UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM S-1
POST-EFFECTIVE AMENDMENT NO. 15
TO REGISTRATION STATEMENT NO. 33-28976
Under
The Securities Act of 1933
IDS Life Insurance Company
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(Exact name of registrant as specified in its charter)
Minnesota
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(State or other jurisdiction of incorporation or organization)
63
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(Primary Standard Industrial Classification Code Number)
41-0823832
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(I.R.S. Employer Identification No.)
200 AXP Financial Center, Minneapolis, MN 55474
(612) 671-3131
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(Address, including zip code, and telephone number, including
area code, of registrant's principal executive offices)
Mary Ellyn Minenko
IDS Life Insurance Company
50607 AXP Financial Center, Minneapolis, Minnesota 55474
(612) 671-3678
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Name, address, including zip code, and telephone number,
including area code, of agent for service)
If any of the securities being registered on this Form are to be offered on a
delayed or continuous basis pursuant to Rule 415 under the Securities Act of
1933, check the following box. [X]
Calculation of Registration Fee
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Title of Each Class Amount to be Proposed Maximum Proposed Maximum Amount of
of Securities to be Registered Offering Price Per Aggregate Offering Registration Fee
Registered Unit Price
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Interests in a group N/A
market value annuity
contract and
individual market
value annuity
contracts for non-tax
qualified purchases.
PART I.
INFORMATION REQUIRED IN PROSPECTUS
Attached hereto and made a part hereof is the Prospectus.
[AMERICAN EXPRESS LOGO-Registered Trademark-]
AMERICAN EXPRESS
GUARANTEED TERM
ANNUITY
ISSUED BY:
IDS LIFE INSURANCE COMPANY
PROSPECTUS, MAY 1, 2001
IDS Life Insurance Company (IDS Life) issues this annuity and offers it in two
ways:
- - A Group Market Value Annuity Contract, and
- - Individual Market Value Annuity Contracts.
To buy this annuity, you must send IDS Life a purchase payment of at least
$5,000 with an application for a contract.
IDS LIFE ACCOUNT MGA
GROUP AND INDIVIDUAL MARKET VALUE ANNUITY CONTRACTS
ISSUED AND SOLD BY: IDS LIFE INSURANCE COMPANY
70100 AXP Financial Center
Minneapolis, MN 55474
Telephone: (800) 862-7919
If you choose not to hold these securities until the end of a guarantee period,
they may be subject to a substantial surrender charge or market value
adjustment. As a result, you could get less than your purchase payment back.
Interest rates for renewal guarantee periods may be higher or lower than the
previous guaranteed interest rate. The minimum guaranteed renewal interest rate
is 3%. IDS Life guarantees this rate.
THE SECURITIES AND EXCHANGE COMMISSION (SEC) HAS NOT APPROVED OR DISAPPROVED
THESE SECURITIES OR PASSED UPON THE ADEQUACY OF THIS PROSPECTUS. ANY
REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE.
AN INVESTMENT IN THIS ANNUITY 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 ANNUITY
INVOLVES INVESTMENT RISK INCLUDING THE POSSIBLE LOSS OF PRINCIPAL.
Before you invest, be sure to ask your sales representative about the annuity's
features, benefits, risks and fees, and whether the annuity is appropriate for
you, based upon your financial situation and objectives.
IDS Life and its affiliated insurance companies offer several different
annuities which your sales representative may be authorized to offer to you.
Each annuity has different features and benefits that may be appropriate for you
based on your financial situation and needs, your age and how you intend to use
the annuity. The different features and benefits may include the investment and
fund manager options, variations in interest rate amount and guarantees,
credits, surrender charge schedules and access to annuity account values. The
fees and charges may also be different between each annuity.
TABLE OF CONTENTS
THE GUARANTEED TERM ANNUITY IN BRIEF .....................3
KEY TERMS ................................................4
DESCRIPTION OF CONTRACTS .................................5
General ..................................................5
Application and Purchase Payment .........................5
Right to Cancel ..........................................5
Guarantee Periods ........................................5
Surrenders ...............................................7
Surrender Charge .........................................8
MARKET VALUE ADJUSTMENT ..................................9
PREMIUM TAXES ...........................................10
DEATH BENEFIT PRIOR TO SETTLEMENT .......................10
THE ANNUITY PAYMENT PERIOD ..............................11
AMENDMENT, DISTRIBUTION AND ASSIGNMENT OF CONTRACTS .....12
FEDERAL TAX CONSIDERATIONS ..............................13
THE COMPANY .............................................14
DIRECTORS AND EXECUTIVE OFFICERS ........................19
EXPERTS .................................................21
APPENDIX A-- PARTIAL SURRENDER ILLUSTRATION .............22
APPENDIX B-- MARKET VALUE ADJUSTMENT ILLUSTRATION .......24
IDS LIFE INSURANCE COMPANY FINANCIAL INFORMATION ........26
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2 AMERICAN EXPRESS GUARANTEED TERM ANNUITY
THE GUARANTEED TERM ANNUITY IN BRIEF
In this prospectus, "we," "us" and "IDS Life" refer to IDS Life Insurance
Company and "you" and "yours" refer to an owner who has been issued a contract.
This summary is incomplete. Do not rely on it as a description of your contract.
For more complete information, you must read the entire prospectus. You can find
more information about a topic in the summary by turning to the discussion
beginning at the page listed after that topic in the summary.
CONTRACTS: We are offering qualified and nonqualified group and individual
market value annuities to the general public. As is 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 or life insurance policy.
Most annuities have a tax deferred feature. So do many retirement plans under
the Internal Revenue Code. As a result, when you use an annuity to fund a
retirement plan that is tax deferred, your annuity will not provide any
necessary or additional tax deferral for that retirement plan. But annuities do
have features other than tax deferral that may help you reach your retirement
goals. You should consult your tax advisor prior to making a purchase for an
explanation of the tax implications to you.
These market value annuity contracts have a guaranteed interest rate that we
credit to the purchase payment when it is held to the end of the guarantee
period (the renewal date). Surrenders before the renewal date are subject to a
market value adjustment and, if it applies, a surrender charge.
GUARANTEE PERIODS: When you make a payment under an application, you select a
guarantee period from among those that we offer when we receive your application
and payment. During this guarantee period, the purchase payment earns interest
at the interest rate that we have guaranteed for your contract. We credit
interest daily. Credited interest earns interest at the applicable guaranteed
interest rate we establish. (p. 5)
RENEWAL GUARANTEE PERIODS: At the end of each guarantee period, a renewal
guarantee period of one year will begin, unless you choose a different period.
You must choose the length of a renewal guarantee period during the 30 days
before the end of the previous guarantee period. Beginning on the first day of
each renewal guarantee period, the renewal value will earn interest at the
renewal interest rate that we have guaranteed for your contract and the interest
credited will earn interest at that interest rate. (p. 6)
SURRENDERS: With some restrictions, we permit partial or total surrenders. We
may delay payment of any surrender for up to six months from the date we receive
notice of surrender or the period permitted by state law, if less. A delay of
payment will not be for more than seven days except under extraordinary
circumstances. If we choose to exercise this right, then during this delay, we
will pay annual interest of at least 3% of any amounts delayed for more than
thirty days. (p. 7)
SURRENDER CHARGE: If you surrender before the eighth contract anniversary, a
surrender charge beginning at a maximum of 8% of the market adjusted value
surrendered will be subtracted from your account. No surrender charge applies if
you surrender on the last day of a guarantee period. We will waive the surrender
charge in certain instances. (p. 8)
MARKET VALUE ADJUSTMENT: The market value adjustment is the increase or decrease
in the value of any early surrender you make from your annuity. A market value
adjustment applies when the surrender occurs before the renewal date. No market
value adjustment applies to any surrender at the end of a guarantee period. The
amount of the actual adjustment is determined by a formula that is based on the
difference between the guaranteed interest rate on your annuity and a current
interest rate determined by IDS Life. That current interest rate will be the
rate that IDS Life pays on a new Guaranteed Term Annuity that has a guaranteed
period equal to the time remaining on the term of your annuity. The formula also
includes a 0.25% charge that will reduce the value of your surrender regardless
of the current interest rate then in effect. The amount you receive on surrender
could be less than your original purchase payment if interest rates increase. If
interest rates decrease, the amount you receive on surrender may be more than
your original purchase payment and accrued interest. The market adjusted value
also affects settlements under an annuity payment plan. (p. 9)
PREMIUM TAXES: We may deduct premium taxes from the accumulation value of your
contract. State premium taxes range from 0 to 3.5% of your gross purchase
payments. (p. 10)
DEATH BENEFIT PRIOR TO SETTLEMENT: The contract provides for a guaranteed death
benefit. If the annuitant or owner dies before the settlement date, we will pay
to the owner or beneficiary the death benefit in place of any other payment
under the contract. The amount of the death benefit will equal the accumulation
value. (p. 10)
THE ANNUITY PAYMENT PERIOD: Beginning at a specified time in the future, we will
pay the owner a lump sum payment or start to pay a series of payments. You may
choose a series of payments under some annuity plans. (p. 11)
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PROSPECTUS - MAY 1, 2001 3
KEY TERMS
THESE TERMS CAN HELP YOU UNDERSTAND DETAILS ABOUT YOUR CONTRACT:
ACCUMULATION VALUE: The value of the purchase payment plus interest credited,
adjusted for any surrenders.
ANNUITANT: The person on whose life monthly annuity payments depend.
ANNUITY: A contract purchased from an insurance company that offers tax-deferred
growth of the purchase payment until earnings are withdrawn.
CASH SURRENDER VALUE: The market adjusted value less any applicable surrender
charge. On the last day of a guarantee period, the cash surrender value is the
accumulation value.
CONTRACT: A deferred annuity contract, or a certificate showing your interest
under a group annuity contract, that permits you to accumulate money for
retirement by making a purchase payment. A contract provides for a lifetime or
other forms of payouts beginning at a specified time in the future.
CONTRACT ANNIVERSARY: The same day and month as the contract date each year that
the contract remains in force.
CONTRACT DATE: The effective date of the contract as designated in the contract.
CURRENT INTEREST RATE: The applicable interest rate contained in a schedule of
rates established by us at our discretion from time to time for various
guarantee periods.
INITIAL GUARANTEE PERIOD: The period during which the initial guarantee rate
will be credited.
INITIAL GUARANTEE RATE: The rate of interest credited to the purchase payment
during the initial guarantee period.
MARKET ADJUSTED VALUE: The accumulation value increased or decreased by the
market adjusted value formula, on any date before the end of the guarantee
period.
MARKET VALUE ADJUSTMENT: The market adjusted value minus the accumulation value.
OWNER: The person or entity to whom the annuity contract is issued.
PURCHASE PAYMENT: Payment made to IDS Life for an annuity.
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
- - SIMPLE IRAs under Section 408(p) of the Code
- - Simplified Employee Pension (SEP) plans under Section 408(k) of the Code
- - Plans under Section 401(k) of the Code
- - Custodial and trusteed plans under Section 401(a) of the Code
- - Tax-Sheltered Annuities (TSA's) under Section 403(b) of the Code
A qualified annuity will not provide any necessary or additional tax deferral if
it is used to fund a retirement plan that is already tax deferred.
All other contracts are considered NONQUALIFIED ANNUITIES.
RENEWAL DATE: The first day of a renewal guarantee period. It will always be on
a contract anniversary.
RENEWAL GUARANTEE PERIOD: A renewal guarantee period will begin at the end of
each guarantee period.
RENEWAL GUARANTEE RATE: The rate of interest credited to the renewal value
during the renewal guarantee period as set at our discretion.
RENEWAL VALUE: The accumulation value at the end of the current guarantee
period.
SETTLEMENT: The application of contract value to provide annuity payments. If
the settlement date is not the last day of a guarantee period, we apply the
market adjusted value of the contract. On the last day of a guarantee period, we
apply the accumulation value of the contract.
SETTLEMENT DATE: The date on which annuity payments are to begin.
WRITTEN REQUEST: A request in writing signed by you and delivered to us at our
corporate office.
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4 AMERICAN EXPRESS GUARANTEED TERM ANNUITY
DESCRIPTION OF CONTRACTS
GENERAL
This prospectus describes interests in qualified and nonqualified group and
individual market value annuity contracts offered by IDS Life to the general
public.
As described in this prospectus, the contracts have an interest rate guaranteed
by IDS Life that we credit to a purchase payment in the contract when the
purchase payment stays in the contract to its renewal date. We credit (compound)
interest daily to achieve a stated annual effective rate, based on a 365 day
year. We do not pay interest on leap days (Feb. 29th). Surrenders prior to the
renewal date are subject to a market value adjustment, a surrender charge (if
applicable), income taxes, and a 10% IRS tax penalty if withdrawn prior to age
59 1/2.
APPLICATION AND PURCHASE PAYMENT
To apply for a contract, you must complete an application and make a minimum
purchase payment of $5,000. For individuals age 90 and younger, the maximum
purchase payment is $1,000,000 without prior approval. This limit applies in
total to all IDS Life annuities you own. If you purchase the contract to fund a
tax-deferred retirement plan, that plan's limit on contributions also will
apply. Once we apply a purchase payment to a contract, we do not permit any
additional purchase payment under the contract.
We will return an improperly completed application, along with the corresponding
purchase payment, five business days after we receive it.
A payment is credited to a contract on the date we receive a properly completed
application at our corporate office along with the purchase payment. Interest is
earned the next day. IDS Life then issues a contract and confirms the purchase
payment in writing.
RIGHT TO CANCEL
State or federal law may give you the right to cancel the contract within a
specific period of time after receipt of the contract and receive a refund of
the entire purchase payment. For revocation to be effective, mailing or delivery
of notice of cancellation must be made in writing to our corporate office at the
following address: IDS Life Insurance Company, Attn: Transactions, 70100 AXP
Financial Center, Minneapolis, MN 55474.
GUARANTEE PERIODS
You select the duration of the guarantee period from among those durations we
offer when we receive your application and payment. As of the date of this
prospectus, we are offering guarantee periods with annual durations from one to
10 years; however, the guarantee periods we offer in the future could be
different. The duration selected will determine the guaranteed interest rate and
the purchase payment (less surrenders made and less applicable premium taxes, if
any) will earn interest at this guaranteed interest rate during the entire
guarantee period. Interest is credited to your annuity daily. All interest rates
we quote are effective annual interest rates. This refers to the rate that
results after interest has compounded daily for a full year. In other words, the
interest you earn each day earns interest itself the next day, assuming you do
not withdraw it. (At the end of a year, assuming you have made no withdrawals,
your interest earnings will equal your guaranteed rate multiplied by your
contract value at the beginning of the year.)
The example below shows how we will credit interest during the guarantee period.
For the purpose of this example, we have made the assumptions as indicated.
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PROSPECTUS - MAY 1, 2001 5
EXAMPLE OF GUARANTEED RATE OF ACCUMULATION
Beginning account value: $50,000
Guaranteed period: 10 years
Guaranteed rate: 6% annual effective rate
INTEREST CREDITED TO THE CUMULATIVE INTEREST
YEAR ACCOUNT DURING YEAR CREDITED TO THE ACCOUNT ACCUMULATION VALUE
1 $3,000.00 $ 3,000.00 $53,000.00
2 3,180.00 6,180.00 56,180.00
3 3,370.80 9,550.80 59,550.80
4 3,573.05 13,123.85 63,123.85
5 3,787.43 16,911.28 66,911.28
6 4,014.68 20,925.96 70,925.96
7 4,255.56 25,181.51 75,181.51
8 4,510.89 29,692.40 79,692.40
9 4,781.54 34,473.95 84,473.95
10 5,068.44 39,542.38 89,542.38
Guaranteed accumulation value at the end of 10 years is:
$50,000 + $39,542.38 = $89,542.38
NOTE: THIS EXAMPLE ASSUMES NO SURRENDERS OF ANY AMOUNT DURING THE ENTIRE
TEN-YEAR PERIOD. A MARKET VALUE ADJUSTMENT APPLIES AND A SURRENDER CHARGE MAY
APPLY TO ANY INTERIM SURRENDER (SEE SURRENDERS). THE HYPOTHETICAL INTEREST RATES
ARE ONLY ILLUSTRATIONS. THEY DO NOT PREDICT FUTURE INTEREST RATES TO BE DECLARED
UNDER THE CONTRACT. ACTUAL INTEREST RATES DECLARED FOR ANY GIVEN TIME MAY BE
MORE OR LESS THAN THOSE SHOWN.
RENEWAL GUARANTEE PERIODS: At the end of any guarantee period, a renewal
guarantee period will begin. We will notify you in writing about the renewal
guarantee periods available before the renewal date. This written notification
will not specify the interest rate for the renewal value. You may elect in
writing, during the 30-day period before the end of the guarantee period, a
renewal guarantee period of a different duration from among those we offer at
that time. If you do not make an election, we will automatically apply the
renewal value to a guarantee period of one year. In no event may renewal
guarantee periods extend beyond the settlement date then in effect for the
contract. For example, if the annuitant is age 82 at the end of a guarantee
period and the settlement date for the annuitant is age 85, a three-year
guarantee period is the maximum guarantee period that you may choose under the
contract. The renewal value will then earn interest at a guaranteed interest
rate that we have declared for this duration. We may declare new schedules of
guaranteed interest rates as often as daily.
At the beginning of any renewal guarantee period, the renewal value will be the
accumulation value at the end of the guarantee period just ending. We guarantee
the renewal value with our general assets. This amount will earn interest for
the renewal guarantee period at the then applicable guaranteed interest rate for
the period selected. This rate may be higher or lower than the previous
guaranteed interest rate.
At your written request, we will notify you of the renewal guarantee rates for
the periods then available. You also may call us to ask about renewal guarantee
rates.
ESTABLISHMENT OF GUARANTEED INTEREST RATES: We will know the guaranteed interest
rate for a chosen guarantee period at the time we receive a purchase payment or
you renew an accumulation value. We will send a confirmation that will show the
amount and the applicable guaranteed interest rate. The minimum guaranteed
interest rate for renewal values is 3% per year. The rate on renewal values will
be equal to or greater than the rate credited on new comparable purchase
payments at that time.
The interest rates that IDS Life will declare as guaranteed rates in the future
are determined by us at our discretion. We will determine the rates based on
various factors including, but not limited to, the interest rate environment,
returns earned on investments backing these annuities (see Investments by IDS
Life), product design, competition, and IDS Life's revenues and expenses. WE
CANNOT PREDICT NOR CAN WE GUARANTEE FUTURE GUARANTEED INTEREST RATES ABOVE THE
3% RATE.
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6 AMERICAN EXPRESS GUARANTEED TERM ANNUITY
SURRENDERS
GENERAL: Subject to certain tax law and retirement plan restrictions noted
below, you may make total and partial surrenders under a contract at any time.
For all surrenders, we will reduce the accumulation value by the amount
surrendered on the surrender date and that amount will be payable to the owner.
We will also reduce the accumulation value by any applicable surrender charge.
We will either reduce or increase the accumulation value by any market value
adjustment applicable to the surrender. IDS Life will, on request, inform you of
the amount payable in a total or partial surrender.
Any total or partial surrender may be subject to tax and tax penalties.
Surrenders from certain tax qualified annuities also may be subject to 20%
income tax withholding. (See Federal Tax Considerations.)
TAX-SHELTERED ANNUITIES: The Code imposes certain restrictions on an owner's
right to receive early distributions attributable to salary reduction
contributions from a contract purchased for a retirement plan qualified under
Section 403(b) of the Code as a tax-sheltered annuity (TSA).
Distributions attributable to salary reduction contributions made after Dec. 31,
1988, plus all earnings since Dec. 31, 1988, or to transfers or rollovers of
such amounts from other contracts, may come from the TSA contract only if you
have attained age 59 1/2, have become disabled as defined in the Code, have
separated from the service of your employer that purchased the contract or have
died.
Additionally, if you should encounter a financial hardship (within the meaning
of the Code), you may receive a distribution of all contract values attributable
to salary reduction contributions made after Dec. 31, 1988, but not of the
earnings on them.
Even though these rules may permit a distribution (e.g., for hardship or after
separation from service), it may nonetheless be subject to a 10% IRS penalty tax
(in addition to income tax) as a premature distribution and to 20% income tax
withholding. (See Federal Tax Considerations.)
These restrictions do not apply to transfers of contract value to another TSA
investment vehicle available through the employer.
PARTIAL SURRENDERS: Unless we agree otherwise, the minimum amount you may
surrender is $250. You cannot make a partial surrender if it would reduce the
accumulation value of your annuity to less than $2,000.
You may request the net check amount you wish to receive. We will determine how
much accumulation value needs to be surrendered to yield the net check amount
after any applicable market value adjustments and surrender charge deductions.
You may make a partial surrender request not exceeding $100,000 by telephone. We
have the authority to honor any telephone partial surrender request believed to
be authentic and will use reasonable procedures to confirm that they are. This
includes asking identifying questions and tape recording calls. As long as
reasonable procedures are followed, neither IDS Life nor its affiliates will be
liable for any loss resulting from fraudulent requests. At times when the volume
of telephone requests is unusually high, we will take special measures to ensure
that your call is answered as promptly as possible. We will not allow a
telephone surrender request within 30 days of a phoned-in address change.
TOTAL SURRENDERS: We will compute the value of your contract at the next close
of business after we receive your request for a complete surrender. We may ask
you to return the contract.
PAYMENT ON SURRENDER: We may defer payment of any partial or total surrender for
a period not exceeding 6 months from the date we receive your notice of
surrender or the period permitted by state insurance law, if less. Only under
extraordinary circumstances will we defer a surrender payment more than 7 days,
and if we defer payment for more than 30 days, we will pay annual interest of at
least 3% on the amount deferred. While all circumstances under which we could
defer payment upon surrender may not be foreseeable at this time, such
circumstances could include, for example, our inability to liquidate assets due
to a general financial crisis. If we intend to withhold payment more than 30
days, we will notify you in writing.
NOTE: We will charge you a fee if you request express mail delivery of your
surrender check.
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PROSPECTUS - MAY 1, 2001 7
SURRENDER CHARGE
We may assess a surrender charge on any total or partial surrender taken prior
to the eighth contract anniversary unless the surrender occurs on the last day
of a guarantee period. We will base the amount of the surrender charge on the
length of the guarantee period. The table below shows the maximum amount of the
surrender charge.
SURRENDER CHARGE PERCENTAGE:
GUARANTEE CONTRACT YEARS AS MEASURED FROM THE BEGINNING OF A GUARANTEE PERIOD
PERIOD 1 2 3 4 5 6 7 8
1 year 1%
2 years 2 1%
3 years 3 2 1%
4 years 4 3 2 1%
5 years 5 4 3 2 1%
6 years 6 5 4 3 2 1%
7 years 7 6 5 4 3 2 1%
8 years 8 7 6 5 4 3 2 1%
9 years 8 7 6 5 4 3 2 1
10 years 8 7 6 5 4 3 2 1
To determine the surrender charge on the initial guarantee period, in the
"Guarantee period" column find the number of years for the guarantee period you
have chosen. The row that period is in reflects the schedule of surrender
charges during that period. For example, a 5 year guarantee period has a 5%
surrender charge in the first contract year, a 4% charge in the second, a 3%
charge in the third, a 2% charge in the 4th, and a 1% charge in the 5th.
For renewal guarantee periods, we will base the surrender charge on the lesser
of:
- - the length of the new guarantee period, or
- - the number of years remaining until the eighth contract anniversary.
In our example, if a contract owner chose an initial guarantee period of 5 years
and later a renewal guarantee period of 4 years, the surrender charge schedule
for that renewal guarantee period would be 3 years long. That is because there
are only 3 years remaining until the eighth contract anniversary (8 - 5 = 3),
and 3 years is less than the 4 year length of the new guarantee period. The
surrender charge percentages would be:
CONTRACT YEAR SURRENDER CHARGE
1 5%
2 4
3 3
4 2
5 1*
6 3
7 2
8 1
9+ 0
* 0% on last day of 5th contract year.
There will never be any surrender charges after the eighth contract anniversary.
Also, after the first contract anniversary, surrender charges will not apply to
surrenders of amounts totalling up to 10% of the accumulation value as of the
last contract anniversary.
SURRENDER CHARGE CALCULATION: If there is a surrender charge, we calculate it
as:
(A - B) x P
where: A = market adjusted value surrendered
B = the lesser of A or 10% of accumulation value on last contract
anniversary not already taken as a partial surrender this
contract year.
P = applicable surrender charge percentage
For an illustration of a partial surrender and applicable surrender charges, see
Appendix A.
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8 AMERICAN EXPRESS GUARANTEED TERM ANNUITY
WAIVER OF SURRENDER CHARGE: We will assess no surrender charge:
- - on the last day of a guarantee period;
- - after the eighth contract anniversary;
- - after the first contract anniversary for surrenders of amounts totalling up
to 10% of the contract accumulation value as of the last contract
anniversary;
- - upon the death of the annuitant or owner; or
- - upon the application of the market adjusted value to provide annuity payments
under an annuity payment plan (if such application occurs on a renewal date,
there will be no surrender charge or market value adjustment, and the full
accumulation value will be applied under an annuity payment plan).
In some cases, such as when an employer makes this annuity available to
employees, we may expect to incur lower sales and administrative expenses or
perform fewer services due to the size of the group, the average contribution
and the use of group enrollment procedures. Then we may be able to reduce or
eliminate surrender charges. However, we expect this to occur infrequently.
MARKET VALUE ADJUSTMENT
We guarantee the accumulation value, including the interest credited, if the
contract is held until the end of the guarantee period. However, we will apply a
market value adjustment if a surrender occurs prior to the end of the guarantee
period. The market adjusted value also affects settlements under an annuity
payment plan occurring at any time other than the last day of a guarantee
period.
The market adjusted value is your accumulation value (purchase payment plus
interest credited minus surrenders and surrender charges) adjusted by a formula.
The market adjusted value reflects the relationship between the guaranteed
interest rate on your contract and the interest rate we are crediting on new
Guaranteed Term Annuity contracts with guarantee periods that are the same as
the time remaining in your guarantee period.
The market adjusted value is sensitive to changes in current interest rates. The
difference between your accumulation value and market adjusted value on any day
will depend on our current schedule of guaranteed interest rates on that day,
the time remaining in your guarantee period and your guaranteed interest rate.
Upon surrender your market adjusted value may be greater than your contract's
accumulation value, equal to it or less than it depending on how the guaranteed
interest rate on your contract compares to the interest rate of a new Guaranteed
Term Annuity for the same number of years as the guarantee period remaining on
your contract.
Before we look at the market adjusted value formula, it may help to look in a
general way at how comparing your contract's guaranteed rate and the rate for a
new contract affects your market adjusted value.
RELATIONSHIP BETWEEN YOUR CONTRACT'S GUARANTEED RATE AND NEW CONTRACT FOR THE
SAME NUMBER OF YEARS AS THE GUARANTEED PERIOD REMAINING ON YOUR CONTRACT:
IF YOUR ANNUITY RATE IS: YOUR MARKET ADJUSTED VALUE WILL BE:
less than the new annuity rate +.25% less than your accumulation value
equal to the new annuity rate +.25% equal to your accumulation value
greater than the new annuity rate +.25% greater than your accumulation value
GENERAL EXAMPLES:
ASSUME:
- - You purchase a contract and choose a guarantee period of 10 years.
- - We guarantee an interest rate of 4.5% annually for your 10-year guarantee
period.
- - After 3 years you decide to surrender your contract. In other words, you
decide to surrender your contract when you have 7 years left in your guarantee
period.
Remember that your market adjusted value depends partly on the interest rate of
a new Guaranteed Term Annuity for the same number of years as the guarantee
period remaining on your contract. In this case, that is 7 years.
EXAMPLE 1: Remember that your contract is earning 4.5%. Assume that new
contracts that we offer with a 7-year guarantee period are earning 5.0%. We add
0.25% to the 5.0% rate to get 5.25%. Your contract's 4.5% rate is less than the
5.25% rate and, as reflected in the table above, your market adjusted value will
be less than your accumulation value.
EXAMPLE 2: Remember again that your contract is earning 4.5%, and assume that
new contracts that we offer with a 7-year guarantee period are earning 4.0%. We
add 0.25% to the 4.0% rate we are paying on new contracts, which equals 4.25%,
and compare that number to the 4.5% you are earning on your contract. In this
example, your contract's 4.5% rate is greater than the 4.25% rate, and, as
reflected in the table above, your market adjusted value will be greater than
your accumulation value. To determine that adjustment precisely, you will have
to use the formula described below.
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PROSPECTUS - MAY 1, 2001 9
As shown in the table headed "Surrender charge percentage," when your guarantee
period is 10 years and you have begun your fourth contract year from the
beginning of the guarantee period, your surrender charge percentage is 5%. In
either of our two examples, a 5% surrender charge would be deducted from the
market adjusted value.
The precise market adjusted value formula is as follows:
(RENEWAL VALUE)
MARKET ADJUSTED VALUE = -----------------
(l + i )To The Power of (N + t)
Mvi
Renewal value = The accumulation value at the end of the current guarantee
period
i = The current interest rate offered for a new Guaranteed Term
Mvi Annuity +.0025
N = The number of complete contract years to the end of the
current guarantee period
t = The fraction of the contract year remaining to the end of the
contract year (for example, if 180 days remain in a 365 day
contract year, it would be .493)
The current interest rate we offer on the Guaranteed Term Annuity will change
periodically at our discretion. It is the rate we are then paying on purchase
payments and renewals paid under this class of contracts for guarantee period
durations equaling the remaining guarantee period of the contract to which the
formula is being applied. If the remaining guarantee period is a number of
complete years, we will use the specific complete year guarantee rate. If the
remaining guarantee period is less than 1 year, we will use the one year
guarantee rate. If the remaining guarantee period is a number of complete years
plus fractional years, we will determine the rate by straight line interpolation
between the two years' rates. For example, if the remaining guarantee period
duration is 8.5 years, and the current guaranteed interest rate for 8 years is
4% and 9 years is 5%, IDS Life will use a guaranteed interest rate of 4.5%.
MARKET VALUE ADJUSTMENT FORMULA:
Market value adjustment = Market adjusted value less accumulation value
For an illustration showing an upward and downward adjustment, see Appendix B.
PREMIUM TAXES
We reserve the right to deduct an amount from the accumulation value of the
contract at the time that any applicable premium taxes assessed against the
Company or otherwise not previously deducted are payable. If a tax is payable at
the time of the purchase payment and we choose to not deduct it at that time, we
further reserve the right to deduct it at a later date. Current premium taxes
range in an amount up to 3.5% depending on jurisdiction.
DEATH BENEFIT PRIOR TO SETTLEMENT
If the annuitant or owner dies before the settlement date, the death claim will
be processed 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, 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.
NONQUALIFIED ANNUITIES: If your spouse is sole beneficiary or joint owner with a
right of survivorship and you die before the settlement 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.
If your beneficiary is not your spouse, 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 payments under any annuity payment plan available under this contract
if:
- - the beneficiary asks us in writing within 60 days after we receive proof of
death; and
- - payments begin no later than one year after your death, or other date
permitted by the Code; and
- - the payment period does not extend beyond the beneficiary's life or life
expectancy.
QUALIFIED ANNUITIES: The IRS has issued proposed regulations that will affect
distributions from your qualified annuity. These are proposed regulations that
may take effect Jan. 1, 2002. The information below is an explanation based on
existing law. Contact your tax advisor if you have any questions as to the
impact of the new proposed rules on your situation.
If your spouse is sole beneficiary and you die before the settlement date, your
spouse may keep the contract as owner until the date on which the annuitant
would have reached age 70 1/2, or any other date permitted by the Code. 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.
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10 AMERICAN EXPRESS GUARANTEED TERM ANNUITY
If your beneficiary is not your spouse, 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 payments under any annuity payment plan available under this contract
if:
- - the beneficiary asks us in writing within 60 days after we receive proof of
death; and
- - payments begin no later than one year after your death; and
- - the payment period does not extend beyond the beneficiary's life or life
expectancy.
THE ANNUITY PAYMENT PERIOD
ELECTING THE SETTLEMENT DATE AND FORM OF ANNUITY
When we process your application, we will establish the settlement date to the
maximum age or date as specified below. You can also select a date within the
maximum limits. This date can be aligned with your actual retirement from a job,
or it can be a different future date, depending on your needs and goals and on
certain restrictions. You can also change the date, provided you send us written
instructions at least 30 days before annuity payouts begin.
For nonqualified annuities and Roth IRAs, the settlement date cannot be later
than the latest of:
- - the contract anniversary nearest the annuitant's 85th birthday; or
- - the 10th contract anniversary.
For qualified annuities except Roth IRAs, to avoid IRS penalty taxes, the
settlement date generally must be:
- - on or after the date the annuitant reaches age 59 1/2;
- - for IRAs, SIMPLE IRAs and SEPs, by April 1 of the year following the calendar
year when the annuitant reaches age 70 1/2; or
- - for all other qualified annuities, by April 1 of the year following the
calendar year when the annuitant reaches age 70 1/2 or, if later, retires
(except that 5% business owners may not select a settlement date that is
later than April 1 of the year following the calendar year when they reach
age 70 1/2).
If you are taking the minimum IRA or TSA distributions as required by the Code
from another tax qualified investment, or in the form of partial surrenders from
this contract, annuity payouts can start as late as the annuitant's 85th
birthday or the 10th contract anniversary.
ANNUITY PAYMENTS: The first payment will be made as of the settlement date. Once
annuity payments have started for an annuitant, no surrender of the annuity
benefit can be made for the purpose of receiving a lump sum in lieu of payments.
DEATH AFTER SETTLEMENT DATE: If you or the annuitant dies after the settlement
date, the amount payable to the beneficiary, if any, will continue as provided
in the annuity payment plan then in effect.
ANNUITY PAYMENT PLANS
There are different ways to receive annuity payments. We call these plans. You
may select one of these plans, or another payment arrangement to which we agree,
by giving us written notice at least 30 days before the settlement date.
You may ask us to apply the market adjusted value (less applicable premium
taxes, if any) on the settlement date under any of the annuity plans described
below, but in the absence of an election, we will apply the market adjusted
value on the settlement date under Plan B to provide a life annuity with 120
monthly payments certain.
If the amount to be applied to an annuity plan is not at least $2,000 or if
payments are to be made to other than a natural person, we have the right to
make a lump sum payment of the cash surrender value. If a lump sum payment is
from a qualified annuity (except an IRA, Roth IRA, SIMPLE IRA or SEP), 20%
income tax withholding may apply.
- - PLAN A: This provides monthly annuity payments for the lifetime of the
annuitant. We will not make payments after the annuitant dies.
- - PLAN B: This provides monthly annuity payments for the lifetime of the
annuitant with a guarantee by us that payments will be made for a period of
at least 5, 10 or 15 years. You must select the period.
- - PLAN C: This provides monthly annuity payments for the lifetime of the
annuitant with a guarantee by us that payments will be made for a certain
number of months. We determine the number of months by dividing the market
adjusted value applied under this plan by the amount of the monthly annuity
payment.
- - PLAN D: We call this a joint and survivor life annuity. Monthly payments will
be paid while both the annuitant and a joint annuitant are living. When
either the annuitant or joint annuitant dies, we will continue to make
monthly payments until the death of the surviving annuitant. We will not make
payments after the death of the second annuitant.
- - PLAN E: This provides monthly fixed dollar annuity payments for a period of
years that you elect. The period of years may be no less than 10 nor more
than 30.
Other income plan options may be available.
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PROSPECTUS - MAY 1, 2001 11
The contract provides for annuity payment plans on a fixed basis only. The
amount of the annuity payment will depend on:
- - the market adjusted value (less any applicable premium tax not previously
deducted) on the date;
- - the annuity table we are then using for annuity settlements (never less than
the table guaranteed in the contract);
- - the annuitant's age; and
- - the annuity payment plan selected.
The tables for Plans A, B, C and D are based on the "1983 Individual Annuitant
Mortality Table A" and an assumed rate of 4% per year. The table for Plan E is
based on an interest rate of 4%. IDS Life may, at our discretion, if mortality
appears more favorable and interest rates justify, apply other tables that will
result in higher monthly payments.
ANNUITY PAYMENT PLAN REQUIREMENTS FOR QUALIFIED ANNUITIES: If you purchased a
qualified annuity, you have the responsibility for electing a payment plan that
complies with your contract and with applicable law. Payment plan options will
meet certain IRS regulations governing required minimum distributions if the
payment plan meets the incidental distribution benefit requirements, if any, and
the payments are made:
- - in equal or substantially equal payments over a period not longer than the
life of the annuitant or over the life of the annuitant or designated
beneficiary; or
- - in equal or substantially equal payments over a period not longer than the
life expectancy of the annuitant or over the life expectancy of the annuitant
and designated beneficiary; or
- - over a period certain not longer than the life expectancy of the annuitant or
over the life expectancy of the annuitant and designated beneficiary.
AMENDMENT, DISTRIBUTION AND ASSIGNMENT OF CONTRACTS
AMENDMENT OF CONTRACTS
We reserve the right to amend the contracts to meet the requirements of
applicable federal or state laws or regulations. We will notify you in writing
of any such amendments.
DISTRIBUTION OF CONTRACTS
IDS Life is the principal underwriter for the contracts. IDS Life is registered
with the SEC under the Securities Exchange Act of 1934 (1934 Act) as a
broker-dealer and is a member of the National Association of Securities Dealers,
Inc. IDS Life may enter into selling agent agreements with certain
broker-dealers registered under the 1934 Act. IDS Life will pay a maximum
commission of 6% of the purchase payment for the sale of a contract. In the
future, we may pay a commission on an election of a subsequent guarantee period
by an owner.
ASSIGNMENT OF CONTRACTS
You may change ownership of your annuity at any time by filing a change of
ownership form with us at our corporate office. No change of ownership will be
binding upon us until we receive and record it. If you have a tax-deferred
retirement plan, the contract may not be sold, assigned, transferred, discounted
or pledged as collateral for a loan or as security for the performance of an
obligation or for any other purpose to any person other than IDS Life; provided,
however, that if the owner is a trust or custodian, or an employer acting in a
similar capacity, ownership of a contract may be transferred to the annuitant.
The value of any part of a nonqualified annuity assigned or pledged is taxed
like a cash withdrawal to the extent allocable to investment in annuity
contracts after Aug. 13, 1982.
Transfer of a nonqualified annuity to another person without adequate
consideration is considered a gift and the transfer will be considered a
surrender of the contract for federal income tax purposes. The income in the
contract will be taxed to the transferor who may be subject to the 10% IRS
penalty tax for early withdrawal. The transferee's investment in the annuity
will be the value of the annuity at the time of the transfer. Consult with your
tax advisor before taking any action.
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12 AMERICAN EXPRESS GUARANTEED TERM ANNUITY
FEDERAL TAX CONSIDERATIONS
Under current law, there is no liability for federal income tax on any increase
in the annuity's value until payments are made (except for change of ownership
discussed above in "Assignment of contracts"). However, since federal tax
consequences cannot always be anticipated, you should consult a tax advisor if
you have any questions about the taxation of your annuity contract.
You are not taxed on your purchase payment. Your purchase payment generally
includes purchase payments made with after-tax dollars. If the purchase payment
was made by you or on your behalf with pre-tax dollars as part of a tax-deferred
retirement plan, such amounts are not considered to be part of your investment
in the contract and will be taxed when paid to you. When your contract is used
to fund a retirement plan that is already tax deferred under the Code, the
contract will not provide any necessary or additional tax deferral for that
retirement plan. If your contract is used to fund a 401(k) plan, your rights to
benefits may be subject to the terms and conditions of the plan regardless of
the terms of the contract.
For nonqualified annuities and qualified annuities other than those under 401(a)
and 401(k) plans, if you surrender part or all of your contract before the date
on which you have decided to begin to receive annuity payments, you will be
taxed on the payments that you receive, to the extent that the value of your
contract exceeds your investment in the contract. You also may have to pay an
IRS penalty tax for early withdrawal. For qualified annuities under 401(a) and
401(k) plans, we will surrender your annuity to the plan's trustee for the
benefit of your account.
If you begin receiving annuity payments under a nonqualified annuity, a portion
of each payment will be subject to tax and a portion of each payment will be
considered to be part of your investment in the contract and will not be taxed.
All amounts received after your investment in the contract is recovered will be
subject to tax. If you begin receiving payments from a qualified annuity, all of
the payments generally will be subject to taxation except to the extent that the
contributions were from after-tax dollars.
Unlike life insurance proceeds, the death benefit under an annuity contract
(except Roth IRAs) is not tax exempt. The gain, if any, is taxable as ordinary
income to the beneficiary in the year(s) he or she receives the payments. The
gain is subject to income tax, not estate or inheritance tax. The tax benefit
under a Roth IRA generally is not taxable as ordinary income to the beneficiary
if certain distribution requirements are met.
Tax law requires that all nonqualified deferred annuity contracts issued by the
same company to the same contract owner during a calendar year are to be treated
as a single, unified contract. The amount of income included and taxed in a
distribution (or a transaction deemed a distribution under tax law) taken from
any one of these contracts is determined by summing all of the contracts.
The income earned on a nonqualified annuity held by such entities as
corporations, partnerships or trusts generally will be treated as ordinary
income received during that year. However, if the trust was set up for the
benefit of a natural person only, the income will remain tax deferred.
If you receive amounts from your contract (or, if applicable, from the plan)
before reaching age 59 1/2, you may have to pay a 10% IRS penalty on the amount
includible in your ordinary income. If you receive amounts from your SIMPLE IRA
before reaching age 59 1/2, generally the IRS 10% penalty provisions apply.
However, if you receive these amounts before age 59 1/2 and within the first two
years of your participation in the SIMPLE IRA plan, the IRS penalty will be
assessed at the rate of 25% instead of 10%. However, this penalty will not apply
to any amount received by you:
- - 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 designated beneficiary); or
- - if it is allocable to a purchase payment before Aug. 14, 1982 (except for
contracts in tax-deferred retirement plans).
These are the major exceptions to the 10% IRS penalty tax. Additional exceptions
may apply depending upon whether or not the annuity is tax qualified. For
qualified annuities under 401(a) and 401(k) plans or TSAs, other penalties may
apply if you surrender an annuity bought under your plan before your plan
specifies that payments can be made.
In general, if you receive all or part of the contract value from an annuity,
withholding may be imposed against the taxable income portion of the payment.
Any withholding that is done represents a prepayment of your tax due for the
year. You take credit for these amounts on the annual tax return that you file.
If the payment is part of an annuity payment plan, the amount of withholding
generally is computed using payroll tables. You can 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.
If the distribution is any other type of payment (such as a partial or full
surrender), withholding is computed using 10% of the taxable portion. Similar to
above, as long as you've provided us with a valid Social Security Number or
Taxpayer Identification Number, you can elect not to have this withholding
occur.
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PROSPECTUS - MAY 1, 2001 13
Some states also impose withholding requirements similar to the federal
withholding described above. If this should be the case, any payment from which
federal withholding is deducted may also have state withholding deducted.
The withholding requirements may differ if payment is being made to a non-U.S.
citizen or if the payment is being delivered outside the United States.
If you receive directly all or part of the contract value from a qualified
annuity (except an IRA, Roth IRA, SIMPLE IRA or SEP), a mandatory 20% federal
income tax withholding (and possibly state income tax withholding) generally
will be imposed at the time the payment is made from the plan. In addition,
federal income tax and the 10% IRS penalty tax for early withdrawals may apply
to amounts properly includible in income. This mandatory 20% income tax
withholding will not be imposed if:
- - instead of receiving the payment, you elect to have the payment rolled over
directly to an IRA or another eligible plan;
- - the payment is one 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 designated beneficiary) or made over a period of
10 years or more; or
- - the payment is a minimum distribution required under the Code.
These are the major exceptions to the mandatory 20% income tax withholding.
Payments made to a surviving spouse instead of being directly rolled over to an
IRA may be subject to 20% income tax withholding. For taxable distributions that
are not subject to the mandatory 20% withholding, federal income tax will be
withheld from the taxable part of your distribution unless you elect otherwise.
State withholding also may be imposed on taxable distributions.
You will receive a tax statement for any year that you receive a taxable
distribution from your annuity contract according to our records.
We intend the contract to qualify as an annuity for federal income tax purposes.
To that end, the provisions of the contract are to be interpreted to ensure or
maintain such tax qualification, notwithstanding any other provisions of the
contract. We reserve the right to amend the contract to reflect any
clarifications that may be needed or are appropriate to maintain such
qualification or to conform the contract to any applicable changes in the tax
qualification requirements. We will send you a copy of any amendments.
Our discussion of federal tax laws is based upon our understanding of these laws
as they are currently interpreted. Either federal tax laws or current
interpretations of them may change. You are urged to consult your tax advisor
concerning your specific circumstances.
THE COMPANY
BUSINESS
IDS Life is a stock insurance company organized in 1957 under the laws of the
State of Minnesota. IDS Life is a wholly owned subsidiary of American Express
Financial Corporation (AEFC), which is a wholly owned subsidiary of American
Express Company. IDS Life acts as a direct writer of insurance policies and
annuities and as the investment manager of various investment companies. IDS
Life is licensed to write life insurance and annuity contracts in 49 states and
the District of Columbia. The headquarters of IDS Life is 70100 AXP Financial
Center, Minneapolis, MN 55474.
IDS Life files reports on Forms 10-K and 10-Q with the Securities and Exchange
Commission (SEC). The public may read and copy materials we file with the SEC at
the SEC's Public Reference Room (for information about the public reference room
call (202) 942-8090). The SEC maintains an Internet site (http://www.sec.gov)
that contains reports, proxy and information statements, and other information
regarding issuers that file electronically with the SEC.
INVESTMENTS BY IDS LIFE
IDS Life must invest its assets in its general account in accordance with
requirements established by applicable state laws regarding the nature and
quality of investments that life insurance companies may make and the percentage
of their assets that they may commit to any particular type of investment. In
general, these laws permit investments, within specified limits and subject to
certain qualifications, in federal, state, and municipal obligations, corporate
bonds, asset-backed securities, preferred and common stocks, real estate
mortgages, real estate and certain other investments. All claims by purchasers
of the contracts, and other general account products, will be funded by the
general account.
We intend to construct and manage the investment portfolio relating to these
market value annuity contracts using a strategy known as "immunization."
Immunization seeks to lock in a defined return on the pool of assets versus the
pool of liabilities over a specified time horizon. Since the return on the
assets versus the liabilities is locked in, it is "immune" to any potential
fluctuations in interest rates during the given time. We achieve immunization by
constructing a portfolio of assets with a price sensitivity to interest rate
changes (i.e., price duration) that is essentially equal to the price duration
of the corresponding portfolio of liabilities. Portfolio immunization provides
us with flexibility and efficiency in creating and managing the asset portfolio,
while still assuring safety and soundness for funding liability obligations.
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14 AMERICAN EXPRESS GUARANTEED TERM ANNUITY
Our investment strategy will incorporate the use of a variety of debt
instruments having price durations tending to match the applicable guaranteed
interest periods. These instruments include, but are not necessarily limited to,
the following:
- - Securities issued by the U.S. government or its agencies or
instrumentalities, which issues may or may not be guaranteed by the U.S.
government;
- - Debt securities that have an investment grade, at the time of purchase,
within the four highest grades assigned by the nationally recognized rating
agencies or are rated in the two highest grades by the National Association
of Insurance Commissioners;
- - Debt instruments that are unrated, but which are deemed by IDS Life to have
an investment quality within the four highest grades;
- - Other debt instruments, which are rated below investment grade, limited to
15% of assets at the time of purchase; and
- - Real estate mortgages, limited to 30% of portfolio assets at the time of
acquisition.
In addition, options and futures contracts on fixed income securities will be
used from time to time to achieve and maintain appropriate investment and
liquidity characteristics on the overall asset portfolio.
While this information generally describes our investment strategy, we are not
obligated to follow any particular strategy except as may be required by federal
law and Minnesota and other state insurance laws.
SELECTED FINANCIAL DATA
You should read the following selected financial data for IDS Life and its
subsidiaries in conjunction with the consolidated financial statements and notes
included in the prospectus beginning on page 26.
YEARS ENDED DEC. 31, (THOUSANDS) 2000 1999 1998 1997 1996
Premiums $ 287,498 $ 255,427 $ 229,430 $ 206,494 $ 182,921
Net investment income 1,730,605 1,919,573 1,986,485 1,988,389 1,965,362
Net realized gain (loss) on investments (16,975) 26,608 6,902 860 (159)
Other 1,036,295 1,140,529 785,022 682,618 574,341
TOTAL REVENUES $ 3,037,423 $ 3,086,710 $ 3,007,839 $ 2,878,361 $ 2,722,465
INCOME BEFORE INCOME TAXES $ 807,264 $ 904,317 $ 775,792 $ 680,911 $ 621,714
NET INCOME $ 585,637 $ 636,453 $ 540,111 $ 474,247 $ 414,576
TOTAL ASSETS $ 60,446,064 $ 64,441,538 $56,550,563 $ 52,974,124 $ 47,305,981
MANAGEMENT'S DISCUSSION AND ANALYSIS OF CONSOLIDATED FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
2000 COMPARED TO 1999:
Consolidated net income decreased 8% to $586 million in 2000, compared to $636
million in 1999. The decrease resulted primarily from a decrease in net
investment income. This reflects decreases in investments owned and decreased
investment yields during 2000.
Consolidated income before income taxes totaled $807 million in 2000, compared
with $904 million in 1999.
Total premiums and investment contract deposits received increased to $6.9
billion in 2000, compared with $5.0 billion in 1999. This increase is primarily
due to an increase in variable annuity deposits in 2000.
Total revenues decreased to $3.0 billion in 2000, compared with $3.1 billion in
1999. Decreases in net investment income and net realized gains (losses) on
investments were partially offset by increases in insurance premiums, policy and
contractholder charges and management and other fees. Net investment income, the
largest component of revenues, decreased by $189 million from the prior year,
reflecting decreases in investments owned and investment yields.
Policyholder and contractholder charges, which consist primarily of cost of
insurance charges on universal life-type policies, increased 6% to $438 million
in 2000, compared with $412 million in 1999. This increase reflects increased
total life insurance in force, which grew 10% to $98 billion at Dec. 31, 2000.
Net realized loss on investments was $17 million in 2000, compared to a net
realized gain of $27 million in 1999. The loss was primarily due to the loss on
sales and writedowns of fixed maturity investments.
Management and other fees increased 26% to $598 million in 2000, compared with
$473 million in 1999. This is primarily due to an increase in separate account
fees, which grew 25% to $543 million at Dec. 31, 2000, due to market
appreciation and sales. IDS Life provides investment management services for
mutual funds used as investment options for variable annuities and variable life
insurance. IDS Life also receives a mortality and expense risk fee from the
separate accounts.
- --------------------------------------------------------------------------------
PROSPECTUS - MAY 1, 2001 15
Total benefits and expenses increased slightly to $2.2 billion in 2000. The
largest component of expenses, interest credited to policyholder accounts for
universal life-type insurance and investment contracts, decreased slightly to
$1.2 billion, reflecting a decrease in fixed annuities in force. Amortization of
deferred policy acquisition costs increased to $404 million, compared to $333
million in 1999. This increase was due primarily to the impact of changing
prospective separate account investment performance assumptions.
Other insurance and operating expenses increased slightly to $337 million in
2000, compared to $335 million in 1999.
1999 COMPARED TO 1998:
Consolidated net income increased 18% to $636 million in 1999, compared to $540
million in 1998. Earnings growth resulted primarily from increases in management
fees and policyholder and contractholder charges. These increases reflect higher
average insurance and annuities in force during 1999.
Consolidated income before income taxes totaled $904 million in 1999, compared
with $776 million in 1998.
Total premiums and investment contract deposits received increased to $5.0
billion in 1999, compared with $4.4 billion in 1998. This increase is primarily
due to an increase in variable annuity deposits in 1999.
Total revenues increased to $3.1 billion in 1999, compared with $3.0 billion in
1998. The increase is primarily due to increased policyholder and contractholder
charges and management fees. Net investment income, the largest component of
revenues, decreased slightly from the prior year, reflecting decreases in
investments owned and investment yields.
Policyholder and contractholder charges, which consist primarily of cost of
insurance charges on universal life-type policies, increased 7% to $412 million
in 1999, compared with $384 million in 1998. This increase reflects increased
total life insurance in force, which grew 10% to $89 billion at Dec. 31, 1999.
Net realized gain on investments increased to $27 million in 1999, compared to
$7 million in 1998. The increase was primarily due to the sale of available for
sale fixed maturity investments at a gain as well as a decrease in the allowance
for mortgage loan losses based on management's regular evaluation of allowance
adequacy.
Management and other fees increased 18% to $473 million in 1999, compared with
$401 million in 1998. This is primarily due to an increase in separate account
assets, which grew 31% to $35.9 billion at Dec. 31, 1999, due to market
appreciation and sales. IDS Life provides investment management services for
mutual funds used as investment options for variable annuities and variable life
insurance. IDS Life also receives a mortality and expense risk fee from the
separate accounts.
Total benefits and expenses decreased slightly to $2.2 billion in 1999. The
largest component of expenses, interest credited to policyholder accounts for
universal life-type insurance and investment contracts, decreased to $1.2
billion, reflecting a decrease in fixed annuities in force. Amortization of
deferred policy acquisition costs decreased to $333 million, compared to $383
million in 1998. This decrease was due primarily to the impact of changing
prospective separate account investment performance assumptions.
Other insurance and operating expenses increased 17% to $335 million in 1999,
compared to $287 million in 1998. This increase is primarily a result of
business growth and technology costs related to growth initiatives.
RISK MANAGEMENT
The sensitivity analysis of two different tests of market risk discussed below
estimates the effects of hypothetical sudden and sustained changes in the
applicable market conditions on the ensuing year's earnings based on year-end
positions. The market changes, assumed to occur as of year-end, are a 100 basis
point increase in market interest rates and a 10% decline in equity prices.
Computations of the prospective effects of hypothetical interest rate and equity
price changes are based on numerous assumptions, including relative levels of
market interest rates and equity prices, as well as the levels of assets and
liabilities. The hypothetical changes and assumptions will be different from
what actually occurs in the future. Furthermore, the computations do not
anticipate actions that may be taken by management if the hypothetical market
changes actually occurred over time. As a result, actual earnings effects in the
future will differ from those quantified below.
IDS Life primarily invests in fixed income securities over a broad range of
maturities for the purpose of providing fixed annuity clients with a competitive
rate of return on their investments while minimizing risk, and to provide a
dependable and targeted spread between the interest rate earned on investments
and the interest rate credited to contractholders' accounts. IDS Life does not
invest in securities to generate trading profits.
IDS Life has an investment committee that holds regularly scheduled meetings
and, when necessary, special meetings. At these meetings, the committee reviews
models projecting different interest rate scenarios and their impact on
profitability. The objective of the committee is to structure the investment
security portfolio based upon the type and behavior of products in the liability
portfolio so as to achieve targeted levels of profitability.
- --------------------------------------------------------------------------------
16 AMERICAN EXPRESS GUARANTEED TERM ANNUITY
Rates credited to contractholders' accounts are generally reset at shorter
intervals than the maturity of underlying investments. Therefore, margins may be
negatively impacted by increases in the general level of interest rates. Part of
the committee's strategy includes the purchase of some types of derivatives,
such as interest rate caps, swaps and floors, for hedging purposes. These
derivatives protect margins by increasing investment returns if there is a
sudden and severe rise in interest rates, thereby mitigating the impact of an
increase in rates credited to contractholders' accounts.
The negative effect on IDS Life's pretax earnings of a 100 basis point increase
in interest rates, which assumes repricings and customer behavior based on the
application of proprietary models to the book of business at Dec. 31, 2000,
would be approximately $17 million.
On a certain annuity product, the interest is credited to contractholders'
accounts based upon the relative change in a major stock market index between
the beginning and end of the product's term. As a means of hedging IDS Life's
obligation under the provisions of this product, the committee's strategy is to
purchase and write options on the major stock market index.
The amount of the fee income IDS Life receives is based upon the daily market
value of the separate account assets. As a result, IDS Life's fee income would
be negatively impacted by a decline in the equity markets. Another part of the
committee's strategy is to enter into index option collars (combination of puts
and calls) for hedging purposes. These derivatives protect fee income by
providing option income when there is a significant decline in the equity
markets. IDS Life finances the cost of this protection through selling a portion
of the upside potential from an increasing market through written options.
The negative effect on IDS Life's pretax earnings of the 10% decline in equity
prices would be approximately $45 million based on assets under management as of
Dec. 31, 2000.
LIQUIDITY AND CAPITAL RESOURCES
The liquidity requirements of IDS Life are met by funds provided by premiums,
investment income, proceeds from sales of investments as well as maturities and
periodic repayments of investment principal.
The primary uses of funds are policy benefits, commissions and operating
expenses, policy loans, dividends and investment purchases.
IDS Life has available lines of credit with its parent aggregating $200 million
($100 million committed and $100 million uncommitted). The line of credit is
used strictly as a short-term source of funds. Borrowings outstanding were
$50,000 uncommitted at Dec. 31, 2000. At Dec. 31, 2000, outstanding reverse
repurchase agreements totaled $30 million.
At Dec. 31, 2000, investments in fixed maturities comprised 79% of IDS Life's
total invested assets. Of the fixed maturity portfolio, approximately 30% is
invested in GNMA, FNMA and FHLMC mortgage-backed securities which are considered
AAA/Aaa quality.
At Dec. 31, 2000, approximately 15% of IDS Life'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. IDS Life 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. In
recent months, the industry-wide default rate on below-investment-grade bonds
has increased significantly and this trend is expected to continue over the next
several months and possibly beyond.* Additional investment security losses
throughout the remainder of 2000 are likely but the amount of these losses is
dependent on a number of factors and cannot be estimated at this time.*
Management believes that there will not be a significant adverse impact on IDS
Life's consolidated financial position.*
* Statements in this discussion of IDS Life's liquidity and capital resources
marked with an asterisk are forward-looking statements which are subject to
risks and uncertainties. Important factors that could cause results to differ
materially from these forward-looking statements include, among other things,
changes in the ability of issuers of investment securities held by IDS Life to
meet their debt obligations.
At Dec. 31, 2000, net unrealized depreciation on fixed maturities held to
maturity included $124 million of gross unrealized appreciation and $116 million
of gross unrealized depreciation. Net unrealized depreciation on fixed
maturities available for sale included $188 million of gross unrealized
appreciation and $719 million of gross unrealized depreciation.
At Dec. 31, 2000, IDS Life had an allowance for losses for mortgage loans
totaling $11 million and for real estate investments totaling $nil.
The economy and other factors have caused a number of insurance companies to go
under regulatory supervision. This circumstance has resulted in assessments by
state guaranty associations to cover losses to policyholders of insolvent or
rehabilitated companies. Some assessments can be partially recovered through a
reduction in future premium taxes in certain states. IDS Life established an
asset for guaranty association assessments paid to those states allowing a
reduction in future premium taxes over a reasonable period of time. The asset is
being amortized as premium taxes are reduced. IDS Life has also estimated the
potential effect of future assessments on IDS Life's financial position and
results of operations and has established a reserve for such potential
assessments. IDS Life has adopted Statement of Position 97-3 providing guidance
when an insurer should recognize a liability for guaranty fund assessments. The
SOP is effective for fiscal years beginning after Dec. 15, 1998. Adoption did
not have a material impact on IDS Life's results of operations or financial
condition.
In 2000, dividends paid to its parent were $410 million.
- --------------------------------------------------------------------------------
PROSPECTUS - MAY 1, 2001 17
The National Association of Insurance Commissioners has established risk-based
capital standards to determine the capital requirements of a life insurance
company based upon the risks inherent in its operations. These standards require
the computation of a risk-based capital amount which is then compared to a
company's actual total adjusted capital. The computation involves applying
factors to various statutory financial data to address four primary risks: asset
default, adverse insurance experience, interest rate risk and external events.
These standards provide for regulatory attention when the percentage of total
adjusted capital to authorized control level risk-based capital is below certain
levels. As of Dec. 31, 2000, IDS Life's total adjusted capital was well in
excess of the levels requiring regulatory attention.
REINSURANCE
Reinsurance arrangements are used to reduce exposure to large losses. The
maximum amount of risk retained by IDS Life on any one life is $750,000 of life
and waiver of premium benefits plus $50,000 of accidental death benefits. The
excesses are reinsured with other life insurance companies. At Dec. 31, 2000,
traditional life and universal life-type insurance in force aggregated
$5,974,025, of which $332,556 was reinsured.
RESERVES
In accordance with the insurance laws and regulations under which IDS Life
operates, it is obligated to carry on its books, as liabilities, actuarially
determined reserves to meet its obligations on its outstanding life and health
insurance policies and annuity contracts. Reserves for policies and contracts
are based on mortality and morbidity tables in general use in the United States.
These reserves are computed amounts that, with additions from premiums to be
received, and with interest on such reserves compounded annually at assumed
rates, will be sufficient to meet IDS Life's policy obligations at their
maturities or in the event of an insured's death. In the accompanying financial
statements, these reserves are determined in accordance with generally accepted
accounting principles. (See Note 1, "Liabilities for future policy benefits," in
the "Notes to Consolidated Financial Statements.")
INVESTMENTS
Of IDS Life's total investments of $23,856,547 at Dec. 31, 2000, 27% was
invested in mortgage-backed securities, 54% in corporate and other bonds, 16% in
primary mortgage loans on real estate and the remaining 3% in other investments.
COMPETITION
IDS Life is engaged in a business that is highly competitive due to the large
number of stock and mutual life insurance companies and other entities marketing
insurance products. There are over 1,600 stock, mutual and other types of
insurers in the life insurance business. Best's Insurance Reports, Life-Health
edition, 2000, assigned IDS Life one of its highest classifications, A+
(Superior).
EMPLOYEES
As of Dec. 31, 2000, IDS Life and its subsidiaries had 341 employees; including
290 employed at the corporate office in Minneapolis, MN, 7 employed at the
American Centurion Life Assurance Company, located in Albany, NY and 44 employed
at IDS Life Insurance Company of New York, located in Albany, NY.
PROPERTIES
IDS Life occupies office space in Minneapolis, MN, which is leased by its
parent, AEFC. IDS Life reimburses AEFC for rent based on direct and indirect
allocation methods. Facilities occupied by IDS Life and our subsidiaries are
believed to be adequate for the purposes for which they are used and are well
maintained.
STATE REGULATION
IDS Life is subject to the laws of the State of Minnesota governing insurance
companies and to the regulations of the Minnesota Department of Commerce. An
annual statement in the prescribed form is filed with the Minnesota Department
of Commerce each year covering our operation for the preceding year and its
financial condition at the end of such year. Regulation by the Minnesota
Department of Commerce includes periodic examination to determine IDS Life's
contract liabilities and reserves so that the Minnesota Department of Commerce
may certify that these items are correct. IDS Life's books and accounts are
subject to review by the Minnesota Department of Commerce at all times. Such
regulation does not, however, involve any supervision of the account's
management or the company's investment practices or policies. In addition, IDS
Life is subject to regulation under the insurance laws of other jurisdictions in
which it operates. A full examination of IDS Life's operations is conducted
periodically by the National Association of Insurance Commissioners.
Under insurance guaranty fund laws, in most states, insurers doing business
therein can be assessed up to prescribed limits for policyholder losses incurred
by insolvent companies. Most of these laws do provide, however, that an
assessment may be excused or deferred if it would threaten an insurer's own
financial strength.
- --------------------------------------------------------------------------------
18 AMERICAN EXPRESS GUARANTEED TERM ANNUITY
DIRECTORS AND EXECUTIVE OFFICERS
The members of the Board of Directors and the principal executive officers of
IDS Life, together with the principal occupation of each during the last five
years, are as follows:
DIRECTORS*
GUMER C. ALVERO
Born in 1967
Director and Executive Vice President - Annuities since March 2001. Vice
President - Variable Annuities, AEFC, since April 1998; Executive Assistant to
President/CEO, AEFC, from April 1996 to April 1998.
TIMOTHY V. BECHTOLD
Born in 1953
Director and President since March 2001; Executive Vice President - Risk
Management Products from 1995 to 2001. Vice President - Risk Management
Products, AEFC, since 1995.
PAMELA J. MORET
Born in 1956
Chairman of the Board since August 2000; Director since February 2000; and Chief
Executive Officer since March 2001. Director and Senior Vice President -
Products Group, AEFC, since October 1999; Vice President - Variable Assets,
AEFC, from 1997 to 1999; Vice President - Retail Service Group, AEFC, from 1996
to 1997.
BARRY J. MURPHY
Born in 1951
Director since 1994. Director, AEFC, since 1994; Executive Vice President - U.S.
Retail Group, AEFC, since January 2001; Senior Vice President, AEFC, from 1994
to 2001.
STUART A. SEDLACEK
Born in 1957
Director since 1994; and Executive Vice President since 1998. Director, Senior
Vice President and Chief Financial Officer, AEFC, since 1998; Vice President,
AEFC, from 1988 to 1998.
OFFICERS OTHER THAN DIRECTORS*
LORRAINE R. HART
Born in 1951
Vice President - Investments since 1992. Vice President - Insurance Investments,
AEFC, since 1989.
TIMOTHY S. MEEHAN
Born in 1957
Secretary since December 2000. Secretary of AEFC since 1995. Senior Counsel,
AEFC, since 1995.
TERESA J. RASMUSSEN
Born in 1956
Vice President and General Counsel since August 2000. Vice President and
Assistant General Counsel, AEFC, since August 2000; Assistant Vice President,
AEFC, from October 1995 to August 2000.
BRIDGET SPERL
Born in 1954
Executive Vice President - Client Service since March 2001. Senior Vice
President - Client Service, AEFC, since October 2000; Vice President - Service
Teams, AEFC, from January 1997 to October 2000; Vice President - Advisor
Staffing, Training and Support, AEFC, from January 1995 to January 1997.
PHILIP C. WENTZEL
Born in 1961
Vice President and Controller since 1998. Director of Financial Reporting and
Analysis, AEFC, from 1992 to 1997.
DAVID L. YOWAN
Born in 1957
Vice President, Treasurer and Assistant Secretary since March 2001. Senior Vice
President and Assistant Treasurer of American Express Company since January
1999. Vice President and Corporate Treasurer, AEFC, since March 2001. Senior
Portfolio and Risk Management Officer for the North American Consumer Bank of
Citigroup from August 1987 to January 1999.
* The address for all of the directors and principal officers is: 70100 AXP
Financial Center, Minneapolis, MN 55474.
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PROSPECTUS - MAY 1, 2001 19
EXECUTIVE COMPENSATION
Executive officers of IDS Life also may serve one or more affiliated companies.
The following table reflects cash compensation paid to the five most highly
compensated executive officers as a group for services rendered in the most
recent calendar year to IDS Life and its affiliates. The table also shows the
total cash compensation paid to all executive officers of IDS Life, as a group,
who were executive officers at any time during the most recent calendar year.
NAME OF INDIVIDUAL OR NUMBER IN GROUP POSITION HELD CASH COMPENSATION
Five most highly compensated executive officers as a group: $12,840,025
Lorraine R. Hart Vice President - Investments
James A. Mitchell Chairman of the Board
Barry J. Murphy Executive Vice President - Client Service
Stuart A. Sedlacek Executive Vice President
Deborah L. Pederson Assistant Vice President - Investments
All executive officers as a group (10) $16,860,190
SECURITY OWNERSHIP OF MANAGEMENT
IDS Life's directors and officers do not beneficially own any outstanding shares
of stock of IDS Life. All of the outstanding shares of stock of IDS Life are
beneficially owned by its parent, AEFC. The percentage of shares of AEFC owned
by any director, and by all directors and officers of IDS Life as a group, does
not exceed 1% of the class outstanding.
LEGAL PROCEEDINGS
A number of lawsuits have been filed against life and health insurers in
jurisdictions in which IDS Life and AEFC do business involving insurers' sales
practices, alleged agent misconduct, failure to properly supervise agents and
other matters. IDS Life and AEFC, like other life and health insurers, from time
to time are involved in such litigation. On December 13, 1996, an action
entitled LESA BENACQUISTO AND DANIEL BENACQUISTO V. IDS LIFE INSURANCE COMPANY
AND AMERICAN EXPRESS FINANCIAL CORPORATION was commenced in Minnesota state
court. The action is brought by individuals who replaced an existing IDS Life
insurance policy with a new IDS Life policy. The plaintiffs purport to represent
a class consisting of all persons who replaced existing IDS Life policies with
new IDS Life policies from and after January 1, 1985.
The complaint puts at issue various alleged sales practices and
misrepresentations, alleged breaches of fiduciary duties and alleged violations
of consumer fraud statutes. Plaintiffs seek damages in an unspecified amount and
also seek to establish a claims resolution facility for the determination of
individual issues. IDS Life and AEFC filed an answer to the complaint on
February 18, 1997, denying the allegations. A second action, entitled ARNOLD
MORK, ISABELLA MORK, RONALD MELCHERT AND SUSAN MELCHERT V. IDS LIFE INSURANCE
COMPANY AND AMERICAN EXPRESS FINANCIAL CORPORATION was commenced in the same
court on March 21, 1997. In addition to claims that are included in the
BENACQUISTO lawsuit, the second action includes an allegation of improper
replacement of an existing IDS Life annuity contract. It seeks similar relief to
the initial lawsuit.
On October 13, 1998, an action entitled RICHARD W. AND ELIZABETH J. THORESEN V.
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 was also commenced in Minnesota state court. The action was brought by
individuals who purchased an annuity in a qualified plan. They 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, including restitution of allegedly lost
investment earnings and restoration of contract values.
In January 2000, AEFC reached an agreement in principle to settle the three
class-action lawsuits described above. It is expected the settlement will
provide $215 million of benefits to more than two million participants and for
release by class members of all insurance and annuity market conduct claims
dating back to 1985.
In August, 2000 an action entitled LESA BENACQUISTO, DANIEL BENACQUISTO, RICHARD
THORESEN, ELIZABETH THORESEN, ARNOLD MORK, ISABELLA MORK, RONALD MELCHERT AND
SUSAN MELCHERT V. AMERICAN EXPRESS FINANCIAL CORPORATION, AMERICAN EXPRESS
FINANCIAL ADVISORS, 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 was commenced
in the United States District Court for the District of Minnesota. The complaint
put at issue various alleged sales practices and misrepresentations and
allegations of violations of federal laws.
In September, 2000 the plaintiffs filed a consolidated complaint in State Court
alleging the same claims as the previous actions.
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20 AMERICAN EXPRESS GUARANTEED TERM ANNUITY
On October 2, 2000 the District Court, Fourth Judicial District for the State of
Minnesota, County of Hennepin and the United States District Court for the
District of Minnesota entered an order conditionally certifying a class for
settlement purposes, preliminarily approving the class settlement, directing the
issuance of a class notice to the class and scheduling a hearing to determine
the fairness of settlement for March, 2001.
On March 6, 2001 the District Court, Fourth Judicial District for the State of
Minnesota, County of Hennepin and the United States District Court for the
District of Minnesota heard oral arguments on plaintiffs' motions for final
approval of the class action settlement. Six motions to intervene were filed
together with objections to the proposed settlement. We are awaiting a final
order from the court.
EXPERTS
Ernst & Young LLP, independent auditors, have audited the consolidated financial
statements of IDS Life Insurance Company at Dec. 31, 2000 and 1999, and for each
of the three years in the period ended Dec. 31, 2000, as set forth in their
report. We've included our consolidated financial statements in the prospectus
and elsewhere in the registration statement in reliance on Ernst & Young LLP's
report, given on their authority as experts in accounting and auditing.
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PROSPECTUS - MAY 1, 2001 21
APPENDIX A
PARTIAL SURRENDER ILLUSTRATION
Involving a surrender charge and a market value adjustment
ANNUITY ASSUMPTIONS:
Single payment $10,000
Guarantee period 10 years
Guarantee rate (i ) 6% effective annual yield
g
END OF CONTRACT YEAR
ACCUMULATION VALUES
CONTRACT YEAR SURRENDER CHARGE % IF NO SURRENDERS
1 8% $10,600.00
2 7 11,236.00
3 6 11,910.16
4 5 12,624.77
5 4 13,382.26
6 3 14,185.19
7 2 15,036.30
8 1 15,938.48
9 0 16,894.79
10 0 17,908.48
PARTIAL SURRENDER ASSUMPTIONS:
On the first day of your 4th contract year you request a partial surrender of:
Example I-- $2,000 of your accumulation value
Example II-- A $2,000 net surrender check
You may surrender 10% of $11,910.16 (end of 3rd contract year accumulation
value) without surrender charge but subject to a market value adjustment -- this
is $1,191.02
The excess market adjusted value surrendered is subject to both a 5% (4th
contract year) surrender charge and a market value adjustment.
The current rate applicable for new sales and renewals = 5.5%
The current rate applicable for new sales and renewals +.0025(i ) = 5.75%
Mvi
The number of full years left in your guarantee period (N) = 7
The number of fractional years left in your guarantee period (t) = 0
EXAMPLE I-- $2,000 of accumulation value surrendered
WHAT WILL BE YOUR MARKET VALUE ADJUSTMENT AMOUNT?
The market adjusted value of your $2,000 partial surrender will be:
RENEWAL VALUE OF ACCUMULATION VALUE SURRENDERED /
-------------------------------------------------
(1 + i )To The Power of (N + t)
Mvi
= $2,000 (1 + i )To The Power of 7
g
-----------------
(1 + i )To The Power of 7
Mvi
- $2,000 (1.06)To The Power of 7
---------------
(1.0575)To The Power of 7
= $2,033.33
The market value adjustment = the market adjusted value surrendered less the
accumulation value surrendered
$2,033.33 - $2,000 = $33.33
(NOTE: THIS MARKET VALUE ADJUSTMENT IS POSITIVE. IN OTHER CASES THE MARKET VALUE
ADJUSTMENT MAY BE NEGATIVE.)
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22 AMERICAN EXPRESS GUARANTEED TERM ANNUITY
WHAT WILL BE YOUR SURRENDER CHARGE AMOUNT?
The surrender charge will be 5% multiplied by the excess of the market adjusted
value over the accumulation value that may be surrendered without surrender
charge:
($2,033.33 - $1,191.02) x .05 = $42.12
WHAT NET AMOUNT WILL YOU RECEIVE?
Your contract's accumulation value will decrease by $2,000 and we will send you
a check for:
Accumulation value surrendered $2,000.00
Market value adjustment 33.33
Less surrender charge (42.12)
------
Net surrender amount $1,991.21
EXAMPLE II-- $2,000 net surrender check requested
WHAT WILL BE THE ACCUMULATION VALUE SURRENDERED?
Tell us if you want a specific net surrender check amount. We will work
backwards using an involved formula to determine how much accumulation value
must be surrendered to result in a net check to you for a specific amount. For a
$2,000 net check to you, the formula results in $2,009.09 of accumulation value
to be surrendered.
WHAT WILL BE YOUR MARKET VALUE ADJUSTMENT AMOUNT?
The market adjusted value is:
RENEWAL VALUE OF ACCUMULATION VALUE SURRENDERED
-----------------------------------------------
(1 + i )To The Power of (N + t)
Mvi
= $2,009.09 (1 + i )To The Power of 7
g
--------------------
(1 + i )To The Power of 7
Mvi
= $2,009.09 (1.06) To The Power of 7
------------------
(1.0575)To The Power of 7
= $2,042.58
The market value adjustment = the market adjusted value surrendered less the
accumulation value surrendered
$2,042.58 - $2,009.09 = $33.49
(NOTE: THIS MARKET VALUE ADJUSTMENT IS POSITIVE. IN OTHER CASES THE MARKET VALUE
ADJUSTMENT MAY BE NEGATIVE.)
WHAT WILL BE YOUR SURRENDER CHARGE AMOUNT?
The surrender charge will be 5% multiplied by the excess of the market adjusted
value over the accumulation value that may be surrendered without surrender
charge:
($2,042.58 - $1,191.02) x .05 = $42.58
WHAT NET AMOUNT WILL YOU RECEIVE?
Your contract's accumulation value will decrease by $2,009.09 and we will send
you a check for:
Accumulation value surrendered $2,009.09
Market value adjustment 33.49
Less surrender charge (42.58)
------
Net surrender amount $2,000.00
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PROSPECTUS - MAY 1, 2001 23
APPENDIX B
MARKET VALUE ADJUSTMENT ILLUSTRATION
ANNUITY ASSUMPTIONS:
Single payment $50,000
Guarantee period 10 years
Guarantee rate 6% effective annual yield
MARKET ADJUSTMENT ASSUMPTIONS: These examples show how the market value
adjustment may affect your contract values. The surrenders in these examples
occur one year after the contract date. There are no previous surrenders.
The accumulation value at the end of one year is $53,000. If there aren't any
surrenders, the renewal value at the end of the 10 year guarantee period will be
$89,542.38.
We base the market value adjustment on the rate we are crediting (at the time of
your surrender) on new contracts with the same length guarantee period as the
time remaining in your guarantee period. After one year, you have 9 years left
of your 10 year guarantee period.
Example I shows a downward market value adjustment. Example II shows an upward
market value adjustment. These examples do not show the surrender charge (if
any) that would be calculated separately after the market value adjustment.
Surrender charge calculations are shown in Appendix A.
MARKET ADJUSTED VALUE FORMULA:
(RENEWAL VALUE)
MARKET ADJUSTED VALUE = ---------------
(1 + i )To The Power of (N + t)
Mvi
Renewal value = The accumulation value at the end of the current guarantee
period
i = The current interest rate offered for new contract sales and
Mvi renewals for the number of years remaining in the guarantee
period +.0025
N = The number of complete contract years to the end of the
current guarantee period
t = The fraction of the contract year remaining to the end of
the contract year
EXAMPLE I-- Downward market value adjustment
A surrender results in a downward market value adjustment when interest rates
have increased. Assume after 1 year, we are now crediting 6.5% for a new
contract with a 9 year guarantee period. If you fully surrender, the market
adjusted value would be:
RENEWAL VALUE
------------------
(1 + i ) To The Power of (N + t)
Mvi
= $89,542.38
-------------
(1 + .0675) To The Power of 9
= $49,741.36
The market value adjustment is a $3,258.64 reduction of the accumulation value:
($3,258.64) = $49,741.36 - $53,000
If you surrendered half of your contract instead of all, the market adjusted
value of the surrendered portion would be one-half that of the full surrender:
$44,771.19
$24,870.68 = --------------
(1 + .0675) To The Power of 9
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24 AMERICAN EXPRESS GUARANTEED TERM ANNUITY
EXAMPLE II-- Upward market value adjustment
A surrender results in an upward market value adjustment when interest rates
have decreased more than .25%. Assume after 1 year, we are now crediting 5.5%
for a new contract with a 9 year guarantee period. If you fully surrender, the
market adjusted value would be:
RENEWAL VALUE
------------------
(1 + i )To The Power of(N + t)
Mvi
= $89,542.38
----------------
(1 + .0575) To the Power of 9
= $54,138.38
The market value adjustment is a $1,138.38 increase of the accumulation value:
$1,138.38 = $54,138.38 - $53,000
If you surrendered half of your contract instead of all, the market adjusted
value of the surrendered portion would be one-half that of the full surrender:
$44,771.19
$27,069.19 = --------------
(1 + .0575) To The Power of 9
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PROSPECTUS - MAY 1, 2001 25
IDS Life Insurance Company
- -------------------------------------------------------------------------------
REPORT OF INDEPENDENT AUDITORS
THE BOARD OF DIRECTORS
IDS LIFE INSURANCE COMPANY
We have audited the accompanying consolidated balance sheets of IDS Life
Insurance Company (a wholly-owned subsidiary of American Express Financial
Corporation) as of December 31, 2000 and 1999, and the related consolidated
statements of income, stockholder's equity and cash flows for each of the three
years in the period ended December 31, 2000. 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 consolidated financial position of IDS Life Insurance
Company at December 31, 2000 and 1999, and the consolidated results of its
operations and its cash flows for each of the three years in the period ended
December 31, 2000, in conformity with accounting principles generally accepted
in the United States.
/s/ Ernst & Young LLP
Ernst & Young LLP
February 8, 2001
Minneapolis, Minnesota
IDS Life Insurance Company
- -------------------------------------------------------------------------------
IDS Life Insurance Company
Consolidated balance sheets
December 31, ($ thousands) 2000 1999
Assets
Investments:
Fixed maturities:
Held to maturity, at amortized cost
(fair value: 2000, $6,471,798; 1999, $7,105,743) $ 6,463,613 $ 7,156,292
Available for sale, at fair value
(amortized cost: 2000, $12,929,870; 1999, $13,703,137) 12,399,990 13,049,549
---------- ----------
18,863,603 20,205,841
Mortgage loans on real estate 3,738,091 3,606,377
Policy loans 618,973 561,834
Other investments 635,880 506,797
------- -------
Total investments 23,856,547 24,880,849
Cash and cash equivalents 316,974 32,333
Amounts recoverable from reinsurers 416,480 327,168
Amounts due from brokers 15,302 145
Other accounts receivable 42,324 48,578
Accrued investment income 334,928 343,449
Deferred policy acquisition costs 2,951,655 2,665,175
Deferred income taxes, net 136,588 216,020
Other assets 25,919 33,089
Separate account assets 32,349,347 35,894,732
---------- ----------
Total assets $60,446,064 $64,441,538
=========== ===========
Liabilities and stockholder's equity Liabilities:
Future policy benefits:
Fixed annuities $19,417,446 $20,552,159
Universal life-type insurance 3,410,871 3,391,203
Traditional life insurance 232,913 226,842
Disability income and long-term care insurance 1,012,247 811,941
Policy claims and other policyholders' funds 52,067 24,600
Amounts due to brokers 446,347 148,112
Other liabilities 459,422 579,678
Separate account liabilities 32,349,347 35,894,732
---------- ----------
Total liabilities 57,380,660 61,629,267
---------- ----------
Commitments and contingencies
Stockholder's equity:
Capital stock, $30 par value per share;
100,000 shares authorized,
issued and outstanding 3,000 3,000
Additional paid-in capital 288,327 288,327
Accumulated other comprehensive loss, net of tax:
Net unrealized securities losses (333,734) (411,230)
Retained earnings 3,107,811 2,932,174
--------- ---------
Total stockholder's equity 3,065,404 2,812,271
--------- ---------
Total liabilities and stockholder's equity $60,446,064 $64,441,538
=========== ===========
See accompanying notes.
IDS Life Insurance Company
- -------------------------------------------------------------------------------
IDS Life Insurance Company
Consolidated statements of income
Three years ended December 31, ($ thousands) 2000 1999 1998
Revenues
Premiums:
Traditional life insurance $ 56,187 $ 53,790 $ 53,132
Disability income and long-term care insurance 231,311 201,637 176,298
------- ------- -------
Total premiums 287,498 255,427 229,430
Policyholder and contractholder charges 438,127 411,994 383,965
Management and other fees 598,168 473,108 401,057
Net investment income 1,730,605 1,919,573 1,986,485
Net realized (loss) gain on investments (16,975) 26,608 6,902
------- ------ -----
Total revenues 3,037,423 3,086,710 3,007,839
--------- --------- ---------
Benefits and expenses
Death and other benefits:
Traditional life insurance 29,042 29,819 29,835
Universal life-type insurance and investment contracts 131,467 118,561 108,349
Disability income and long-term care insurance 40,246 30,622 27,414
Increase in liabilities for future policy benefits:
Traditional life insurance 5,765 7,311 6,052
Disability income and long-term care insurance 113,239 87,620 73,305
Interest credited on universal life-type insurance
and investment contracts 1,169,641 1,240,575 1,317,124
Amortization of deferred policy acquisition costs 403,968 332,705 382,642
Other insurance and operating expenses 336,791 335,180 287,326
------- ------- -------
Total benefits and expenses 2,230,159 2,182,393 2,232,047
--------- --------- ---------
Income before income taxes 807,264 904,317 775,792
Income taxes 221,627 267,864 235,681
------- ------- -------
Net income $ 585,637 $ 636,453 $ 540,111
========== ========== ==========
See accompanying notes.
IDS Life Insurance Company
- -------------------------------------------------------------------------------
IDS Life Insurance Company
Consolidated statements of stockholder's equity
Accumulated
other
Total Additional comprehensive
stockholder's Capital paid-In (loss) income, Retained
Three years ended December 31, ($ thousands) equity stock capital net of tax earnings
Balance, January 1, 1998 $2,865,816 $3,000 $290,847 $ 226,359 $2,345,610
Comprehensive income:
Net income 540,111 -- -- -- 540,111
Unrealized holding losses arising
during the year, net of
deferred policy acquisition costs
of $6,333 and taxes of $32,826 (60,964) -- -- (60,964) --
Reclassification adjustment
for losses included in net income,
net of tax of ($2,254) 4,189 -- -- 4,189 --
----- ----- ----- ----- -----
Other comprehensive loss (56,775) -- -- (56,775) --
------- ----- ----- ------- -----
Comprehensive income 483,336 -- -- -- --
Other changes (2,520) -- (2,520) -- --
Cash dividends to parent (240,000) -- -- -- (240,000)
-------- ----- ----- ----- --------
Balance, December 31, 1998 3,106,632 3,000 288,327 169,584 2,645,721
Comprehensive income:
Net income 636,453 -- -- -- 636,453
Unrealized holding losses arising
during the year, net of
deferred policy acquisition costs
of $28,444 and taxes of $304,936 (566,311) -- -- (566,311) --
Reclassification adjustment
for gains included in net income,
net of tax of $7,810 (14,503) -- -- (14,503) --
------- ----- ----- ------- -----
Other comprehensive loss (580,814) -- -- (580,814) --
-------- ----- ----- -------- -----
Comprehensive income 55,639 -- -- -- --
Cash dividends to parent (350,000) -- -- -- (350,000)
-------- ----- ----- ----- --------
Balance, December 31, 1999 2,812,271 3,000 288,327 (411,230) 2,932,174
Comprehensive income:
Net income 585,637 -- -- -- 585,637
Unrealized holding gains arising
during the year, net of
deferred policy acquisition costs
of ($5,154) and taxes of ($46,921) 87,138 -- -- 87,138 --
Reclassification adjustment
for gains included in net income,
net of tax of $5,192 (9,642) -- -- (9,642) --
------ ----- ----- ------ -----
Other comprehensive income 77,496 -- -- 77,496 --
------ ----- ----- ------ -----
Comprehensive income 663,133 -- -- -- --
Cash dividends to parent (410,000) -- -- -- (410,000)
-------- ----- ----- ----- --------
Balance, December 31, 2000 $3,065,404 $3,000 $288,327 $(333,734) $3,107,811
=== ==== ========== ====== ======== ========= ==========
See accompanying notes.
IDS Life Insurance Company
- -------------------------------------------------------------------------------
IDS Life Insurance Company
Consolidated statements of cash flows
Years ended December 31, ($ thousands) 2000 1999 1998
Cash flows from operating activities
Net income $ 585,637 $ 636,453 $ 540,111
Adjustments to reconcile net income to
net cash provided by operating activities:
Policy loans, excluding universal life-type insurance:
Issuance (61,313) (56,153) (53,883)
Repayment 56,088 54,105 57,902
Change in amounts recoverable from reinsurers (89,312) (64,908) (56,544)
Change in other accounts receivable 6,254 (615) (10,068)
Change in accrued investment income 8,521 23,125 (9,184)
Change in deferred policy acquisition costs, net (291,634) (140,379) (10,443)
Change in liabilities for future policy benefits
for traditional life, disability income and
long-term care insurance 206,377 153,157 138,826
Change in policy claims and other policyholders' funds 27,467 (45,709) 1,964
Deferred income tax provision (benefit) 37,704 79,796 (19,122)
Change in other liabilities (120,256) 169,395 64,902
Amortization of premium, (accretion of discount), net 37,909 (17,907) 9,170
Net realized loss (gain) on investments 16,975 (26,608) (6,902)
Policyholder and contractholder charges, non-cash (151,745) (175,059) (172,396)
Other, net (9,279) (5,324) 10,786
------ ------ ------
Net cash provided by operating activities 259,393 583,369 485,119
------- ------- -------
Cash flows from investing activities Fixed maturities held to maturity:
Purchases (4,487) (3,030) (1,020)
Maturities, sinking fund payments and calls 589,742 741,949 1,162,731
Sales 50,067 66,547 236,963
Fixed maturities available for sale:
Purchases (1,454,010) (3,433,128) (4,100,238)
Maturities, sinking fund payments and calls 1,019,403 1,442,507 2,967,311
Sales 1,237,116 1,691,389 278,955
Other investments, excluding policy loans:
Purchases (706,082) (657,383) (555,647)
Sales 435,633 406,684 579,038
Change in amounts due from brokers (15,157) 182 8,073
Change in amounts due to brokers 298,236 (47,294) (186,052)
------- ------- --------
Net cash provided by investing activities 1,450,461 208,423 390,114
--------- ------- -------
Cash flows from financing activities
Activity related to universal life-type insurance
and investment contracts:
Considerations received 1,842,026 2,031,630 1,873,624
Surrenders and other benefits (3,974,966) (3,669,759) (3,792,612)
Interest credited to account balances 1,169,641 1,240,575 1,317,124
Universal life-type insurance policy loans:
Issuance (134,107) (102,239) (97,602)
Repayment 82,193 67,881 67,000
Dividends paid (410,000) (350,000) (240,000)
-------- -------- --------
Net cash used in financing activities (1,425,213) (781,912) (872,466)
---------- -------- --------
Net increase in cash and cash equivalents 284,641 9,880 2,767
Cash and cash equivalents at beginning of year 32,333 22,453 19,686
------ ------ ------
Cash and cash equivalents at end of year $ 316,974 $ 32,333 $ 22,453
=========== =========== ===========
See accompanying notes
IDS Life Insurance Company
- -------------------------------------------------------------------------------
Notes to Consolidated Financial Statements
($ thousands)
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Nature of business
IDS Life Insurance Company (the Company) is a stock life insurance company
organized under the laws of the State of Minnesota. The Company is a
wholly-owned subsidiary of American Express Financial Corporation (AEFC), which
is a wholly owned subsidiary of American Express Company. The Company serves
residents of all states except New York. IDS Life Insurance Company of New York
is a wholly owned subsidiary of the Company and serves New York State residents.
The Company also wholly owns American Enterprise Life Insurance Company,
American Centurion Life Assurance Company, American Partners Life Insurance
Company and American Express Corporation.
The Company's principal products are deferred annuities and universal life
insurance, which are issued primarily to individuals. It offers single premium
and flexible premium deferred annuities on both a fixed and variable dollar
basis. Immediate annuities are offered as well. The Company's insurance products
include universal life (fixed and variable), whole life, single premium life and
term products (including waiver of premium and accidental death benefits). The
Company also markets disability income and long-term care insurance.
Basis of presentation
The accompanying consolidated financial statements include the accounts of the
Company and its wholly owned subsidiaries. All significant intercompany accounts
and transactions have been eliminated in consolidation.
The accompanying consolidated 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 state insurance regulatory authorities (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 and all marketable equity securities 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 income (loss), net of the related
deferred policy acquisition costs effect and deferred taxes.
The retrospective interest method is used for income recognition on investments
in structured notes and residual beneficial interests in securitized financial
assets.
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.
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.
Mortgage loans on real estate are carried at amortized cost less reserves for
mortgage loan losses. The estimated fair value of the mortgage loans is
determined by a discounted cash flow analysis using mortgage interest rates
currently offered for mortgages of similar maturities.
Impairment of mortgage loans is measured as the excess of a 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 a reserve for mortgage
loan losses. The reserve 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 reserve account is determined based on several factors, including
historical experience, expected future principal and interest payments,
estimated collateral values, and current economic and political conditions.
Management regularly evaluates the adequacy of the reserve 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.
IDS Life Insurance Company
- -------------------------------------------------------------------------------
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. Amounts paid or received
under interest rate swap agreements are recognized as an adjustment to
investment income.
The Company may purchase and write index options to hedge the fee income earned
on the management of equity securities in separate accounts and the underlying
mutual funds. These index options are carried at market value and are included
in other investments or other liabilities, as appropriate. Gains or losses on
index options that qualify as hedges are deferred and recognized in management
and other fees in the same period as the hedged fee income.
The Company also uses index options to manage the risks related to a certain
annuity product that pays interest based upon the relative change in a major
stock market index between the beginning and end of the product's term.
Purchased options used in conjunction with this product are reported in other
investments and written options are included in other liabilities. The
amortization of the cost of purchased options, the proceeds of written options
and the changes in intrinsic value of the contracts are included in net
investment income.
Policy loans are carried at the aggregate of the unpaid loan balances which do
not exceed the cash surrender values of the related policies.
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 consolidated statements of cash flows for the
years ended December 31 is summarized as follows:
2000 1999 1998
Cash paid during the year for:
Income taxes $225,704 $214,940 $215,003
Interest on borrowings 3,299 4,521 14,529
Recognition of profits on annuity contracts and insurance policies
Profits on fixed and variable deferred annuities are recognized by the Company
over the lives of the contracts, using primarily the interest method. Profits on
fixed annuities represent the excess of investment income earned from investment
of contract considerations over interest credited to contract owners and other
expenses. Profits on variable annuities represent the excess of contractholder
charges over the costs of benefits provided and other expenses.
The retrospective deposit method is used in accounting for fixed and variable
universal life-type insurance. Under this method, profits are recognized over
the lives of the policies in proportion to the estimated gross profits expected
to be realized.
Premiums on traditional life, disability income and long-term care insurance
policies are recognized as revenue when due, and related benefits and expenses
are associated with premium revenue in a manner that results in recognition of
profits over the lives of the insurance policies. This association is
accomplished by means of the provision for future policy benefits and the
deferral and subsequent amortization of policy acquisition costs.
Policyholder and contractholder charges include the monthly cost of insurance
charges, issue and administrative fees and surrender charges. These charges also
include the minimum death benefit guarantee fees received from the variable life
insurance separate accounts. Management and other fees include investment
management fees from underlying proprietary mutual funds and mortality and
expense risk fees received from the variable annuity and variable life insurance
separate accounts.
Deferred policy acquisition costs
The costs of acquiring new business, principally sales compensation, policy
issue costs, underwriting and certain sales expenses, have been deferred on
insurance and annuity contracts. The deferred acquisition costs for most single
premium deferred annuities and installment annuities are amortized using
primarily the interest method. The costs for universal life-type insurance and
certain installment annuities are amortized as a percentage of the estimated
gross profits expected to be realized on the policies. For traditional life,
disability income and long-term care insurance policies, the costs are amortized
over an appropriate period in proportion to premium revenue.
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
2000 and 1999, unlocking adjustments resulted in a net decrease in amortization
of $12,300 and $56,800, respectively. Net unlocking adjustments in 1998 were not
significant.
IDS Life Insurance Company
- -------------------------------------------------------------------------------
Liabilities for future policy benefits
Liabilities for universal-life type insurance and fixed and variable deferred
annuities are accumulation values.
Liabilities for equity indexed deferred annuities are determined as the present
value of guaranteed benefits and the intrinsic value of index-based benefits.
Liabilities for fixed annuities in a benefit status are based on established
industry mortality tables and interest rates ranging from 5% to 9.5%, depending
on year of issue.
Liabilities for future benefits on traditional life insurance are based on the
net level premium method, using anticipated mortality, policy persistency and
interest earning rates. Anticipated mortality rates are based on established
industry mortality tables. Anticipated policy persistency rates vary by policy
form, issue age and policy duration with persistency on cash value plans
generally anticipated to be better than persistency on term insurance plans.
Anticipated interest rates range from 4% to 10%, depending on policy form, issue
year and policy duration.
Liabilities for future disability income and long-term care policy benefits
include both policy reserves and claim reserves. Policy reserves are based on
the net level premium method, using anticipated morbidity, mortality, policy
persistency and interest earning rates. Anticipated morbidity and mortality
rates are based on established industry morbidity and mortality tables.
Anticipated policy persistency rates vary by policy form, issue age, policy
duration and, for disability income policies, occupation class. Anticipated
interest rates for disability income and long-term care policy reserves are 3%
to 9.5% at policy issue and grade to ultimate rates of 5% to 7% over 5 to 10
years.
Claim reserves are calculated based on claim continuance tables and anticipated
interest earnings. Anticipated claim continuance rates are based on established
industry tables. Anticipated interest rates for claim reserves for both
disability income and long-term care range from 5% to 8%.
Reinsurance
The maximum amount of life insurance risk retained by the Company is $750 on any
policy insuring a single life and $1,500 on any policy insuring a joint-life
combination. The Company retains only 20% of the mortality risk on new variable
universal life insurance policies. Risk not retained is reinsured with other
life insurance companies, primarily on a yearly renewable term basis. Long-term
care policies are primarily reinsured on a coinsurance basis. The Company
retains all accidental death benefit, disability income and waiver of premium
risk.
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, 2000 and 1999 are $41,059 and $852
receivable from, respectively, AEFC for federal income taxes.
Separate account business
The separate account assets and liabilities represent funds held for the
exclusive benefit of the variable annuity and variable life insurance contract
owners. The Company receives investment management fees from the proprietary
mutual funds used as investment options for variable annuities and variable life
insurance. The Company receives mortality and expense risk fees from the
separate accounts.
The Company makes contractual mortality assurances to the variable annuity
contract owners that the net assets of the separate accounts will not be
affected by future variations in the actual life expectancy experience of the
annuitants and 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.
For variable life insurance, the Company guarantees that the rates at which
insurance charges and administrative fees are deducted from contract funds will
not exceed contractual maximums. The Company also guarantees that the death
benefit will continue payable at the initial level regardless of investment
performance so long as minimum premium payments are made.
Accounting changes
In June 1998, the Financial Accounting Standards Board (FASB) issued, and
subsequently amended, Statement of Financial Accounting Standards (SFAS) No.
133, "Accounting for Derivative Instruments and Hedging Activities," which the
company adopted on January 1, 2001. This Statement establishes accounting and
reporting standards for derivative instruments, including some embedded in other
contracts, and hedging activities. It requires that an entity recognize all
derivatives as either assets or liabilities on the balance sheet and measure
those instruments at fair value. Changes in the fair value of a derivative will
be recorded in income or directly to equity, depending on the instrument's
designated use.
IDS Life Insurance Company
- -------------------------------------------------------------------------------
A one-time opportunity to reclassify held-to-maturity investments to
available-for-sale is allowed without tainting the remaining securities in the
held-to-maturity portfolio. The Company has elected to take this opportunity to
reclass its held-to-maturity investments to available-for-sales.
As of January 1, 2001, the cumulative impact of applying the Statement's
accounting requirements will not have a significant impact on the Company's
financial position or results of operations.
In September 2000, the FASB issued SFAS No. 140, "Accounting for Transfers and
Servicing of Financial Assets and Extinguishments of Liabilities," superceding
SFAS No. 125. The Statement is effective for transfers and servicing of
financial assets and extinguishments of liabilities occurring after March 31,
2001. The Statement is effective for recognition and reclassification of
collateral and for disclosures relating to securitization transactions and
collateral for fiscal years ending after December 15, 2000. The company does not
expect SFAS No. 140 to have a material impact on the company's financial
position or results of operations.
In July 2000, the FASB's Emerging Issues Task Force (EITF) issued a consensus on
Issue 99-20, "Recognition of Interest Income and Impairment on Purchased
Beneficial Interests in Securitized Financial Assets." The consensus must be
adopted for fiscal quarters beginning after March 15, 2001, with earlier
adoption permitted. Issue 99-20 prescribes new procedures for recording interest
income and measuring impairment on retained and purchased beneficial interests.
The rule primarily affects certain AEFA high-yield investments contained in
off-balance sheet trusts whose cash flows have been negatively effected by
credit experience. As of January 1, 2001, the rule would require AEFA to adjust
the carrying amount of these investments downward by approximately $30 milllion
through recognition of an impairment charge.
Reclassifications
Certain 1999 and 1998 amounts have been reclassified to conform to the 2000
presentations.
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 values of
investments in fixed maturities and equity securities at December 31, 2000 are
as follows:
Gross Gross
Amortized unrealized unrealized Fair
Held to maturity cost gains losses value
U.S. Government agency obligations $ 38,302 $ 3,455 $ 80 $ 41,677
State and municipal obligations 7,678 16 -- 7,694
Corporate bonds and obligations 5,248,517 111,466 114,330 5,245,653
Mortgage-backed securities 1,169,116 9,130 1,472 1,176,774
--------- ----- ----- ---------
$6,463,613 $124,067 $115,882 $6,471,798
========== ======== ======== ==========
Gross Gross
Amortized unrealized unrealized Fair
Available for sale cost gains losses value
U.S. Government agency obligations $ 96,408 $ 6,134 $ 268 $ 102,274
State and municipal obligations 12,848 247 -- 13,095
Corporate bonds and obligations 7,586,423 123,691 693,303 7,016,811
Mortgage-backed securities 5,234,191 57,697 24,078 5,267,810
--------- ------ ------ ---------
Total fixed maturities 12,929,870 187,769 717,649 12,399,990
Equity securities 11,829 -- 1,496 10,333
------ ------- ----- ------
$12,941,699 $187,769 $719,145 $12,410,323
=========== ======== ======== ===========
IDS Life Insurance Company
- -------------------------------------------------------------------------------
The amortized cost, gross unrealized gains and losses and fair values of
investments in fixed maturities and equity securities at December 31, 1999 are
as follows:
Gross Gross
Amortized unrealized unrealized Fair
Held to maturity cost gains losses value
U.S. Government agency obligations $ 37,613 $ 236 $ 2,158 $ 35,691
State and municipal obligations 9,681 150 -- 9,831
Corporate bonds and obligations 5,713,475 91,571 113,350 5,691,696
Mortgage-backed securities 1,395,523 4,953 31,951 1,368,525
--------- ----- ------ ---------
$7,156,292 $96,910 $147,459 $7,105,743
========== ======= ======== ==========
Gross Gross
Amortized unrealized unrealized Fair
Available for sale cost gains losses value
U.S. Government agency obligations $ 46,325 $ 612 $ 2,231 $ 44,706
State and municipal obligations 13,226 519 191 13,554
Corporate bonds and obligations 7,960,352 60,120 560,450 7,460,022
Mortgage-backed securities 5,683,234 9,692 161,659 5,531,267
--------- ----- ------- ---------
Total fixed maturities 13,703,137 70,943 724,531 13,049,549
Equity securities 3,000 16 -- 3,016
----- -- ----- -----
$13,706,137 $70,959 $724,531 $13,052,565
=========== ======= ======== ===========
The amortized cost and fair value of investments in fixed maturities at December
31, 2000 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 from one to five years $2,930,737 $2,935,736
Due from five to ten years 1,807,979 1,800,940
Due in more than ten years 555,781 558,348
Mortgage-backed securities 1,169,116 1,176,774
--------- ---------
$6,463,613 $6,471,798
========== ==========
Amortized Fair
Available for sale cost value
Due from one to five years $ 420,233 $ 464,106
Due from five to ten years 4,675,249 4,266,932
Due in more than ten years 2,600,197 2,401,142
Mortgage-backed securities 5,234,191 5,267,810
--------- ---------
$12,929,870 $12,399,990
=========== ===========
During the years ended December 31, 2000, 1999 and 1998, fixed maturities
classified as held to maturity were sold with amortized cost of $53,169, $68,470
and $230,036, respectively. Net gains and losses on these sales were not
significant. The sale of these fixed maturities was due to significant
deterioration in the issuers' credit worthiness.
Fixed maturities available for sale were sold during 2000 with proceeds of
$1,237,116 and gross realized gains and losses of $25,101 and $10,267,
respectively. Fixed maturities available for sale were sold during 1999 with
proceeds of $1,691,389 and gross realized gains and losses of $36,568 and
$14,255, respectively. Fixed maturities available for sale were sold during 1998
with proceeds of $278,955 and gross realized gains and losses of $15,658 and
$22,102, respectively.
At December 31, 2000, bonds carried at $14,472 were on deposit with various
states as required by law.
IDS Life Insurance Company
- -------------------------------------------------------------------------------
IDS Life Insurance Company
At December 31, 2000, investments in fixed maturities comprised 79 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 $3.5
billion which are rated by AEFC's 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 2000 1999
Aaa/AAA $ 6,559,188 $ 7,144,280
Aaa/AA 32,001 1,920
Aa/AA 220,446 301,728
Aa/A 327,147 314,168
A/A 2,494,621 2,598,300
A/BBB 747,636 1,014,566
Baa/BBB 5,828,847 6,319,549
Baa/BB 287,583 348,849
Below investment grade 2,896,014 2,816,069
--------- ---------
$19,393,483 $20,859,429
=========== ===========
At December 31, 2000, 88 percent of the securities rated Aaa/AAA are GNMA, FNMA
and FHLMC mortgage-backed securities. No holdings of any other issuer are
greater than one percent of the Company's total investments in fixed maturities.
At December 31, 2000, approximately 16 percent of the Company's invested assets
were mortgage loans on real estate. Summaries of mortgage loans by region of the
United States and by type of real estate are as follows:
December 31, 2000 December 31, 1999
On balance Commitments On balance Commitments
Region sheet to purchase sheet to purchase
East North Central $ 691,694 $18,868 $ 715,998 $ 10,380
West North Central 564,576 7,621 555,635 42,961
South Atlantic 884,723 7,667 867,838 23,317
Middle Atlantic 378,702 13,813 428,051 1,806
New England 279,147 4,604 259,243 4,415
Pacific 318,727 921 238,299 3,466
West South Central 173,158 28,548 144,607 4,516
East South Central 49,176 2,763 43,841 --
Mountain 409,677 10,209 381,148 9,380
------- ------ ------- -----
3,749,580 95,014 3,634,660 100,241
Less allowance for losses 11,489 -- 28,283 --
------ ----- ------ -----
$3,738,091 $95,014 $3,606,377 $100,241
========== ======= ========== ========
December 31, 2000 December 31, 1999
On balance Commitments On balance Commitments
Property type sheet to purchase sheet to purchase
Department/retail stores $1,174,763 $11,130 $1,158,712 $ 33,829
Apartments 780,228 -- 887,538 11,343
Office buildings 1,085,948 59,941 931,234 26,062
Industrial buildings 323,766 23,943 309,845 5,525
Hotels/motels 100,680 -- 103,625 --
Medical buildings 128,101 -- 114,045 --
Nursing/retirement homes 49,822 -- 45,935 --
Mixed use 87,537 -- 66,893 --
Other 18,735 -- 16,833 23,482
------ ----- ------ ------
3,749,580 95,014 3,634,660 100,241
Less allowance for losses 11,489 -- 28,283 --
------ ----- ------ -----
$3,738,091 $95,014 $3,606,377 $100,241
========== ======= ========== ========
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, 2000 and 1999, the Company's recorded investment in impaired
loans was $24,999 and $21,375, respectively, with allowances of $4,350 and
$5,750, respectively. During 2000 and 1999, the average recorded investment in
impaired loans was $27,063 and $23,815, respectively.
IDS Life Insurance Company
- -------------------------------------------------------------------------------
The Company recognized $1,033, $1,190 and $1,809 of interest income related to
impaired loans for the years ended December 31, 2000, 1999 and 1998
respectively.
The following table presents changes in the allowance for losses related to all
loans:
2000 1999 1998
Balance, January 1 $ 28,283 $39,795 $38,645
Provision (reduction) for investment losses (14,894) (9,512) 7,582
Loan payoffs (1,200) (500) (800)
Foreclosures and writeoffs (700) (1,500) (5,632)
---- ------ ------
Balance, December 31 $11,489 $28,283 $39,795
======= ======= =======
At December 31, 2000, the Company had no commitments to purchase investments
other than mortgage loans.
Net investment income for the years ended December 31 is summarized as follows:
2000 1999 1998
Interest on fixed maturities $1,473,560 $1,598,059 $1,676,984
Interest on mortgage loans 286,611 285,921 301,253
Other investment income 1,750 70,892 43,518
Interest on cash equivalents 8,084 5,871 5,486
----- ----- -----
1,770,005 1,960,743 2,027,241
Less investment expenses 39,400 41,170 40,756
------ ------ ------
$1,730,605 $1,919,573 $1,986,485
========== ========== ==========
Net realized (loss) gain on investments for the years ended December 31 is
summarized as follows:
2000 1999 1998
Fixed maturities $(34,857) $ 8,802 $ 9,946
Mortgage loans 15,845 10,211 (5,933)
Other investments 2,037 7,596 2,889
----- ----- -----
$(16,975) $26,608 $ 6,902
======== ======= =======
Changes in net unrealized appreciation (depreciation) of investments for the
years ended December 31 are summarized as follows:
2000 1999 1998
Fixed maturities available for sale $99,706 $(921,778) $(93,474)
Equity securities (1,428) (142) (203)
------ ---- ----
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:
2000 1999 1998
Federal income taxes:
Current $176,397 $178,444 $244,946
Deferred 37,704 79,796 (16,602)
------ ------ -------
214,101 258,240 228,344
State income taxes-current 7,526 9,624 7,337
----- ----- -----
Income tax expense $221,627 $267,864 $235,681
======== ======== ========
Increases (decreases) to the income tax provision applicable to pretax income
based on the statutory rate are attributable to:
2000 1999 1998
Provision Rate Provision Rate Provision Rate
Federal income taxes based on the statutory rate $282,542 35.0% $316,511 35.0% $271,527 35.0%
Tax-excluded interest and dividend income (3,788) (0.5) (9,626) (1.1) (12,289) (1.6)
State taxes, net of federal benefit 4,892 0.6 6,256 0.7 4,769 0.6
Affordable housing credits (54,569) (6.8) (31,000) (3.4) (19,688) (2.5)
Other, net (7,450) (0.8) (14,277) (1.6) (8,638) (1.1)
------ ---- ------- ---- ------ ----
Total income taxes $221,627 27.5% $267,864 29.6% $235,681 30.4%
======== ==== ======== ==== ======== ====
A portion of life insurance company income earned prior to 1984 was not subject
to current taxation but was accumulated, for tax purposes, in a policyholders'
surplus account. At December 31, 2000, the Company had a policyholders' surplus
account balance of $20,114. The policyholders' surplus account is only taxable
if dividends to the stockholder exceed the stockholder's surplus account or if
the Company is liquidated. Deferred income taxes of $7,040 have not been
established because no distributions of such amounts are contemplated.
IDS Life Insurance Company
- -------------------------------------------------------------------------------
IDS Life Insurance Company
Significant components of the Company's deferred tax assets and liabilities as
of December 31 are as follows:
2000 1999
Deferred tax assets:
Policy reserves $730,239 $733,647
Unrealized loss on available for sale investments 179,702 221,431
Investments, other 34,600 1,873
Life insurance guaranty fund assessment reserve 1,365 4,789
----- -----
Total deferred tax assets 945,906 961,740
------- -------
Deferred tax liabilities:
Deferred policy acquisition costs 796,292 740,837
Other 13,026 4,883
------ -----
Total deferred tax liabilities 809,318 745,720
------- -------
Net deferred tax assets $136,588 $216,020
======== ========
The Company is required to establish a valuation allowance for any portion of
the deferred 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 tax assets and, therefore, no such valuation
allowance has been established.
4. STOCKHOLDER'S EQUITY
Retained earnings available for distribution as dividends to the parent are
limited to the Company's surplus as determined in accordance with accounting
practices prescribed by state insurance regulatory authorities. Statutory
unassigned surplus aggregated $1,527,543 as of December 31, 2000 and $1,693,356
as of December 31, 1999 (see Note 3 with respect to the income tax effect of
certain distributions). In addition, any dividend distributions in 2001 in
excess of approximately $344,973 would require approval of the Department of
Commerce of the State of Minnesota.
Statutory net income for the years ended December 31 and capital and surplus as
of December 31 are summarized as follows:
2000 1999 1998
Statutory net income $ 344,973 $ 478,173 $ 429,903
Statutory capital and surplus 1,778,306 1,978,406 1,883,405
--------- --------- ---------
The National Association of Insurance Commissioners (NAIC) revised the
Accounting Practices and Procedures Manual in a process referred to as
Codification. The revised manual will be effective January 1, 2001. The
domiciliary states of the Company and its insurance subsidiaries have adopted
the provisions of the revised manual. The revised manual has changed, to some
extent, prescribed statutory accounting practices and will result in changes to
the accounting practices that the Company and its insurance subsidiaries use to
prepare their statutory-basis financial statements. Management believes the
impact of these changes to the Company's and its subsidiaries' stautory-basis
capital and surplus as of January 1, 2001 will not be significant.
5. RELATED PARTY TRANSACTIONS
The Company loans funds to AEFC under a collateral loan agreement. The balance
of the loan was $nil at December 31, 2000 and 1999. This loan can be increased
to a maximum of $75,000 and pays interest at a rate equal to the preceding
month's effective new money rate for the Company's permanent investments.
Interest income on related party loans totaled $nil in 2000, 1999 and 1998.
The Company participates in the American Express Company Retirement Plan which
covers all permanent employees age 21 and over who have met certain employment
requirements. Employer contributions to the plan are based on participants' age,
years of service and total compensation for the year. Funding of retirement
costs for this plan complies with the applicable minimum funding requirements
specified by ERISA. The Company's share of the total net periodic pension cost
was $250, $223 and $211 in 2000, 1999 and 1998, respectively.
The Company also participates in defined contribution pension plans of American
Express Company which cover all employees who have met certain employment
requirements. Company contributions to the plans are a percent of either each
employee's eligible compensation or basic contributions. Costs of these plans
charged to operations in 2000, 1999 and 1998 were $1,707, $1,906 and $1,503,
respectively.
The Company participates in defined benefit health care plans of AEFC that
provide health care and life insurance benefits to retired employees and retired
financial advisors. The plans include participant contributions and service
related eligibility requirements. Upon retirement, such employees are considered
to have been employees of AEFC. AEFC expenses these benefits and allocates the
expenses to its subsidiaries. The Company's share of postretirement benefits in
2000, 1999 and 1998 was $1,136, $1,147 and $1,352, respectively.
Charges by AEFC for use of joint facilities, technology support, marketing
services and other services aggregated $582,836, $485,177 and $411,337 for 2000,
1999 and 1998, respectively. Certain of these costs are included in deferred
policy acquisition costs.
IDS Life Insurance Company
- -------------------------------------------------------------------------------
6. COMMITMENTS AND CONTINGENCIES
At December 31, 2000, 1999 and 1998, traditional life insurance and universal
life-type insurance in force aggregated $98,060,472, $89,271,957 and $81,074,928
respectively, of which $17,429,851, $8,281,576 and $4,912,313 were reinsured at
the respective year ends. The Company also reinsures a portion of the risks
assumed under disability income and long-term care policies. Under all
reinsurance agreements, premiums ceded to reinsurers amounted to $89,506,
$76,970 and $66,378 and reinsurance recovered from reinsurers amounted to
$32,500, $27,816, and $20,982 for the years ended December 31, 2000, 1999 and
1998, respectively. Reinsurance contracts do not relieve the Company from its
primary obligation to policyholders.
In January 2000, AEFC reached an agreement in principle to settle three
class-action lawsuits related to the sales of insurance and annuity products,
anticipated to provide for approximately $215 million of benefits. The Company
had been named as a co-defendant in all three of these lawsuits. In September
2000, the court gave preliminary approval to the proposed settlement and AEFC
has mailed notices to all of the over two million class members. A fairness
hearing is scheduled for March 2001, with final approval anticipated in the
second quarter, pending any legal appeals. The anticipated costs of settlement
remain unchanged from 1999. The portion of the settlement allocated to the
Company did not have a material impact on the Company's financial position or
results of operations. The agreement 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 final court approval.
The Company is named as a defendant in various other lawsuits. The outcome of
any litigation cannot be predicted with certainty. In the opinion of management,
however, the ultimate resolution of these lawsuits, taken in aggregate should
not have a material adverse effect on the Company's consolidated financial
position.
The IRS routinely examines the Company's federal income tax returns 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
7. LINES OF CREDIT
The Company has available lines of credit with its parent aggregating $200,000
($100,000 committed and $100,000 uncommitted). The interest rate for any
borrowings is established by reference to various indices plus 20 to 45 basis
points, depending on the term. Borrowings outstanding under this agreement were
$50,000 uncommitted at December 31, 2000 and 1999, respectively.
8. DERIVATIVE FINANCIAL INSTRUMENTS
The Company enters into transactions involving derivative financial instruments
to manage its exposure to interest rate risk and equity market 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 or equity market index.
The Company is not impacted by market risk related to derivatives held for
non-trading purposes beyond that inherent in cash market transactions.
Derivatives held for purposes other than trading are largely used to manage risk
and, therefore, the cash flow and income effects of the derivatives are inverse
to the effects of the underlying transactions.
Credit risk is the possibility that the counterparty will not fulfill the terms
of the contract. The Company monitors credit risk related to derivative
financial instruments through established approval procedures, including setting
concentration limits by counterparty, and requiring collateral, where
appropriate. A vast majority of the Company's counterparties are rated A or
better by Moody's and Standard & Poor's.
Credit risk related to interest rate caps and floors and index options is
measured by the 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 risk.
IDS Life Insurance Company
- -------------------------------------------------------------------------------
The Company's holdings of derivative financial instruments are as follows:
Notional or
contract Carrying Fair Total credit
December 31, 2000 amount amount value exposure
Assets:
Interest rate caps $1,500,000 $ 6,127 $ 1,174 $ 1,174
Interest rate floors 1,000,000 121 531 531
Options purchased 265,848 44,139 51,701 51,701
Financial futures purchased 5 -- 7,209 --
Liabilities:
Options written 104,324 (3,098) (4,138) --
Financial futures sold 7 -- 9,011 --
Off balance sheet:
Interest rate swaps 1,000,000 -- (10,942) --
--------- ---- ------- ----
$47,289 $ 54,546 $53,406
======= ======== =======
December 31, 1999 Assets:
Interest rate caps $2,500,000 $ 9,685 $ 12,773 $12,773
Interest rate floors 1,000,000 602 319 319
Options purchased 180,897 49,789 61,745 61,745
Liabilities:
Options purchased/written 43,262 (1,677) (2,402) --
Off balance sheet:
Interest rate swaps 1,267,000 -- (17,582) --
--------- ---- ------- ----
$58,399 $ 54,853 $74,837
======= ======== =======
The fair values of derivative financial instruments are based on market values,
dealer quotes or pricing models. The interest rate caps, floors and swaps expire
on various dates from 2001 to 2003. The purchased and written options expire on
various dates from 2001 to 2006.
Interest rate caps, swaps and floors are used principally to manage the
Company's interest rate risk. These instruments are used to protect the margin
between interest rates earned on investments and the interest rates credited to
related annuity contract holders.
The Company also uses interest rate swaps to manage interest rate risk related
to the level of fee income earned on the management of fixed income securities
in separate accounts and the underlying mutual funds. The amount of fee income
received is based upon the daily market value of the separate account and mutual
fund assets. As a result, changing interest rate conditions could impact the
Company's fee income significantly. The Company entered into interest rate swaps
to hedge anticipated fee income for 2000 related to separate accounts and mutual
funds which invest in fixed income securities. Interest was reported in
management and other fees.
The Company offers an annuity product that pays interest based upon the relative
change in a major stock market index between the beginning and end of the
product's term. As a means of hedging its obligation under the provisions of
this product, the Company purchases financial futures and purchases and writes
options on the major stock market index.
The Company also writes financial futures and purchases and writes options to
manage the equity market risk related to seed money the Company has invested in
certain separate accounts and the underlying mutual funds.
Index options are used to manage the equity market risk related to the fee
income that the Company receives from its separate accounts and the underlying
mutual funds. The amount of the fee income received is based upon the daily
market value of the separate account and mutual fund assets. As a result, the
Company's fee income could be impacted significantly by fluctuations in the
equity market. The Company entered into index option collars (combination of
puts and calls) to hedge anticipated fee income for 2000 and 1999 related to
separate accounts and mutual funds which invest in equity securities. Testing
demonstrated the impact of these instruments on the income statement closely
correlates with the amount of fee income the Company realizes. At December 31,
2000, deferred gains on purchased put and written call index options were $1,005
and $449, respectively. At December 31, 1999, there were no deferred gains or
losses on purchased put or written call index options.
IDS Life Insurance Company
- -------------------------------------------------------------------------------
9. FAIR VALUES OF FINANCIAL INSTRUMENTS
The Company discloses fair value information for most on- and off-balance sheet
financial instruments for which it is practicable to estimate that value. Fair
values of life insurance obligations and all non-financial instruments, such as
deferred acquisition costs are excluded.
Off-balance sheet intangible assets, such as the value of the field force, 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.
2000 1999
Carrying Fair Carrying Fair
Financial Assets value value value value
Investments:
Fixed maturities (Note 2):
Held to maturity $ 6,463,613 $ 6,471,798 $ 7,156,292 $ 7,105,743
Available for sale 12,399,990 12,399,990 13,049,549 13,049,549
Mortgage loans on real estate (Note 2) 3,738,091 3,821,825 3,606,377 3,541,958
Other:
Equity securities (Note 2) 10,333 10,333 3,016 3,016
Derivative financial Instruments (Note 8) 50,387 60,615 60,076 74,837
Other 1,130 1,130 2,258 2,258
Cash and cash equivalents (Note 1) 316,974 316,974 32,333 32,333
Separate account assets (Note 1) 32,349,347 32,349,347 35,894,732 35,894,732
Financial Liabilities
Future policy benefits for fixed annuities $18,020,824 $17,479,187 $19,189,170 $18,591,859
Derivative financial instruments (Note 8) 3,098 6,069 1,677 19,984
Separate account liabilities 28,791,949 27,822,667 31,869,184 31,016,081
---------- ---------- ---------- ----------
At December 31, 2000 and 1999, the carrying amount and fair value of future
policy benefits for fixed annuities exclude life insurance-related contracts
carried at $1,300,018 and $1,270,094, respectively, and policy loans of $96,603
and $92,895, respectively. The fair value of these benefits is based on the
status of the annuities at December 31, 2000 and 1999. The fair value of
deferred annuities is estimated as the carrying amount less any applicable
surrender charges and related loans. 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 2000 and 1999.
At December 31, 2000 and 1999, the fair value of liabilities related to separate
accounts is estimated as the carrying amount less any applicable surrender
charges and less variable insurance contracts carried at $3,557,398 and
$4,025,548, respectively.
IDS Life Insurance Company [AMERICAN EXPRESS LOGO-Registered Trademark-]
70100 AXP Financial Center
Minneapolis, MN 55474
(800) 862-7919
s-6401N (5/01)
PART II.
INFORMATION NOT REQUIRED IN PROSPECTUS
Item 13. Other Expenses of Issuance and Distribution
The expenses of the issuance and distribution of the interests in the IDS Life
Account MGA of IDS Life Insurance Company to be registered, other than
commissions on sales of the Contracts, are to be borne by the registrant.
Item 14. Indemnification of Directors and Officers
Section 300.083 of Minnesota Law provides in part that a corporation organized
under such law shall have power to indemnify anyone made, or threatened to be
made, a party to a threatened, pending or completed proceeding, whether civil or
criminal, administrative or investigative, because he is or was a director or
officer of the corporation, or served as a director or officer of another
corporation at the request of the corporation. Indemnification in such a
proceeding may extend to judgments, penalties, fines and amounts paid in
settlement, as well as to reasonable expenses, including attorneys' fees and
disbursements. In a civil proceeding, there can be no indemnification under the
statute, unless it appears that the person seeking indemnification has acted in
good faith and in a manner he reasonably believed to be in, or not opposed to,
the best interests of the corporation and its shareholders and unless such
person has received no improper personal benefit; in a criminal proceeding, the
person seeking indemnification must also have no reasonable cause to believe his
conduct was unlawful.
Article IX of the By-laws of IDS Life Insurance Company requires IDS Life
Insurance Company to indemnify directors and officers to the extent
indemnification is permitted as stated by the preceding paragraph, and contains
substantially the same language as the above-mentioned Section 300.083.
Article IX, paragraph (2), of the By-laws of IDS Life Insurance Company provides
as follows:
"Section 2. The Corporation shall indemnify any person who was or is a party or
is threatened to be made a party, by reason of the fact that he is or was a
director, officer, employee or agent of this Corporation, or is or was serving
at the direction of the Corporation as a director, officer, employee or agent of
another corporation, partnership, joint venture, trust or other enterprise, to
any threatened, pending or completed action, suit or proceeding, wherever
brought, to the fullest extent permitted by the laws of the State of Minnesota,
as now existing or hereafter amended, provided that this Article shall not
indemnify or protect any such director, officer, employee or agent against any
liability to the Corporation or its security holders to which he would otherwise
be subject by reason of willful misfeasance, bad faith, or gross negligence, in
the performance of his duties or by reason of his reckless disregard of his
obligations and duties."
The parent company of IDS Life Insurance Company maintains an insurance policy
which affords liability coverage to directors and officers of IDS Life Insurance
Company while acting in that capacity. IDS Life Insurance Company pays its
proportionate share of the premiums for the policy.
Insofar as indemnification for liabilities arising under the Securities Act of
1933 may be permitted to directors, 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 15. Recent Sales of Unregistered Securities
None
Item 16. Exhibits and Financial Statement Schedules
(a) Exhibits
1. - 2. Not applicable.
3.1 Copy of Certificate of Incorporation of IDS Life Insurance
Company filed electronically as Exhibit 3.1 to Post-Effective
Amendment No. 5 to Registration Statement No. 33-28976 is
incorporated herein by reference.
3.2 Copy of the Amended By-laws of IDS Life Insurance Company
filed electronically as Exhibit 3.2 to Post-Effective
Amendment No. 5 to Registration Statement No. 33-28976 is
incorporated herein by reference.
3.3 Copy of Resolution of the Board of Directors of IDS Life
Insurance Company, dated May 5, 1989, establishing IDS Life
Account MGA filed electronically as Exhibit 3.3 to
Post-Effective Amendment No. 5 to Registration Statement No.
33-28976 is incorporated herein by reference.
4.1 Copy of Non-tax qualified Group Annuity Contract, Form 30363C,
filed electronically as Exhibit 4.1 to Post-Effective
Amendment No. 5 to Registration Statement No. 33-28976 is
incorporated herein by reference.
4.2 Copy of Non-tax qualified Group Annuity Certificate, Form
30360C, filed electronically as Exhibit 4.2 to Post-Effective
Amendment No. 5 to Registration Statement No. 33-28976 is
incorporated herein by reference.
4.3 Copy of Endorsement No. 30340C-GP to the Group Annuity
Contract filed electronically as Exhibit 4.3 to Post-Effective
Amendment No. 5 to Registration Statement No. 33-28976 is
incorporated herein by reference.
4.4 Copy of Endorsement No. 30340C to the Group Annuity
Certificate filed electronically as Exhibit 4.4 to
Post-Effective Amendment No. 5 to Registration Statement No.
33-28976 is incorporated herein by reference.
4.5 Copy of Tax qualified Group Annuity Contract, Form 30369C,
filed electronically as Exhibit 4.5 to Post-Effective
Amendment No. 10 to Registration Statement No. 33-28976 is
incorporated herein by reference.
4.6 Copy of Tax qualified Group Annuity Certificate, Form 30368C,
filed electronically as Exhibit 4.6 to Post-Effective
Amendment No. 10 to Registration Statement No. 33-28976 is
incorporated herein by reference.
4.7 Copy of Group IRA Annuity Contract, Form 30372C, filed
electronically as Exhibit 4.7 to Post-Effective Amendment No.
10 to Registration Statement No. 33-28976 is incorporated
herein by reference.
4.8 Copy of Group IRA Annuity Certificate, Form 30371C, filed
electronically as Exhibit 4.8 to Post-Effective Amendment No.
10 to Registration Statement No. 33-28976 is incorporated
herein by reference.
4.9 Copy of Non-tax qualified Individual Annuity Contract, Form
30365D, filed electronically as Exhibit 4.9 to Post-Effective
Amendment No. 10 to Registration Statement No. 33-28976 is
incorporated herein by reference.
4.10 Copy of Endorsement No. 30379 to the Individual Annuity
Contract, filed electronically as Exhibit 4.10 to
Post-Effective Amendment No. 10 to Registration Statement No.
33-28976 is incorporated herein by reference.
4.11 Copy of Tax qualified Individual Annuity Contract, Form
30370C, filed electronically as Exhibit 4.11 to Post-Effective
Amendment No. 10 to Registration Statement No. 33-28976 is
incorporated herein by reference.
4.12 Copy of Individual IRA Annuity Contract, Form 30373C, filed
electronically as Exhibit 4.12 to Post-Effective Amendment No.
10 to Registration Statement No. 33-28976 is incorporated
herein by reference.
4.13 Copy of Endorsement No. 33007 filed electronically as Exhibit
4.13 to Post-Effective Amendment No. 12 to Registration
Statement No. 33-28976 is incorporated herein by reference.
5. Copy of Opinion of Counsel regarding legality of Contracts
is filed electronically herewith.
6.-20. Not applicable.
21. Copy of List of Subsidiaries filed electronically as Exhibit
22 to Post-Effective Amendment No. 8 to Registration Statement
No. 33-28976 is incorporated herein by reference.
22. Not applicable.
23. Consent of Independent Auditors is filed electronically
herewith.
24. Power of Attorney, dated April 25, 2001, is filed
electronically herewith.
25.-27. Not applicable.
(b) Not applicable.
Item 17. Undertakings
A. The Registrant undertakes:
(1) to file, during any period in which offers or sales are being
made, a post-effective amendment to this Registration
Statement:
(i) to include any prospectus required by Section
10(a)(3) of the Securities Act of 1933,
(ii) to reflect in the prospectus any facts or events
arising after the effective date of the Registration
Statement (or the most recent post-effective
amendment thereof) which, individually or in the
aggregate, represent a fundamental change in the
information set forth in the Registration Statement,
(iii) to include any material information with respect to
the plan of distribution not previously disclosed in
the Registration Statement or any material change to
such information in the Registration Statement,
(2) that, for the purpose of determining any liability under the
Securities Act of 1933, each such post-effective amendment
shall be deemed to be a new Registration Statement relating to
the securities offered therein, and the offering of such
securities at that time may be deemed to be the initial bona
fide offering thereof,
(3) that all post-effective amendments will comply with the
applicable forms, rules and regulations of the Commission in
effect at the time such post-effective amendments are filed,
and
(4) to remove from registration by means of a post-effective
amendment any of the securities being registered which remain
unsold at the termination of the offering.
B. The Registrant represents that it is relying upon the no-action
assurance given to the American Council of Life Insurance (pub. avail.
Nov. 28, 1988). Further, the Registrant represents that it has complied
with the provisions of paragraphs (1) - (4) of the no-action letter.
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, IDS Life Insurance
Company has duly caused this Registration Statement to be signed on its behalf
by the undersigned, thereunto duly authorized in this City of Minneapolis, and
State of Minnesota on the 25th day of April, 2001.
IDS Life Insurance Company
--------------------------
(Registrant)
By /s/ Pamela J. Moret *
--------------------------
Pamela J. Moret
Chief Executive Officer
Pursuant to the requirements of the Securities Act of 1933, this Registration
Statement has been signed below by the following persons in the capacities
indicated on the 25th day of April, 2001.
Signature Title
/s/ Gumer C. Alvero* Director and Executive Vice
- ------------------------------------ President - Annuities
Gumer C. Alvero
/s/ Timothy V. Bechtold* Director and President
- ------------------------------------
Timothy V. Bechtold
/s/ Pamela J. Moret* Director, Chairman and Chief
- ------------------------------------ Executive Officer
Pamela J. Moret
/s/ Barry J. Murphy* Director
- ------------------------------------
Barry J. Murphy
/s/ Stuart A. Sedlacek* Director and Executive Vice
- ------------------------------------ President
Stuart A. Sedlacek
/s/ Bridget Sperl* Executive Vice President -
- ------------------------------------ Client Service
Bridget Sperl
/s/ John T. Sweeney* Executive Vice President -
- ------------------------------------ Finance
John T. Sweeney
/s/ Philip C. Wentzel* Vice President and Controller
- -------------------------------------
Philip C. Wentzel
/s/ David L. Yowan* Vice President, Treasurer and
- ------------------------------------ Assistant Secretary
David L. Yowan
*Signed pursuant to Power of Attorney dated April 25, 2001, filed electronically
herewith as Exhibit 24.
By:
/s/ Mary Ellyn Minenko
Mary Ellyn Minenko