10-Q 1 ael-10q.txt AMERICAN ENTERPRISE LIFE INSURANCE COMPANY UNITED STATES SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 FORM 10-Q Quarterly Report Under Section 13 or 15(d) of the Securities Exchange Act of 1934 (Mark one) [X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the quarterly period ended September 30, 2003 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 -------------- 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 Statements of Operations - Three months ended September 30, 2003 and 2002 1 Consolidated Statements of Operations - Nine months ended September 30, 2003 and 2002 2 Consolidated Balance Sheets - September 30, 2003 and December 31, 2002 3 Consolidated Statements of Cash Flows - Nine months ended September 30, 2003 and 2002 4 Notes to Consolidated Financial Statements 5 - 8 Item 2. Management's Discussion and Analysis of Financial 9 - 14 Condition and Results of Operations Item 4. Controls and Procedures 15 Part II. Other Information 17 Item 1. Legal Proceedings 17 Item 6. Exhibits and Reports on Form 8-K 17 Signatures 18 Exhibit Index E-1 PART I. FINANCIAL INFORMATION ITEM 1. FINANCIAL STATEMENTS

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-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 (the Company) for the year ended December 31, 2002. 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 January 2003, the Financial Accounting Standards Board (FASB) issued Interpretation No. 46, "Consolidation of Variable Interest Entities" (FIN 46), which addresses consolidation by business enterprises of variable interest entities (VIEs). In October 2003, the FASB issued a statement delaying the effective date of the consolidation provisions of FIN 46 from July 1, 2003 to December 31, 2003. The adoption of FIN 46 is not expected to have a material impact on the Company's financial statements. However, the Company continues to evaluate all relationships and interests in entities that may be considered VIEs as detailed interpretations of FIN 46 continue to emerge. 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). The Company is currently evaluating its impact, which, among other provisions, requires reserves related to guaranteed minimum death benefits -5- AMERICAN ENTERPRISE LIFE INSURANCE COMPANY NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (unaudited) (GMDBs) and guaranteed minimum income benefits (GMIBs) included within the variable annuity contracts offered by the Company. SOP 03-1 is required to be adopted on January 1, 2004. 2. Investment Securities Gross realized gains on sales of securities classified as Available-for-Sale, using the specific identification method, were $6.5 million and $11.5 million for the three months ended September 30, 2003 and 2002, respectively. Gross realized losses on sales of securities classified as Available-for-Sale were $10.2 million and $5.7 million for the three months ended September 30, 2003 and 2002, respectively. The Company also recognized other-than-temporary impairment losses on Available-for-Sale securities of $1.6 million for the three months ended September 30, 2002. Gross realized gains on sales of securities classified as Available-for-Sale, using the specific identification method, were $51.2 million and $23.6 million for the nine months ended September 30, 2003 and 2002, respectively. Gross realized losses on sales of securities classified as Available-for-Sale were $19.3 million and $10.3 million for the nine months ended September 30, 2003 and 2002, respectively. The Company also recognized other-than-temporary impairment losses on Available-for-Sale securities of $9.3 million and $9.5 million for the nine months ended September 30, 2003 and 2002. 3. Comprehensive Income Comprehensive income is defined as the aggregate change in stockholders' 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 costs, net of related tax and unrealized gains or losses on derivatives, net of related tax. Total comprehensive (loss) income was a loss of $38.8 million and income of $56.1 million for the three months ended September 30, 2003 and 2002, respectively. Total comprehensive income was $16.4 million and $76.8 million for the nine months ended September 30, 2003 and 2002, respectively. The difference between net income and total comprehensive income for these periods primarily reflects the change in net unrealized gains on Available-for-Sale securities. -6- AMERICAN ENTERPRISE LIFE INSURANCE COMPANY NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (unaudited) 4. Taxes and interest Cash received for income taxes during the nine months ended September 30, 2003 was $2.4 million. Net income taxes paid during the nine months ended September 30, 2002 was $19.4 million. Interest paid on borrowings during the nine months ended September 30, 2003 was $253,000. 5. Commitments and contingencies Commitments to fund mortgage loans on real estate at September 30, 2003 were $1.2 million. The maximum amount of life insurance risk retained by the Company is $750,000 on any single life. Risk not retained is reinsured with other life insurance companies on a yearly renewable term basis. The Company retains all accidental death benefit and waiver of premium risk. Reinsurance contracts do not relieve the Company from its primary obligation to policyholders. The variable annuity contracts offered by the Company contain guaranteed minimum death benefit (GMDB) provisions. To the extent that the GMDB is higher than the current account value at the time of death, a cost is incurred by the issuer of the policy. Current accounting literature does not prescribe advance recognition of the projected future net costs associated with these guarantees, and accordingly, the Company currently does not record a liability corresponding to these future obligations for death benefits in excess of annuity account value. At present, the amount paid in excess of contract value is expensed when payable. Amounts expensed for the three months ended September 30, 2003 and 2002, were $500,000 and $1 million, respectively. Amounts expensed for the nine months ended September 30, 2003 and 2002, were $2.5 million and $2.0 million, respectively. The Company also issues certain variable annuity contracts that contain a guaranteed minimum income benefit (GMIB) feature which, if elected by the contract owner and after a stipulated waiting period from contract issuance, guarantees a minimum lifetime annuity based on predetermined annuity purchase rates. To date, the Company has not expensed any amount related to GMIBs as all terms on GMIB features are within the stipulated waiting periods. As discussed in Note 1, SOP 03-1, which was issued by the AICPA in July 2003 with a required adoption date of January 1, 2004, will require reserves related to GMDBs and GMIBs. The impact of that requirement, as well as other provisions of SOP 03-1, is being evaluated. -7- AMERICAN ENTERPRISE LIFE INSURANCE COMPANY NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (unaudited) The Company's annuity products all have minimum interest rate guarantees in their fixed accounts. These guarantees range from 3 percent to 4.5 percent. To the extent the yield on the Company's invested asset portfolio declines below its target spread plus the minimum guarantee, the Company's profitability would be negatively affected. The IRS routinely examines the Company'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 the Company's consolidated financial position as a result of these audits. The Company is a party to litigation and arbitration proceedings in the ordinary course of its business. The outcome of any litigation or threatened litigation cannot be predicted with any certainty. However, in the aggregate, the Company does not consider any lawsuits in which it is named as a defendant to have a material impact on the Company's financial position or operating results. -8- ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS American Enterprise Life Insurance Company (the "Company") is a stock life insurance company organized under the laws of the State of Indiana. The Company is a wholly owned subsidiary of IDS Life Insurance Company ("IDS Life"), a Minnesota corporation. IDS Life is a wholly owned subsidiary of American Express Financial Corporation ("AEFC"). AEFC is a wholly owned subsidiary of American Express Company. The Company provides financial institution clients with American Express branded financial products and services to support their retail insurance and annuity operations. The 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 the Company. This subsidiary holds real estate investments and/or mortgage loans on real estate. The Company follows accounting principles generally accepted in the United States (GAAP). Results of Operations for the Three Months Ended September 30, 2003 and 2002 Net income was $6.8 million for the three months ended September 30, 2003, compared to a net loss of $13.8 million for the three months ended September 30, 2002, and reflects increased investment income due to higher investment levels partially offset by lower investment yields and a decrease in other insurance and operating expense, partially offset by an increase in interest credited on investment contracts and universal life-type insurance. Net investment income increased 32 percent reflecting a higher average level of investments, partially offset by lower average yields on the investment portfolio. Net realized loss on investments was $3.7 million for the three months ended September 30, 2003 compared to net realized gain on investments of $2.8 million for the three months ended September 30, 2002. For the three months ended September 30, 2003, $6.5 million of gross realized gains were more than offset by $10.2 million of gross realized losses from sales of securities classified as Available-for-Sale. For the three months ended September 30, 2002, $11.5 million of gross realized gains from sales of securities classified as Available-for-Sale were partially offset by $8.7 million of impairments and losses. Included in these impairments and losses are $5.7 million of gross realized losses from sales of securities, as well as $1.6 million of other-than-temporary investment impairment losses, classified as Available-for-Sale. Total benefits and expenses were $89.5 million, a decrease of 14 percent from the three months ended September 30, 2002. This decrease reflects lower other insurance and operating expenses, lower DAC amortization and lower crediting rates as a result of the relatively low interest rate environment, partially offset by increased interest credited expenses as a result of higher average levels of fixed annuities in force. Other insurance -9- and operating expenses decreased 68 percent to $11 million, partially reflecting favorable market value changes on interest rate swaps in 2003 compared to unfavorable market value changes in 2002. The relatively low and stable interest rate environment in the third quarter 2003 compared to declining interest rates during the third quarter of 2002 is the primary driver behind the favorable market value changes to the interest rate swaps. The Company enters into pay-fixed, receive-variable interest rate swaps with its parent company (IDS Life) to protect the spread between yields earned on investments and crediting rates on fixed-annuity products. The interest rate swaps are economic hedges that are not designated for hedge accounting treatment under SFAS No. 133. Amortization of deferred policy acquisition costs (DAC) decreased 36 percent reflecting a $4.6 million increase in DAC amortization expense in the third quarter 2002 together with a $3.2 million decrease in DAC amortization expense in the third quarter of 2003, both as a result of the Company's annual third quarter review of various DAC assumptions and practices. See the DAC section below for further discussion of DAC and related adjustments. The change in the income tax provision (benefit) quarter over quarter reflects pre-tax income of $9.7 million in the 2003 period as opposed to a pre-tax loss of $21.8 million in the same period a year ago. Results of Operations for the Nine Months Ended September 30, 2003 and 2002 Net income was $23.8 million for the nine months ended September 30, 2003, compared to a net loss of $24.9 million for the nine months ended September 30, 2002. The favorable change in net income primarily reflects increased net investment income and net realized gains on investments versus a slight loss in the 2002 period, as well as decreased other insurance and operating expense, partially offset by increased interest credited on investment contracts and universal life-type insurance. Net investment income increased 29 percent reflecting a higher average level of investments partially offset by lower average yields on the investment portfolio. Net realized gain on investments was $21.5 million for the nine months ended September 30, 2003 compared to a net loss of $775,000 for the nine months ended September 30, 2002. For the nine months ended September 30, 2003, $51.2 million of gross realized gains from sales of securities classified as Available-for-Sale were partially offset by $29.7 million of impairments and losses. Included in these total impairments and losses are $19.3 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. For the nine months ended September 30, 2002, $23.6 million of gross realized gains from sales of securities classified as Available-for-Sale were slightly more than offset by $24.4 million of impairments and losses. Included in these impairments and losses are $10.3 million of gross realized losses from sales of securities, as well as $9.5 million of other-than-temporary investment impairment losses, classified as Available-for-Sale. Total benefits and expenses were $276.6 million, an increase of 4 percent from the nine months ended September 30, 2002. This increase reflects higher interest credited on -10- investment contracts and universal life-type insurance and slightly higher DAC amortization expense, partially offset by a substantial decrease in other insurance and operating expenses. Interest credited on investment contracts and universal-type insurance increased 28 percent reflecting higher average levels of fixed annuities in force, partially offset by lower crediting rates as a result of the relatively low interest rate environment. Other insurance and operating expenses decreased 44 percent, partially reflecting favorable market value changes on interest rate swaps during 2003. DAC amortization expense increased 5 percent reflecting the third quarter 2003 and 2002 DAC related adjustments as a result of the Company's annual third quarter review of various DAC assumptions and practices, which were more than offset by a relative increase in DAC amortization expense during the first two quarters of 2003 as a result of the third quarter 2002 changes in assumed customer asset value growth rates. The year-to-date 2003 versus 2002 change in the income tax provision (benefit) reflects year-to-date pre-tax income of $35.8 million during the nine months ended September 30, 2003, while during the same period a year ago, the Company incurred a year-to-date pre-tax loss of $38.8 million. 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 -11- changes are made. As a result of these reviews, the Company took actions in both 2003 and 2002 that impacted the DAC balance and expenses. In the third quarter of 2003, the Company improved its modeling of certain variable annuity contract revenues and unlocked estimated gross profits retrospectively to reflect actual interest margins and death and other benefits. The Company also adjusted its assumptions to reflect lower than previously assumed spreads on fixed account values and adjusted the near-term rate and period used in projecting growth in customer asset values on variable annuities. These actions resulted in a $3.2 million reduction in DAC amortization expense. In the third quarter of 2002, the Company reset its customer asset value growth rate assumptions for variable annuity products to anticipate near-term and long-term growth at an annual rate of 7%. This action resulted in a $4.6 million increase in DAC amortization expense. DAC of $330.3 million related to annuities was on the Company's consolidated balance sheet at September 30, 2003. The DAC balance was $260.6 million at December 31, 2002, and was also related to annuities. Impact of Market-Volatility on Results of Operations Various aspects of the Company business are impacted by equity market levels and other market-based events. Three areas in particular involve DAC, mortality and expense risk fees and structured investments. The direction and magnitude of the changes in equity markets can increase or decrease DAC expense levels and mortality and expense risk fees and correspondingly affect results of operations in any particular period. Similarly, the value of the Company'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. Another area impacted by market-based events is guaranteed minimum death benefits (GMDBs). The variable annuity contracts offered by the Company contain guaranteed minimum death benefit (GMDB) provisions. To the extent that the GMDB is higher than the current account value at the time of death, a cost is incurred by the issuer of the policy. Current accounting literature does not prescribe advance recognition of the projected future net costs associated with these guarantees, and accordingly, the Company currently does not record a liability corresponding to these future obligations for death benefits in excess of annuity account value. At present, the amount paid in excess of contract value is expensed when payable. Amounts expensed for the three months ended September 30, 2003 and 2002, were $500,000 and $1 million, respectively. Amounts expensed for the nine months ended September 30, 2003 and 2002, were $2.5 million and $2 million, respectively. The Company also issues certain variable annuity contracts that contain a guaranteed minimum income benefit (GMIB) feature which, if elected by the contract owner and after a stipulated waiting period from contract issuance, guarantees a minimum lifetime annuity based on predetermined annuity purchase rates. To date, the Company has not expensed any amount related to GMIBs as all terms on GMIB features are within the stipulated waiting periods. In July 2003, the American Institute of -12- Certified Public Accountants (AICPA) 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) which requires reserves related to GMDBs and GMIBs. The impact of that requirement as well as other provisions of SOP 03-1 is currently being evaluated. The Company's annuity products all have minimum interest rate guarantees in their fixed accounts. These guarantees range from 3 percent to 4.5 percent. To the extent the yield on the Company's invested asset portfolio declines below its target spread plus the minimum guarantee, the Company's profitability would be negatively affected. Liquidity and Capital Resources The liquidity requirements of the Company are generally met by funds provided by annuity considerations, capital contributions, investment income, proceeds from sales of investments as well as maturities and periodic repayments of investment principal. The primary uses of funds are annuity obligations, commissions and operating expenses and investment purchases. The Company routinely reviews its sources and uses of funds in order to meet its ongoing obligations. The Company has an available line of credit with AEFC aggregating $50 million. The line of credit is used strictly as a short-term source of funds. No borrowings were outstanding under the line of credit at September 30, 2003. The Company also, from time to time, uses reverse repurchase agreements for short-term liquidity needs. There were no reverse repurchase agreements outstanding at September 30, 2003. At September 30, 2003, based on amortized cost, approximately 5 percent of the Company's investments in fixed maturities were below investment grade bonds. These investments may be subject to a higher degree of risk than the investment grade issues because of the borrower's generally greater sensitivity to adverse economic conditions, such as recession or increasing interest rates, and in certain instances, the lack of an active secondary market. Expected returns on below investment grade bonds reflect consideration of such factors. The Company has identified those fixed maturities for which a decline in fair value is determined to be other than temporary, and has written them down to fair value with a charge to earnings. Additionally, the Company had a reserve for losses on mortgage loans of $8 million at September 30, 2003. During 2001, the Company placed its rated collateralized debt obligation (CDO) securities and related accrued interest, (collectively referred to as transferred assets), having an aggregate book value of $54 million, into a securitization trust. In return, the Company received $7 million in cash (excluding transaction expenses) relating to sales to unaffiliated investors and retained interests in the trust with allocated book amounts aggregating $47 million. As of September 30, 2003, the retained interests had a carrying value of $43 million, of which $33 million is considered investment grade. The Company has no obligations, contingent or otherwise, to such unaffiliated investors. One of the results of this transaction is that increases or decreases in future cash flows of the individual CDOs are combined into one overall cash flow for purposes of determining the carrying value of the retained interests and related impact on results of operations. -13- OTHER REPORTING MATTERS Accounting Developments In January 2003, the Financial Accounting Standards Board (FASB) issued Interpretation No. 46, "Consolidation of Variable Interest Entities" (FIN 46), which addresses consolidation by business enterprises of variable interest entities (VIEs). In October 2003, the FASB issued a statement delaying the effective date of the consolidation provisions of FIN 46 from July 1, 2003 to December 31, 2003. Certain disclosures are required for financial statements issued after January 31, 2003 and are addressed in Note 1 to the Consolidated Financial Statements. The impact of adopting FIN 46 on the Consolidated Financial Statements is dependent upon further FASB interpretations of FIN 46. In July 2003, the AICPA 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). The Company is currently evaluating its impact, which, among other provisions, requires reserves related to guaranteed minimum death benefits (GMDBs) and guaranteed minimum income benefits (GMIBs) included within its variable annuity contracts. SOP 03-1 is required to be adopted on January 1, 2004. See Impact of Recent Market-Volatility on Results of Operations section of MD&A for further discussion. -14- ITEM 4. CONTROLS AND PROCEDURES (a) Disclosure Controls and Procedures. The Company's management, with the participation of the Company's Chief Executive Officer and Chief Financial Officer, has evaluated the effectiveness of the Company'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, the Company's Chief Executive Officer and Chief Financial Officer have concluded that, as of the end of such period, the Company's disclosure controls and procedures are effective. (b) Internal Control Over Financial Reporting. There have not been any changes in the Company'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, the Company's internal control over financial reporting. Forward-Looking Statements This report includes forward-looking statements, which are subject to risks and uncertainties. The words "believe," "expect," "anticipate," "optimistic," "intend," "plan," "aim," "will," "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. The Company 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: the Company's ability to successfully implement a business model that allows for significant earnings growth based on revenue growth that is lower than historical levels, including the ability to improve its operating expense to revenue ratio both in the short-term and over time, which will depend in part on the effectiveness of reengineering and other cost control initiatives, as well as factors impacting the Company's revenues; the Company's ability to grow its business over time, which will depend on the Company's ability to manage its capital needs and the effect of business mix, and rating agency requirements; the ability to increase investment spending, which will depend in part on the equity markets and other factors affecting revenues, and the ability to capitalize on such investments to improve business metrics; the accuracy of certain critical accounting estimates, including, the fair value of the assets in the Company's investment portfolio (including those investments that are not readily marketable); fluctuation in the equity and fixed income markets, which can affect the amount and types of investment products sold, the market value of its managed assets, management, distribution and other fees received based on the value of those assets, the Company's ability to recover DAC as well as the timing of such DAC amortization, in connection with the sale of annuity and insurance products, and the level of guaranteed minimum death benefits paid to clients; changes in assumptions relating to DAC, which -15- could impact the amount of DAC amortization; potential deterioration in the Company's high-yield and other investments, which could result in further losses in the investment portfolio; the ability to sell certain high-yield investments at expected values and within anticipated timeframes 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 the Company against losses; a downturn in the Company's business and/or negative changes in the Company's and its subsidiaries' claims-paying ability and other ratings, which could negatively impact sales; increasing competition in all of the Company's major lines of business; fluctuations in interest rates, which impact the Company's spreads, credit trends and the rate of bankruptcies, which can affect returns on the Company's investment portfolios; changes in laws or government regulations, including tax laws affecting the Company's business or that may affect the sales of the Company's products, and regulatory activity in the areas of customer privacy, consumer protection, business continuity and data protection; the adoption of recently issued accounting rules related to the consolidation of variable interest entities, including those involving CDOs that the Company invests in, which could affect both the Company's balance sheet and results of operations; and outcomes and costs associated with litigation and compliance and regulatory matters. -16- PART II - OTHER INFORMATION AMERICAN ENTERPRISE LIFE INSURANCE COMPANY Item 1. Legal Proceedings The Company is a party to litigation and arbitration proceedings in the ordinary course of its business. The outcome of any litigation or threatened litigation cannot be predicted with any certainty. However, in the aggregate, the Company does not consider any lawsuits in which it is named as a defendant to have a material impact on the Company's financial position or operating results. 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. There were no reports on Form 8-K filed by the Company during the quarterly period ended September 30, 2003. -17- 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: November 14, 2003 By /s/ Carol A. Holton ------------------- Carol A. Holton Chief Executive Officer Date: November 14, 2003 By /s/ John T. Sweeney ------------------- John T. Sweeney Executive Vice President - Finance and Chief Financial Officer -18- EXHIBIT INDEX The following exhibits are filed as part of this Quarterly Report: Exhibit Description 31.1 Certification of Carol A. Holton pursuant to Rule 13a-14(a) promulgated under the Securities Exchange Act of 1934, as amended. 31.2 Certification of John T. Sweeney pursuant to Rule 13a-14(a) promulgated under the Securities Exchange Act of 1934, as amended. 32.1 Certification of Carol A. Holton and John T. Sweeney 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