholding using 10% of the taxable portion. Similar to
above, as long as you have provided us with a valid Social Security Number or
Taxpayer Identification Number, you can elect not to have this withholding
occur.

Some states also may impose withholding requirements similar to the federal
withholding described above. If this should be the case, we may deduct state
withholding from any payment from which we deduct federal withholding. The
withholding requirements may differ if we are making payment to a non-U.S.
citizen or if we deliver the payment outside the United States.

TRANSFER OF OWNERSHIP OF A NONQUALIFIED ANNUITY: If you transfer a nonqualified
annuity without receiving adequate consideration, the transfer is a gift and
also may be a withdrawal for federal income tax purposes. If the gift is a
currently taxable event for income tax purposes, the original owner will be
taxed on the amount of deferred earnings at the time of the transfer and also
may be subject to the 10% IRS penalty discussed earlier. In this case, the new
owner's investment in the contract will be the value of the contract at the time
of the transfer.

COLLATERAL ASSIGNMENT OF A NONQUALIFIED ANNUITY: If you collaterally assign or
pledge your contract, earnings on purchase payments you made after Aug. 13, 1982
will be taxed to you like a withdrawal.

IMPORTANT: Our discussion of federal tax laws is based upon our understanding of
current interpretations of these laws. Federal tax laws or current
interpretations of them may change. For this reason and because tax consequences
are complex and highly individual and cannot always be anticipated, you should
consult a tax advisor if you have any questions about taxation of
your contract.

TAX QUALIFICATION: We intend that the contract qualify as an annuity for federal
income tax purposes. To that end, the provisions of the contract are to be
interpreted to ensure or maintain such tax qualification, in spite of any other
provisions of the contract. We reserve the right to amend the contract to
reflect any clarifications that may be needed or are appropriate to maintain
such qualification or to conform the contract to any applicable changes in the
tax qualification requirements. We will send you a copy of any amendments.

VOTING RIGHTS

As a contract owner with investments in the subaccounts, you may vote on
important fund policies until annuity payouts begin. Once they begin, the person
receiving them has voting rights. We will vote fund shares according to the
instructions of the person with voting rights.

Before annuity payouts begin, the number of votes you have is determined by
applying your percentage interest in each subaccount to the total number of
votes allowed to the subaccount.

After annuity payouts begin, the number of votes you have is equal to:

- - the reserve held in each subaccount for your contract; divided by

- - the net asset value of one share of the applicable fund.

As we make annuity payouts, the reserve for the contract decreases; therefore,
the number of votes also will decrease.

We calculate votes separately for each subaccount. We will send notice of
shareholders' meetings, proxy materials and a statement of the number of votes
to which the voter is entitled. We will vote shares for which we have not
received instructions in the same

- --------------------------------------------------------------------------------

                                                    PROSPECTUS -- MAY 1, 2000 29
<PAGE>
proportion as the votes for which we received instructions. We also will vote
the shares for which we have voting rights in the same proportion as the votes
for which we received instructions.

SUBSTITUTION OF INVESTMENTS

We may substitute the funds in which the subaccounts invest if:

- - laws or regulations change,

- - the existing funds become unavailable, or

- - in our judgment, the funds no longer are suitable for the subaccounts.

If any of these situations occur and if we believe it is in the best interest of
persons having voting rights under the contract, we have the right to substitute
funds other than those currently listed in this prospectus.

We may also:

- - change the funds in which the subaccounts invest, and

- - make additional subaccounts investing in additional funds.

In the event of substitution of any of these changes, we may amend the contract
and take whatever action is necessary and appropriate without your consent or
approval. However, we will not make any substitution or change without the
necessary approval of the SEC and state insurance departments. We will notify
you of any substitution or change.

ABOUT THE SERVICE PROVIDERS

PRINCIPAL UNDERWRITER
American Express Financial Advisors Inc. (AEFA) serves as the principal
underwriter for the contract. Its offices are located at 200 AXP Financial
Center, Minneapolis, MN 55474. AEFA is a wholly-owned subsidiary of American
Express Financial Corporation (AEFC) which is a wholly-owned subsidiary of
American Express Company.

The contracts are distributed either directly or through third party marketers
by insurance agencies and broker-dealers who may also be associated with
financial institutions such as banks.

American Enterprise Life pays commission for the sales of contracts to the
insurance agencies who have entered into distribution agreements with American
Enterprise Life and AEFA. These commissions will not be more than 7.5% of
purchase payments it receives on the contracts. From time to time, we will pay
or permit other promotional incentives, in cash or credit or other compensation.

Other contracts issued by American Enterprise Life that are not described in
this prospectus may be available through your sales representative. The
features, investment options, sales charges and expenses of the other contracts
are different than those of this contract. Therefore, the contract values under
the other contracts may be different than your contract value under this
contract. In addition, sales commissions for the other contracts may be higher
or lower than sales commissions for this contract.

ISSUER
American Enterprise Life issues the annuities. American Enterprise Life is a
wholly-owned subsidiary of IDS Life, which is a wholly-owned subsidiary of AEFC.
AEFC is a wholly-owned subsidiary of American Express Company. American Express
Company is a

- --------------------------------------------------------------------------------

30      AEL PREFERRED(SM) VARIABLE ANNUITY
<PAGE>
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. Our administrative offices are located
at 829 AXP Financial Center, Minneapolis, MN 55474. Its statutory address is 100
Capitol Center South, 201 North Illinois Street, Indianapolis, IN 46204.
American Enterprise Life conducts a conventional life insurance business.

LEGAL PROCEEDINGS
A number of lawsuits have been filed against life and health insurers in
jurisdictions in which American Enterprise Life and its affiliates do business
involving insurers' sales practices, alleged agent misconduct, failure to
properly supervise agents and other matters. IDS Life is a defendant in three
class action lawsuits of this nature. American Enterprise Life is a named
defendant in one of these suits, Richard W. and Elizabeth J. Thoresen vs.
American Express Financial Corporation, American Centurion Life Assurance
Company, American Enterprise Life Insurance Company, American Partners Life
Insurance Company, IDS Life Insurance Company and IDS Life Insurance Company of
New York which was commenced in Minnesota State Court in October 1998. The
action was brought by individuals who purchased an annuity in a qualified plan.
The plaintiffs allege that the sale of annuities in tax-deferred contributory
retirement investment plans (E.G., IRAs) is never appropriate. The plaintiffs
purport to represent a class consisting of all persons who made similar
purchases. The plaintiffs seek damages in an unspecified amount.

American Enterprise Life is included as a party to preliminary settlement of all
three class action lawsuits. We believe this approach will put these cases
behind us and provide a fair outcome for our clients. Our decision to settle
does not include any admission of wrongdoing. We do not anticipate that this
proposed settlement, or any other lawsuits in which American Enterprise Life is
a defendant, will have a material adverse effect on our financial condition.

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 American Enterprise Life
and the variable account. All of the major systems used by American Enterprise
Life and the variable account are maintained by AEFC and are utilized by
multiple subsidiaries and affiliates of AEFC. American Enterprise Life and the
variable account's businesses are heavily dependent upon AEFC's computer systems
and have significant interaction with systems of third parties.

A comprehensive review of AEFC's computer systems and business processes,
including those specific to American Enterprise Life and the variable account,
was conducted to identify the major systems that could be affected by the Year
2000 issue. Steps were taken to resolve potential problems including
modification to existing software and the purchase of new software. As of Dec.
31, 1999, AEFC had completed its program of corrective measures on its internal
systems and applications, including Year 2000 compliance testing. As of
Dec. 31, 1999, AEFC had also completed an evaluation of the Year 2000 readiness
of other third parties whose system failures could have an impact on American
Enterprise Life's and the variable account's operations.

AEFC's Year 2000 project also included establishing Year 2000 contingency plans
for all key business units. Business continuation plans, which address business
continuation in the event of a system disruption, are in place for all key
business units. As of Dec. 31, 1999, these plans had been amended to include
specific Year 2000 considerations.

In assessing its Year 2000 initiatives and the results of actual production
since Jan. 1, 2000, management believes no material adverse consequences were
experienced, and there was no material effect on American Enterprise Life's and
the variable account's business, results of operations, or financial condition
as a result of the Year 2000 issue.

- --------------------------------------------------------------------------------

                                                    PROSPECTUS -- MAY 1, 2000 31
<PAGE>
TABLE OF CONTENTS OF THE STATEMENT OF
ADDITIONAL INFORMATION

Performance Information.......... ...........     3
Calculating Annuity Payouts..................     6
Rating Agencies..............................     7
Principal Underwriter........................     7
Independent Auditors.........................     7
Financial Statements

- --------------------------------------------------------------------------------

32      AEL PREFERRED(SM) VARIABLE ANNUITY
<PAGE>
Please check the appropriate box to receive a copy of the Statement of
Additional Information for:

/ /  AEL Preferred(SM) Variable Annuity
/ /  American Express Variable Portfolio Funds
/ /  Putnam Variable Trust

MAIL YOUR REQUEST TO:
AMERICAN ENTERPRISE LIFE INSURANCE COMPANY
829 AXP FINANCIAL CENTER
MINNEAPOLIS, MN 55474

WE WILL MAIL YOUR REQUEST TO:

Your name  _____________________________________________________________________

Address  _______________________________________________________________________

City  _________________________ State  ___________ Zip  ________________________


<PAGE>


                                   STATEMENT OF ADDITIONAL INFORMATION

                                                   for

                                     AEL PREFERREDSM VARIABLE ANNUITY

                               AMERICAN ENTERPRISE VARIABLE ANNUITY ACCOUNT

                                               May 1, 2000

American  Enterprise  Variable Annuity Account is a separate account established
and  maintained  by  American   Enterprise  Life  Insurance   Company  (American
Enterprise Life).

This Statement of Additional Information (SAI) is not a prospectus. It should be
read together with the prospectus  dated the same date as this SAI, which may be
obtained  from your  agent,  or by  writing or  calling  us at the  address  and
telephone number below. The prospectus is incorporated in this SAI by reference.


American Enterprise Life Insurance Company
829 AXP Financial Center
Minneapolis, MN  55474
800-333-3437

<PAGE>


                                            TABLE OF CONTENTS

Performance Information...............................................p.3

Calculating Annuity Payouts...........................................p.6

Rating Agencies.......................................................p.7

Principal Underwriter.................................................p.7

Independent Auditors..................................................p.7

Financial Statements


<PAGE>


PERFORMANCE INFORMATION

The  subaccounts  may quote  various  performance  figures  to  illustrate  past
performance.  We base total return and current yield  quotations (if applicable)
on standardized  methods of computing  performance as required by the Securities
and Exchange  Commission  (SEC).  An  explanation of the methods used to compute
performance follows below.

Average Annual Total Return

We will express quotations of average annual total return for the subaccounts in
terms  of the  average  annual  compounded  rate  of  return  of a  hypothetical
investment in the contract over a period of one, five and 10 years (or, if less,
up to the  life  of the  subaccounts),  calculated  according  to the  following
formula:

                                              P(1+T)n = ERV

where:         P =  a hypothetical initial payment of $1,000
               T =  average annual total return
               n =  number of years
             ERV =  Ending  Redeemable Value of a hypothetical  $1,000 payment
                    made  at the  beginning  of the  period,  at the  end of the
                    period (or fractional portion thereof)

We  calculated  the  following  performance  figures on the basis of  historical
performance  of  each  fund.  We show  actual  performance  from  the  date  the
subaccounts  began  investing in the funds.  We also show  performance  from the
commencement date of the funds as if the contract existed at that time, which it
did not.  Although we base  performance  figures on  historical  earnings,  past
performance does not guarantee future results.

Average Annual Total Return With Withdrawal For Periods Ending Dec. 31, 1999
<TABLE>
<CAPTION>

                                Performance since
                                                     commencement of the                     Performance since
                                                          subaccount                     commencement of the Fund**
                                                                  Since                                             Since
Subaccount      ---------------------------------   1 Year    commencement   ---------  ----------  ---------    commencement
                Investing in:                                                 1 Year     5 Years    10 Years

<S>             <C>                                  <C>         <C>           <C>        <C>        <C>           <C>

                AXPSM VARIABLE PORTFOLIO -
ESI               Bond Fund (2/95; 10/81)*           -7.02%        5.40%       -7.02%       5.75%      6.51%         9.00%
ECR               Capital Resource Fund (2/95;       13.93        18.52        13.93       19.13      13.73         14.19
                  10/81)
EMS               Cash Management Fund (2/95;        -4.28         2.73        -4.28        2.77       3.26          4.91
                  10/81)
EMG               Managed Fund (2/95; 4/86)           5.15        15.74         5.15       15.99      11.79         11.13
EAG               Strategy Aggressive Fund           60.56        22.96        60.56       22.56       --           15.23
                  (2/95; 1/92)


                PUTNAM VARIABLE TRUST
EDI               Putnam VT Diversified Income       -6.97         4.28        -6.97        4.63       --            3.50
                  Fund Class IA Shares (2/95;
                  9/93)
EGG               Putnam VT Global Growth Fund       54.61        31.39        54.61       24.86       --           15.40
                  Class IA Shares (6/97; 5/90)
EGI               Putnam VT Growth and Income        -7.13        16.39        -7.13       17.17    12.23           13.41
                  Fund Class IA Shares (2/95;
                  1/88)
ENO               Putnam VT New Opportunities        58.90        30.97        58.90       30.62       --           28.23
                  Fund Class IA Shares (2/95;
                  5/94)
EVO               Putnam VT Voyager Fund Class       47.93        34.64        47.93       29.39    20.43           19.65
                  IA Shares (6/97; 1/88)

*    (Commencement dates of the subaccount; Commencement dates of the Fund)
**   Current  applicable  charges deducted from fund  performance  include a $30
     contract  administrative charge, a 1.25% mortality and expense fee, a 0.15%
     variable account administrative charge and applicable withdrawal charges.

<PAGE>

Average Annual Total Return Without Withdrawal For Periods Ending Dec. 31, 1999

                                Performance since
                                                      commencement of the                     Performance since
                                                          subaccount                     commencement of the Fund**
                                                                   Since                                            Since
Subaccount      ---------------------------------   1 Year     commencement    -------  ----------  ---------    commencement
                Investing in:                                                  1 Year    5 Years    10 Years

                AXPSM VARIABLE PORTFOLIO -
ESI               Bond Fund (2/95; 10/81)*             0.19%        6.06%         0.19%     6.38%      6.51%        9.00%
ECR               Capital Resource Fund (2/95;        21.93        18.94         21.93     19.52      13.73        14.19
                  10/81)
EMS               Cash Management Fund (2/95;          3.18         3.46          3.18      3.48       3.26         4.91
                  10/81)
EMG               Managed Fund (2/95; 4/86)           13.15        16.20         13.15     16.43      11.79        11.13
EAG               Strategy Aggressive Fund            68.56        23.33         68.56     22.92      --           15.23
                  (2/95; 1/92)

                PUTNAM VARIABLE TRUST
EDI               Putnam VT Diversified Income         0.25         4.97          0.25      5.29      --            3.50
                  Fund Class IA Shares (2/95;
                  9/93)
EGG               Putnam VT Global Growth Fund        62.61        32.91         62.61     25.19      --           15.40
                  (6/97; Class IA Shares 5/90)
EGI               Putnam VT Growth and Income          0.08        16.85          0.08     17.59      12.23        13.41
                  Fund Class IA Shares (2/95;
                  1/88)
ENO               Putnam VT New Opportunities         66.90        31.26         66.90    30.90       --           28.34
                  Fund Class IA Shares (2/95;
                  5/94)
EVO               Putnam VT Voyager Fund Class        55.93        36.11         55.93     29.68      20.43        19.65
                  IA Shares (6/97; 1/88)

</TABLE>

*    (Commencement dates of the subaccount; Commencement dates of the Fund)
**   Current  applicable  charges deducted from fund  performance  include a $30
     contract  administrative  charge,  a 1.25%  mortality and expense fee and a
     0.15% variable account administrative charge.

Cumulative Total Return

Cumulative return represents the cumulative change in value of an investment for
a given period (reflecting change in a subaccount's accumulation unit value). We
compute cumulative total return using the following formula:

                                                 ERV - P
                                                    P

where:                P =  a hypothetical initial payment of $1,000
                    ERV =  Ending  Redeemable  Value of a hypothetical  $1,000
                           payment made at the  beginning of the period,  at the
                           end of the period (or fractional period thereof)

Total  return  figures  reflect the  deduction  of the  withdrawal  charge which
assumes you withdraw the entire  contract  value at the end of the one-,  five-,
and ten- year periods (or, if less,  up to the life of the  subaccount).We  also
may show performance  figures without the deduction of a withdrawal  charge.  In
addition,  total return figures reflect the deduction of all applicable  charges
including   the   contract   administrative   charge,   the   variable   account
administrative charge and the mortality and expense risk fee.

Annualized Calculation of Yield for Subaccounts Investing in Money Market Funds

Annualized Simple Yield:

For the  subaccounts  investing in money market  funds,  we base  quotations  of
simple yield on:

    (a)  the change in the value of a hypothetical subaccount (exclusive of
         capital changes and income  other  than  investment  income)  at  the
         beginning  of a particular  seven-day  period;
    (b)  less  a  pro  rata  share  of  the subaccount expenses accrued over the
         period;

<PAGE>

         (c)  dividing  this  difference  by the value of the  subaccount at the
              beginning of the period to obtain the base period return; and
         (d) multiplying the base period return by 365/7.

The subaccount's value includes:

o any declared dividends,

o the value of any shares purchased with dividends paid during the period, and o
  any dividends declared for such shares.

It does not include:

o  the  effect  of  any  applicable  withdrawal  charge,  or o any  realized  or
   unrealized gains or losses.

Annualized Compound Yield:

We calculate  compound yield using the base period return described above, which
we then compound according to the following formula:

Compound Yield = [(Base Period Return + 1)365/7] -1

You must consider  (when  comparing an investment  in  subaccounts  investing in
money market funds with fixed  annuities)  that fixed annuities often provide an
agreed-to  or  guarantee  yield  for  a  stated  period  of  time,  whereas  the
subaccount's  yield  fluctuates.  In comparing the yield of the  subaccount to a
money market fund, you should consider the different  services that the contract
provides.

Annualized Yields Based on the Seven-Day Period Ending Dec. 31, 1999
<TABLE>
<CAPTION>
<S>                <C>                                                        <C>                <C>
Subaccount         Investing In:                                              Simple Yield       Compound Yield
- ----------         -------------                                              ------------       --------------
EMS                AXPSM Variable Portfolio - Cash Management Fund               4.52%                4.62%

</TABLE>

Annualized Yield for Subaccounts Investing in Income Funds

For the  subaccounts  investing in income funds,  we base quotations of yield on
all investment  income earned during a particular  30-day period,  less expenses
accrued during the period (net investment income) and compute it by dividing net
investment  income per accumulation unit by the value of an accumulation unit on
the last day of the period, according to the following formula:

                                        YIELD = 2[(  a-b  + 1)6 - 1]
                                                     cd

where:    a =  dividends and investment income earned during the period
          b =  expenses accrued for the period (net of reimbursements)
          c =  the average daily number of accumulation units outstanding during
               the period
               that were entitled to receive dividends
          d =  the maximum offering price per accumulation unit on the last day
               of the period

The subaccount earns yield from the increase in the net asset value of shares of
the fund in which it invests and from  dividends  declared and paid by the fund,
which are automatically invested in shares of the fund.

Annualized Yield Based on the 30-Day Period Ended Dec. 31, 1999

Subaccount         Investing In:                                   Yield
ESI                AXPSM Variable Portfolio Bond Fund              7.52%


<PAGE>

Independent rating or statistical services or publishers or publications such as
those listed  below may quote  subaccount  performance,  compare it to rankings,
yields or returns,  or use it in variable  annuity  accumulation  or  settlement
illustrations they publish or prepare.

         The Bank Rate Monitor  National  Index,  Barron's,  Business  Week, CDA
         Technologies,  Donoghue's Money Market Fund Report,  Financial Services
         Week,  Financial  Times,  Financial  World,  Forbes,   Fortune,  Global
         Investor,    Institutional   Investor,   Investor's   Business   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

We do the following  calculations  separately for each of the subaccounts of the
variable  account.  The separate monthly payouts,  added together,  make up your
total variable annuity payout.

Initial Payout: To compute your first monthly payment, we:

o    determine the dollar value of your contract on the valuation  date and then
     deduct any applicable premium tax; then

o    apply the result to the annuity table  contained in the contract or another
     table at least as favorable.

The annuity table shows the amount of the first monthly  payment for each $1,000
of value which depends on factors built into the table, as described below.

Annuity Units: We then convert the value of your subaccount to annuity units. To
compute the number of units credited to you, we divide the first monthly payment
by the annuity unit value (see below) on the valuation date. The number of units
in your  subaccount  is  fixed.  The  value  of the  units  fluctuates  with the
performance of the underlying fund.

Subsequent Payouts: To compute later payouts, we multiply:

o        the annuity unit value on the valuation date; by

o        the fixed number of annuity units credited to you.

Annuity Unit Values: We originally set this value at $1 for each subaccount.  To
calculate later values we multiply the last annuity value by the product of:

o        the net investment factor; and

o        the neutralizing factor.

The  purpose of the  neutralizing  factor is to offset the effect of the assumed
rate built into the annuity table.  With an assumed  investment  rate of 5%, the
neutralizing factor is 0.999866 for a one day valuation period.

Net Investment Factor: We determine the net investment factor by:

o    adding  the  fund's  current  net asset  value per share plus the per share
     amount of any accrued  income or capital gain dividends to obtain a current
     adjusted net asset value per share; then

o    dividing that sum by the previous adjusted net asset value per share; and

o    subtracting the percentage  factor  representing  the mortality and expense
     risk fee and the variable account administrative charge from the result.

<PAGE>

Because the net asset value of the fund may fluctuate, the net investment factor
may be greater or less than one,  and the  annuity  unit value may  increase  or
decrease. You bear this investment risk in a variable subaccount.

The Fixed Account

We guarantee your fixed annuity payout  amounts.  Once  calculated,  your payout
will remain the same and never change. To calculate your annuity payouts we:

o    take the value of your 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.

The  annuity  payout  table we use will be the one in  effect  at the time  your
choose to begin your annuity  payouts.  The values in the table will be equal to
or greater than the table in your contract.

RATING AGENCIES

The  following  chart  reflects the ratings  given to us by  independent  rating
agencies.  These  agencies  evaluate the financial  soundness and  claims-paying
ability of  insurance  companies  based on a number of different  factors.  This
information  does not relate to the  management or  performance  of the variable
subaccounts of the contract.  This information relates only to the fixed account
and reflects our ability to make annuity  payouts and to pay death  benefits and
other distributions from the contract.


    Rating Agency              Rating

      A.M. Best                  A+
                             (Superior)

    Duff & Phelps               AAA

       Moody's                  Aa2

PRINCIPAL UNDERWRITER

The  principal  underwriter  for the  contracts  is American  Express  Financial
Advisors Inc. (AEFA) which offers them on a continuous basis.

Withdrawal  charges  received  by  AEFA  for the  last  three  years  aggregated
$479,554, $199,062 and $79,195, respectively.

Commissions paid by AEL for the last three years  aggregated  total  $5,924,368,
$4,415,795 and $1,798,969, respectively.

INDEPENDENT AUDITORS

The  financial  statements  appearing  in this SAI have been  audited by Ernst &
Young LLP (1400  Pillsbury  Center,  200 South  Sixth  Street,  Minneapolis,  MN
55402), independent auditors, as stated in their report appearing herein.

FINANCIAL STATEMENTS

<PAGE>

American Enterprise Variable Annuity Account -- AEL Preferred Variable Annuity

Annual Financial Information

Report of Independent Auditors

The Board of Directors
American Enterprise Life Insurance Company

We have  audited the  individual  and combined  statements  of net assets of the
segregated asset subaccounts of American  Enterprise Variable Annuity Account --
AEL Preferred  Subaccounts  (comprised of  subaccounts  ESI, ECR, EMS, EMG, EAG,
EDI, EGG, EGI, ENO and EVO) as of December 31, 1999, and the related  statements
of  operations  for the year then ended,  and the  statements  of changes in net
assets  for each of the two years in the  period  then  ended.  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 auditing standards generally accepted
in the United States. Those standards require that we plan and perform the audit
to obtain reasonable  assurance about whether the financial  statements are free
of material misstatement. An audit includes examining, on a test basis, evidence
supporting  the  amounts  and  disclosures  in  the  financial  statements.  Our
procedures  included  confirmation of securities owned at December 31, 1999 with
the affiliated  and  unaffiliated  mutual fund managers.  An audit also includes
assessing the  accounting  principles  used and  significant  estimates  made by
management,  as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.

In our opinion,  the financial  statements  referred to above present fairly, in
all material  respects,  the individual and combined  financial  position of the
segregated asset subaccounts of American  Enterprise Variable Annuity Account --
AEL  Preferred  Subaccounts  (as  described  above) at December 31, 1999 and the
individual and combined results of their operations and the changes in their net
assets for the periods described above, in conformity with accounting principles
generally accepted in the United States.

/s/ Ernst & Young LLP
ERNST & YOUNG LLP
Minneapolis, Minnesota
March 17, 2000

<PAGE>
<TABLE>
<CAPTION>

American Enterprise Variable Annuity Account - AEL Preferred Variable Annuity

Statements of Net Assets
December 31, 1999

                                                                                      Segregated Asset Subaccounts
Assets                                                                       ESI                   ECR                    EMS
Investments in shares of mutual funds and portfolios:
<S>                                                                     <C>                   <C>                     <C>
  at cost                                                               $ 11,651,363          $ 10,984,992            $ 1,110,118
                                                                        ------------          ------------            -----------
  at market value                                                       $ 10,828,713          $ 13,632,953            $ 1,110,117
                                                                        ------------          ------------            -----------
Dividends receivable                                                          66,241                    --                  5,329
Accounts receivable from American Enterprise Life
for contract purchase payments                                                    --                27,305                     --
Receivable from mutual funds and portfolios for share redemptions                 --                    --                     --
                                                                              ------                ------                   ----
Total assets                                                              10,894,954            13,660,258              1,115,446
                                                                          ==========            ==========              =========

Liabilities
Payable to American Enterprise Life for:
  Mortality and expense risk fee                                              11,459                14,364                  1,274
  Issue and administrative fee                                                 1,375                 1,724                    153
  Contract terminations                                                       61,819                    --                     --
Payable to mutual funds and portfolios for investments purchased                  --                    --                     --
                                                                                ----                ------                   ----
Total liabilities                                                             74,653                16,088                  1,427
                                                                              ------                ------                  -----
Net assets applicable to contracts in accumulation period                 10,817,495            13,637,782              1,114,004
Net assets applicable to contracts in payment period                           2,806                 6,388                     15
                                                                               -----                 -----                     --
Total net assets                                                        $ 10,820,301          $ 13,644,170            $ 1,114,019
                                                                        ============          ============            ===========
Accumulation units outstanding                                             8,126,599             5,864,252                941,161
                                                                           =========             =========                =======
Net asset value per accumulation unit                                         $ 1.33                $ 2.33                 $ 1.18
                                                                              ======                ======                 ======

Assets                                                                         EMG                    EAG
Investments in shares of mutual funds and portfolios:
  at cost                                                                 $ 11,427,222            $ 7,436,725
                                                                          ------------            -----------
  at market value                                                         $ 12,406,820           $ 10,999,058
Dividends receivable                                                                --                     --
Accounts receivable from American Enterprise Life
for contract purchase payments                                                      --                 35,107
Receivable from mutual funds and portfolios for share redemptions                   --                     --
                                                                                ------              ---------
Total assets                                                                12,406,820             11,034,165
                                                                            ==========             ==========

Liabilities
Payable to American Enterprise Life for:
  Mortality and expense risk fee                                                13,107                 11,597
  Issue and administrative fee                                                   1,573                  1,392
  Contract terminations                                                          1,945                     --
Payable to mutual funds and portfolios for investments purchased                    --                     --
                                                                                ------                   ----
Total liabilities                                                               16,625                 12,989
                                                                                ------                 ------
Net assets applicable to contracts in accumulation period                   12,385,565             11,014,379
Net assets applicable to contracts in payment period                             4,630                  6,797
                                                                                 =====                  =====
Total net assets                                                          $ 12,390,195           $ 11,021,176
                                                                          ============           ============
Accumulation units outstanding                                               5,985,403              3,961,232
                                                                             =========              =========
Net asset value per accumulation unit                                           $ 2.07                 $ 2.78
                                                                                ======                 ======

See accompanying notes to financial statements.
</TABLE>

<PAGE>
<TABLE>
<CAPTION>

American Enterprise Variable Annuity Account - AEL Preferred Variable Annuity

Statements of Net Assets
December 31, 1999

                                                                                      Segregated Asset Subaccounts
Assets                                                                      EDI                   EGG                    EGI
Investments in shares of mutual funds and portfolios:
<S>                                                                      <C>                   <C>                   <C>
  at cost                                                                $ 8,709,431           $ 1,870,228           $ 19,106,692
                                                                         -----------           -----------           ------------
  at market value                                                        $ 8,087,474           $ 2,931,331           $ 19,934,482
Dividends receivable                                                              --                    --                     --
Accounts receivable from American Enterprise Life
for contract purchase payments                                                 9,184                    --                  6,271
Receivable from mutual funds and portfolios for share redemptions              9,604                 6,756                 23,784
                                                                               -----                 -----                 ------
Total assets                                                               8,106,262             2,938,087             19,964,537
                                                                           =========             =========             ==========

Liabilities
Payable to American Enterprise Life for:
  Mortality and expense risk fee                                               8,575                 2,998                 21,236
  Issue and administrative fee                                                 1,029                   360                  2,548
  Contract terminations                                                           --                 3,398                     --
Payable to mutual funds and portfolios for investments purchased               9,184                    --                  6,271
                                                                               -----                                        -----
Total liabilities                                                             18,788                 6,756                 30,055
                                                                              ------                 -----                 ------
Net assets applicable to contracts in accumulation period                  8,087,474             2,931,052             19,932,641
Net assets applicable to contracts in payment period                              --                   279                  1,841
                                                                                                       ---                  -----
Total net assets                                                         $ 8,087,474           $ 2,931,331           $ 19,934,482
                                                                         ===========           ===========           ============
Accumulation units outstanding                                             6,355,776             1,411,843              9,311,251
                                                                           =========             =========              =========
Net asset value per accumulation unit                                         $ 1.27                $ 2.08                 $ 2.14
                                                                              ======                ======                 ======

                                                                                                                         Combined
                                                                                                                         Variable
Assets                                                                      ENO                    EVO                    Account
Investments in shares of mutual funds and portfolios:
  at cost                                                                $ 9,228,143            $ 1,096,258          $ 82,621,172
                                                                         -----------            -----------          ------------
  at market value                                                       $ 20,602,458            $ 1,639,313         $ 102,172,719
Dividends receivable                                                              --                     --                71,570
Accounts receivable from American Enterprise Life
for contract purchase payments                                                    --                     --                77,867
Receivable from mutual funds and portfolios for share redemptions             26,598                  2,613                69,355
                                                                              ------                  -----                ------
Total assets                                                              20,629,056              1,641,926           102,391,511

Liabilities
Payable to American Enterprise Life for:
  Mortality and expense risk fee                                              21,949                  1,688               108,247
  Issue and administrative fee                                                 2,634                    202                12,990
  Contract terminations                                                        2,015                    723                69,900
Payable to mutual funds and portfolios for investments purchased                  --                     --                15,455
                                                                                                                           ------
Total liabilities                                                             26,598                  2,613               206,592
                                                                              ------                  -----               -------
Net assets applicable to contracts in accumulation period                 20,602,458              1,639,256           102,162,106
Net assets applicable to contracts in payment period                              --                     57                22,813
                                                                                                         --                ------
Total net assets                                                        $ 20,602,458            $ 1,639,313         $ 102,184,919
                                                                        ============            ===========         =============
Accumulation units outstanding                                             5,475,925                743,110
                                                                           =========                =======
Net asset value per accumulation unit                                         $ 3.76                 $ 2.21
                                                                              ======                 ======

See accompanying notes to financial statements.
</TABLE>

<PAGE>
<TABLE>
<CAPTION>

American Enterprise Variable Annuity Account - AEL Preferred Variable Annuity

Statements of Operations
Year ended December 31, 1999

                                                                                         Segregated Asset Subaccounts
Investment income                                                             ESI                   ECR                    EMS
<S>                                                                        <C>                 <C>                       <C>
Dividend income from mutual funds and portfolios                           $ 639,680           $ 1,220,605               $ 49,468
                                                                           ---------           -----------               --------
Expenses:
Mortality and expense risk fee                                               116,344               140,484                 13,300
Administrative charge                                                             --                    --                     --
Mortality charge                                                              13,961                16,858                  1,596
                                                                              ------                ------                  -----
Total expenses                                                               130,305               157,342                 14,896
                                                                             -------               -------                 ------
Investment income (loss) - net                                               509,375             1,063,263                 34,572
                                                                             =======             =========                 ======

Realized and unrealized gain (loss) on investments - net
Realized gain (loss) on sales of investments in
mutual funds and portfolios:
  Proceeds from sales                                                        519,183               775,040              3,469,740
  Cost of investments sold                                                   557,599               641,397              3,469,746
                                                                             -------               -------              ---------
Net realized gain (loss) on investments                                      (38,416)              133,643                     (6)
Net change in unrealized appreciation or depreciation of investments        (431,444)            1,170,550                     (4)
                                                                            --------             ---------                     --
Net gain (loss) on investments                                              (469,860)            1,304,193                    (10)
                                                                            --------             ---------                    ---
Net increase (decrease) in net assets resulting from operations             $ 39,515           $ 2,367,456               $ 34,562
                                                                            ========           ===========               ========

Investment income                                                             EMG                    EAG
Dividend income from mutual funds and portfolios                           $ 773,979              $ 777,394
                                                                           ---------              ---------
Expenses:
Mortality and expense risk fee                                               128,813                 90,103
Administrative charge                                                             --                     --
Mortality charge                                                              15,456                  9,769
                                                                              ------                  -----
Total expenses                                                               144,269                 99,872
                                                                             -------                 ------
Investment income (loss) - net                                               629,710                677,522
                                                                             =======                =======

Realized and unrealized gain (loss) on investments - net
Realized gain (loss) on sales of investments in
mutual funds and portfolios:
  Proceeds from sales                                                        674,233                784,628
  Cost of investments sold                                                   642,429                715,168
                                                                             -------                -------
Net realized gain (loss) on investments                                       31,804                 69,460
Net change in unrealized appreciation or depreciation of investments         705,266              3,733,600
                                                                             -------              ---------
Net gain (loss) on investments                                               737,070              3,803,060
                                                                             -------              ---------
Net increase (decrease) in net assets resulting from operations          $ 1,366,780            $ 4,480,582
                                                                         ===========            ===========

See accompanying notes to financial statements.
</TABLE>

<PAGE>
<TABLE>
<CAPTION>

American Enterprise Variable Annuity Account - AEL Preferred Variable Annuity

Statements of Operations
Year ended December 31, 1999

                                                                                        Segregated Asset Subaccounts
Investment income                                                             EDI                   EGG                    EGI
<S>                                                                        <C>                   <C>                  <C>
Dividend income from mutual funds and portfolios                           $ 548,649             $ 125,227            $ 1,699,426
                                                                           ---------             ---------            -----------
Expenses:
Mortality and expense risk fee                                                98,749                21,743                258,279
Administrative charge                                                         11,850                 2,609                 30,994
Mortality charge                                                                  --                    --                     --
                                                                              ------                ------                -------
Total expenses                                                               110,599                24,352                289,273
                                                                             -------                ------                -------
Investment income (loss) - net                                               438,050               100,875              1,410,153
                                                                             =======               =======              =========

Realized and unrealized gain (loss) on investments - net
Realized gain (loss) on sales of investments in
mutual funds and portfolios:
  Proceeds from sales                                                        762,680               172,730              1,787,631
  Cost of investments sold                                                   831,712               151,397              1,649,630
                                                                             -------               -------              ---------
Net realized gain (loss) on investments                                      (69,032)               21,333                138,001
Net change in unrealized appreciation or depreciation of investments        (338,782)              939,066             (1,526,466)
                                                                            --------               -------             ----------
Net gain (loss) on investments                                              (407,814)              960,399             (1,388,465)
                                                                            --------               -------             ----------
Net increase (decrease) in net assets resulting from operations             $ 30,236           $ 1,061,274               $ 21,688
                                                                            ========           ===========               ========

                                                                                                                         Combined
                                                                                                                         Variable
Investment income                                                             ENO                    EVO                  Account
Dividend income from mutual funds and portfolios                           $ 185,706               $ 65,824           $ 6,085,958
                                                                           ---------               --------           -----------
Expenses:
Mortality and expense risk fee                                               184,295                 11,896             1,064,006
Administrative charge                                                         22,115                  1,428                68,996
Mortality charge                                                                  --                     --                57,640
                                                                              ------                 ------                ------
Total expenses                                                               206,410                 13,324             1,190,642
                                                                             -------                 ------             ---------
Investment income (loss) - net                                               (20,704)                52,500             4,895,316
                                                                             =======                 ======             =========

Realized and unrealized gain (loss) on investments - net
Realized gain (loss) on sales of investments in
mutual funds and portfolios:
  Proceeds from sales                                                      1,782,292                 84,714            10,812,871
  Cost of investments sold                                                 1,157,209                 72,891             9,889,178
                                                                           ---------                 ------             ---------
Net realized gain (loss) on investments                                      625,083                 11,823               923,693
Net change in unrealized appreciation or depreciation of investments       7,761,913                458,840            12,472,539
                                                                           ---------                -------            ----------
Net gain (loss) on investments                                             8,386,996                470,663            13,396,232
                                                                           ---------                -------            ----------
Net increase (decrease) in net assets resulting from operations          $ 8,366,292              $ 523,163          $ 18,291,548
                                                                         ===========              =========          ============

See accompanying notes to financial statements.

</TABLE>

<PAGE>
<TABLE>
<CAPTION>

American Enterprise Variable Annuity Account - AEL Preferred Variable Annuity

Statements of Changes in Net Assets
Year ended December 31, 1999

                                                                                        Segregated Asset Subaccounts
Operations                                                                     ESI                  ECR                    EMS
<S>                                                                        <C>                 <C>                       <C>
Investment income (loss) - net                                             $ 509,375           $ 1,063,263               $ 34,572
Net realized gain (loss) on investments                                      (38,416)              133,643                     (6)
Net change in unrealized appreciation or depreciation of investments        (431,444)            1,170,550                     (4)
                                                                            --------             ---------                     --
Net increase (decrease) in net assets resulting from operations               39,515             2,367,456                 34,562
                                                                              ======             =========                 ======

Contract transactions
Contract purchase payments                                                 2,364,485             1,613,826                327,820
Net transfers*                                                             1,661,200               889,068                920,070
Contract terminations:
  Surrender benefits                                                        (643,436)             (978,721)            (1,027,233)
  Death benefits                                                            (155,072)              (92,582)                    --
                                                                            --------               -------
Increase (decrease) from contract transactions                             3,227,177             1,431,591                220,657
                                                                           ---------             ---------                -------
Net assets at beginning of year                                            7,553,609             9,845,123                858,800
                                                                           ---------             ---------                -------
Net assets at end of year                                               $ 10,820,301          $ 13,644,170            $ 1,114,019
                                                                        ============          ============            ===========

Accumulation unit activity
Units outstanding at beginning of year                                     5,688,915             5,163,185                749,301
Contract purchase payments                                                 1,802,413               806,674                279,813
Net transfers*                                                             1,255,338               436,406                788,973
Contract terminations:
  Surrender benefits and contract charges                                   (503,166)             (490,112)              (876,926)
  Death benefits                                                            (116,901)              (51,901)                    --
                                                                            --------               -------
Units outstanding at end of year                                           8,126,599             5,864,252                941,161
                                                                           =========             =========                =======

Operations                                                                   EMG                    EAG
Investment income (loss) - net                                            $ 629,710              $ 677,522
Net realized gain (loss) on investments                                      31,804                 69,460
Net change in unrealized appreciation or depreciation of investments        705,266              3,733,600
                                                                            -------              ---------
Net increase (decrease) in net assets resulting from operations           1,366,780              4,480,582
                                                                          =========              =========

Contract transactions
Contract purchase payments                                                1,698,764              1,327,105
Net transfers*                                                            1,651,244                196,717
Contract terminations:
  Surrender benefits                                                       (777,693)              (590,047)
  Death benefits                                                           (113,085)               (90,014)
                                                                           --------                -------
Increase (decrease) from contract transactions                            2,459,230                843,761
                                                                          ---------                -------
Net assets at beginning of year                                           8,564,185              5,696,833
                                                                          ---------              ---------
Net assets at end of year                                              $ 12,390,195           $ 11,021,176
                                                                       ============           ============

Accumulation unit activity
Units outstanding at beginning of year                                    4,684,466              3,452,898
Contract purchase payments                                                  906,505                765,858
Net transfers*                                                              874,349                135,664
Contract terminations:
  Surrender benefits and contract charges                                  (420,370)              (342,970)
  Death benefits                                                            (59,547)               (50,218)
                                                                            -------                -------
Units outstanding at end of year                                          5,985,403              3,961,232
                                                                          =========              =========

*Includes  transfer  activity from (to) other subacounts and transfers from (to)
American  Enterprise Life's fixed account.
See accompanying  notes to financial statements.
</TABLE>

<PAGE>
<TABLE>
<CAPTION>

American Enterprise Variable Annuity Account - AEL Preferred Variable Annuity

Statements of Changes in Net Assets
Year ended December 31, 1999

                                                                                         Segregated Asset Subaccounts
Operations                                                                    EDI                   EGG                    EGI
<S>                                                                        <C>                   <C>                  <C>
Investment income (loss) - net                                             $ 438,050             $ 100,875            $ 1,410,153
Net realized gain (loss) on investments                                      (69,032)               21,333                138,001
Net change in unrealized appreciation or depreciation of investments        (338,782)              939,066             (1,526,466)
                                                                            --------               -------             ----------
Net increase (decrease) in net assets resulting from operations               30,236             1,061,274                 21,688
                                                                              ======             =========                 ======

Contract transactions
Contract purchase payments                                                   429,428               438,876                993,329
Net transfers*                                                               819,217               253,954              1,042,498
Contract terminations:
  Surrender benefits                                                        (588,321)              (85,561)            (1,474,391)
  Death benefits                                                            (163,991)               (7,699)              (227,092)
                                                                            --------                ------               --------
Increase (decrease) from contract transactions                               496,333               599,570                334,344
                                                                             -------               -------                -------
Net assets at beginning of year                                            7,560,905             1,270,487             19,578,450
                                                                           ---------             ---------             ----------
Net assets at end of year                                                $ 8,087,474           $ 2,931,331           $ 19,934,482
                                                                         ===========           ===========           ============

Accumulation unit activity
Units outstanding at beginning of year                                     5,962,803               995,653              9,160,761
Contract purchase payments                                                   340,298               306,162                452,859
Net transfers*                                                               649,312               179,237                475,496
Contract terminations:
  Surrender benefits and contract charges                                   (466,981)              (64,029)              (677,158)
  Death benefits                                                            (129,656)               (5,180)              (100,707)
                                                                            --------                ------               --------
Units outstanding at end of year                                           6,355,776             1,411,843              9,311,251
                                                                           =========             =========              =========

                                                                                                                         Combined
                                                                                                                         Variable
Operations                                                                    ENO                    EVO                  Account
Investment income (loss) - net                                             $ (20,704)              $ 52,500           $ 4,895,316
Net realized gain (loss) on investments                                      625,083                 11,823               923,693
Net change in unrealized appreciation or depreciation of investments       7,761,913                458,840            12,472,539
                                                                           ---------                -------            ----------
Net increase (decrease) in net assets resulting from operations            8,366,292                523,163            18,291,548
                                                                           =========                =======            ==========

Contract transactions
Contract purchase payments                                                   420,481                312,715             9,926,829
Net transfers*                                                              (190,447)               226,374             7,469,895
Contract terminations:
  Surrender benefits                                                        (986,195)               (41,164)           (7,192,762)
  Death benefits                                                             (70,593)                (3,873)             (924,001)
                                                                             -------                 ------              --------
Increase (decrease) from contract transactions                              (826,754)               494,052             9,279,961
                                                                            --------                -------             ---------
Net assets at beginning of year                                           13,062,920                622,098            74,613,410
                                                                          ----------                -------            ----------
Net assets at end of year                                               $ 20,602,458            $ 1,639,313         $ 102,184,919
                                                                        ============            ===========         =============

Accumulation unit activity
Units outstanding at beginning of year                                     5,798,150                439,985
Contract purchase payments                                                   165,668                196,463
Net transfers*                                                               (74,469)               139,299
Contract terminations:
  Surrender benefits and contract charges                                   (385,336)               (30,344)
  Death benefits                                                             (28,088)                (2,293)
                                                                             -------                 ------
Units outstanding at end of year                                           5,475,925                743,110
                                                                           =========                =======

*Includes  transfer  activity from (to) other subacounts and transfers from (to)
American  Enterprise Life's fixed account.
See accompanying  notes to financial statements.
</TABLE>

<PAGE>
<TABLE>
<CAPTION>

American Express Variable Annuity Account - AEL Preferred Variable Annuity

Statements of Changes in Net Assets
Year ended December 31, 1998
                                                                               Segregated Asset Subaccounts
Operations                                                         ESI                     ECR                    EMS
<S>                                                            <C>                     <C>                     <C>
Investment income (loss) - net                                 $ 338,547               $ 598,178               $ 21,695
Net realized gain (loss) on investments                           (2,867)                 31,856                      1
Net change in unrealized appreciation or
depreciation of investments                                     (378,318)                957,259                      3
                                                                --------                 -------                      -
Net increase (decrease) in net assets
resulting from operations                                        (42,638)              1,587,293                 21,699
                                                                 =======               =========                 ======

Contract transactions
Contract purchase payments                                     4,304,628               3,114,006                691,275
Net transfers*                                                   243,040                (245,243)               (85,043)
Annuity payments                                                     (74)                   (385)                    --
Contract terminations:
  Surrender benefits and contract charges                       (297,229)               (529,563)               (28,396)
  Death benefits                                                 (28,304)                (21,950)                    --
                                                                 -------                 -------
Increase (decrease) from contract transactions                 4,222,061               2,316,865                577,836
                                                               ---------               ---------                -------
Net assets at beginning of year                                3,374,186               5,940,965                259,265
                                                               ---------               ---------                -------
Net assets at end of year                                    $ 7,553,609             $ 9,845,123              $ 858,800
                                                             ===========             ===========              =========

Accumulation unit activity
Units outstanding at beginning of year                         2,543,718               3,812,754                231,256
Contracts purchase payments                                    3,245,320               1,848,700                635,551
Net transfers*                                                   183,324                (146,994)               (79,775)
Contract terminations:
  Surrender benefits and contract charges                       (262,248)               (338,414)               (37,731)
  Death benefits                                                 (21,199)                (12,861)                    --
                                                                 -------                 -------
Units outstanding at end of year                               5,688,915               5,163,185                749,301
                                                               =========               =========                =======

Operations                                                          EMG                     EAG
Investment income (loss) - net                                  $ 794,837               $ 291,638
Net realized gain (loss) on investments                             6,346                   9,024
Net change in unrealized appreciation or
depreciation of investments                                        55,365                (224,339)
                                                                   ------                --------
Net increase (decrease) in net assets
resulting from operations                                         856,548                  76,323
                                                                  =======                  ======

Contract transactions
Contract purchase payments                                      3,376,704               1,944,651
Net transfers*                                                    (21,220)                 11,902
Annuity payments                                                     (118)                   (343)
Contract terminations:
  Surrender benefits and contract charges                        (335,067)               (292,481)
  Death benefits                                                  (25,390)                (13,088)
                                                                  -------                 -------
Increase (decrease) from contract transactions                  2,994,909               1,650,641
                                                                ---------               ---------
Net assets at beginning of year                                 4,712,728               3,969,869
                                                                ---------               ---------
Net assets at end of year                                     $ 8,564,185             $ 5,696,833
                                                              ===========             ===========

Accumulation unit activity
Units outstanding at beginning of year                          2,944,208               2,434,211
Contracts purchase payments                                     2,000,537               1,189,822
Net transfers*                                                    (16,062)                 27,517
Contract terminations:
  Surrender benefits and contract charges                        (229,369)               (191,090)
  Death benefits                                                  (14,848)                 (7,562)
                                                                  -------                  ------
Units outstanding at end of year                                4,684,466               3,452,898
                                                                =========               =========


*Includes  transfer activity from (to) other subaccounts and transfers from (to)
American Enterprise Life's fixed account.
See accompanying notes to financial statements.

</TABLE>

<PAGE>
<TABLE>
<CAPTION>

American Express Variable Annuity Account - AEL Preferred Variable Annuity

Statements of Changes in Net Assets
Year ended December 31, 1998
                                                                              Segregated Asset Subaccounts
Operations                                                       EDI                     EGG                    EGI
<S>                                                           <C>                      <C>                 <C>
Investment income (loss) - net                                $ 210,246                $ 72,979            $ 1,584,977
Net realized gain (loss) on investments                         (13,263)                    478                 51,395
Net change in unrealized appreciation or
depreciation of investments                                    (445,119)                126,815                430,830
                                                               --------                 -------                -------
Net increase (decrease) in net assets
resulting from operations                                      (248,136)                200,272              2,067,202
                                                               ========                 =======              =========

Contract transactions
Contract purchase payments                                    3,896,228                 722,793              6,003,340
Net transfers*                                                  204,479                 (31,631)               336,195
Annuity payments                                                     --                      --                   (443)
Contract terminations:
Surrender benefits and contract charges                        (372,930)                (13,786)              (918,096)
Death benefits                                                  (26,715)                     --                (23,141)
                                                                -------                                        -------
Increase (decrease) from contract transactions                3,701,062                 677,376              5,397,855
                                                              ---------                 -------              ---------
Net assets at beginning of year                               4,107,979                 392,839             12,113,393
                                                              ---------                 -------             ----------
Net assets at end of year                                   $ 7,560,905             $ 1,270,487           $ 19,578,450
                                                            ===========             ===========           ============

Accumulation unit activity
Units outstanding at beginning of year                        3,150,958                 387,592              6,452,046
Contracts purchase payments                                   3,003,542                 646,928              3,037,405
Net transfers*                                                  154,556                 (20,850)               176,523
Contract terminations:
Surrender benefits and contract charges                        (325,760)                (18,017)              (492,893)
Death benefits                                                  (20,493)                     --                (12,320)
                                                                -------                                        -------
Units outstanding at end of year                              5,962,803                 995,653              9,160,761
                                                              =========                 =======              =========

                                                                                                               Combined
                                                                                                               Variable
Operations                                                       ENO                     EVO                    Account
Investment income (loss) - net                                $ (11,649)               $ 10,832             $ 3,912,280
Net realized gain (loss) on investments                         113,215                   1,395                 197,580
Net change in unrealized appreciation or
depreciation of investments                                   2,107,898                  76,861               2,707,255
                                                              ---------                  ------               ---------
Net increase (decrease) in net assets
resulting from operations                                     2,209,464                  89,088               6,817,115
                                                              =========                  ======               =========

Contract transactions
Contract purchase payments                                    3,248,421                 376,788              27,678,834
Net transfers*                                                 (206,315)                (10,324)                195,840
Annuity payments                                                    (27)                     --                  (1,390)
Contract terminations:
Surrender benefits and contract charges                        (563,223)                 (4,654)             (3,355,425)
Death benefits                                                  (24,012)                     --                (162,600)
                                                                -------                                        --------
Increase (decrease) from contract transactions                2,454,844                 361,810              24,355,259
                                                              ---------                 -------              ----------
Net assets at beginning of year                               8,398,612                 171,200              43,441,036
                                                              ---------                 -------              ----------
Net assets at end of year                                  $ 13,062,920               $ 622,098            $ 74,613,410
                                                           ============               =========            ============

Accumulation unit activity
Units outstanding at beginning of year                        4,575,051                 148,486
Contracts purchase payments                                   1,636,811                 310,319
Net transfers*                                                  (95,440)                 (7,962)
Contract terminations:
Surrender benefits and contract charges                        (306,558)                (10,858)
Death benefits                                                  (11,714)                     --
                                                                -------
Units outstanding at end of year                              5,798,150                 439,985
                                                              =========                 =======

*Includes  transfer activity from (to) other subaccounts and transfers from (to)
American Enterprise Life's fixed account.
See accompanying notes to financial statements.

</TABLE>

<PAGE>
<TABLE>
<CAPTION>

American Enterprise Variable Annuity Account -- AEL Preferred Variable Annuity

Notes to Financial Statements

1. ORGANIZATION

American Enterprise Variable Annuity Account (the Account) was established under
Indiana law on July 15, 1987 and the  subaccounts  are registered  together as a
single unit  investment  trust of American  Enterprise  Life  Insurance  Company
(American  Enterprise Life) under the Investment Company Act of 1940, as amended
(the 1940 Act). Operations of the Account commenced on Feb. 21, 1995.

The  Account  is  comprised  of various  subaccounts.  Each  subaccount  invests
exclusively in shares of the following mutual funds or portfolios (collectively,
the Funds),  which are registered  under the 1940 Act as  diversified,  open-end
management investment companies and have the following investment managers.

Subaccount        Invests exclusively in shares of                              Investment Manager
<S>               <C>                                                           <C>
ESI               AXP SM Variable Portfolio-- Bond Fund                         IDS Life Insurance Company 1
ECR               AXPSM Variable Portfolio-- Capital Resource Fund              IDS Life Insurance Company 1
EMS               AXP SM Variable Portfolio-- Cash Management Fund              IDS Life Insurance Company 1
EMG               AXPSM Variable Portfolio-- Managed Fund                       IDS Life Insurance Company 1
EAG               AXPSM Variable Portfolio-- Strategy Aggressive Fund           IDS Life Insurance Company 1
EDI               Putnam VT Diversified Income Fund - Class IA Shares           Putnam Investment Management, Inc.
EGG               Putnam VT Global Growth Fund - Class IA shares                Putnam Investment Management, Inc.
EGI               Putnam VT Growth and Income Fund - Class IA Shares            Putnam Investment Management, Inc.
ENO               Putnam VT New Opportunities Fund - Class IA Shares            Putnam Investment Management, Inc.
EVO               Putnam VT Voyager Fund - Class IA Shares                      Putnam Investment Management, Inc.

1 American Express Financial Corporation (AEFC) is the investment advisor.

The assets of each subaccount of the Account are not chargeable with liabilities
arising out of the business  conducted by any other  segregated asset account or
by American Enterprise Life.

American Enterprise Life issues the contracts which are distributed by banks and
financial  institutions  either  directly  or through a network  of  third-party
marketers.

2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

Investments in the Funds

Investments  in shares of the Funds are stated at market  value which is the net
asset  value  per  share  as  determined  by the  respective  Funds.  Investment
transactions  are  accounted  for on the date the shares are purchased and sold.
The cost of  investments  sold and  redeemed is  determined  on the average cost
method.  Dividend  distributions  received  from the  Funds  are  reinvested  in
additional  shares of the Funds and are recorded as income by the subaccounts on
the ex-dividend date.

Unrealized  appreciation  or  depreciation  of investments  in the  accompanying
financial   statements   represents  the   subaccounts'   share  of  the  Funds'
undistributed net investment income, undistributed realized gain or loss and the
unrealized appreciation or depreciation on their investment securities.

Use of Estimates

The preparation of financial statements in conformity with accounting principles
generally  accepted in the United States  requires  management to make estimates
and assumptions  that affect the reported  amounts of assets and liabilities and
disclosures  of contingent  assets and  liabilities at the date of the financial
statements and the reported  amounts of increase and decrease in net assets from
operations during the period. Actual results could differ from those estimates.

Federal Income Taxes

American  Enterprise Life is taxed as a life insurance  company.  The Account is
treated as part of American  Enterprise  Life for federal  income tax  purposes.
Under existing  federal income tax law, no income taxes are payable with respect
to any investment income of the Account.

3. MORTALITY AND EXPENSE RISK FEE

American  Enterprise  Life makes  contractual  assurances  to the  Account  that
possible  future  adverse  changes  in  administrative  expenses  and  mortality
experience of the contract  owners and  annuitants  will not affect the Account.
The mortality and expense risk fee paid to American  Enterprise Life is computed
daily and is equal, on an annual basis, to 1.25% of the average daily net assets
of the subaccounts.

4. ADMINISTRATIVE CHARGE

American  Enterprise  Life deducts a daily charge equal,  on an annual basis, to
0.15% of the average daily net assets of each  subaccount  as an  administrative
charge. This charge covers certain  administrative and operating expenses of the
subaccounts  incurred by American Enterprise Life such as accounting,  legal and
data processing fees and expenses  involved in the preparation and  distribution
of reports and prospectuses. This charge cannot be increased.

5. CONTRACT ADMINISTRATIVE CHARGE

American  Enterprise  Life deducts a contract  administrative  charge of $30 per
year on each contract anniversary.  This charge cannot be increased and does not
apply after annuity payouts begin.  American  Enterprise Life does not expect to
profit from this charge.  This charge  reimburses  American  Enterprise Life for
expenses  incurred in establishing and maintaining the annuity  records.  If you
make payments to your annuity under a systematic  investment plan (SIP), we will
deduct the contract  administrative charge on any contract anniversary when your
contract  value is $2,000 or more but less than  $50,000.  This charge is waived
when the contract value is $50,000 or more on the current contract  anniversary.
The $30 annual charge is deducted at the time of any full surrender.

6. WITHDRAWAL CHARGE

American Enterprise Life will use a withdrawal charge to help it recover certain
expenses relating to the sale of the annuity.  The withdrawal charge is deducted
for withdrawals during the first six payment years following a purchase payment.
Charges by American  Enterprise  Life for  withdrawals  are not identified on an
individual  segregated asset subaccount basis.  Charges for all segregated asset
subaccounts  amounted to $479,554 in 1999 and $199,062 in 1998. Such charges are
not  treated  as a  separate  expense of the  subaccounts.  They are  ultimately
deducted from contract  withdrawal  benefits paid by American  Enterprise  Life.
This charge is waived if the  withdrawal  meets certain  provisions as stated in
the contract.

7. INVESTMENT IN SHARES

The  subaccounts'  investment in shares of the Funds as of Dec. 31, 1999 were as
follows:

Subaccount     Investment                                                          Shares          NAV
<S>            <C>                                                              <C>             <C>
ESI            AXP SM Variable Portfolio-- Bond Fund                            1,026,989       $10.54
ECR            AXPSM Variable Portfolio-- Capital Resource Fund                   374,575        36.40
EMS            AXP SM Variable Portfolio-- Cash Management Fund                 1,110,224         1.00
EMG            AXPSM Variable Portfolio-- Managed Fund                            626,098        19.82
EAG            AXPSM Variable Portfolio-- Strategy Aggressive Fund                459,906        23.92
EDI            Putnam VT Diversified Income Fund - Class IA Shares                814,449         9.93
EGG            Putnam VT Global Growth Fund - Class IA Shares                      96,141        30.49
EGI            Putnam VT Growth and Income Fund - Class IA Shares                 743,824        26.80
ENO            Putnam VT New Opportunities Fund - Class IA Shares                 473,185        43.54
EVO            Putnam VT Voyager Fund - Class IA Shares                            24,744        66.25

8. INVESTMENT TRANSACTIONS

The subaccounts' purchases of Funds' shares,  including reinvestment of dividend
distributions, were as follows:

                                                                                   Year ended Dec. 31,
Subaccount        Investment                                                      1999             1998
<S>               <C>                                                         <C>              <C>
ESI               AXP SM Variable Portfolio-- Bond Fund                       $ 4,264,147      $ 4,647,272
ECR               AXPSM Variable Portfolio-- Capital Resource Fund              3,258,677        3,205,569
EMS               AXP SM Variable Portfolio-- Cash Management Fund              3,721,067        1,567,312
EMG               AXPSM Variable Portfolio-- Managed Fund                       3,779,798        3,919,323
EAG               AXPSM Variable Portfolio-- Strategy Aggressive Fund           2,283,793        2,163,591
EDI               Putnam VT Diversified Income Fund - Class IA Shares           1,688,106        4,166,205
EGG               Putnam VT Global Growth Fund - Class IA Shares                  871,694          808,467
EGI               Putnam VT Growth and Income Fund - Class IA Shares            3,508,981        7,603,531
ENO               Putnam VT New Opportunities Fund - Class IA Shares              919,361        3,048,046
EVO               Putnam VT Voyager Fund - Class IA Shares                        630,539          401,110
                  Combined Variable Account                                   $24,926,163      $31,530,426

9. YEAR 2000 (UNAUDITED)

The Year 2000 issue is the result of computer programs having been written using
two  digits  rather  than  four  to  define  a  year.  Any  programs  that  have
time-sensitive  software may recognize a date using "00" as the year 1900 rather
than 2000. This could result in the failure of major systems or miscalculations,
which could have a material impact on the operations of American Enterprise Life
and the Account.  All of the major systems used by the American  Enterprise Life
and by the  Account  are  maintained  by  AEFC  and  are  utilized  by  multiple
subsidiaries  and  affiliates  of  AEFC.  American  Enterprise  Life's  and  the
Account's businesses are heavily dependent upon AEFC's computer systems and have
significant interactions with systems of third parties.

A  comprehensive  review of AEFC's  computer  systems  and  business  processes,
including  those  specific  to American  Enterprise  Life and the  Account,  was
conducted to identify the major  systems that could be affected by the Year 2000
issue. Steps were taken to resolve potential problems including  modification to
existing  software and the purchase of new software.  As of Dec. 31, 1999,  AEFC
had  completed its program of  corrective  measures on its internal  systems and
applications,  including Year 2000 compliance testing. As of Dec. 31, 1999, AEFC
had also  completed  an  evaluation  of the Year 2000  readiness  of other third
parties whose system failures could have an impact on American Enterprise Life's
and the Account's operations.

AEFC's Year 2000 project also included  establishing Year 2000 contingency plans
for all key business units.  Business continuation plans, which address business
continuation  in the  event of a  system  disruption,  are in place  for all key
business  units.  As of Dec. 31,  1999,  these plans had been amended to include
specific Year 2000 considerations.

In  assessing  its Year 2000  initiatives  and the results of actual  production
since Jan. 1, 2000,  management  believes no material adverse  consequences were
experienced,  and there was no material effect on American Enterprise Life's and
the  Account's  business,  results of  operations,  or financial  condition as a
result of the Year 2000 issue.


</TABLE>

<PAGE>



AMERICAN ENTERPRISE LIFE INSURANCE COMPANY FINANCIAL INFORMATION


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,  1999  and  1998,  and  the  related   statements  of  income,
stockholder's  equity and cash  flows for each of the three  years in the period
ended December 31, 1999. These financial  statements are the  responsibility  of
the Company's  management.  Our responsibility is to express an opinion on these
financial statements based on our audits.

We conducted our audits in accordance with auditing standards generally accepted
in the United States. Those standards require that we plan and perform the audit
to obtain reasonable  assurance about whether the financial  statements are free
of material misstatement. An audit includes examining, on a test basis, evidence
supporting  the amounts and  disclosures in the financial  statements.  An audit
also includes assessing the accounting principles used and significant estimates
made by  management,  as well as  evaluating  the  overall  financial  statement
presentation.  We believe  that our audits  provide a  reasonable  basis for our
opinion.

In our opinion,  the financial  statements  referred to above present fairly, in
all  material  respects,  the  financial  position of American  Enterprise  Life
Insurance  Company  at  December  31,  1999 and  1998,  and the  results  of its
operations  and its cash flows for each of the three  years in the period  ended
December 31, 1999, in conformity with accounting  principles  generally accepted
in the United States.



/s/ Ernst & Young LLP
Ernst & Young LLP
February 3, 2000
Minneapolis, Minnesota

<PAGE>

                   AMERICAN ENTERPRISE LIFE INSURANCE COMPANY
                                 BALANCE SHEETS
                                  December 31,
                       ($ thousands, except share amounts)
<TABLE>
<S>                                                              <C>              <C>

ASSETS                                                              1999              1998
- ------                                                           -----------      -----------

Investments:
  Fixed maturities:
    Held to maturity, at amortized cost (fair value:
       1999, $984,103; 1998, $1,126,732)                          $1,006,349       $1,081,193
    Available for sale, at fair value (amortized cost:
       1999, $2,411,799; 1998, $2,526,712)                         2,304,487        2,594,858
                                                                 -----------      -----------
                                                                   3,310,836        3,676,051

  Mortgage loans on real estate                                      785,253          815,806
  Other investments                                                   11,470           12,103
                                                                 -----------      -----------
          Total investments                                        4,107,559        4,503,960

Accounts receivable                                                      316              214
Accrued investment income                                             56,676           61,740
Deferred policy acquisition costs                                    180,288          196,479
Deferred income taxes                                                 37,501               --
Other assets                                                               9               43
Separate account assets                                              220,994          123,185
                                                                 -----------      -----------

          Total assets                                            $4,603,343       $4,885,621
                                                                  ==========       ==========

LIABILITIES AND STOCKHOLDER'S EQUITY

Liabilities:
  Future policy benefits for fixed annuities                      $3,921,513       $4,166,852
  Policy claims and other policyholders' funds                        12,097            7,389
  Deferred income taxes                                                   --           23,199
  Amounts due to brokers                                              25,215           54,347
  Other liabilities                                                   17,436           24,500
  Separate account liabilities                                       220,994          123,185
                                                                 -----------      -----------
          Total liabilities                                        4,197,255        4,399,472

Stockholder's equity:
  Capital stock, $100 par value per share;
    100,000 shares authorized,
    20,000 shares issued and outstanding                               2,000            2,000
  Additional paid-in capital                                         282,872          282,872
  Accumulated other comprehensive (loss) income:
     Net unrealized securities (losses) gains                        (69,753)          44,295
  Retained earnings                                                  190,969          156,982
                                                                 -----------      -----------
          Total stockholder's equity                                 406,088          486,149
                                                                 -----------      -----------

Total liabilities and stockholder's equity                        $4,603,343       $4,885,621
                                                                  ==========       ==========
</TABLE>

<PAGE>

                   AMERICAN ENTERPRISE LIFE INSURANCE COMPANY
                              STATEMENTS OF INCOME
                            Years ended December 31,
                                  ($ thousands)
<TABLE>
<S>                                                       <C>               <C>              <C>

                                                            1999              1998             1997
                                                          ---------         ---------        ---------

Revenues:
  Net investment income                                    $322,746          $340,219         $332,268
  Contractholder charges                                      6,069             6,387            5,688
  Mortality and expense risk fees                             2,269             1,275              641
  Net realized gain (loss) on investments                     6,565            (4,788)            (509)
                                                          ---------         ---------        ---------

          Total revenues                                    337,649           343,093          338,088
                                                          ---------         ---------        ---------

Benefits and expenses:
  Interest credited on investment contracts                 208,583           228,533          231,437
  Amortization of deferred policy acquisition costs          43,257            53,663           36,803
  Other operating expenses                                   35,147            24,476           24,890
                                                          ---------         ---------        ---------

          Total benefits and expenses                       286,987           306,672          293,130
                                                          ---------         ---------        ---------

Income before income taxes                                   50,662            36,421           44,958

Income taxes                                                 16,675            14,395           16,645
                                                          ---------         ---------        ---------

Net income                                                $  33,987         $  22,026        $  28,313
                                                          =========         =========        =========
</TABLE>

<PAGE>

                   AMERICAN ENTERPRISE LIFE INSURANCE COMPANY
                       STATEMENTS OF STOCKHOLDER'S EQUITY
                       Three years ended December 31, 1999
                                  ($ thousands)
<TABLE>
<CAPTION>

                                                                                                   Accumulated
                                                                                                     Other
                                                         Total                      Additional    Comprehensive
                                                     Stockholder's     Capital       Paid-In      (Loss) Income,     Retained
                                                         Equity         Stock         Capital        Net of Tax       Earnings
                                                     -------------    --------    ------------    ------------    -------------
<S>                                                  <C>              <C>         <C>             <C>             <C>
Balance, December 31, 1996                               $363,858       $2,000       $242,872        $ 12,343        $106,643
Comprehensive income:
     Net income                                            28,313           --             --              --          28,313
      Unrealized holding gains arising
           during the year, net of  taxes of
        ($19,891)                                          36,940           --             --          36,940              --
      Reclassification adjustment for losses
           included in net income, net of tax
           of ($126)                                          233           --             --             233              --
                                                     -------------                                ------------
     Other comprehensive income                            37,173           --             --          37,173              --
                                                     -------------
     Comprehensive income                                  65,486
Capital contribution from IDS Life                         40,000           --         40,000              --              --
                                                     -------------    --------    ------------    ------------    -------------

Balance, December 31, 1997                                469,344        2,000        282,872          49,516         134,956
Comprehensive income:
     Net income                                            22,026           --             --              --          22,026
     Unrealized holding losses arising
          during the year, net of taxes of $3,400          (6,314)          --             --          (6,314)             --
       Reclassification adjustment for losses
           included in net income, net of tax
           of ($588)                                        1,093           --             --           1,093              --
                                                     -------------                                ------------
     Other comprehensive loss                              (5,221)          --             --          (5,221)             --
                                                     -------------
     Comprehensive income                                  16,805
                                                     -------------    --------    ------------    ------------    -------------

Balance, December 31, 1998                                486,149        2,000        282,872          44,295         156,982
Comprehensive loss:
     Net income                                            33,987           --             --              --          33,987
     Unrealized holding losses arising
         during the year, net of taxes of $(59,231)      (110,001)          --             --        (110,001)             --
     Reclassification adjustment for gains
          included in net income, net of tax               (4,047)                                     (4,047)             --
          of $(2,179)                                -------------                                ------------
     Other comprehensive loss                            (114,048)          --             --        (114,048)             --
                                                     -------------
     Comprehensive loss                                   (80,061)
                                                     -------------    --------    ------------    ------------    -------------

Balance, December 31, 1999                               $406,088       $2,000       $282,872        $(69,753)       $190,969
                                                     =============    ========    ============    ============    =============
</TABLE>

<PAGE>
<TABLE>
<CAPTION>

                                         See accompanying notes.

                                AMERICAN ENTERPRISE LIFE INSURANCE COMPANY
                                         STATEMENTS OF CASH FLOWS
                                         Years ended December 31,
                                              ($ thousands)
<S>                                                                <C>           <C>           <C>
                                                                      1999          1998          1997
                                                                   -----------   -----------   -----------
Cash flows from operating activities:
  Net income                                                       $   33,987    $   22,026    $   28,313
  Adjustments to reconcile net income to net cash
    provided by (used in) operating activities:
      Change in accrued investment income                               5,064        (2,152)       (8,017)
      Change in accounts receivable                                      (102)          349         9,304
      Change in deferred policy acquisition costs, net                 16,191        28,022       (21,276)
      Change in other assets                                               34            74         4,840
      Change in policy claims and other policyholders' funds            4,708        (3,939)      (16,099)
      Deferred income tax (benefit) provision                             711        (9,591)       (2,485)
      Change in other liabilities                                      (7,064)        7,595         1,255
      Amortization of premium (accretion of discount), net              2,315           122        (2,316)
      Net realized (gain) loss on investments                          (6,565)        4,788           509
      Other, net                                                      (1,562)         2,544           959
                                                                   -----------   -----------   -----------

         Net cash provided by (used in) operating activities           47,717        49,838        (5,013)

Cash flows from investing activities:
    Fixed maturities held to maturity:
        Purchases                                                          --            --        (1,996)
        Maturities                                                     65,705        73,601        41,221
        Sales                                                           8,466        31,117        30,601
    Fixed maturities available for sale:
        Purchases                                                    (593,888)     (298,885)     (688,050)
        Maturities                                                    248,317       335,357       231,419
        Sales                                                         469,126        48,492        73,366
    Other investments:
        Purchases                                                     (28,520)     (161,252)     (199,593)
        Sales                                                          57,548        78,681        29,139
    Change in amounts due to brokers                                  (29,132)       19,412       (53,796)
                                                                   -----------   -----------   ------------

          Net cash provided by (used in) investing activities         197,622       126,523      (537,689)

Cash flows from financing activities:
 Activity related to investment contracts:
    Considerations received                                           299,899       302,158       783,339
    Surrenders and other benefits                                    (753,821)     (707,052)     (552,903)
    Interest credited to account balances                             208,583       228,533       231,437
    Capital contribution from parent                                       --            --        40,000
                                                                   -----------   -----------   -----------

          Net cash (used in) provided by financing activities        (245,339)     (176,361)      501,873
                                                                   -----------   -----------   -----------

Net decrease in cash and cash equivalents                                  --            --       (40,829)

Cash and cash equivalents at beginning of year                             --            --        40,829
                                                                   -----------   -----------   -----------

Cash and cash equivalents at end of year                           $       --    $       --    $      --
                                                                   ===========   ===========   ==========
                                         See accompanying notes.

</TABLE>

<PAGE>

1.   Summary of significant accounting policies

     Nature of business

     American  Enterprise  Life Insurance  Company (the Company) is a stock life
     insurance  company that is domiciled in Indiana and is licensed to transact
     insurance  business  in 48  states.  The  Company's  principal  product  is
     deferred  annuities,  which are issued primarily to individuals.  It offers
     single  premium and annual premium  deferred  annuities on both a fixed and
     variable dollar basis.
     Immediate annuities are offered as well.

     Basis of presentation

     The Company is a wholly-owned subsidiary of IDS Life Insurance Company (IDS
     Life),  which is a wholly owned  subsidiary of American  Express  Financial
     Corporation  (AEFC).  AEFC is a wholly owned subsidiary of American Express
     Company.  The  accompanying  financial  statements  have been  prepared  in
     conformity  with  accounting  principles  generally  accepted in the United
     States 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  accounting
     principles  generally accepted in the United States requires  management to
     make estimates and assumptions  that affect the reported  amounts of assets
     and liabilities and disclosure of contingent  assets and liabilities at the
     date of the financial  statements and the reported  amounts of revenues and
     expenses  during the  reporting  period.  Actual  results could differ from
     those estimates.

     Investments

     Fixed  maturities  that the  Company has both the  positive  intent and the
     ability to hold to maturity are  classified as held to maturity and carried
     at amortized  cost. All other fixed  maturities are classified as available
     for  sale and  carried  at fair  value.  Unrealized  gains  and  losses  on
     securities  classified  as  available  for sale are  reported as a separate
     component of accumulated other comprehensive (loss) income, net of deferred
     income taxes.

     Realized investment gain or loss is determined on an identified cost basis.

     Prepayments  are  anticipated  on certain  investments  in  mortgage-backed
     securities in determining  the constant  effective  yield used to recognize
     interest  income.  Prepayment  estimates are based on information  received
     from brokers who deal in mortgage-backed securities.

     Mortgage  loans on real  estate  are  carried  at  amortized  cost  less an
     allowance  for  mortgage  loan  losses.  The  estimated  fair  value of the
     mortgage  loans is  determined  by a discounted  cash flow  analysis  using
     mortgage   interest  rates  currently  offered  for  mortgages  of  similar
     maturities.

<PAGE>

1.   Summary of significant accounting policies (continued)

     Impairment  of  mortgage  loans is  measured  as the  excess of the  loan's
     recorded  investment  over its  present  value of  expected  principal  and
     interest payments  discounted at the loan's effective interest rate, or the
     fair value of  collateral.  The amount of the  impairment is recorded in an
     allowance for mortgage loan losses.  The allowance for mortgage loan losses
     is  maintained  at a level that  management  believes is adequate to absorb
     estimated  losses in the portfolio.  The level of the allowance  account is
     determined  based on  several  factors,  including  historical  experience,
     expected  future  principal  and interest  payments,  estimated  collateral
     values,  and current and  anticipated  economic and  political  conditions.
     Management  regularly  evaluates the adequacy of the allowance for mortgage
     loan losses.

     The Company  generally stops accruing  interest on mortgage loans for which
     interest  payments  are  delinquent  more  than  three  months.   Based  on
     management's  judgment  as to the  ultimate  collectibility  of  principal,
     interest  payments  received are either  recognized as income or applied to
     the recorded investment in the loan.

     The cost of interest rate caps and floors is amortized to investment income
     over the life of the contracts  and payments  received as a result of these
     agreements are recorded as investment  income when realized.  The amortized
     cost of interest rate caps and floors is included in other investments.

     When evidence  indicates a decline,  which is other than temporary,  in the
     underlying  value  or  earning  power  of  individual   investments,   such
     investments are written down to the fair value by a charge to income.

     Statements of cash flows

     The  Company  considers  investments  with a maturity  at the date of their
     acquisition  of  three  months  or  less  to  be  cash  equivalents.  These
     securities are carried  principally  at amortized  cost which  approximates
     fair value.

     Supplementary  information  to the  statements  of cash flows for the years
     ended December 31, is summarized as follows:

                                        1999            1998           1997
                                        ----            -----          ----
    Cash paid during the year for:
      Income taxes                      $22,007        $19,035       $19,456
      Interest on borrowings              2,187          5,437         1,832

     Contractholder charges

     Contractholder   charges  include  surrender  charges  and  fees  collected
     regarding the issue and administration of annuity contracts.

<PAGE>

1.   Summary of significant accounting policies (continued)

     Deferred policy acquisition costs

     The costs of acquiring new business, principally sales compensation, policy
     issue costs,  and certain  sales  expenses,  have been  deferred on annuity
     contracts. These costs are amortized using primarily the interest method.

     Amortization  of deferred  policy  acquisition  costs  requires  the use of
     assumptions  including  interest margins,  mortality  margins,  persistency
     rates,  maintenance  expense  levels and, for variable  products,  separate
     account  performance.   For  universal  life-type  insurance  and  deferred
     annuities,  actual  experience is reflected in the  Company's  amortization
     models monthly. As actual experience differs from the current  assumptions,
     management  considers  the need to change key  assumptions  underlying  the
     amortization  models  prospectively.  The  impact of  changing  prospective
     assumptions  is  reflected  in the period that such changes are made and is
     generally referred to as an unlocking  adjustment.  During 1998,  unlocking
     adjustments  resulted in a net increase in amortization of $11 million. Net
     unlocking adjustments in 1999 and 1997 were not significant.

     Liabilities for future policy benefits

     Liabilities  for  universal-life  type  insurance  and fixed  and  variable
     deferred annuities are accumulation values.

     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, 1999 and 1998 are $2,147 and
     $3,504, respectively, payable to 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.

<PAGE>

1.    Summary of significant accounting policies (continued)

     The Company makes contractual  mortality assurances to the variable annuity
     contract  owners that the net assets of the separate  accounts  will not be
     affected by future  variations in the actual life expectancy  experience of
     the annuitants and beneficiaries from the mortality assumptions implicit in
     the annuity  contracts.  The Company makes  periodic fund  transfers to, or
     withdrawals   from,   the  separate   account  assets  for  such  actuarial
     adjustments for variable  annuities that are in the benefit payment period.
     The Company also guarantees that the rates at which administrative fees are
     deducted from contract funds will not exceed contractual maximums.

      Accounting changes

     American  Institute of Certified Public  Accountants  (AICPA)  Statement of
     Position (SOP) 98-1,  "Accounting for Costs of Computer Software  Developed
     or Obtained for Internal  Use" became  effective  January 1, 1999.  The SOP
     requires the  capitalization  of certain costs  incurred  after the date of
     adoption to develop or obtain software for internal use.  Software utilized
     by the Company is owned by AEFC and  capitalized by AEFC. As a result,  the
     new  rule  did not have a  material  impact  on the  Company's  results  of
     operations or financial condition.

     Effective January 1, 1999, the Company adopted AICPA SOP 97-3, "Accounting
     by Insurance  and Other  Enterprises  for  Insurance-Related  Assessments,"
     providing guidance for the timing of recognition of liabilities  related to
     guaranty fund assessments.  The Company had historically carried balance in
     other  liabilities  on  the  balance  sheet  for  potential  guaranty  fund
     assessment exposure.  Adoption of the SOP did not have a material impact on
     the Company's results of operations or financial condition.

     In June 1998, the Financial  Accounting Standards Board issued Statement of
     Financial   Accounting   Standards  No.  133,  "Accounting  for  Derivative
     Instruments and Hedging  Activities,"  which is effective  January 1, 2001.
     This  Statement   establishes   accounting  and  reporting   standards  for
     derivative  instruments,  including certain derivative instruments embedded
     in other contracts, and for hedging activities.  It requires that an entity
     recognize all  derivatives  as either assets or  liabilities in the balance
     sheet and measure  those  instruments  at fair value.  The  accounting  for
     changes in the fair value of a  derivative  depends on the  intended use of
     the derivative and the resulting designation. The ultimate financial effect
     of the new  rule  will be  measured  based on the  derivatives  in place at
     adoption and cannot be estimated at this time.

<PAGE>

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, 1999 are as follows:
<TABLE>
<S>                                             <C>              <C>              <C>             <C>

                                                                   Gross           Gross
                                                Amortized        Unrealized       Unrealized        Fair
    Held to maturity                             Cost              Gains           Losses           Value
    ----------------                            ----------       --------         --------        ----------
    U.S. Government agency obligations          $    7,514       $     23         $    431        $    7,106
    State and municipal obligations                  3,002             44               --             3,046
    Corporate bonds and obligations                816,826          5,966           23,311           799,482
    Mortgage-backed securities                     179,007            296            4,834           174,469
                                                ----------       --------         --------        ----------
                                                $1,006,349       $  6,329         $ 28,576        $  984,103
                                                ==========       ========         ========        ==========

    Available for sale
    U.S. Government agency obligations          $    2,047   $         --         $     47        $    1,999
    State and municipal obligations                  2,250             --              190             2,060
    Corporate bonds and obligations              1,419,150          7,445           90,703         1,335,892
    Mortgage-backed securities                     988,352          1,929           25,746           964,536
                                                ------------     --------         --------        ----------
                                                $2,411,799       $  9,374         $116,686        $2,304,487
                                                ==========       ========         ========        ==========

     The amortized  cost,  gross  unrealized  gains and losses and fair value of
     investments in fixed maturities at December 31, 1998 are as follows:

                                                                   Gross           Gross
                                                 Amortized       Unrealized       Unrealized         Fair
    Held to maturity                               Cost            Gains           Losses            Value
    ----------------                            ----------       --------         --------        ----------
    U.S. Government agency obligations          $    8,652       $    423         $     --        $    9,075
    State and municipal obligations                  3,003            149               --             3,152
    Corporate bonds and obligations                877,140         48,822            6,670           919,292
    Mortgage-backed securities                     192,398          2,844               29           195,213
                                                ----------       --------         --------        ----------
                                                $1,081,193       $ 52,238         $  6,699        $1,126,732
                                                ==========       ========         ========        ==========

    Available for sale
    U.S. Government agency obligations          $    2,062       $    116         $     --        $    2,178
    Corporate bonds and obligations              1,472,814         69,990           34,103         1,508,701
    Mortgage-backed securities                   1,051,836         32,232               89         1,083,979
                                                ----------       --------         --------        ----------
                                                $2,526,712       $102,338          $34,192        $2,594,858
                                                ==========       ========          =======        ==========
</TABLE>

<PAGE>

2.   Investments (continued)

     The amortized  cost and fair value of  investments  in fixed  maturities at
     December  31,  1999 by  contractual  maturity  are  shown  below.  Expected
     maturities will differ from contractual  maturities  because  borrowers may
     have the  right  to call or  prepay  obligations  with or  without  call or
     prepayment penalties.

                                               Amortized            Fair
    Held to maturity                              Cost             Value

    Due in one year or less                    $    26,214        $   26,334
    Due from one to five years                     412,533           408,638
    Due from five to ten years                     331,187           320,146
    Due in more than ten years                      57,408            54,516
    Mortgage-backed securities                     179,007           174,469
                                             -------------     -------------
                                               $ 1,006,349        $  984,103
                                               ===========      ============

                                               Amortized            Fair
    Available for sale                            Cost             Value

    Due in one year or less                    $    46,937        $   47,236
    Due from one to five years                      75,233            73,525
    Due from five to ten years                   1,037,001           980,633
    Due in more than ten years                     264,276           238,557
    Mortgage-backed securities                     988,352           964,536
                                              ------------      ------------
                                                $2,411,799        $2,304,487

     During the years ended December 31, 1999, 1998 and 1997,  fixed  maturities
     classified  as held to maturity  were sold with  amortized  cost of $8,466,
     $31,117 and $29,561, respectively. Net gains and losses on these sales were
     not  significant.   The  sales  of  these  fixed  maturities  were  due  to
     significant deterioration in the issuers' creditworthiness.

     In addition, fixed maturities available for sale were sold during 1999 with
     proceeds of  $469,126  and gross  realized  gains and losses of $10,374 and
     $4,147  respectively.  Fixed maturities available for sale were sold during
     1998 with proceeds of $48,492 and gross realized gains and losses of $2,835
     and $4,516,  respectively.  Fixed  maturities  available for sale were sold
     during 1997 with proceeds of $73,366 and gross realized gains and losses of
     $1,081 and $1,440, respectively.

     At December 31, 1999,  bonds carried at $3,277 were on deposit with various
     states as required by law.

<PAGE>

2.   Investments (continued)

     At December 31, 1999,  investments in fixed maturities comprised 81 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  $486 million which are rated by AEFC internal analysts using
     criteria  similar to Moody's  and S&P.  A summary of  investments  in fixed
     maturities, at amortized cost, by rating on December 31 is as follows:

           Rating                                    1999             1998
    ----------------------                       -----------       -----------
    Aaa/AAA                                       $1,168,144        $1,242,301
    Aa/AA                                             42,859            45,526
    Aa/A                                              52,416            60,019
    A/A                                              422,668           422,725
    A/BBB                                            189,072           228,656
    Baa/BBB                                          995,152         1,030,874
    Baa/BB                                            64,137            79,687
    Below investment grade                           483,700           498,117
                                                ------------      ------------
                                                  $3,418,148        $3,607,905

     At December  31, 1999,  approximately  94 percent of the  securities  rated
     Aaa/AAA were GNMA, FNMA and FHLMC mortgage-backed  securities.  No holdings
     of any other issuer were greater  than one percent of the  Company's  total
     investments in fixed maturities.

     At December 31, 1999,  approximately  19 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, 1999                        December 31, 1998
                                         -------------------------------       --------------------------------
<S>                                      <C>                 <C>                 <C>                <C>
                                          On Balance         Commitments         On Balance         Commitments
    Region                                   Sheet           to Purchase           Sheet            to Purchase
    ----------------------------------   -----------         -----------        ----------          -----------
    South Atlantic                          $194,325         $        --          $198,552             $    651
    Middle Atlantic                          118,699                  --           129,284                  520
    East North Central                       126,243                  --           134,165                2,211
    Mountain                                 103,751                  --           113,581                   --
    West North Central                       125,891                 513           119,380                9,626
    New England                               43,345                 802            46,103                   --
    Pacific                                   41,396                  --            43,706                   --
    West South Central                        31,153                  --            32,086                   --
    East South Central                         7,100                  --             7,449                   --
                                         -----------        ------------       -----------         ------------
                                             791,903               1,315           824,306               13,008
    Less allowance for losses                  6,650                  --             8,500                   --
                                         -----------        ------------       -----------         ------------
                                            $785,253            $  1,315          $815,806              $13,008
                                            ========            ========          ========              =======

<PAGE>

2.   Investments (continued)
                                               December 31, 1999                       December 31, 1998
                                          ------------------------------         ------------------------------
                                          On Balance         Commitments         On Balance         Commitments
              Property type                  Sheet            to Purchase          Sheet            to Purchase
                                          ----------      --------------        ----------         ------------
    Department/retail stores                $232,449        $     1,315           $253,380            $     781
    Apartments                               181,346                 --            186,030                2,211
    Office buildings                         202,132                 --            206,285                9,496
    Industrial buildings                      83,186                 --             82,857                  520
    Hotels/Motels                             43,839                 --             45,552                   --
    Medical buildings                         32,284                 --             33,103                   --
    Nursing/retirement homes                   6,608                 --              6,731                   --
    Mixed Use                                 10,059                 --             10,368                   --
                                          ----------      --------------        ----------         ------------
                                             791,903              1,315            824,306               13,008
    Less allowance for losses                  6,650                 --              8,500                   --
                                         -----------      --------------       -----------         ------------
                                            $785,253         $    1,315           $815,806              $13,008
                                            ========         ==========           ========              =======
</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.
     Commitments  to  purchase  mortgages  are made in the  ordinary  course  of
     business. The fair value of the mortgage commitments is $nil.

     At December 31, 1999, the Company's  recorded  investment in impaired loans
     was $5,200 with an allowance of $1,250. At December 31, 1998, the Company's
     recorded investment in impaired loans was $1,932 with an allowance of $500.
     During 1999 and 1998, the average recorded investment in impaired loans was
     $5,399 and $2,736, respectively.

     The Company  recognized  $136,  $251 and $nil of interest income related to
     impaired  loans for the  years  ended  December  31,  1999,  1998 and 1997,
     respectively.

     The following table presents changes in the allowance for investment losses
related to all loans:
<TABLE>
<S>                                                <C>         <C>          <C>
                                                     1999        1998         1997
                                                     ----        ----         ----
    Balance, January 1                               $8,500      $3,718       $2,370
    Provision (reduction) for investment losses      (1,850)      4,782        1,805
    Loan payoffs                                         --          --         (457)
                                                     ------   ---------      -------
    Balance, December 31                             $6,650      $8,500       $3,718
                                                     ======      ======       ======

     Net  investment  income for the years ended  December 31 is  summarized  as
follows:

                                                     1999         1998        1997
                                                     -----        -----       ----
    Interest on fixed maturities                   $265,199    $285,260     $278,736
    Interest on mortgage loans                       63,721      65,351       55,085
    Interest on cash equivalents                        534         137          704
    Other                                            (1,755)     (2,493)       1,544
                                                   ---------- ----------   ----------
                                                    327,699     348,255      336,069
    Less investment expenses                          4,953       8,036        3,801
                                                   ---------  ----------   ----------
                                                   $322,746    $340,219     $332,268
                                                   ========    ========     ========
</TABLE>

<PAGE>

2.   Investments (continued)

     Net realized gain (loss) on investments  for the years ended December 31 is
summarized as follows:
<TABLE>
<S>                                                <C>          <C>          <C>
                                                      1999        1998         1997
                                                      ----        ----         ----
    Fixed maturities                               $  6,534     $   863      $ 1,638
    Mortgage loans                                   (1,650)     (4,816)      (1,348)
    Other investments                                (1,819)       (835)        (799)
                                                   ---------   --------      -------
                                                   $  3,065     $(4,788)     $  (509)
                                                   =========    =======      =======

     Changes in net unrealized  appreciation  (depreciation)  of investments for
     the years ended December 31 are summarized as follows:

                                                      1999       1998         1997
                                                     -----        -----       ----
    Fixed maturities available for sale           $(175,458)    $(8,032)     $57,188

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:

                                                     1999         1998        1997
                                                     ----         ----        ----
    Federal income taxes:
      Current                                      $ 15,531    $ 23,227      $17,668
      Deferred                                          711      (9,591)      (2,485)
                                                   --------    --------      -------
                                                     16,242      13,636       15,183

    State income taxes-current                          433         759        1,462
                                                   --------    --------      -------
    Income tax expense                             $ 16,675    $ 14,395      $16,645
                                                   ========    ========      =======
</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>

                                                       1999                      1998                     1997
                                               ------------------       ------------------       ---------------------
                                               Provision    Rate        Provision    Rate        Provision       Rate
                                               ---------    -----       ---------    -----       ---------       -----
<S>                                            <C>          <C>           <C>        <C>          <C>           <C>
     Federal income taxes based
       on the statutory rate                    $17,731     35.0%         $13,972    35.0%        $15,735        35.0%
     Increases (decreases) are
      attributable to:
         Tax-excluded interest                      (14)      --              (35)   (0.1)            (41)       (0.1)
         State tax, net of federal benefit          281      0.5              493     1.2             956         2.1
         Reduction of mortgage loss
           reserve                               (1,225)    (2.4)              --       --             --          --
      Other, net                                    (98)    (0.2)             (35)       --            (5)         --
                                                 ------    -----         --------    ------          ----      ------
      Total income taxes                        $16,675     32.9 %        $14,395    36.1%        $16,645        37.0%
                                                =======     =====         =======    ====         =======        ====
</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:

    Deferred income tax assets:                             1999          1998
                                                          -------       -------
    Policy reserves                                        $46,243      $51,298
    Unrealized losses on investments                        39,678           --
    Other                                                    1,070        2,214
                                                          --------     --------
         Total deferred income tax assets                   86,991       53,512
                                                          --------     --------

    Deferred income tax liabilities:
    Deferred policy acquisition costs                       49,490       52,908
    Unrealized gains on investments                             --       23,803
                                                          --------     --------
         Total deferred income tax liabilities              49,490       76,711
                                                          --------     --------
         Net deferred income tax assets (liabilities)      $37,501     ($23,199)
                                                           =======     ========

     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 $58,223 and $45,716 as of December
     31,  1999 and  1998,  respectively.  In  addition,  dividends  in excess of
     $15,241 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:

                                           1999           1998             1997
                                        ---------      ---------        -------
    Statutory net income                  $ 15,241       $ 37,902      $ 23,589
    Statutory stockholder's equity         343,094        330,588       302,264

5.   Related party transactions

     The Company has  purchased  interest  rate floors from IDS Life and entered
     into an interest rate swap with IDS Life to manage its exposure to interest
     rate risk.  The  interest  rate floors had a carrying  amount of $8,258 and
     $6,651 at December 31, 1999 and 1998, respectively.  The interest rate swap
     is an off balance sheet transaction.

     The Company has no  employees.  Charges by IDS Life for services and use of
     other  joint  facilities  aggregated  $38,931,  $28,482 and $24,535 for the
     years ended  December 31,  1999,  1998 and 1997,  respectively.  Certain of
     these costs are included in deferred policy acquisition costs.

<PAGE>

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  established  by  reference  to  various
     indices plus 20 to 45 basis  points,  depending on the term.  There were no
     borrowings outstanding under this agreement at December 31, 1999 or 1998.

7.   Derivative financial instruments

     The  Company  enters  into  transactions   involving  derivative  financial
     instruments to manage its exposure to interest rate risk, including hedging
     specific transactions. The Company does not hold derivative instruments for
     trading   purposes.   The  Company  manages  risks  associated  with  these
     instruments as described below.

     Market risk is the possibility  that the value of the derivative  financial
     instruments  will  change due to  fluctuations  in a factor  from which the
     instrument  derives its value,  primarily an interest  rate. The Company is
     not impacted by market risk  related to  derivatives  held for  non-trading
     purposes beyond that inherent in cash market transactions.  Derivatives are
     largely  used to manage  risk  and,  therefore,  the cash  flow and  income
     effects of the  derivatives  are inverse to the  effects of the  underlying
     transactions.

     Credit risk is the possibility that the  counterparty  will not fulfill the
     terms  of the  contract.  The  Company  monitors  credit  risk  related  to
     derivative  financial  instruments through established approval procedures,
     including  setting  concentration  limits by  counterparty,  and  requiring
     collateral,   where   appropriate.   A  vast   majority  of  the  Company's
     counterparties are rated A or better by Moody's and Standard & Poor's.

     Credit  risk  related  to  interest  rate caps and  floors is  measured  by
     replacement cost of the contracts. The replacement cost represents the fair
     value of the instruments.

     The notional or contract  amount of a derivative  financial  instrument  is
     generally  used to calculate  the cash flows that are received or paid over
     the life of the agreement. Notional amounts are not recorded on the balance
     sheet. Notional amounts far exceed the related credit exposure.

     The Company's holdings of derivative financial instruments are as follows:
<TABLE>
<CAPTION>

                                            Notional         Carrying            Fair         Total Credit
    December 31, 1999                        Amount            Amount            Value          Exposure
    -----------------                       --------         --------           ------        ------------
    <S>                                    <C>                <C>              <C>               <C>
      Assets:
    Interest rate caps                     $  900,000         $  3,212         $  4,437          $  4,437
        Interest rate floors                2,000,000            8,258            2,251             2,251
     Off balance sheet assets:
        Interest rate swaps                 2,000,000               --           18,274            18,274
                                                             ---------         --------          --------
                                                               $11,470          $24,962           $24,962
                                                               =======          =======           =======

<PAGE>

7.   Derivative financial instruments (continued)

                                            Notional         Carrying            Fair         Total Credit
    December 31, 1998                        Amount            Amount            Value           Exposure
    -----------------                       --------         --------           ------        ------------
      Assets:
        Interest rate caps                 $  900,000         $  5,452         $  1,518          $  1,518
        Interest rate floors                1,000,000            6,651           17,798            17,798
      Off balance sheet liabilities:
        Interest rate swaps                 1,000,000               --          (33,500)               --
                                                             ---------        ----------         --------
                                                               $12,103        ($ 14,184)          $19,316
                                                               =======        ===========         =======
</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 will expire on various dates from 2000 to 2006.

     Interest  rate  caps,  floors  and swaps are used to manage  the  Company's
     exposure to interest rate risk.  These  instruments  are used  primarily to
     protect the margin between  interest  rates earned on  investments  and the
     interest rates credited to related annuity contract holders.

8.   Fair values of financial instruments

     The Company  discloses fair value  information for most on- and off-balance
     sheet  financial  instruments  for which it is practicable to estimate that
     value.  Fair  value  of life  insurance  obligations,  receivables  and all
     non-financial instruments, such as deferred acquisition costs are excluded.
     Off-balance sheet intangible assets are also excluded.  Management believes
     the value of excluded assets and liabilities is significant. The fair value
     of the Company,  therefore,  cannot be estimated by aggregating the amounts
     presented.
<TABLE>
<CAPTION>

                                                                                December 31,
                                                                    1999                          1998
                                                         --------------------------      --------------------------
                                                         Carrying          Fair          Carrying         Fair
    Financial Assets                                      Amount          Value           Amount          Value
    ----------------                                     ----------       ---------      ----------      ----------
<S>                                                      <C>              <C>            <C>             <C>
    Investments:
    Fixed maturities (Note 2):
       Held to maturity                                  $1,006,349        $984,103      $1,081,193      $1,126,732
       Available for sale                                 2,304,487       2,304,487       2,594,858       2,594,858
    Mortgage loans on real estate (Note 2)                  785,253         770,095         815,806         874,064
    Derivative financial instruments (Note 7)                11,470          24,962          12,103          19,316
    Separate account assets (Note 1)                        220,994         220,994         123,185         123,185

    Financial Liabilities
    Future policy benefits for fixed annuities           $3,905,849      $3,778,945      $4,152,059      $4,000,789
    Separate account liabilities                            220,994         209,942         123,185         115,879
    Derivative financial instruments (Note 7)                    --              --              --          33,500
</TABLE>

     At December 31, 1999 and 1998, the carrying amount and fair value of future
     policy  benefits  for  fixed  annuities   exclude  life   insurance-related
     contracts carried at $15,633 and $14,793,  respectively.  The fair value of
     these benefits is based on the status of the annuities at December 31, 1999
     and 1998.

<PAGE>

8.   Fair values of financial instruments (continued)

     The fair values of deferred annuities and separate account  liabilities are
     estimated as the carrying amount less  applicable  surrender  charges.  The
     fair value for annuities in non-life  contingent payout status is estimated
     as the present value of projected benefit payments at rates appropriate for
     contracts issued in 1999 and 1998.

9.   Commitments and contingencies

     In January  2000,  AEFC  reached an  agreement in principle to settle three
     class-action  lawsuits. The Company had been named as a co-defendant in one
     of these lawsuits.  It is expected the settlement will provide $215 million
     of benefits to more than 2 million participants. The agreement in principle
     to settle also  provides for release by class  members of all insurance and
     annuity  market  conduct  claims  dating  back to 1985 and is  subject to a
     number  of  contingencies   including  a  definitive  agreement  and  court
     approval.  The portion of the  settlement  allocated to the Company did not
     have a material impact on the Company's  financial position or results from
     operations.

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 major  systems or
     miscalculations,  which could have a material  impact on the  operations of
     the Company. All of the major systems used by the Company are maintained by
     AEFC and are utilized by multiple  subsidiaries and affiliates of AEFC. The
     Company's businesses are heavily dependent upon AEFC's computer systems and
     have significant interaction with systems of third parties.

     A comprehensive  review of AEFC's computer systems and business  processes,
     including  those  specific to the  Company,  was  conducted to identify the
     major  systems  that could be affected  by the Year 2000 issue.  Steps were
     taken to resolve  potential  problems  including  modification  to existing
     software and the purchase of new  software.  As of December 31, 1999,  AEFC
     had completed its program of  corrective  measures on its internal  systems
     and applications,  including Year 2000 compliance  testing.  As of December
     31, 1999,  AEFC had also completed an evaluation of the Year 2000 readiness
     of other third  parties whose system  failures  could have an impact on the
     Company's operations.

     AEFC's Year 2000 project also included  establishing  Year 2000 contingency
     plans  for all key  business  units.  Business  continuation  plans,  which
     address business  continuation in the event of a system disruption,  are in
     place for all key business  units.  At December  31, 1999,  these plans had
     been amended to include specific Year 2000 considerations.

     In assessing its Year 2000 initiatives and the results of actual production
     since January 1, 2000, management believes no material adverse consequences
     were  experienced,  and  there  was no  material  effect  on the  Company's
     business,  results of operations, or financial condition as a result of the
     Year 2000 issue.



<PAGE>

PART C.

Item 24. Financial Statements and Exhibits

(a)  Financial statements included in Part B of this Registration Statement:

     The audited financial statements of the variable account including:

     Statements of net assets as of Dec. 31, 1999;
     Statements of operations for the year ended Dec. 31, 1999;  and
     Statements of changes in net assets for the year ended Dec. 31,
     1999 and for the year ended Dec. 31, 1998.
     Notes to Financial Statements.
     Report of Independent Auditors dated March 17, 2000.

     The audited  financial  statements of American  Enterprise  Life  Insurance
     Company including:

     Balance sheets as of Dec. 31, 1999 and Dec. 31, 1998 and
     Related statements of income, stockholder's equity and cash
     flows for the years ended Dec. 31, 1999, 1998 and 1997.
     Notes to Financial  Statements.
     Report of Independent Auditors dated Feb 3, 2000.

(b)  Exhibits:

1.   Resolution of the Executive Committee of the Board of Directors of American
     Enterprise Life dated April 1, 1997, filed electronically as Exhibit 6.1 to
     the Pre-Effective  Amendment No. 1 to Registration Statement No. 333-20217,
     is incorporated herein by reference.

2.   Not applicable.

3.   Form of  General  Agent  Agreement  filed  electronically  as  Exhibit 3 to
     Post-Effective  Amendment No. 1 to  Registration  Statement No.  333-20217,
     filed on or about May 1, 1998, is incorporated herein by reference.

4.1  Form of Deferred Annuity  Contract (form 37220),  filed  electronically  as
     Exhibit 4.1 to Pre-Effective  Amendment No. 2 to Registration Statement No.
     811-7195, is incorporated herein by reference.

4.2  Form of Tax-Qualified Endorsement, to be filed by Amendment.

4.3  Form of Annuity Endorsement, to be filed by Amendment.

5.1  Form  of  Application  for  AEL  Bank  Variable  Annuity,  to be  filed  by
     Amendment.

6.1  Amendment  and  Restatement  of  Articles  of   Incorporation  of  American
     Enterprise Life dated July 29, 1986, filed electronically as Exhibit 6.1 to
     the Initial Registration  Statement No. 1, filed on or about Jan. 23, 1997,
     is incorporated herein by reference.

6.2  Amended  By-Laws of  American  Enterprise  Life,  filed  electronically  as
     Exhibit 6.2 to the Initial Registration  Statement No. 1, filed on or about
     Jan. 23, 1997, is incorporated herein by reference.

7.   Not applicable.

<PAGE>

8.1  Copy of Participation  Agreement among Putnam Capital Manager Trust, Putnam
     Mutual Funds Corp. and American  Enterprise Life Insurance  Company,  dated
     January 16, 1995,  filed  electronically  as Exhibit 8.2 to  Post-Effective
     Amendment No. 2 to  Registration  Statement  No.33-54471,  is  incorporated
     herein by reference.

8.2  Copy of Amendment 1 to Schedule A to  Participation  Agreement among Putnam
     Capital Manager Trust (now known as Putnam Variable  Trust),  Putnam Mutual
     Funds Corp. and American Enterprise Life Insurance Company, dated April 30,
     1997, filed electronically as Exhibit 8.2 to Post-Effective Amendment No. 1
     to Registration Statement No. 333-20217,  filed on or about May 1, 1998, is
     incorporated herein by reference.

8.3  Copy of Amendment 2 to Schedule A to  Participation  Agreement among Putnam
     Capital Manager Trust (now known as Putnam Variable  Trust),  Putnam Mutual
     Funds Corp. and American  Enterprise Life Insurance Company,  dated October
     30, 1997, filed  electronically as Exhibit 8.3 to Post-Effective  Amendment
     No. 1 to  Registration  Statement No.  333-20217,  filed on or about May 1,
     1998, is incorporated herein by reference.

9.   Opinion  of  counsel  and  consent  to its  use as to the  legality  of the
     securities being registered, is filed electronically herewith.

10.  Consent of independent auditors, is filed electronically herewith.

11.  None.

12.  Not applicable.

13.  Copy of schedule for computation of each performance  quotation provided in
     the Registration  Statement in response to Item 21, filed electronically as
     Exhibit 13 to the Initial Registration  Statement to Registration Statement
     No.  33-54471,  filed on or about July 5, 1994, is  incorporated  herein by
     reference.

14.1 Power of Attorney to sign Amendments to this  Registration  Statement dated
     April 9,  1998,  filed  electronically  as Exhibit  14.2 to  Post-Effective
     Amendment No. 1 to Registration Statement No. 333-20217,  filed on or about
     May 1, 1998, is incorporated by reference.

14.2 Power of Attorney to sign this Registration Statement, dated July 29, 1999,
     filed  electronically  as Exhibit 15.3 to Pre-Effective  Amendment No. 1 to
     Registration Statement No. 33-74865, is incorporated herein by reference.

Item 25.  Directors  and Officers of the  Depositor  (American  Enterprise  Life
     Insurance Company)

<TABLE>
<CAPTION>
<S>                                  <C>                                   <C>

Name                                  Principal Business Address             Positions and Offices with Depositor
_________________________________________________________________________________________________________________
James E. Choat                        200 AXP Financial Center               Director, President and Chief
                                      Minneapolis, MN  55474                 Executive Officer

Lorraine R. Hart                      200 AXP Financial Center               Vice President, Investments
                                      Minneapolis, MN  55474

Jeffrey S. Horton                     200 AXP Financial Center               Vice President and Treasurer
                                      Minneapolis, MN  55474

Richard W. Kling                      200 AXP Financial Center               Director and Chairman of the Board
                                      Minneapolis, MN  55474

<PAGE>

Bruce A. Kohn                         200 AXP Financial Center               Vice President, Group Counsel and
                                      Minneapolis, MN  55474                 Assistant Secretary

Paul S. Mannweiler                    Indianapolis Power and Light           Director
                                      One Monument Circle
                                      P.O. Box 1595
                                      Indianapolis, IN  46206-1595

Eric L. Marhoun                       200 AXP Financial Center               Vice President, Group Counsel and
                                      Minneapolis, MN  55474                 Assistant Secretary

Paula R. Meyer                        200 AXP Financial Center               Director and Executive Vice
                                      Minneapolis, MN  55474                 President, Assured Assets

Mary Ellyn Minenko                    200 AXP Financial Center               Vice President, Group Counsel and
                                      Minneapolis, MN  55474                 Assistant Secretary

Stuart A. Sedlacek                    200 AXP Financial Center               Executive Vice President
                                      Minneapolis, MN  55474

William A. Stoltzmann                 200 AXP Financial Center               Director, Vice President, General
                                      Minneapolis, MN  55474                 Counsel and Secretary

Philip C. Wentzel                     200 AXP Financial Center               Vice President and Controller
                                      Minneapolis, MN  55474
</TABLE>

Item 26.  Persons  Controlled  by or Under Common  Control with the Depositor or
     Registrant

     American Enterprise Life Insurance is a wholly-owned subsidiary of IDS Life
     Insurance  Company which is a wholly-owned  subsidiary of American  Express
     Financial   Corporation.   American  Express  Financial  Corporation  is  a
     wholly-owned subsidiary of American Express Company (American Express).

     The  following  list includes the names of major  subsidiaries  of American
     Express.

<TABLE>
<CAPTION>
<S>                                                                                   <C>

                                                                                        Jurisdiction of
Name of Subsidiary                                                                      Incorporation

I. Travel Related Services

     American Express Travel Related Services Company, Inc.                             New York

II. International Banking Services

     American Express Bank Ltd.                                                         Connecticut

III. Companies engaged in Financial Services

     Advisory Capital Partners LLC                                                      Delaware
     Advisory Capital Strategies Group Inc.                                             Minnesota
     American Centurion Life Assurance Company                                          New York
     American Enterprise Investment Services Inc.                                       Minnesota
     American Enterprise Life Insurance Company                                         Indiana
     American Express Asset Management Group Inc.                                       Minnesota
     American Express Asset Management International Inc.                               Delaware


<PAGE>


     American Express Asset Management International (Japan) Ltd.                       Japan
     American Express Asset Management Ltd.                                             England
     American Express Client Service Corporation                                        Minnesota
     American Express Corporation                                                       Delaware
     American Express Financial Advisors Inc.                                           Delaware
     American Express Financial Advisors Japan Inc.                                     Delaware
     American Express Financial Corporation                                             Delaware
     American Express Insurance Agency of Arizona Inc.                                  Arizona
     American Express Insurance Agency of Idaho Inc.                                    Idaho
     American Express Insurance Agency of Nevada Inc.                                   Nevada
     American Express Insurance Agency of Oregon Inc.                                   Oregon
     American Express Minnesota Foundation                                              Minnesota
     American Express Property Casualty Insurance Agency of Kentucky Inc.               Kentucky
     American Express Property Casualty Insurance Agency of Maryland Inc.               Maryland
     American Express Property Casualty Insurance Agency of Mississippi Inc.            Mississippi
     American Express Property Casualty Insurance Agency of Pennsylvania Inc.           Pennsylvania
     American Express Trust Company                                                     Minnesota
     American Partners Life Insurance Company                                           Arizona
     IDS Cable Corporation                                                              Minnesota
     IDS Cable II Corporation                                                           Minnesota
     IDS Capital Holdings Inc.                                                          Minnesota
     IDS Certificate Company                                                            Delaware
     IDS Futures Brokerage Group                                                        Minnesota
     IDS Futures Corporation                                                            Minnesota
     IDS Insurance Agency of Alabama Inc.                                               Alabama
     IDS Insurance Agency of Arkansas Inc.                                              Arkansas
     IDS Insurance Agency of Massachusetts Inc.                                         Massachusetts
     IDS Insurance Agency of Mississippi Ltd.                                           Mississippi
     IDS Insurance Agency of New Mexico Inc.                                            New Mexico
     IDS Insurance Agency of North Carolina Inc.                                        North Carolina
     IDS Insurance Agency of Ohio Inc.                                                  Ohio
     IDS Insurance Agency of Texas Inc.                                                 Texas
     IDS Insurance Agency of Utah Inc.                                                  Utah
     IDS Insurance Agency of Wyoming Inc.                                               Wyoming
     IDS Life Insurance Company                                                         Minnesota
     IDS Life Insurance Company of New York                                             New York
     IDS Management Corporation                                                         Minnesota
     IDS Partnership Services Corporation                                               Minnesota
     IDS Plan Services of California, Inc.                                              Minnesota
     IDS Property Casualty Insurance Company                                            Wisconsin
     IDS Real Estate Services, Inc.                                                     Delaware
     IDS Realty Corporation                                                             Minnesota
     IDS Sales Support Inc.                                                             Minnesota
     Investors Syndicate Development Corp.                                              Nevada
     Public Employee Payment Company                                                    Minnesota

</TABLE>

Item 27. Number of Contractowners

     As of March 31,  2000  there  were 724  contract  owners  of  non-qualified
     contracts.

<PAGE>

Item 28. Indemnification

     The By-Laws of the depositor  provide that the  Corporation  shall have the
     power  to  indemnify  a  director,   officer,  agent  or  employee  of  the
     Corporation pursuant to the provisions of applicable statues or pursuant to
     contract.

     The  Corporation  may  purchase  and  maintain  insurance  on behalf of any
     director,  officer,  agent  or  employee  of the  Corporation  against  any
     liability asserted against or incurred by the director,  officer,  agent or
     employee  in such  capacity or arising  out of the  director's,  officer's,
     agent's or employee's status as such,  whether or not the Corporation would
     have the  power to  indemnify  the  director,  officer,  agent or  employee
     against such liability under the provisions of applicable law.

     The By-Laws of the  depositor  provide that it shall  indemnify a director,
     officer,  agent or employee of the depositor  pursuant to the provisions of
     applicable statutes or pursuant to contract.

     Insofar as  indemnification  for liability arising under the Securities Act
     of 1933 may be permitted to director,  officers and controlling  persons of
     the  registrant  pursuant to the foregoing  provisions,  or otherwise,  the
     registrant  has been  advised  that in the  opinion of the  Securities  and
     Exchange  Commission  such  indemnification  is  against  public  policy as
     expressed in the Act and is, therefore,  unenforceable. In the event that a
     claim for indemnification  against such liabilities (other than the payment
     by the  registrant of expenses  incurred or paid by a director,  officer or
     controlling  person of the  registrant  in the  successful  defense  of any
     action,  suit or  proceeding)  is  asserted  by such  director,  officer or
     controlling person in connection with the securities being registered,  the
     registrant  will,  unless in the opinion of its counsel the matter has been
     settled  by  controlling  precedent,  submit  to  a  court  of  appropriate
     jurisdiction  the question  whether such  indemnification  by it is against
     public  policy as  expressed  in the Act and will be  governed by the final
     adjudication of such issue.

Item 29. Principal Underwriters.

(a)  American Express Financial  Advisors acts as principal  underwriter for the
     following investment companies:

     AXP Bond Fund, Inc.; AXP California  Tax-Exempt  Trust; AXP Discovery Fund,
     Inc.;  AXP Equity  Select Fund,  Inc.;  AXP Extra Income  Fund,  Inc.;  AXP
     Federal  Income Fund,  Inc.;  AXP Global  Series,  Inc.; AXP Growth Series,
     Inc.; AXP High Yield Tax-Exempt Fund, Inc.; AXP  International  Fund, Inc.;
     AXP Investment Series, Inc.; AXP Managed Series, Inc.; AXP Market Advantage
     Series, Inc.; AXP Money Market Series, Inc.; AXP New Dimensions Fund, Inc.;
     AXP Precious Metals Fund,  Inc.; AXP Progressive  Fund, Inc.; AXP Selective
     Fund, Inc.; AXP Special  Tax-Exempt Series Trust; AXP Stock Fund, Inc.; AXP
     Strategy  Series,  Inc.;  AXP Tax-Exempt  Series,  Inc.; AXP Tax-Free Money
     Fund,  Inc.;  AXP Utilities  Income Fund,  Inc.,  Growth Trust;  Growth and
     Income  Trust;  Income  Trust;  Tax-Free  Income  Trust;  World Trust;  IDS
     Certificate Company;  Strategist Income Fund, Inc.; Strategist Growth Fund,
     Inc.;  Strategist Growth and Income Fund, Inc.; Strategist World Fund, Inc.
     and Strategist Tax-Free Income Fund, Inc.

<PAGE>

(b)  As to each director, officer or partner of the principal underwriter:


Name and Principal Business Address   Position and Offices with
                                      Underwriter
- ------------------------------------- -----------------------------------

Ronald. G. Abrahamson                 Vice President - Business
200 AXP Financial Center              Transformation
Minneapolis, MN  55474

Douglas A. Alger                      Senior Vice President - Human
200 AXP Financial Center              Resources
Minneapolis, MN  55474

Peter J. Anderson                     Senior Vice President -
200 AXP Financial Center              Investment Operations
Minneapolis, MN  55474

Ward D. Armstrong                     Senior Vice President -
200 AXP Financial Center              Retirement Services
Minneapolis, MN  55474

John M. Baker                         Vice President - Plan Sponsor
200 AXP Financial Center              Services
Minneapolis, MN  55474

Joseph M. Barsky, III                 Vice President - Mutual Fund
200 AXP Financial Center              Equities
Minneapolis, MN  55474

Timothy V. Bechtold                   Vice President - Risk Management
200 AXP Financial Center              Products
Minneapolis, MN  55474

John D. Begley                        Group Vice President -
Suite 100                             Ohio/Indiana
7760 Olentangy River Rd.
Columbus, OH  43235

Brent L. Bisson                       Group Vice President - Los
Suite 900                             Angeles Metro
E. Westside Twr
11835 West Olympic Blvd.
Los Angeles, CA  90064

John C. Boeder                        Vice President - Nonproprietary
200 AXP Financial Center              Products
Minneapolis, MN  55474

Walter K. Booker                      Group Vice President - New Jersey
200 AXP Financial Center
Minneapolis, MN  55474

Bruce J. Bordelon                     Group Vice President - San
1333 N. California Blvd., Suite 200   Francisco Bay Area
Walnut Creek, CA  94596

Charles R. Branch                     Group Vice President - Northwest
Suite 200
West 111 North River Dr.
Spokane, WA  99201

<PAGE>

Douglas W. Brewers                    Vice President - Sales Support
200 AXP Financial Center
Minneapolis, MN  55474

Karl J. Breyer                        Corporate Senior Vice President
200 AXP Financial Center
Minneapolis, MN  55474

Cynthia M. Carlson                    Vice President - American Express
200 AXP Financial Center              Securities Services
Minneapolis, MN  55474

Mark W. Carter                        Senior Vice President and Chief
200 AXP Financial Center              Marketing Officer
Minneapolis, MN  55474

James E. Choat                        Senior Vice President - Third
200 AXP Financial Center              Party Distribution
Minneapolis, MN  55474

Kenneth J. Ciak                       Vice President and General
IDS Property Casualty                 Manager - IDS Property Casualty
1400 Lombardi Avenue
Green Bay, WI  54304

Paul A. Connolly                      Vice President - Advisor
200 AXP Financial Center              Staffing, Training and Support
Minneapolis, MN  55474

Henry J. Cormier                      Group Vice President - Connecticut
Commerce Center One
333 East River Drive
East Hartford, CT  06108

John M. Crawford                      Group Vice President -
Suite 200                             Arkansas/Springfield/Memphis
10800 Financial Ctr Pkwy
Little Rock, AR  72211

Kevin F. Crowe                        Group Vice President -
Suite 312                             Carolinas/Eastern Georgia
7300 Carmel Executive Pk
Charlotte, NC  28226

Colleen Curran                        Vice President and Assistant
200 AXP Financial Center              General Counsel
Minneapolis, MN  55474

Luz Maria Davis                       Vice President - Communications
200 AXP Financial Center
Minneapolis, MN  55474

Arthur E. DeLorenzo                   Group Vice President - Upstate
4 Atrium Drive, #100                  New York
Albany, NY  12205

Scott M. DiGiammarino                 Group Vice President -
Suite 500                             Washington/Baltimore
8045 Leesburg Pike
Vienna, VA  22182

<PAGE>

Bradford L. Drew                      Group Vice President - Eastern
Two Datran Center                     Florida
Penthouse One B
9130 S. Dadeland Blvd.
Miami, FL  33156

Douglas K. Dunning                    Vice President - Assured Assets
200 AXP Financial Center              Product Development and Management
Minneapolis, MN  55474

James P. Egge                         Group Vice President - Western
4305 South Louise, Suite 202          Iowa, Nebraska, Dakotas
Sioux Falls, SD  57103

Gordon L. Eid                         Senior Vice President, General
200 AXP Financial Center              Counsel and Chief Compliance
Minneapolis, MN  55474                Officer

Robert M. Elconin                     Vice President - Government
200 AXP Financial Center              Relations
Minneapolis, MN  55474

Phillip W. Evans,                     Group Vice President - Rocky
Suite 600                             Mountain
6985 Union Park Center
Midvale, UT  84047-4177

Gordon M. Fines                       Vice President - Mutual Fund
200 AXP Financial Center              Equity Investments
Minneapolis, MN  55474

Douglas L. Forsberg                   Vice President - International
200 AXP Financial Center
Minneapolis, MN  55474

Jeffrey P. Fox                        Vice President and Corporate
200 AXP Financial Center              Controller
Minneapolis, MN  55474

William P. Fritz                      Group Vice President - Gateway
Suite 160
12855 Flushing Meadows Dr.
St. Louis, MO  63131

Carl W. Gans                          Group Vice President - Twin City
8500 Tower Suite 1770                 Metro
8500 Normandale Lake Blvd.
Bloomington, MN  55437

Peter A. Gallus                       Vice President-Investment
200 AXP Financial Center              Administration
Minneapolis, MN  55474

Derek G. Gledhill                     Vice President - Integrated
200 AXP Financial Center              Financial Services Field
Minneapolis, MN  55474                Implementation

David A. Hammer                       Vice President and Marketing
200 AXP Financial Center              Controller
Minneapolis, MN  55474

<PAGE>

Teresa A. Hanratty                    Senior Vice President-Field
Suites 6&7                            Management
169 South River Road
Bedford, NH  03110

Robert L. Harden                      Group Vice President - Boston
Two Constitution Plaza                Metro
Boston, MA  02129

Lorraine R. Hart                      Vice President - Insurance
200 AXP Financial Center              Investments
Minneapolis, MN  55474

Scott A. Hawkinson                    Vice President and Controller -
200 AXP Financial Center              Private Client Group
Minneapolis, MN  55474

Brian M. Heath                        Senior Vice President and General
Suite 150                             Sales Manager
801 E. Campbell Road
Richardson, TX  75081

Janis K. Heaney                       Vice President - Incentive
200 AXP Financial Center              Management
Minneapolis, MN  55474

Jon E. Hjelm                          Group Vice President - Rhode
310 Southbridge Street                Island/Central - Western
Auburn, MA  01501                     Massachusetts

David J. Hockenberry                  Group Vice President - Tennessee
30 Burton Hills Blvd.                 Valley
Suite 175
Nashville, TN  37215

Jeffrey S. Horton                     Vice President and Treasurer
200 AXP Financial Center
Minneapolis, MN  55474

David R. Hubers                       Chairman, President and Chief
200 AXP Financial Center              Executive Officer
Minneapolis, MN  55474

Debra A. Hutchinson                   Vice President - Relationship
200 AXP Financial Center              Leader
Minneapolis, MN  55474

James M. Jensen                       Vice President and
200 AXP Financial Center              Controller-Advice and Retail
Minneapolis, MN  55474                Distribution Group

Marietta L. Johns                     Senior Vice President - Field
200 AXP Financial Center              Management
Minneapolis, MN  55474

Nancy E. Jones                        Vice President - Business
200 AXP Financial Center              Development
Minneapolis, MN  55474

<PAGE>

Ora J. Kaine                          Vice President - Financial
200 AXP Financial Center              Advisory Services
Minneapolis, MN  55474

Linda B. Keene                        Vice President - Market
200 AXP Financial Center              Development
Minneapolis, MN  55474

G. Michael Kennedy                    Vice President - Senior Portfolio
200 AXP Financial Center              Manager
Minneapolis, MN  55474

Richard W. Kling                      Senior Vice President - Products
200 AXP Financial Center
Minneapolis, MN  55474

John M. Knight                        Vice President - Investment
200 AXP Financial Center              Accounting
Minneapolis, MN  55474

Paul F. Kolkman                       Vice President - Actuarial Finance
200 AXP Financial Center
Minneapolis, MN  55474

Claire Kolmodin                       Vice President - Service Quality
200 AXP Financial Center
Minneapolis, MN  55474

David S. Kreager                      Group Vice President - Greater
Suite 108                             Michigan
Trestle Bridge V
5126 Lovers Lane
Kalamazoo, MI  49002

Steven C. Kumagai                     Director and Senior Vice
200 AXP Financial Center              President-Direct and Interactive
Minneapolis, MN  55474                Group

Mitre Kutanovski                      Group Vice President - Chicago
Suite 680                             Metro
8585 Broadway
Merrillville, IN  48410

Kurt A. Larson                        Vice President - Senior Portfolio
200 AXP Financial Center              Manager
Minneapolis, MN  55474

Lori J. Larson                        Vice President - Brokerage and
200 AXP Financial Center              Direct Services
Minneapolis, MN  55474

Daniel E. Laufenberg                  Vice President and Chief U.S.
200 AXP Financial Center              Economist
Minneapolis, MN  55474

Jane W. Lee                           Vice President - New Business
200 AXP Financial Center              Development and Marketing
Minneapolis, MN  55474

<PAGE>

Peter A. Lefferts                     Senior Vice President - Corporate
200 AXP Financial Center              Strategy and Development
Minneapolis, MN  55474

Douglas A. Lennick                    Director and Executive Vice
200 AXP Financial Center              President - Private Client Group
Minneapolis, MN  55474

Fred A. Mandell                       Vice President - Field Marketing
200 AXP Financial Center              Readiness
Minneapolis, MN  55474

Daniel E. Martin                      Group Vice President - Pittsburgh
Suite 650                             Metro
5700 Corporate Drive
Pittsburgh, PA  15237

Timothy J. Masek                      Vice President and Director of
200 AXP Financial Center              Global Research
Minneapolis, MN  55474

Sarah A. Mealey                       Vice President - Mutual Funds
200 AXP Financial Center
Minneapolis, MN  55474

Paula R. Meyer                        Vice President - Assured Assets
200 AXP Financial Center
Minneapolis, MN  55474

William P. Miller                     Vice President and Senior
200 AXP Financial Center              Portfolio Manager
Minneapolis, MN  55474

Shashank B. Modak                     Vice President - Technology Leader
200 AXP Financial Center
Minneapolis, MN  55474

Pamela J. Moret                       Vice President - Variable Assets
200 AXP Financial Center
Minneapolis, MN  55474

Barry J. Murphy                       Senior Vice President - Client
200 AXP Financial Center              Service
Minneapolis, MN  55474

Mary Owens Neal                       Vice President-Consumer Marketing
200 AXP Financial Center
Minneapolis, MN  55474

Thomas V. Nicolosi                    Group Vice President - New York
Suite 220                             Metro Area
500 Mamaroneck Avenue
Harrison, NY  10528

Michael J. O'Keefe                    Vice President - Advisory
200 AXP Financial Center              Business Systems
Minneapolis, MN  55474

<PAGE>

James R. Palmer                       Vice President - Taxes
200 AXP Financial Center
Minneapolis, MN  55474

Marc A. Parker                        Group Vice President -
10200 SW Greenburg Road               Portland/Eugene
Suite 110
Portland, OR  97223

Carla P. Pavone                       Vice President-Compensation
200 AXP Financial Center              Services and ARD Product
Minneapolis, MN  55474                Distribution

Thomas P. Perrine                     Senior Vice President - Group
200 AXP Financial Center              Relationship Leader/American
Minneapolis, MN  55474                Express Technologies Financial
                                      Services

Susan B. Plimpton                     Vice President - Marketing
200 AXP Financial Center              Services
Minneapolis, MN  55474

Larry M. Post                         Group Vice President -
One Tower Bridge                      Philadelphia Metro and Northern
100 Front Street, 8th Fl              New England
West Conshohocken, PA  19428

Ronald W. Powell                      Vice President and Assistant
200 AXP Financial Center              General Counsel
Minneapolis, MN  55474

Diana R. Prost                        Group Vice President -
3030 N.W. Expressway                  Kansas/Oklahoma
Suite 900
Oklahoma City, OK  73112

James M. Punch                        Vice President and Project
200 AXP Financial Center              Manager - Platform I Value
Minneapolis, MN  55474                Enhanced

Frederick C. Quirsfeld                Senior Vice President - Fixed
200 AXP Financial Center              Income
Minneapolis, MN  55474

Rollyn C. Renstrom                    Vice President - Corporate
200 AXP Financial Center              Planning and Analysis
Minneapolis, MN  55474

R. Daniel Richardson                  Group Vice President - Southern
Suite 800                             Texas
Arboretum Plaza One
9442 Capital of Texas Hwy. N
Austin, TX  78759

ReBecca K. Roloff                     Senior Vice President - Field
200 AXP Financial Center              Management and Financial Advisory
Minneapolis, MN  55474                Service

Stephen W. Roszell                    Senior Vice President -
200 AXP Financial Center              Institutional
Minneapolis, MN  55474

<PAGE>

Max G. Roth                           Group Vice President -
Suite 201 S. IDS Ctr                  Wisconsin/Upper Michigan
1400 Lombardi Avenue
Green Bay, WI  54304

Erven A. Samsel                       Senior Vice President - Field
45 Braintree Hill Park                Management
Suite 402
Braintree, MA  02184

Theresa M. Sapp                       Vice President - Relationship
200 AXP Financial Center              Leader
Minneapolis, MN  55474

Russell L. Scalfano                   Group Vice President -
Suite 201                             Illinois/Indiana/Kentucky
101 Plaza East Blvd.
Evansville, IN  47715

William G. Scholz                     Group Vice President -
Suite 205                             Arizona/Las Vegas
7333 E. Doubletree Ranch Rd
Scottsdale, AZ  85258

Stuart A. Sedlacek                    Senior Vice President and Chief
200 AXP Financial Center              Financial Officer
Minneapolis, MN  55474

Donald K. Shanks                      Vice President - Property Casualty
200 AXP Financial Center
Minneapolis, MN  55474

Judy P. Skoglund                      Vice President - Quality and
200 AXP Financial Center              Service Support
Minneapolis, MN  55474

James B. Solberg                      Group Vice President - Eastern
466 Westdale Mall                     Iowa Area
Cedar Rapids, IA  52404

Bridget Sperl                         Vice President - Geographic
200 AXP Financial Center              Service Teams
Minneapolis, MN  55474

Paul J. Stanislaw                     Group Vice President - Southern
Suite 1100                            California
Two Park Plaza
Irvine, CA  92714

Lisa A. Steffes                       Vice President - Marketing Offer
200 AXP Financial Center              Development
Minneapolis, MN  55474

Lois A. Stilwell                      Group Vice President - Outstate
Suite 433                             Minnesota Area/North
9900 East Bren Road                   Dakota/Western Wisconsin
Minnetonka, MN  55343

<PAGE>

William A. Stoltzmann                 Vice President and Assistant
200 AXP Financial Center              General Counsel
Minneapolis, MN  55474

James J. Strauss                      Vice President and General Auditor
200 AXP Financial Center
Minneapolis, MN  55474

Jeffrey J. Stremcha                   Vice President - Information
200 AXP Financial Center              Resource Management/ISD
Minneapolis, MN  55474

Barbara Stroup Stewart                Vice President - Channel
200 AXP Financial Center              Development
Minneapolis, MN  55474

Craig P. Taucher                      Group Vice President -
Suite 150                             Orlando/Jacksonville
4190 Belfort Road
Jacksonville, FL  32216

Neil G. Taylor                        Group Vice President -
Suite 425                             Seattle/Tacoma/Hawaii
101 Elliott Avenue West
Seattle, WA  98119

John R. Thomas                        Senior Vice President
200 AXP Financial Center
Minneapolis, MN  55474

Keith N. Tufte                        Vice President and Director of
200 AXP Financial Center              Equity Research
Minneapolis, MN  55474

Peter S. Velardi                      Group Vice President -
Suite 180                             Atlanta/Birmingham
1200 Ashwood Parkway
Atlanta, GA  30338

Charles F. Wachendorfer               Group Vice President - Detroit
Suite 100                             Metro
Stanford Plaza II
7979 East Tufts Ave. Pkwy
Denver, CO  80237

Donald F. Weaver                      Group Vice President - Greater
3500 Market Street, Suite 200         Pennsylvania
Camp Hill, PA  17011

Norman Weaver Jr.                     Senior Vice President - Alliance
1010 Main St., Suite 2B               Group
Huntington Beach, CA  92648

Michael L. Weiner                     Vice President - Tax Research and
200 AXP Financial Center              Audit
Minneapolis, MN  55474

Jeffry M. Welter                      Vice President - Equity and Fixed
200 AXP Financial Center              Income Trading
Minneapolis, MN  55474

<PAGE>

Thomas L. White                       Group Vice President - Cleveland
Suite 200                             Metro
28601 Chagrin Blvd.
Woodmere, OH  44122

Eric S. Williams                      Group Vice President - Virginia
Suite 250
3951 Westerre Parkway
Richmond, VA  23233

William J. Williams                   Group Vice President - Western
Two North Tamiami Trail               Florida
Suite 702
Sarasota, FL  34236

<PAGE>

Edwin M. Wistrand                     Vice President and Assistant
200 AXP Financial Center              General Counsel
Minneapolis, MN  55474

Michael D. Wolf                       Vice President - Senior Portfolio
200 AXP Financial Center              Manager
Minneapolis, MN  55474

Michael R. Woodward                   Senior Vice President - Field
32 Ellicott St.                       Management
Suite 100
Batavia, NY  14020

Rande L. Zellers                      Group Vice President-Gulf States
1 Galleria Blvd., Suite 1900
Metairie, LA  70001

Item 29(c).

<TABLE>
<CAPTION>
<S>                     <C>                    <C>                   <C>                  <C>

                          Net Underwriting
Name of Principal          Discounts and        Compensation on         Brokerage
Underwriter                 Commissions           Redemption           Commissions          Compensation

American Express             $5,924,368            $479,554                None                 None
Financial Advisors
Inc.
</TABLE>

Item 30. Location of Accounts and Records

                  American Enterprise Life Insurance Company
                  200 AXP Financial Center
                  Minneapolis, MN  55474

Item 31. Management Services

                  Not applicable.

<PAGE>

Item 32. Undertakings

(a)  Registrant undertakes that it will file a post-effective  amendment to this
     registration  statement  as  frequently  as is necessary to ensure that the
     audited financial  statements in the registration  statement are never more
     than 16  months  old for so long as  payments  under the  variable  annuity
     contracts may be accepted.

(b)  Registrant  undertakes  that  it  will  include  either  (1) as part of any
     application to purchase a contract offered by the prospectus,  a space that
     an applicant can check to request a Statement of Additional Information, or
     (2) a post card or similar written communication affixed to or included the
     prospectus  that  the  applicant  can  remove  to send for a  Statement  of
     Additional Information.

(c)  Registrant  undertakes to deliver any  Statement of Additional  Information
     and any financial  statements required to be made available under this Form
     promptly upon written or oral request to American  Enterprise Life Contract
     Owner Service at the address or phone number listed in the prospectus.

(d)  The  sponsoring  insurance  company  represents  that the fees and  charges
     deducted under the contract,  in the aggregate,  are reasonable in relation
     to the services  rendered,  the expenses  expected to be incurred,  and the
     risks assumed by the insurance company.

<PAGE>

                                                SIGNATURES

As  required by the  Securities  Act of 1933 and the  Investment  Company Act of
1940,  American  Enterprise Life Insurance Company,  on behalf of the Registrant
certifies  that it  meets  all of the  requirements  for  effectiveness  of this
amendment  to its  Registration  Statement  pursuant  to Rule  485(b)  under the
Securities  Act of 1933 and has duly caused this  amendment to its  Registration
Statement  to be  signed  on its  behalf  by  the  undersigned,  thereunto  duly
authorized in the City of Minneapolis,  and State of Minnesota,  on the 27th day
of April, 2000.

                           AMERICAN ENTERPRISE VARIABLE ANNUITY ACCOUNT
                                                              (Registrant)

                           By American Enterprise Life Insurance Company
                                    (Sponsor)

                           By /s/   James E. Choat*
                                    James E. Choat
                                    Director, President and Chief Executive
                                      Officer

As required by the  Securities Act of 1933,  this Amendment to the  Registration
Statement has been signed by the following  persons in the capacities  indicated
on the 27th day of April, 2000.

Signature                              Title

/s/  James E. Choat*                   Director, President and Chief Executive
     James E. Choat                    Officer

/s/  Jeffrey S. Horton*                Vice President and Treasurer
     Jeffrey S. Horton

/s/  Richard W. Kling*                 Director and Chairman of the Board
     Richard W. Kling

/s/  Paul S. Mannweiler*               Director
     Paul S. Mannweiler

/s/  Paula R. Meyer*                   Executive Vice President,
     Paula R. Meyer                    Assured Assets

/s/  William A. Stoltzmann*            Director, Vice President,
     William A. Stoltzmann             General Counsel and Secretary

/s/  Philip C. Wentzel*                Vice President and Controller
     Philip C. Wentzel

*    Signed   pursuant  to  Power  of  Attorney  dated  July  29,  1999,   filed
     electronically  as Exhibit  15.3 to the  Pre-Effective  Amendment  No. 1 to
     Registration  Statement  No.  33-74865  filed on or about  August 4,  1999,
     incorporated herein by reference.



By: /s/ Mary Ellyn Minenko
        Mary Ellyn Minenko

<PAGE>

                   CONTENTS OF POST-EFFECTIVE AMENDMENT NO. 3
                     TO REGISTRATION STATEMENT NO. 333-20217

This  Amendment to the  Registration  Statement  is  comprised of the  following
papers and documents:

The Cover Page.

Part A.

         The prospectus.

Part B.

         Statement of Additional Information.

         Financial Statements.

Part C.

         Other Information.

         The signatures.

Exhibits.




AEL Preferred Variable Annuity
Registration Number 333-20217

EXHIBIT INDEX

Exhibit  9        Opinion of Counsel

Exhibit  10       Consent of Independent Auditors










April 27, 2000



American Enterprise Life Insurance Company
829 AXP Financial Center
Minneapolis, MN 55474

RE:      American Enterprise Variable Annuity Account
         Post-Effective Amendment No. 3
         File No.: 333-20217/811-7195

Ladies and Gentlemen:

I am familiar with the establishment of the American Enterprise Variable Annuity
Account  ("Account"),  which is a separate  account of American  Enterprise Life
Insurance  Company  ("Company")  established by the Company's Board of Directors
according  to   applicable   insurance   law.  I  also  am  familiar   with  the
above-referenced  Registration  Statement  filed by the Company on behalf of the
Account with the Securities and Exchange Commission.

I have made such  examination  of law and examined such documents and records as
in my judgment are necessary and  appropriate to enable me to give the following
opinion:

The Company is duly  incorporated,  validly  existing and in good standing under
applicable  state law and is duly  licensed or  qualified to do business in each
jurisdiction where it transacts  business.  The Company has all corporate powers
required to carry on its business and to issue the contracts.

The Account is a validly  created and existing  separate  account of the Company
and is duly authorized to issue the securities registered.

The contracts  issued by the Company,  when offered and sold in accordance  with
the prospectus  contained in the  Registration  Statement and in compliance with
applicable law, will be legally issued and represent binding  obligations of the
Company in accordance with their terms.

I hereby consent to the filing of this opinion as an exhibit to the Registration
Statement.

Sincerely,



/s/ Mary Ellyn Minenko
Mary Ellyn Minenko
Group Counsel



          Consent of Independent Auditors




We consent to the reference to our firm under the caption "Independent Auditors"
in the  Statement of Additional  Information  and to the use of our report dated
February 3, 2000 with respect to the financial statements of American Enterprise
Life  Insurance  Company and to the use of our report  dated March 17, 2000 with
respect to the financial  statements  of American  Enterprise  Variable  Annuity
Account - AEL Preferred Subaccounts, included in Post-Effective Amendment No. 3
to the Registration  Statement (Form N-4, No. 333-20217) and related  Prospectus
for the  registration  of the AEL  Preferred  Variable  Annuity  Contracts to be
offered by American Enterprise Life Insurance Company.






/s/ Ernst & Young LLP
Minneapolis, Minnesota
April 24, 2000



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