10-Q 1 ael-10q.txt AMERICAN ENTERPRISE LIFE INSURANCE COMPANY UNITED STATES SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 FORM 10-Q |X| QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the quarterly period ended June 30, 2004 OR |_| TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the transition period from ________to ________ Commission file number 333-65080 AMERICAN ENTERPRISE LIFE INSURANCE COMPANY (Exact name of registrant as specified in its charter) Indiana 94-2786905 (State or other jurisdiction of (I.R.S. Employer incorporation or organization) Identification No.) 829 AXP Financial Center Minneapolis, Minnesota 55474 (Address of principal executive offices) (Zip Code) Registrant's telephone number, including area code: (612) 671-3131 --------------- None -------------------------------------------------------------------------------- Former name, former address and former fiscal year, if changed since last report. Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes [X] No ____ Indicate by check mark whether the registrant is an accelerated filer (as defined in Rule 12b-2 of the Exchange Act). Yes ____ No [X] THE REGISTRANT MEETS THE CONDITIONS SET FORTH IN GENERAL INSTRUCTIONS H(1) (a) AND (b) OF FORM 10-Q AND IS THEREFORE FILING THIS FORM WITH THE REDUCED DISCLOSURE FORMAT. AMERICAN ENTERPRISE LIFE INSURANCE COMPANY FORM 10-Q INDEX Page No. Part I. Financial Information: Item 1. Financial Statements Consolidated Balance Sheets - June 30, 2004 and December 31, 2003 1 Consolidated Statements of Operations - Three months ended June 30, 2004 and 2003 2 Consolidated Statements of Operations - Six months ended June 30, 2004 and 2003 3 Consolidated Statements of Cash Flows - Six months ended June 30, 2004 and 2003 4 Notes to Consolidated Financial Statements 5 - 10 Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations 11 - 14 Item 4. Controls and Procedures 15 Part II. Other Information Item 1. Legal Proceedings 16 Item 6. Exhibits and Reports on Form 8-K 16 Signatures 17 Exhibit Index E-1 PART I. FINANCIAL INFORMATION ITEM 1. FINANCIAL STATEMENTS

See Notes to Consolidated Financial Statements. -1-

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See Notes to Consolidated Financial Statements. -4- AMERICAN ENTERPRISE LIFE INSURANCE COMPANY NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Unaudited) 1. Basis of Presentation The accompanying Consolidated Financial Statements should be read in conjunction with the financial statements in the Annual Report on Form 10-K of American Enterprise Life Insurance Company (American Enterprise Life) for the year ended December 31, 2003. Certain reclassifications of prior period amounts have been made to conform to the current presentation. The interim financial information in this report has not been audited. In the opinion of management, all adjustments necessary for a fair presentation of the consolidated financial position and the consolidated results of operations for the interim periods have been made. All adjustments made were of a normal, recurring nature. Results of operations reported for interim periods are not necessarily indicative of results for the entire year. Recently Issued Accounting Standards In July 2003, the American Institute of Certified Public Accountants issued Statement of Position 03-1, "Accounting and Reporting by Insurance Enterprises for Certain Nontraditional Long-Duration Contracts and for Separate Accounts" (SOP 03-1) effective for fiscal years beginning after December 15, 2003. SOP 03-1 provides guidance on separate account presentation and accounting for interests in separate accounts. Additionally, SOP 03-1 provides clarifying guidance as to the recognition of bonus interest and other sales inducement benefits and the presentation of any deferred amounts in the financial statements. Lastly, SOP 03-1 requires insurance enterprises to consider whether to establish additional liabilities for benefits that may become payable under variable annuity death benefit guarantees or other insurance or annuity contract provisions. Where an additional liability is established, the recognition of this liability will then be considered in amortizing deferred policy acquisition costs (DAC) and any deferred sales inducement costs associated with those insurance or annuity contracts. The adoption of SOP 03-1 as of January 1, 2004, resulted in a cumulative effect of accounting change that reduced 2004 results by $3.6 million ($5.5 million pretax). The cumulative effect of accounting change related to establishing additional liabilities for certain variable annuity guaranteed benefits and from considering these liabilities in valuing DAC and deferred sales inducement costs associated with those contracts. Prior to the adoption of SOP 03-1, amounts paid in excess of contract value were expensed when payable. American Enterprise Life's accounting for separate accounts was already consistent with the provisions of SOP 03-1 and, therefore, there was no impact related to this requirement. The additional liabilities for guaranteed benefits established under SOP 03-1 are supported by general account assets. Changes in these liabilities are included in death and other benefits in the Consolidated Statements of Operations. Variable annuity contracts offered by American Enterprise Life all contain guaranteed minimum death benefit (GMDB) provisions. When market values of the customer's accounts decline, the death benefit payable on a contract with a GMDB may exceed the contract accumulation value. American Enterprise Life also offers variable annuities with death benefit provisions that gross up the amount payable by a certain percentage of contract earnings; these are referred to as gain gross-up benefits (GGU). In addition, American Enterprise Life offers contracts containing guaranteed minimum income benefit (GMIB) provisions. If elected by the contract owner and after a stipulated waiting period from -5- AMERICAN ENTERPRISE LIFE INSURANCE COMPANY NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Unaudited) contract issuance, a GMIB guarantees a minimum lifetime annuity based on a specified rate of contract accumulation value growth and predetermined annuity purchase rates. American Enterprise Life has established additional liabilities for these variable annuity death and GMIB benefits under SOP 03-1. American Enterprise Life has not established additional liabilities for other insurance or annuitization guarantees for which the risk is currently immaterial. The variable annuity death benefit liability is determined each period by estimating the expected value of death benefits in excess of the projected contract accumulation value and recognizing the excess over the estimated meaningful life based on expected assessments (e.g., mortality and expense fees, contractual administrative charges and similar fees). Similarly, the GMIB liability is determined each period by estimating the expected value of annuitization benefits in excess of the projected contract accumulation value at the date of annuitization and recognizing the excess over the estimated meaningful life based on expected assessments. Significant assumptions made in projecting future benefits and assessments relate to customer asset value growth rates, mortality, persistency and investment margins and are consistent with those used for DAC asset valuation for the same contracts. In determining the additional liabilities for variable annuity death benefits and GMIB, American Enterprise Life projects these benefits and contract assessments over 200 randomly generated equity market scenarios. As with DAC, management will review and, where appropriate, adjust its assumptions each quarter. Unless management identifies a material deviation over the course of the quarterly monitoring, management will review and update these assumptions annually in the third quarter of each year. -6- AMERICAN ENTERPRISE LIFE INSURANCE COMPANY NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Unaudited) The following provides summary information related to variable annuity contracts for which American Enterprise Life has established additional liabilities for death benefits and guaranteed minimum income benefits:

Contract values in separate accounts were invested in various equity, bond or other funds as directed by the contract holder. No gains or losses were recognized on assets transferred to separate accounts for the periods presented. Sales inducement costs consist of bonus interest credits and premium credits added to certain annuity contract values. These benefits are capitalized to the extent they are incremental to amounts that would be credited on similar contracts without the applicable feature. Deferred sales inducement costs were $51.5 million and $49.2 million as of June 30, 2004 and December 31, 2003, respectively, and are stated separately in the Consolidated Balance Sheets. These costs were previously included in DAC and were reclassified as part of the adoption of SOP 03-1. The amounts capitalized are amortized using the same methodology and assumptions used to amortize DAC. American Enterprise Life capitalized $3.1 million and $7.0 million during the three months ended June 30, 2004 and 2003, respectively, and $7.4 million and $11.4 million during the six months ended June 30, 2004 and 2003, respectively. American Enterprise Life amortized $2.5 million and $2.3 million during the -7- AMERICAN ENTERPRISE LIFE INSURANCE COMPANY NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Unaudited) three months ended June 30, 2004 and 2003, respectively, and $4.8 million and $4.5 million during the six months ended June 30, 2004 and 2003, respectively. In November 2003, the Financial Accounting Standards Board (FASB) ratified a consensus on the disclosure provisions of Emerging Issues Task Force (EITF) Issue 03-1, "The Meaning of Other-Than-Temporary Impairment and Its Application to Certain Investments." American Enterprise Life complied with the disclosure provisions of this rule in Note 2 to the Consolidated Financial Statements included in its Annual Report on Form 10-K for the year ended December 31, 2003. In March 2004, the FASB reached a consensus regarding the application of a three-step impairment model to determine whether cost method investments are other-than-temporarily impaired. The provisions of this rule are required to be applied prospectively to all current and future investments accounted for in accordance with SFAS No. 115, "Accounting for Certain Investments in Debt and Equity Securities," and other cost method investments for reporting periods beginning after June 15, 2004. Assuming no market changes, American Enterprise Life does not expect EITF 03-1 to have a material impact on its results of operations at the time of adoption. 2. Investment Securities Gross realized gains and losses on sales and losses recognized for other-than-temporary impairments of securities classified as Available-for-Sale, using the specific identification method, were as follows for the three months ended June 30, 2004 and 2003:

3. Comprehensive Income Comprehensive income is defined as the aggregate change in stockholder's equity, excluding changes in ownership interests. It is the sum of net income and changes in unrealized gains or losses on Available-for-Sale securities and applicable deferred policy acquisition and deferred sales inducement costs, net of related tax and unrealized gains or losses on derivatives, net of related tax. -8- AMERICAN ENTERPRISE LIFE INSURANCE COMPANY NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Unaudited) Total comprehensive (loss) income was $(154.2) million and $41.3 million for the three months ended June 30, 2004 and 2003, respectively. Total comprehensive (loss) income was $(75.3) million and $55.1 million for the six months ended June 30, 2004 and 2003, respectively. The difference between net income and total comprehensive income for these periods primarily reflects the after-tax change in net unrealized (loss) gain on Available-for-Sale securities. 4. Taxes and interest Net income taxes paid during the six months ended June 30, 2004 and 2003, were $1.7 million and $13.8 million, respectively. Interest paid on borrowings during the six months ended June 30, 2004 and 2003, was $0.4 million and $5.3 thousand, respectively. 5. Commitments and contingencies Commitments to fund mortgage loans on real estate at June 30, 2004 and December 31, 2003 were $3.1 million and $1.0 million, respectively. The maximum amount of life insurance risk retained by American Enterprise Life is $750,000 on any single life. Risk not retained is reinsured with other life insurance companies on a yearly renewable term basis. American Enterprise Life retains all accidental death benefit and waiver of premium risk. Reinsurance contracts do not relieve American Enterprise Life from its primary obligation to policyholders. Substantially all of American Enterprise Life's annuity products have minimum interest rate guarantees in their fixed accounts. As of June 30, 2004, these minimum interest rate guarantees ranged from 1.5 percent to 5.0 percent. To the extent the yield on American Enterprise Life's investment portfolio declines below its target spread plus the minimum guarantee, American Enterprise Life's profitability would be negatively affected. The Securities and Exchange Commission (SEC), the National Association of Securities Dealers (NASD) and several state attorneys general have brought proceedings challenging several mutual fund and variable product financial practices, including suitability generally, late trading, market timing, disclosure of revenue sharing arrangements, and inappropriate sales. American Enterprise Life has received requests for information and has been contacted by regulatory authorities concerning its practices and is cooperating fully with these inquiries. American Enterprise Life and its affiliates are involved in other legal and arbitration proceedings concerning matters arising in connection with the conduct of their respective business activities. American Enterprise Life believes it has meritorious defenses to each of these actions and intends to defend them vigorously. In addition, American Enterprise Life is subject to periodic state insurance department regulatory action, through examinations or other proceedings. American Enterprise Life believes that it is not a party to, nor are any of its properties the subject of, any pending legal, arbitration or regulatory proceedings that would have a material adverse effect on American Enterprise Life's consolidated financial condition, results of operations or liquidity. However, it is possible that the outcome of any such proceedings could have a material impact on results of operations in any particular reporting period as the proceedings are resolved. -9- AMERICAN ENTERPRISE LIFE INSURANCE COMPANY NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Unaudited) The IRS routinely examines American Enterprise Life's federal income tax information and is currently conducting an audit for the 1993 through 1996 tax years. Management does not believe there will be a material adverse effect on American Enterprise Life's consolidated financial position as a result of these audits. -10- ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS American Enterprise Life Insurance Company is a stock life insurance company organized under the laws of the State of Indiana. American Enterprise Life Insurance Company is a wholly owned subsidiary of IDS Life Insurance Company, a Minnesota corporation. IDS Life Insurance Company is a wholly owned subsidiary of American Express Financial Corporation (AEFC). AEFC is a wholly owned subsidiary of American Express Company. American Enterprise Life Insurance Company provides financial institution clients American Express branded financial products and services to support their retail insurance and annuity operations. American Enterprise Life Insurance Company issues variable life insurance and fixed and variable annuity contracts, primarily through regional and national financial institutions and regional and/or independent broker-dealers, in all states except New York and New Hampshire. American Enterprise REO 1, LLC is a wholly owned subsidiary of American Enterprise Life Insurance Company. This subsidiary holds real estate investments and/or mortgage loans on real estate. American Enterprise Life Insurance Company and its subsidiary are referred to collectively herein as "American Enterprise Life". American Enterprise Life follows United States generally accepted accounting principles (GAAP), and the following discussion is presented on a consolidated basis consistent with GAAP. Certain of the statements below are forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995. See the Forward-Looking Statements section below. Results of Operations for the Three Months Ended June 30, 2004 and 2003 Net income was $2.3 million for the three months ended June 30, 2004, compared to a net loss of $2.3 million for the three months ended June 30, 2003, reflecting an overall increase in revenues, and decreases in interest credited on investment contracts and universal life-type insurance and other insurance and operating expenses, partially offset by an increased effective tax rate, as described further below. Revenues Net investment income increased 4 percent to $96.1 million. Net realized gain on investments was $2.3 million for the three months ended June 30, 2004 compared to a loss of $0.8 million for the three months ended June 30, 2003. For the three months ended June 30, 2004, $3.2 million of investment gains were partially offset by $0.9 million of gross realized losses from sales of securities classified as Available-for-Sale. Included in investment gains are $2.7 million of gross realized gains classified as Available-for-Sale. For the three months ended June 30, 2003, $4.1 million of gross realized gains from sales of securities classified as Available-for-Sale were more than offset by $4.9 million of investment losses. Included in these total investment losses are $1.0 million of gross realized losses from sales of securities, as well as $3.0 million of other-than-temporary investment impairment losses, classified as Available-for-Sale. Mortality and expense risk and other fees increased $2.5 million or 83 percent, primarily reflecting higher average values of separate account assets. -11- Benefits and Expenses Interest credited on investment contracts and universal life-type insurance decreased $6.3 million or 10 percent reflecting lower interest crediting rates and the effect of lower appreciation in the S&P 500 on equity indexed annuities this year versus last year, partially offset by higher average inforce levels. Other insurance and operating expenses decreased by $8.1 million or 42 percent, primarily due to favorable market value changes on interest rate swaps for the three months ended June 30, 2004, compared to the same period a year ago. American Enterprise Life enters into pay-fixed, receive-variable interest rate swaps with IDS Life to protect the spread between yields earned on investments and interest rates credited to fixed annuity products. The interest rate swaps are economic hedges that are not designated for hedge accounting treatment under SFAS No. 133. The effective tax rate rose primarily due to a reduction in net deferred tax assets. Results of Operations for the Six Months Ended June 30, 2004 and 2003 Income before accounting change was $7.9 million for the six months ended June 30, 2004 compared to $17.0 million for the six months ended June 30, 2003, primarily reflecting reduced net realized gains on investments and an increased tax provision, partially offset by increased net investment income and reduced interest credited on investment contracts and universal life-type insurance. Net income for the six months ended June 30, 2004 reflects the $3.6 million ($5.5 million pretax) impact of American Enterprise Life's adoption of SOP 03-1. See "Recently Issued Accounting Standards" section of Note 1 to the Consolidated Financial Statements for discussion regarding the impact of adoption of SOP 03-1. Revenues Net investment income increased 6.7 percent to $190.5 million. Net realized gain on investments was $4.1 million for the six months ended June 30, 2004 compared to $25.3 million for the six months ended June 30, 2003. For the six months ended June 30, 2004, $6.2 million of investment gains were partially offset by $2.1 million of impairments and losses. Included in these total investment gains and losses are $5.7 million of gross realized gains and $1.5 million of gross realized losses from sales of securities classified as Available-for-Sale. For the six months ended June 30, 2003, $44.8 million of gross realized gains from sales of securities classified as Available-for-Sale were partially offset by $19.5 million of impairments and losses. Included in these investment losses are $9.1 million of gross realized losses from sales of securities, as well as $9.3 million of other-than-temporary investment impairment losses, classified as Available-for-Sale. Mortality and expense risk and other fees increased $4.9 million or 84 percent, primarily reflecting higher average values of separate account assets. -12- Benefits and Expenses Interest credited on investment contracts and universal life-type insurance decreased $8.6 million or 7 percent reflecting lower interest crediting rates, partially offset by higher average inforce levels. The effective tax rate rose primarily due to the second quarter 2004 reduction in net deferred tax assets. Deferred Policy Acquisition Costs The costs of acquiring new business, including, for example, direct sales commissions, policy issue costs and other related costs have been deferred on the sale of annuity contracts. Deferred policy acquisition costs (DAC) for certain annuities are amortized as a percentage of the estimated gross profits expected to be realized on the policies. DAC for other annuities are amortized using the interest method. Amortization of DAC requires the use of certain assumptions including interest margins, persistency rates, maintenance expense levels and customer asset value growth rates for variable annuities. The customer asset value growth rate is the rate at which contract values are assumed to appreciate in the future. This rate is net of asset fees, and anticipates a blend of equity and fixed income investments. Management routinely monitors a wide variety of trends in the business including comparisons of actual and assumed experience. Management reviews and, where appropriate, adjusts its assumptions with respect to customer asset value growth rates on a quarterly basis. Management monitors other principal DAC assumptions, such as persistency, mortality, interest margin and maintenance expense level assumptions, each quarter. Unless management identifies a material deviation over the course of the quarterly monitoring process, management reviews and updates these DAC assumptions annually in the third quarter of each year. When assumptions are changed, the percentage of estimated gross profits or portion of interest margins used to amortize DAC may also change. A change in the required amortization percentage is applied retrospectively; an increase in amortization percentage will result in an acceleration of DAC amortization while a decrease in amortization percentage will result in a deceleration of DAC amortization. The impact on results of operations of changing assumptions with respect to the amortization of DAC can be either positive or negative in any particular period, and is reflected in the period that such changes are made. DAC of $313.2 million and $296.7 million related to annuities was on American Enterprise Life's consolidated balance sheet at June 30, 2004 and December 31, 2003, respectively. In addition to these DAC balances, and in conjunction with American Enterprise Life's adoption of SOP 03-1, American Enterprise Life had $51.5 million and $49.2 million of deferred sales inducement costs at June 30, 2004 and December 31, 2003, respectively. Sales inducement costs include bonus interest credits and premium credits added to certain annuity contract values. American Enterprise Life capitalizes these benefit costs to the extent they are incremental to amounts that would be credited on similar contracts without the applicable feature. The amounts capitalized are amortized using the same methodology and assumptions used to amortize DAC. Impact of Recent Market Volatility on Results of Operations Various aspects of American Enterprise Life's business are impacted by equity market levels and other market-based events. Several areas in particular involve DAC and deferred sales inducement costs, recognition of benefits under GMDB and certain other variable annuity benefits, mortality and expense risk and other fees and structured investments. The direction and magnitude of the changes in equity markets can increase or decrease amortization of DAC and -13- deferred sales inducement costs, incurred amounts under GMDB and other variable annuity benefit provisions, and mortality and expense risk and other fees and correspondingly affect results of operations in any particular period. Similarly, the value of American Enterprise Life's structured investment portfolio is impacted by various market factors. Persistency of, or increases in, bond and loan default rates, among other factors, could result in negative adjustments to the market values of these investments in the future, which would adversely impact results of operations. Liquidity and Capital Resources American Enterprise Life's liquidity requirements are generally met by funds provided by annuity considerations, investment income, proceeds from sales of investments as well as maturities and periodic repayments of investment principal and capital contributions received from IDS Life. The primary uses of funds are annuity obligations, commissions, other product-related acquisition and sales inducement costs and operating expenses and investment purchases. American Enterprise Life routinely reviews its sources and uses of funds in order to meet its ongoing obligations. American Enterprise Life has an available line of credit with AEFC aggregating $50 million. No borrowings were outstanding under the line of credit at June 30, 2004. American Enterprise Life had no outstanding reverse repurchase agreements at June 30, 2004. Both the line of credit and reverse repurchase agreements are used strictly as short-term sources of funds. Investments include $503.0 million, $467.6 million and $273.7 million of below investment grade securities (excluding net unrealized appreciation and depreciation) at June 30, 2004, December 31, 2003 and June 30, 2003, respectively. These investments represent 7.3 percent, 6.6 percent and 3.9 percent of American Enterprise Life's investment portfolio at June 30, 2004, December 31, 2003 and June 30, 2003, respectively. OTHER REPORTING MATTERS Accounting Developments See "Recently Issued Accounting Standards" section of Note 1 to the Consolidated Financial Statements. -14- ITEM 4. CONTROLS AND PROCEDURES The American Enterprise Life's management, with the participation of American Enterprise Life's Chief Executive Officer and Chief Financial Officer, has evaluated the effectiveness of American Enterprise Life's disclosure controls and procedures (as such term is defined in Rules 13a-15(e) and 15d-15(e) under the Securities Exchange Act of 1934, as amended (the "Exchange Act")) as of the end of the period covered by this report. Based on such evaluation, American Enterprise Life's Chief Executive Officer and Chief Financial Officer have concluded that, as of the end of such period, its disclosure controls and procedures are effective. There have not been any changes in American Enterprise Life's internal control over financial reporting (as such term is defined in Rules 13a-15(f) and 15d-15(f) under the Exchange Act) during the fiscal quarter to which this report relates that have materially affected, or are reasonably likely to materially affect, American Enterprise Life's internal control over financial reporting. Forward-Looking Statements This report includes forward-looking statements which are subject to risks and uncertainties that could cause results to differ materially from such statements. The words "believe," "expect," "anticipate," "optimistic," "intend," "plan," "aim," "will," "may," "should," "could," "likely," and similar expressions are intended to identify forward-looking statements. Readers are cautioned not to place undue reliance on these forward-looking statements, which speak only as of the date on which they are made. American Enterprise Life undertakes no obligation to update or revise any forward-looking statements. Factors that could cause actual results to differ materially from these forward-looking statements include, but are not limited to: fluctuations in external markets, which can affect the amount and types of investment products sold, the market value of its separate account assets, and related mortality and expense risk and other fees and the amount of amortization of DAC; potential deterioration in high-yield and other investments, which could result in further losses in American Enterprise Life's investment portfolio; changes in assumptions relating to DAC which also could impact the amount of DAC amortization; the ability to sell certain high-yield investments at expected values and within anticipated time frames and to maintain its high-yield portfolio at certain levels in the future; the types and value of certain death benefit features on variable annuity contracts; the affect of assessments and other surcharges for guaranty funds; the response of reinsurance companies under reinsurance contracts; the impact of reinsurance rates and the availability and adequacy of reinsurance to protect American Enterprise Life against losses; negative changes in IDS Life Insurance Company's and American Enterprise Life's credit ratings; increasing competition in all American Enterprise Life's major businesses; the adoption of recently issued rules related to the consolidation of variable interest entities, including those involving CDOs that American Enterprise Life may from time-to-time invest in and reserves required pursuant to SOP 03-1 which could affect both American Enterprise Life's balance sheet and results of operations; and outcomes of litigation. A further description of these and other risks and uncertainties can be found in American Enterprise Life's Annual Report on Form 10-K for the year ended December 31, 2003 and its other reports filed with the Securities and Exchange Commission (SEC). -15- PART II. OTHER INFORMATION AMERICAN ENTERPRISE LIFE INSURANCE COMPANY Item 1. Legal Proceedings The Securities and Exchange Commission (SEC), the National Association of Securities Dealers (NASD) and several state attorneys general have brought proceedings challenging several mutual fund and variable account financial practices, including suitability generally, late trading, market timing, disclosure of revenue sharing arrangements, and inappropriate sales. American Enterprise Life has received requests for information and has been contacted by regulatory authorities concerning its practices and is cooperating fully with these inquiries. American Enterprise Life and its affiliates are involved in other legal and arbitration proceedings concerning matters arising in connection with the conduct of their respective business activities. American Enterprise Life believes it has meritorious defenses to each of these actions and intends to defend them vigorously. American Enterprise Life believes that it is not a party to, nor are any of its properties the subject of, any pending legal or arbitration proceedings that would have a material adverse effect on American Enterprise Life's consolidated financial condition, results of operations or liquidity. However, it is possible that the outcome of any such proceedings could have a material impact on results of operations in any particular reporting period as the proceedings are resolved. Item 6. Exhibits and Reports on Form 8-K (a) Exhibits See Exhibit Index on page E-1 hereof. (b) Reports on Form 8-K. Form 8K, filed May 17, 2004, Item 5, reporting that on May 17, 2004 American Enterprise Life Insurance Company appointed Dave K. Stewart as Principal Accounting Officer, replacing Jeryl Millner. -16- SIGNATURES Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized. AMERICAN ENTERPRISE LIFE INSURANCE COMPANY (Registrant) Date: August 3, 2004 By /s/ Mark E. Schwarzmann ------------------------------------------- Mark E. Schwarzmann Director, Chairman of the Board and Chief Executive Officer Date: August 3, 2004 By /s/ Arthur H. Berman ------------------------------------------- Arthur H. Berman Director and Executive Vice President - Finance and Chief Financial Officer -17- EXHIBIT INDEX The following exhibits are filed as part of this Quarterly Report: Exhibit Description 31.1 Certification of Mark E. Schwarzmann pursuant to Rule 13a-14(a) promulgated under the Securities Exchange Act of 1934, as amended. 31.2 Certification of Arthur H. Berman pursuant to Rule 13a-14(a) promulgated under the Securities Exchange Act of 1934, as amended. 32.1 Certification of Mark E. Schwarzmann and Arthur H. Berman pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002. E-1

AMERICAN ENTERPRISE MVA ACCOUNT 10-Q