UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
POST-EFFECTIVE AMENDMENT NO. 4
TO REGISTRATION STATEMENT NO. 333-42793
ON FORM S-2 TO FORM S-1 ON FORM S-2
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)
41-0823832
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(I.R.S. Employer Identification No.)
70100 AXP Financial Center, Minneapolis, MN 55474, (800) 862-7919
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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)
It is proposed that this filing become effective on May 1, 2002.
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
- ----------------------- --------------------- -------------------- --------------------- --------------------
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
- ----------------------- --------------------- -------------------- --------------------- --------------------
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
PORTFOLIO GUARANTEED
TERM ANNUITY
ISSUED BY: IDS LIFE INSURANCE COMPANY
NEW PORTFOLIO GUARANTEED TERM ANNUITY CONTRACTS ARE NOT CURRENTLY BEING OFFERED.
PROSPECTUS
MAY 1, 2002
IDS Life Insurance Company (IDS Life) issues this annuity and offers it in two
ways to members of a wrap fee program sponsored by American Express Financial
Advisors Inc. (AEFA):
- - 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 market value adjustment. As a result, you
could get less than your purchase payment back.
You cannot purchase this product unless you pay an annual wrap fee. If you stop
participating in the wrap fee program, IDS Life will terminate your contract and
you may lose money through the market value adjustment.
Depending on your circumstances, you may be better off purchasing a similar
product available from IDS Life outside the wrap fee program.
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 ACCURACY OR 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.
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TABLE OF CONTENTS
THE PORTFOLIO 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 6
MARKET VALUE ADJUSTMENT 7
PREMIUM TAXES 8
DEATH BENEFIT PRIOR TO SETTLEMENT 9
THE ANNUITY PAYMENT PERIOD 9
AMENDMENT, DISTRIBUTION, ASSIGNMENT
AND TERMINATION OF CONTRACTS 11
TAXES 11
THE COMPANY 13
ADDITIONAL INFORMATION 18
EXPERTS 19
IDS LIFE INSURANCE COMPANY FINANCIAL INFORMATION 20
APPENDIX A -- PARTIAL SURRENDER ILLUSTRATION 35
APPENDIX B -- MARKET VALUE ADJUSTMENT ILLUSTRATION 37
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THE PORTFOLIO 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.
The 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 members of a wrap fee program sponsored by AEFA under
which this contract is made available for non-tax qualified and tax qualified
purchases. 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.
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 guarantee 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 duration.
You must choose the length of a renewal guarantee period during the 30 days
before the end of the previous guarantee period. Failure to choose will result
in an automatic renewal for a period of one year. 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 without
a surrender charge. 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. 6)
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 Portfolio 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. 7)
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. 8)
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. 9)
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. 9)
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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 is the cash surrender value. 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
- - 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 (TSAs) 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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DESCRIPTION OF CONTRACTS
GENERAL
This prospectus describes interests in qualified and nonqualified group and
individual market value annuity contracts offered by IDS Life to members of a
wrap fee program sponsored by AEFA under which this contract is made available.
Further details about the wrap fee program are outlined in the client service
agreement for the program and in AEFA's Part II to Form ADV, including the
Schedule H that is filed with the Part II materials. You may obtain these
materials by calling (800) 967-4377 (option 3).
PLEASE REMEMBER:
- - YOU CANNOT PURCHASE THIS PRODUCT UNLESS YOU PAY AN ANNUAL WRAP FEE,
- - IF YOU STOP PARTICIPATING IN THE WRAP FEE PROGRAM, THEN YOU WILL NO LONGER
QUALIFY FOR THIS CONTRACT, IDS LIFE WILL TERMINATE YOUR CONTRACT AND YOU
MAY LOSE MONEY THROUGH A MARKET VALUE ADJUSTMENT, AND
- - IF IDS LIFE TERMINATES YOUR CONTRACT, IDS LIFE WILL GIVE YOU THE OPTION OF
EXCHANGING INTO ANOTHER ANNUITY PRODUCT, WHICH MAY CONTAIN HIGHER FEES, A
LOWER GUARANTEED INTEREST RATE AND A SURRENDER CHARGE.
A SIMILAR PRODUCT IS AVAILABLE OUTSIDE OF THE WRAP FEE PROGRAM UNDER WHICH THIS
CONTRACT IS AVAILABLE. DEPENDING ON YOUR INDIVIDUAL CIRCUMSTANCES, YOU MAY BE
BETTER OFF PURCHASING THE SIMILAR PRODUCT THAT IS AVAILABLE OUTSIDE OF THE WRAP
FEE PROGRAM. PLEASE CONSULT YOUR FINANCIAL ADVISOR OR CALL THE TELEPHONE NUMBER
ON THE FRONT COVER FOR MORE INFORMATION.
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. 29). Surrenders prior to the
renewal date are subject to a market value adjustment, 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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EXAMPLE OF GUARANTEED RATE OF ACCUMULATION
Beginning account value: $50,000
Guaranteed period: 10 years
Guaranteed rate: 6% annual effective rate
<Table>
<Caption>
INTEREST CREDITED TO THE ACCOUNT CUMULATIVE INTEREST CREDITED
YEAR DURING YEAR 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 4,255.55 25,181.51 75,181.51
8 4,510.89 29,692.40 79,692.40
9 4,781.55 34,473.95 84,473.95
10 5,068.43 39,542.38 89,542.38
</Table>
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 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.
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 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 "Taxes.")
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TAX-SHELTERED ANNUITIES: The Code imposes certain restrictions on your right to
receive early distributions from a TSA:
- - Distributions attributable to salary reduction contributions (plus
earnings) made after Dec. 31, 1988, or to transfers or rollovers from other
contracts, may be made from the TSA only if:
-- you are at least age 59 1/2;
-- you are disabled as defined in the Code;
-- you severed employment with the employer who purchased the contract;
or
-- the distribution is because of your death.
- - If you encounter a financial hardship (as provided by the Code), you may be
eligible to receive a distribution of all contract values attributable to
salary reduction contributions made after Dec. 31, 1988, but not the
earnings on them.
- - Even though a distribution may be permitted under the above rules, it may
be subject to IRS taxes and penalties (see "Taxes").
- - The above restrictions on distributions do not affect the availability of
the amount credited to the contract as of Dec. 31, 1988. The restrictions
also do not apply to transfers or exchanges of contract value within the
contract, or to another registered variable annuity contract or investment
vehicle.
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.
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 six 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 seven
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 or that
payment be wired to your bank. For instructions, please contact your sales
representative.
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) 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 Portfolio Guarantee 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 Portfolio
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.
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RELATIONSHIP BETWEEN YOUR CONTRACT'S GUARANTEED RATE AND NEW CONTRACT FOR THE
SAME NUMBER OF YEARS AS THE GUARANTEED PERIOD REMAINING ON YOUR CONTRACT:
<Table>
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
</Table>
GENERAL EXAMPLES
ASSUME:
- - You purchase a contract and choose a guarantee period of ten years.
- - We guarantee an interest rate of 4.5% annually for your ten-year guarantee
period.
- - After three years you decide to surrender your contract. In other words,
you decide to surrender your contract when you have seven years left in
your guarantee period.
Remember that your market adjusted value depends partly on the interest rate of
a new Portfolio Guaranteed Term Annuity for the same number of years as the
guarantee period remaining on your contract. In this case, that is seven years.
EXAMPLE 1: Remember that your contract is earning 4.5%. Assume that new
contracts that we offer with a seven-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 seven-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.
The precise market adjusted value formula is as follows:
(RENEWAL VALUE)
MARKET ADJUSTED VALUE = ---------------------
(1 + i SUB Mvi)TO THE POWER OF (N + t)
Renewal value = The accumulation value at the end of the current guarantee
period
i SUB Mvi = The current interest rate offered for a new Guaranteed Term
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 Portfolio 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 one 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 eight years is 4% and nine 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 IDS Life
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.
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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 to take effect Jan. 1, 2002 which may
affect distributions from your qualified annuity. Contact your tax advisor if
you have any questions as to the impact of the new proposed rules on your
situation.
- - SPOUSE BENEFICIARY: If you have not elected an annuity payout plan, and if
your spouse is the sole beneficiary, your spouse may elect to receive
payouts, or elect to treat the contract as his or her own. If your spouse
elects a payout option, the payouts must begin no later than the year in
which the annuitant would have reached age 70 1/2. If the annuitant
attained age 70 1/2 at the time of death, payouts must begin no later than
Dec. 31 of the year following the year of the annuitant's death.
Your spouse may elect to assume ownership of the contract at any time. If
your spouse elects to assume ownership of the contract, the contract value
will be equal to the death benefit that would otherwise have been paid.
- - NON-SPOUSE BENEFICIARY: If you have not elected an annuity payout plan, and
if death occurs prior to the year the annuitant would have attained age
70 1/2, the beneficiary may elect to receive payouts from the contract over
a five year period. If the annuitant's death occurs after attaining age
70 1/2, we will pay the beneficiary in a single sum unless the beneficiary
elects to receive payouts under an annuity payout plan available under this
contract if:
-- the beneficiary asks us in writing within 60 days after we receive
proof of death; and
-- payouts begin no later than one year following the year of your death;
and
-- the payout period does not extend beyond the beneficiary's life or
life expectancy.
- - ANNUITY PAYOUT PLAN: If you elect an annuity payout plan, the payouts to
your beneficiary will continue pursuant to the annuity payout plan you
elect.
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 tenth 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 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 take 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 tenth contract anniversary, if later.
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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 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 five, ten 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 ten nor more
than 30.
Other income plan options may be available.
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.
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AMENDMENT, DISTRIBUTION, ASSIGNMENT AND TERMINATION 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. American Express Financial Advisors Inc., an affiliate of IDS Life,
is the sponsor of the wrap fee program under which this contract is made
available.
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.
TERMINATION OF CONTRACTS
If your participation in the wrap fee program is terminated, you will no longer
qualify for this contract and your contract will be terminated. Your contract
will be subject to a market value adjustment unless the termination occurs at
the end of a guarantee period. Upon termination, you will be given the option of
exchanging into another annuity product, which may contain higher fees, a lower
guaranteed interest rate and a surrender charge.
TAXES
Generally, under current law, your contract has a tax-deferral feature. This
means any increase in the value of your contract is taxable to you only when you
receive a payment or surrender (see detailed discussion below). Any portion of
the annuity payments and any surrenders you request that represent ordinary
income normally are taxable. We will send you a tax information reporting form
for any year in which we made a taxable distribution according to our records.
Roth IRAs may grow and be distributed tax free if you meet certain distribution
requirements.
ANNUITY PAYMENTS UNDER NONQUALIFIED ANNUITIES: A portion of each payment will be
ordinary income and subject to tax, and a portion of each payment will be
considered a return of part of your investment and will not be taxed. If the
annuitant dies before your investment in the contract is fully recovered, the
remaining portion of the unrecovered investment can be taken as a federal income
tax deduction for the last taxable year of the annuitant. All amounts you
receive after your investment in the contract is fully recovered will be subject
to tax.
Tax law requires that all nonqualified deferred annuity contracts issued by the
same company (and possibly its affiliates) to the same owner during a calendar
year be taxed as a single, unified contract when you take distributions from any
one of those contracts.
QUALIFIED ANNUITIES: 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.
Adverse tax consequences may result if you do not ensure that contributions,
distributions and other transactions under the contract comply with the law.
Qualified annuities have minimum distribution rules that govern the timing and
amount of distributions. You should refer to your retirement plan or adoption
agreement, or consult a tax advisor for more information about these
distribution rules.
ANNUITY PAYMENTS UNDER QUALIFIED ANNUITIES (EXCEPT ROTH IRAS): Under a qualified
annuity, the entire payment generally is includable as ordinary income and is
subject to tax except to the extent that contributions were made with
non-deductible contributions or with after-tax dollars rolled from a retirement
plan. If the purchase payment was made by you or on your behalf with deductible
or 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 from the plan.
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SURRENDERS: For qualified annuities under 401(a) and 401(k) plans, we will
surrender your contract to the plan's trustee for the benefit of your account.
For other qualified annuities and nonqualified annuities, if you surrender part
or all of your contract before your annuity payments begin, your surrender
payment will be taxed to the extent that the value of your contract immediately
before the surrender exceeds your investment. You also may have to pay a 10% IRS
penalty for surrenders you make before reaching age 59 1/2 unless certain
exceptions apply.
DEATH BENEFITS TO BENEFICIARIES UNDER NONQUALIFIED ANNUITIES: The death benefit
under a contract is not tax exempt. Any amount your beneficiary receives that
represents previously deferred earnings within the contract is taxable as
ordinary income to the beneficiary in the year he or she receives the payments.
DEATH BENEFITS TO BENEFICIARIES UNDER QUALIFIED ANNUITIES: The entire death
benefit generally is taxable as ordinary income to the beneficiary in the year
he or she receives the payments from the plan. If, under your 401(k) plan the
purchase payment was made by you or on your behalf with after-tax contributions
to your contract, the portion of any distribution from the plan that represents
after-tax contributions is not taxable as ordinary income to your beneficiary.
Death benefits under a Roth IRA generally are not taxable as ordinary income to
the beneficiary if certain distribution requirements are met.
ANNUITIES OWNED BY CORPORATIONS, PARTNERSHIPS OR TRUSTS: For nonqualified
annuities, any annual increase in the value of annuities held by such entities
generally will be treated as ordinary income received during that year. This
provision is effective for purchase payments made after Feb. 28, 1986. However,
if the trust was set up for the benefit of a natural person only, the income
will remain tax deferred.
PENALTIES: If you receive amounts from your contract (or, if applicable, from
the plan) before reaching age 59 1/2, you may have to pay a 10% IRS penalty on
the amount includable in your ordinary income. However, this penalty will not
apply to any amount received:
- - because of your death;
- - because you become disabled (as defined in the Code);
- - if the distribution is part of a series of substantially equal periodic
payments, made at least annually, over your life or life expectancy (or
joint lives or life expectancies of you and your beneficiary); or
- - if it is allocable to an investment before Aug. 14, 1982 (except for
qualified annuities).
For IRAs, other exceptions may apply if you make withdrawals from your contract
before you reach age 59 1/2. For qualified annuities under 401(a) and 401(k)
plans or TSAs, other exceptions may apply if you surrender your contract before
your plan specifies that payments can be made.
WITHHOLDING, GENERALLY: If you receive all or part of the contract value, we may
deduct withholding against the taxable income portion of the payment. Any
withholding represents a prepayment of your tax due for the year. You take
credit for these amounts on your annual tax return.
If the payment is part of an annuity payment plan, we generally compute the
amount of withholding using payroll tables. You may provide us with a statement
of how many exemptions to use in calculating the withholding. As long as you've
provided us with a valid Social Security Number or Taxpayer Identification
Number, you can elect not to have any withholding occur.
If the distribution is any other type of payment (such as a partial or full
surrender) we compute withholding using 10% of the taxable portion. Similar to
above, as long as you have provided us with a valid Social Security Number or
Taxpayer Identification Number, you can elect not to have this withholding
occur.
Some states also may impose withholding requirements similar to the federal
withholding described above. If this should be the case, we may deduct state
withholding from any payment from which we deduct federal withholding. The
withholding requirements may differ if we are making payment to a non-U.S.
citizen or if we deliver the payment outside the United States.
WITHHOLDING FROM QUALIFIED ANNUITIES: If you receive directly all or part of the
contract value from a qualified annuity (except an IRA, Roth IRA or SEP),
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. This mandatory withholding is in place of the elective withholding
discussed above. This mandatory withholding will not be imposed if:
- - instead of receiving the distribution check, you elect to have the
distribution rolled over directly to an IRA or another eligible plan;
- - the payment is one in a series of substantially equal periodic payments,
made at least annually, over your life or life expectancy (or the joint
lives or life expectancies of you and your designated beneficiary) or over
a specified period of ten years or more;
- - the payment is a minimum distribution required under the Code; or
- - the payment is made on account of an eligible hardship.
Payments to a surviving spouse instead of being directly rolled over to an IRA
also may be subject to mandatory 20% income tax withholding.
State withholding also may be imposed on taxable distributions.
TRANSFER OF OWNERSHIP OF A NONQUALIFIED ANNUITY: If you transfer a nonqualified
annuity without receiving adequate consideration, the transfer is a gift and
also may be a withdrawal for federal income tax purposes. If the gift is a
currently taxable event for income tax purposes, the original owner will be
taxed on the amount of deferred earnings at the time of the transfer and also
may be subject to the
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10% IRS penalty discussed earlier. In this case, the new owner's investment in
the contract will be the value of the contract at the time of the transfer.
COLLATERAL ASSIGNMENT OF A NONQUALIFIED ANNUITY: If you collaterally assign or
pledge your contract, earnings on purchase payments you made after Aug. 13, 1982
will be taxed to you like a surrender. You may not collaterally assign or pledge
your qualified contracts.
IMPORTANT: Our discussion of federal tax laws is based upon our understanding of
current interpretations of these laws. Federal tax laws or current
interpretations of them may change. For this reason and because tax consequences
are complex and highly individual and cannot always be anticipated, you should
consult a tax advisor if you have any questions about taxation of your contract.
TAX QUALIFICATION: We intend that the contract qualify as an annuity for federal
income tax purposes. To that end, the provisions of the contract are to be
interpreted to ensure or maintain such tax qualification, in spite of any other
provisions of the contract. We reserve the right to amend the contract to
reflect any clarifications that may be needed or are appropriate to maintain
such qualification or to conform the contract to any applicable changes in the
tax qualification requirements. We will send you a copy of any amendments.
THE COMPANY
BUSINESS IDS Life is a stock life insurance company organized in 1957 under the
laws of the State of Minnesota. Its headquarters is 70100 AXP Financial Center,
Minneapolis, MN 55474. IDS Life is a wholly owned subsidiary of American Express
Financial Corporation (AEFC), which is a wholly owned subsidiary of American
Express Company (American Express), a financial services company headquartered
in New York.
IDS Life conducts a conventional life insurance business. It acts as a direct
writer of fixed and variable insurance policies and annuities and is licensed in
49 states and the District of Columbia. IDS Life has four wholly owned
subsidiaries, two which serve New York residents and two which
serve residents in states other than New York. IDS Life and its subsidiaries
offer fixed and variable insurance policies and annuities through
individual sales representatives, through insurance agencies and broker-dealers
who may also be associated with financial institutions such as banks and
directly to American Express(R) Cardmembers.
IDS Life's primary products include fixed and variable universal life insurance
and fixed and variable single premium and flexible premium deferred annuities.
IDS Life also offers single premium life insurance, whole life insurance, term
insurance, disability income insurance and long-term care insurance as well as
immediate annuities.
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.
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.
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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. In
addition, IDS Life is subject to regulation under the insurance laws of other
jurisdictions in which it operates. 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.
LEGAL PROCEEDINGS
A number of lawsuits involving insurance sales practices, alleged agent
misconduct, failure to properly supervise agents and other matters relating to
life insurance policies and annuity contracts have been filed against life and
health insurers in jurisdictions in which IDS Life and its affiliates do
business. IDS Life and its affiliates, like other life and health insurers, are
involved in such litigation. IDS Life was a named defendant in three class
action lawsuits of this nature. 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. 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. 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. These three class action lawsuits included allegations of
improper insurance and annuity sales practices including improper replacement of
existing annuity contracts and insurance policies, improper use of annuities to
fund tax deferred contributory retirement plans, alleged agent misconduct,
failure to properly supervise agents and other matters relating to life
insurance policies and annuity contracts.
In January 2000, AEFC and its subsidiaries 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 in exchange for a 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 May 2001, the United States District Court for the District of Minnesota and
the District Court, Fourth Judicial District for the State of Minnesota,
Hennepin County entered orders approving the settlement as tentatively reached
in January 2000. Appeals were filed in both federal and state court but
subsequently dismissed by the parties filing the appeals. The orders approving
the settlement were final as of September 24, 2001. Implementation of the
settlement commenced October 15, 2001.
Numerous individuals opted out of the settlement described above and therefore
did not release their claims against AEFC and its subsidiaries. Some of these
class members who opted out were represented by counsel and presented separate
claims. Most of their claims have been settled.
The outcome of any litigation or threatened litigation cannot be predicted with
any certainty. However, in the aggregate, IDS Life does not consider any
lawsuits in which it is named as a defendant to be material.
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SELECTED FINANCIAL DATA
The following selected financial data for IDS Life and its subsidiaries should
be read in conjunction with the consolidated financial statements and notes.
<Table>
<Caption>
YEARS ENDED DEC. 31, (THOUSANDS) 2001 2000 1999 1998 1997
- -------------------------------------------------------------------------------------------------------------------------
Premiums $ 314,843 $ 287,498 $ 255,427 $ 229,430 $ 206,494
Net investment income 1,485,688 1,730,605 1,919,573 1,986,485 1,988,389
Net realized (loss) gain on investments (649,752) (16,975) 26,608 6,902 860
Other 962,989 1,036,295 885,102 785,022 682,618
TOTAL REVENUES $ 2,113,768 $ 3,037,423 $ 3,086,710 $ 3,007,839 $ 2,878,361
(LOSS) INCOME BEFORE INCOME TAXES $ (188,957) $ 807,264 $ 904,317 $ 775,792 $ 680,911
(Loss) income before cumulative effect
of accounting change (43,735) 585,637 636,453 540,111 474,247
Cumulative effect of accounting change
(net of income taxes) (21,416) -- -- -- --
NET (LOSS) INCOME (65,151) $ 585,637 $ 636,453 $ 540,111 $ 474,247
TOTAL ASSETS $57,895,900 $60,450,203 $64,441,538 $56,550,563 $52,974,124
</Table>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF CONSOLIDATED FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
2001 COMPARED TO 2000:
Consolidated net loss was $65 million in 2001, compared to consolidated net
income of $586 million in 2000. Consolidated loss before income tax benefit and
cumulative effect of accounting change totaled $189 million in 2001, compared
with consolidated income before income tax expense of $807 million in 2000. This
decline was primarily the result of a $633 million increase in net pretax loss
on investments and a $245 million decrease in investment income.
Total premiums and investment contract deposits received decreased to $5.8
billion in 2001, compared with $6.9 billion in 2000. The reduction is primarily
due to lower variable annuity sales.
Total revenues decreased to $2.1 billion in 2001, compared with $3.0 billion in
2000. The decrease was primarily due to decreases in net investment income and
from the realized investments losses. Net investment income, the largest
component of revenues, decreased by $245 million from the prior year, primarily
reflecting credit related yield adjustments on fixed maturity investments and
overall lower investment yields.
Contractholder charges, which consist primarily of cost of insurance charges on
universal life-type policies, increased 12% to $490 million in 2001, compared
with $438 million in 2000. This increase reflects increased total life insurance
in force, which grew 10% to $108 billion at Dec. 31, 2001.
Net realized losses on investments were $650 million in 2001, compared to net
realized losses of $17 million in 2000. The net loss for the year was comprised
of a $143 million pretax net loss in the first quarter resulting primarily from
the recognition of impairment losses and the sale of certain high-yield
securities; a $227 million writedown in the second quarter to recognize the
impact of higher default rate assumptions on certain structured investments; a
$262 million writedown of lower-rated securities (most of which were sold during
2001) in the second quarter primarily in connection with IDS Life's decision to
lower its risk profile by reducing the level of its high-yield fixed maturity
investment portfolio, allocating holdings toward stronger credits, and reducing
the concentration of exposure to individual companies and industry sectors; and
$18 million of other net losses primarily related to the sale and write-down of
investments.
Management and other fees decreased 21% to $473 million in 2001, compared with
$598 million in 2000. This decrease reflects lower average separate account
assets outstanding, resulting primarily from equity market depreciation. IDS
Life provides investment management services for many of the mutual funds that
are available 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 increased slightly to $2.3 billion in 2001 from $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 $1.1 billion, reflecting a slight decrease in
fixed annuities in force and lower interest crediting rates due to the lower
interest rate environment. Amortization of deferred policy acquisition costs
(DAC's) increased to $371 million in 2001, compared to $362 million in 2000. The
increase was primarily due to DAC unlocking adjustments (see footnote one of the
attached financial statements for the definition of unlocking adjustments),
which resulted in a net increase in amortization of $33.6 million in 2001 and a
net decrease in amortization of $12.3 million in 2000. Amortization, excluding
unlocking adjustments, was significantly less in 2001 than in 2000, due
primarily to the significant drop in equity-based separate account values and
associated fee revenue.
Other insurance and operating expenses increased to $408 million in 2001,
compared to $379 million in 2000. This increase was primarily a result of
business growth and technology costs related to growth initiatives.
15
<Page>
2000 COMPARED TO 1999:
Consolidated net income decreased 8% to $586 million in 2000, compared to $636
million in 1999. Consolidated income before income taxes totaled $807 million in
2000, compared with $904 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.
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,
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.
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.
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 $362 million, compared to $321
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 to $379 million in 2000,
compared to $347 million in 1999. This increase was primarily a result of
business growth and technology costs related to growth initiatives.
CERTAIN CRITICAL ACCOUNTING POLICIES
In December 2001, the Securities and Exchange Commission (SEC) issued a
financial reporting release, FR-60, "Cautionary Advice Regarding Disclosure
About Critical Accounting Policies." In this connection, the following
information has been provided about certain critical accounting policies that
are important to the Consolidated Financial Statements and that entail, to a
significant extent, the use of estimates, assumptions and the application of
management's judgment. These policies relate to the recognition of impairment
within the investment portfolio and deferred acquisition costs.
Generally, investment securities are carried at fair value on the balance sheet.
Gains and losses are recognized in the results of operations upon disposition of
the securities. In addition, losses are also recognized when management
determines that a decline in value is not temporary, which requires judgment
regarding the amount and timing of recovery. Typically, IDS Life defines an
event of impairment for debt securities as issuer default or bankruptcy. Fair
value is generally based on quoted market prices. However, IDS Life's investment
portfolio also contains structured investments of various asset quality,
including Collateralized Debt Obligations (CDOs) and Structured Loan Trusts
(backed by high-yield bonds and bank loans, respectively), which are not readily
marketable. As a result, the carrying values of these structured investments are
based on cash flow projections which require a significant degree of judgment
and as such are subject to change. If actual future cash flows are less than
projected, additional losses would be realized.
IDS Life's deferred acquisition costs (DACs) represent costs of acquiring new
business, principally sales and other distribution and underwriting costs, that
have been deferred on the sale of annuity, insurance, and certain mutual fund
and long-term products. DACs are amortized over the lives of the products,
either as a constant percentage of projected earnings or as a constant
percentage of projected liabilities associated with such products. Such
projections require use of certain assumptions, including interest margins,
mortality rates, persistency rates, maintenance expense levels and, for variable
products, separate account performance. As actual experience differs from the
current assumptions, management considers on a quarterly basis the need to
change key assumptions underlying the amortization models prospectively. For
example, if the stock market trend rose or declined appreciably, it could impact
assumptions made about separate account performance and result in an adjustment
to income, either positively or negatively. The impact on results of operations
of changing prospective assumptions with respect to the amortization of DACs is
reflected in the period in which such changes are made.
16
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RISK MANAGEMENT
The sensitivity analysis of two different types of market risk discussed below
estimate 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 the value of equity
securities under management. Computations of the prospective effects of
hypothetical interest rate and equity market 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 occur. Furthermore,
the computations do not incorporate actions that management could take if the
hypothetical market changes actually occurred. As a result, actual earnings
consequences 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 rate of
return on their investments while controlling 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, risk/return measures, and
their effect 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
within defined risk parameters and to meet contractual obligations.
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 use of derivatives, such as interest rate
caps, swaps and floors, for risk management 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, 2001,
would be approximately $12 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, and to purchase
futures which are marked to market daily and exchange traded, exposing IDS Life
to no counterparty risk.
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 use index options to manage the equity market risk
related to fee income. These derivatives help protect fee income by providing
option income when there is a significant decline in the equity markets.
The negative effect on IDS Life's pretax earnings of a 10% decline in equity
prices would be approximately $30 million based on assets under management as of
Dec. 31, 2001.
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. There were no borrowings
outstanding at Dec. 31, 2001. At Dec. 31, 2001, there were no outstanding
reverse repurchase agreements.
At Dec. 31, 2001, investments in fixed maturities comprised 80% of IDS Life's
total invested assets. Of the fixed maturity portfolio, approximately 42% is
invested in GNMA, FNMA and FHLMC mortgage-backed securities which are considered
AAA/Aaa quality.
At Dec. 31, 2001, approximately 4% 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.
17
<Page>
During 2001, IDS Life placed a majority of its rated Collateralized Debt
Obligation (CDO) (obligations that are backed primarily by high-yield bonds)
securities and related accrued interest, (collectively referred to as
transferred assets), having an aggregate book value of $675 million, into a
securitization trust. In return, IDS Life received $90 million in cash relating
to sales to unaffiliated investors and retained interests with allocated book
amounts aggregating $586 million. The book amount is determined by allocating
the previous carrying value of the transferred assets between assets sold and
the retained interests based on their relative fair values. Fair values are
based on the estimated present value of future cash flows.
At Dec. 31, 2001, net unrealized appreciation on available-for-sale fixed
maturities included $386 million of gross unrealized appreciation and $251
million of gross unrealized depreciation. IDS Life does not have any
held-to-maturity fixed maturities at Dec. 31, 2001.
At Dec. 31, 2001, IDS Life had a reserve for losses for mortgage loans totaling
$21 million and for real estate investments totaling $nil.
In 2001, IDS Life received a capital contribution from its parent of $400
million.
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.
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, 2001, IDS Life's total adjusted capital was well in
excess of the levels requiring regulatory attention.
FORWARD-LOOKING STATEMENTS
Certain statements in the Management's Discussion and Analysis of Consolidated
Financial Condition and Results of Operations contain forward-looking statements
which are subject to risks and uncertainties that could cause results to differ
materially from such statements. Readers are cautioned not to place undue
reliance on these forward-looking statements, which speak only as of the date on
which they are made. IDS Life undertakes no obligation to update publicly or
revise any forward-looking statements. Important factors that could cause actual
results to differ materially from IDS Life's 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, which could result in further
losses in IDS Life's investment portfolio.
ADDITIONAL INFORMATION
INCORPORATION OF CERTAIN DOCUMENTS BY REFERENCE
To the extent and only to the extent that any statement in a document
incorporated by reference into this prospectus is modified or superseded by a
statement in this prospectus or in a later-filed document, such statement is
hereby deemed so modified or superseded and not part of this prospectus. The
Annual Report on Form 10-K for the year ended December 31, 2001 previously filed
by IDS Life with the SEC under the Securities Exchange Act of 1934 is
incorporated by reference into this prospectus.
IDS Life will furnish you without charge a copy of any or all of the documents
incorporated by reference into this prospectus, including any exhibits to such
documents which have been specifically incorporated by reference. We will do so
upon receipt of your written or oral request. You can contact IDS Life at the
telephone number and address listed on the first page of this prospectus.
AVAILABLE INFORMATION This prospectus is part of a registration statement we
file with the SEC. Additional information on IDS Life and on this offering is
available in the registration statement. You can obtain copies of these
materials at the SEC's Public Reference Room at 450 Fifth Street, N.W.,
Washington, D.C. 20549. You can obtain information on the operation of the
Public Reference Room by calling the SEC at 1-800-SEC-0330. The SEC also
maintains an Internet site. This prospectus, other information about the
contract and other information incorporated by reference are available on the
EDGAR Database on the SEC's Internet site at (http://www.sec.gov).
INDEMNIFICATION
Insofar as indemnification for liabilities arising under the Securities Act of
1933 (1933 Act) may be permitted to directors and officers or persons
controlling the registrant pursuant to the foregoing provisions, the registrant
has been informed that in the opinion of the SEC such indemnification is against
public policy as expressed in the 1933 Act and is therefore unenforceable.
18
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EXPERTS
Ernst & Young LLP, independent auditors, have audited the consolidated financial
statements of IDS Life Insurance Company at Dec. 31, 2001 and 2000, and for each
of the three years in the period ended Dec. 31, 2001, 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.
19
<Page>
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, 2001 and 2000, 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, 2001. 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, 2001 and 2000, and the consolidated results of its
operations and its cash flows for each of the three years in the period ended
December 31, 2001, in conformity with accounting principles generally accepted
in the United States.
Ernst & Young LLP
January 28, 2002
Minneapolis, Minnesota
IDS Life Insurance Company
- --------------------------------------------------------------------------------
Consolidated Balance Sheets
December 31, (In thousands, except share amounts) 2001 2000
Assets
Investments:
Fixed maturities:
Held-to-maturity, at amortized cost (fair value: 2000, $6,471,798) $ -- $ 6,463,613
Available-for-sale, at fair value (amortized cost: 2001, $20,022,072; 2000, $12,929,870) 20,157,137 12,399,990
Common stocks 1,704 10,333
Mortgage loans on real estate 3,680,394 3,738,091
Policy loans 619,571 618,973
Other investments 621,897 575,551
------- -------
Total investments 25,080,703 23,806,551
Cash and cash equivalents 1,150,251 316,974
Amounts recoverable from reinsurers 529,166 416,480
Amounts due from brokers 90,794 15,302
Other accounts receivable 46,349 42,324
Accrued investment income 278,199 334,928
Deferred policy acquisition costs 3,107,187 2,951,655
Deferred income taxes, net 156,308 136,588
Other assets 123,246 80,054
Separate account assets 27,333,697 32,349,347
---------- ----------
Total assets $57,895,900 $60,450,203
=========== ===========
Liabilities and stockholder's equity
Liabilities:
Future policy benefits:
Fixed annuities $19,592,273 $19,417,446
Universal life-type insurance 3,433,904 3,410,871
Traditional life insurance 241,165 232,913
Disability income and long-term care insurance 1,227,172 1,012,247
Policy claims and other policyholders' funds 71,879 52,067
Amounts due to brokers 1,740,031 446,347
Other liabilities 437,017 463,561
Separate account liabilities 27,333,697 32,349,347
---------- ----------
Total liabilities 54,077,138 57,384,799
---------- ----------
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 688,327 288,327
Accumulated other comprehensive income (loss), net of tax:
Net unrealized securities gains (losses) 85,549 (333,734)
Net unrealized derivative (losses) (774) --
---------- ----------
Total accumulated other comprehensive income (loss) 84,775 (333,734)
---------- ----------
Retained earnings 3,042,660 3,107,811
---------- ----------
Total stockholder's equity 3,818,762 3,065,404
---------- ----------
Total liabilities and stockholder's equity $57,895,900 $60,450,203
=========== ===========
See notes to consolidated financial statements.
IDS Life Insurance Company
- --------------------------------------------------------------------------------
Consolidated Statements of Income
Years ended December 31, (In thousands) 2001 2000 1999
Revenues
Premiums:
Traditional life insurance $ 59,415 $ 56,187 $ 53,790
Disability income and long-term care insurance 255,428 231,311 201,637
------- ------- -------
Total premiums 314,843 287,498 255,427
Net investment income 1,485,688 1,730,605 1,919,573
Contractholder charges 489,583 438,127 411,994
Management and other fees 473,406 598,168 473,108
Net realized (loss) gain on investments (649,752) (16,975) 26,608
-------- ------- ------
Total revenues 2,113,768 3,037,423 3,086,710
--------- --------- ---------
Benefits and expenses
Death and other benefits:
Traditional life insurance 35,519 29,042 29,819
Universal life-type insurance and investment contracts 175,247 131,467 118,561
Disability income and long-term care insurance 44,725 40,246 30,622
Increase in liabilities for future policy benefits:
Traditional life insurance 7,231 5,765 7,311
Disability income and long-term care insurance 123,227 113,239 87,620
Interest credited on universal life-type insurance and investment contracts 1,137,636 1,169,641 1,240,575
Amortization of deferred policy acquisition costs 371,342 362,106 321,036
Other insurance and operating expenses 407,798 378,653 346,849
------- ------- -------
Total benefits and expenses 2,302,725 2,230,159 2,182,393
--------- --------- ---------
(Loss) income before income tax (benefit) expense a
nd cumulative effect of accounting change (188,957) 807,264 904,317
Income tax (benefit) expense (145,222) 221,627 267,864
-------- ------- -------
(Loss) income before cumulative effect of accounting change (43,735) 585,637 636,453
Cumulative effect of accounting change (net of income tax benefit of $11,532) (21,416) -- --
-------- ------- -------
Net (loss) income $ (65,151) $ 585,637 $ 636,453
---------- ---------- ----------
See notes to consolidated financial statements.
IDS Life Insurance Company
- --------------------------------------------------------------------------------
Consolidated Statements of Stockholder's Equity
Accumulated
other
Additional comprehensive Total
Capital paid-in income (loss), Retained stockholder's
For the three years ended December 31, 2001 (In thousands) stock capital net of tax earnings equity
Balance, January 1, 1999 $3,000 $288,327 $ 169,584 $2,645,721 $3,106,632
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 income taxes of $304,936 -- -- (566,311) -- (566,311)
Reclassification adjustment
for gains included in net income,
net of income tax of $7,810 -- -- (14,503) -- (14,503)
------ -------- --------- ---------- ----------
Other comprehensive loss -- -- (580,814) -- (580,814)
------ -------- --------- ---------- ----------
Comprehensive income 55,639
Cash dividends -- -- -- (350,000) (350,000)
------ -------- --------- ---------- ----------
Balance, December 31, 1999 3,000 288,327 (411,230) 2,932,174 2,812,271
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 income taxes of ($46,921) -- -- 87,138 -- 87,138
Reclassification adjustment for gains
included in net income,
net of income tax of $5,192 -- -- (9,642) -- (9,642)
------ -------- --------- ---------- ----------
Other comprehensive income -- -- 77,496 -- 77,496
------ -------- --------- ---------- ----------
Comprehensive income 663,133
Cash dividends -- -- -- (410,000) (410,000)
------ -------- --------- ---------- ----------
Balance, December 31, 2000 3,000 288,327 (333,734) 3,107,811 3,065,404
Comprehensive income:
Net loss -- -- -- (65,151) (65,151)
Cumulative effect of adopting SFAS No. 133,
net of income tax benefit of $626 -- -- (1,162) -- (1,162)
Unrealized holding losses on
available-for-sale securities arising
during the year, net of deferred
policy acquisition costs of ($20,191)
and income taxes of $15,037 -- -- (11,262) -- (11,262)
Reclassification adjustment for losses
on available-for-sale securities
included in net loss, net of
income tax benefit of $228,003 -- -- 423,434 -- 423,434
Reclassification adjustment for losses on
derivatives included in net loss,
net of income tax benefit of $4,038 -- -- 7,499 -- 7,499
------ -------- --------- ---------- ----------
Other comprehensive income -- -- 418,509 -- 418,509
------ -------- --------- ---------- ----------
Comprehensive income 353,358
Capital contribution -- 400,000 -- -- 400,000
------ -------- --------- ---------- ----------
Balance, December 31, 2001 $3,000 $688,327 $ 84,775 $3,042,660 $3,818,762
====== ======== ========= ========== ==========
See notes to consolidated financial statements.
IDS Life Insurance Company
- --------------------------------------------------------------------------------
Consolidated Statements of Cash Flows
Years ended December 31, (In thousands)
2001 2000 1999
Cash flows from operating activities
Net (loss) income $ (65,151) $ 585,637 $ 636,453
Adjustments to reconcile net (loss) income to net cash provided by
operating activities:
Cumulative effect of accounting change, net of tax 21,416 -- --
Policy loans, excluding universal life-type insurance:
Issuance (43,687) (61,313) (56,153)
Repayment 54,004 56,088 54,105
Change in amounts recoverable from reinsurers (112,686) (89,312) (64,908)
Change in other accounts receivable (4,025) 6,254 (615)
Change in accrued investment income 56,729 8,521 23,125
Change in deferred policy acquisition costs, net (175,723) (291,634) (140,379)
Change in liabilities for future policy benefits for traditional life,
disability income and long-term care insurance 223,177 206,377 153,157
Change in policy claims and other policyholder's funds 19,812 27,467 (45,709)
Deferred income tax (benefit) provision (246,205) 37,704 79,796
Change in other liabilities (24,509) (120,256) 169,395
Amortization of premium (accretion of discount), net 108,958 37,909 (17,907)
Net realized loss (gain) on investments 649,752 16,975 (26,608)
Contractholder charges, non-cash (217,496) (151,745) (175,059)
Other, net (83,023) (9,279) (5,324)
------- ------ ------
Net cash provided by operating activities 161,343 259,393 583,369
------- ------- -------
Cash flows from investing activities
Held-to-maturity securities:
Purchases -- (4,487) (3,030)
Maturities, sinking fund payments and calls -- 589,742 741,949
Sales -- 50,067 66,547
Available-for-sale securities:
Purchases (9,477,740) (1,454,010) (3,433,128)
Maturities, sinking fund payments and calls 2,706,147 1,019,403 1,442,507
Sales 5,493,141 1,237,116 1,691,389
Other investments, excluding policy loans:
Purchases (442,876) (706,082) (657,383)
Sales 370,636 435,633 406,684
Change in amounts due from brokers (75,492) (15,157) 182
Change in amounts due to brokers 1,293,684 298,236 (47,294)
--------- ------- -------
Net cash (used in) provided by investing activities (132,500) 1,450,461 208,423
-------- --------- -------
Cash flows from financing activities
Activities related to universal life-type insurance and investment contracts:
Considerations received 2,088,114 1,842,026 2,031,630
Surrenders and other benefits (2,810,401) (3,974,966) (3,669,759)
Interest credited to account balances 1,137,636 1,169,641 1,240,575
Universal life-type insurance policy loans:
Issuance (83,720) (134,107) (102,239)
Repayment 72,805 82,193 67,881
Capital contribution 400,000 -- --
Dividends paid -- (410,000) (350,000)
-------- --------- -------
Net cash provided by (used in) financing activities 804,434 (1,425,213) (781,912)
-------- --------- -------
Net increase in cash and cash equivalents 833,277 284,641 9,880
Cash and cash equivalents at beginning of year 316,974 32,333 22,453
-------- --------- -------
Cash and cash equivalents at end of year $ 1,150,251 $ 316,974 $ 32,333
=========== ============ =============
Supplemental disclosures:
Income taxes paid $ -- $ 225,704 $ 214,940
Interest on borrowings 23,688 3,299 4,521
See notes to consolidated financial statements.
IDS Life Insurance Company
- --------------------------------------------------------------------------------
Notes to Consolidated Financial Statements
(In 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.
Revenue recognition
Profits on fixed deferred annuities are the excess of contractholder charges and
investment income earned from investment of contract considerations over
interest credited to contract values, amortization of deferred acquisition
costs, and other expenses. Profits on variable deferred annuities also include
the excess of management and other fees over the costs of guaranteed benefits
provided. Contractholder charges include policy fees and surrender charges.
Management and other fees include investment management fees from underlying
proprietary mutual funds, certain fee revenues from underlying nonproprietary
mutual funds and mortality and expense risk fees from the variable annuity
separate accounts.
Profits on fixed universal life insurance are the excess of contractholder
charges and investment income earned from investment of contract considerations
over interest credited to contract values, death and other benefits paid in
excess of contract values, amortization of deferred acquisition costs, and other
expenses. Profits on variable universal life insurance also include management
and other fees. 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, certain fee revenues
from underlying nonproprietary mutual funds and mortality and expense risk fees
received from the variable life insurance separate accounts.
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.
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). Certain prior year
amounts have been reclassified to conform to the current year's presentation.
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 -- securities
Debt securities 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 debt securities and 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 carried as a separate component
of accumulated other comprehensive income (loss), net of the related deferred
policy acquisition costs and income taxes. When evidence indicates there is a
decline in a security's value, which is other than temporary, the security is
written down to fair value through a charge to current year's earnings.
IDS Life Insurance Company
- --------------------------------------------------------------------------------
The Company's investment portfolio contains structured investments, including
Collateralized Debt Obligations (CDOs) (obligations that are primarily backed by
high-yield bonds), which are not readily marketable. The carrying values of
these investments are based on cash flow projections and, as such, these values
are subject to change. If actual cash flows are less than projected, losses
would be recognized; increases in cash flows would be recognized over future
periods.
Realized investment gains or losses are 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.
Investments -- mortgage loans on real estate
Mortgage loans on real estate are carried at amortized cost less reserves for
losses. The estimated fair value of the mortgage loans is determined by
discounted cash flow analyses using mortgage interest rates currently offered
for mortgages of similar maturities.
Impairment of mortgage loans is measured as the excess of the loan's recorded
investment over its present value of expected principal and interest payments
discounted at the loan's effective interest rate, or the fair value of
collateral. The amount of the impairment is recorded in a reserve for losses.
The reserve for 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 collectability of principal, interest payments
received are either recognized as income or applied to the recorded investment
in the loan.
Policy loans
Policy loans are carried at the aggregate of the unpaid loan balances, which do
not exceed the cash surrender values of the related policies.
Cash and cash equivalents
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.
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 the
interest method. The costs for universal life and variable universal life
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 fixed and variable universal life 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 prospective assumptions underlying the
amortization models. 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. Unlocking adjustments resulted in a net increase in
amortization of $33,600 in 2001 and net decreases in amortization of $12,300 in
2000 and $56,800 in 1999.
In amortizing deferred policy acquisition costs associated with variable
annuities, the Company assumes contract values will appreciate at a specified
long-term annual rate. The Company may project near-term appreciation at a
different rate in order to maintain the long-term rate assumption.
Liabilities for future policy benefits
Liabilities for fixed and variable universal life insurance and fixed and
variable deferred annuities are accumulation values.
Liabilities for equity indexed deferred annuities issued in 1997 and 1998 are
equal to the present value of guaranteed benefits and the intrinsic value of
index-based benefits. Liabilities for equity indexed deferred annuities issued
in 1999 or later are equal to the accumulation of host contract values covering
guaranteed benefits and the market value of embedded equity options.
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.
IDS Life Insurance Company
- --------------------------------------------------------------------------------
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
Reinsurance premiums and benefits paid or provided are accounted for on a basis
consistent with those used in accounting for original policies issued and with
the terms of the reinsurance contracts.
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 20% of the mortality risk on new variable
universal life insurance policies and 10% of the risk on new term 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.
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 to be payable at the initial level regardless of
investment performance so long as minimum premium payments are made.
Accounting developments
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 and
Retained Beneficial Interests in Securitized Financial Assets." The Company
adopted the consensus as of January 1, 2001. Issue 99-20 prescribes new
procedures for recording interest income and measuring impairment on retained
and purchased beneficial interests. The consensus primarily affects certain
high-yield investments contained in structured securities. Adoption of the
consensus required the Company to adjust the carrying amount of these
investments downward by $21,416, net of tax, upon adoption. See Note 2 for
further discussion.
Effective January 1, 2001, the Company adopted Statement of Financial Accounting
Standards No. 133, "Accounting for Derivative Instruments and Hedging
Activities," as amended (SFAS No. 133), which requires an entity to 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 are
recorded in earnings or directly to equity, depending on the instrument's
designated use. The adoption of SFAS No. 133 on January 1, 2001, resulted in a
cumulative after-tax reduction to other comprehensive income of $1,162. The
cumulative impact to earnings was not significant. See Note 8 for further
discussion of the Company's derivative and hedging activities.
IDS Life Insurance Company
- --------------------------------------------------------------------------------
SFAS No. 133 also provided a one-time opportunity to reclassify held-to-maturity
security investments to available-for-sale without tainting the remaining
securities in the held-to-maturity portfolio. The Company elected to take the
opportunity to reclass all its held-to-maturity investments to
available-for-sale.
The Company adopted SFAS No. 140, "Accounting for Transfers and Servicing of
Financial Assets and Extinguishments of Liabilities," which superseded SFAS No.
125. The Statement was effective for transfers and servicing of financial assets
and extinguishments of liabilities occurring after March 31, 2001. The Statement
was 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 impact on the Company's financial
position or results of operations of adopting the Statement was not significant.
2. INVESTMENTS
Securities
Pursuant to the adoption of SFAS No. 133 the Company reclassified all
held-to-maturity securities with a carrying value of $6,463,613 and net
unrealized gains of $8,185 to available-for-sale as of January 1, 2001.
The following is a summary of securities available-for-sale at December 31,
2001:
Gross Gross
Amortized unrealized unrealized Fair
cost gains losses value
Fixed maturities:
U.S. Government agency obligations $ 31,074 $ 2,190 $ 56 $ 33,208
State and municipal obligations 7,826 149 -- 7,975
Corporate bonds and obligations 11,658,888 276,332 218,365 11,716,855
Mortgage-backed securities 8,292,576 103,109 32,801 8,362,884
Foreign government bonds and obligations 31,708 4,507 -- 36,215
----------- -------- -------- -----------
Total fixed maturity securities $20,022,072 $386,287 $251,222 $20,157,137
=========== ======== ======== ===========
Common stocks $ 805 $ 899 $ -- $ 1,704
=========== ======== ======== ===========
The amortized cost and fair value of fixed maturity securities at December 31,
2001 by contractual maturity are as follows:
Amortized Fair
cost value
Due within one year $ 1,093,557 $ 1,114,618
Due from one to five years 2,885,509 3,007,435
Due from five to ten years 5,503,284 5,519,588
Due in more than ten years 2,247,146 2,152,612
Mortgage-backed securities 8,292,576 8,362,884
--------- ---------
Total $20,022,072 $20,157,137
=========== ===========
The timing of actual receipts may differ from contractual maturities because
issuers may call or prepay obligations.
The following is a summary of held-to-maturity and available-for-sale securities
at December 31, 2000:
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
--------- ----- ----- ---------
Total fixed maturity securities $6,463,613 $124,067 $115,882 $6,471,798
========== ======== ======== ==========
Gross Gross
Amortized unrealized unrealized Fair
Available-for-sale cost gains losses value
Fixed maturities:
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 maturity securities $12,929,870 $187,769 $717,649 $12,399,990
=========== ======== ======== ===========
Common stocks $ 11,829 $ -- $ 1,496 $ 10,333
=========== ======== ======== ===========
At December 31, 2001, bonds carried at $14,639 were on deposit with various
states as required by law.
IDS Life Insurance Company
- --------------------------------------------------------------------------------
At December 31, 2001, fixed maturity securities comprised approximately 80
percent of the Company's total investments. These securities are rated by
Moody's and Standard & Poor's (S&P), except for approximately $2.6 billion of
securities which are rated by AEFC's internal analysts using criteria similar to
Moody's and S&P. A summary of fixed maturity securities, at amortized cost, by
rating on December 31, is as follows:
Rating 2001 2000
Aaa/AAA $ 8,977,075 $ 6,559,188
Aaa/AA -- 32,001
Aa/AA 261,252 220,446
Aa/A 372,120 327,147
A/A 2,602,027 2,494,621
A/BBB 911,477 747,636
Baa/BBB 5,904,013 5,828,847
Baa/BB 274,228 287,583
Below investment grade 719,880 2,896,014
------- ---------
Total $20,022,072 $19,393,483
=========== ===========
At December 31, 2001, approximately 93 percent of the securities rated Aaa/AAA
are GNMA, FNMA and FHLMC mortgage-backed securities. No holdings of any other
issuer were greater than ten percent of stockholder's equity.
During the years ended December 31, 2000 and 1999, fixed maturities classified
as held-to-maturity were sold with amortized cost of $53,169 and $68,470,
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.
Available-for-sale securities were sold during 2001 with proceeds of $5,493,141
and gross realized gains and losses of $116,485 and $767,144, respectively.
Available-for-sale securities were sold during 2000 with proceeds of $1,237,116
and gross realized gains and losses of $25,101 and $10,267, respectively.
Available-for-sale securities were sold during 1999 with proceeds of $1,691,389
and gross realized gains and losses of $36,568 and $14,255, respectively.
The net unrealized gain (loss) on available-for-sale securities as of December
31, 2001 and 2000, was $135,964 and ($531,376), respectively, with the $667,340
change, net of taxes and deferred policy acquisition costs, reflected as a
separate component in accumulated other comprehensive income for the year ended
December 31, 2001. For the year ended December 31, 2000 the change in net
unrealized losses on available-for-sale securities was a decrease of $122,196.
For the year ended December 31, 1999 the change in net unrealized gain on
available-for-sale securities was a decrease of $921,920.
During 2001, the Company recorded pretax losses of $828,175 to recognize the
impact of higher default rate assumptions on certain structured investments; to
write down lower rated securities (most of which were sold during 2001) in
connection with the Company's decision to lower its risk profile by reducing the
level of its high-yield portfolio, allocating holdings toward stronger credits,
and reducing the concentration of exposure to individual companies and industry
sectors; to write down certain other investments; and, to adopt EITF Issue
99-20, as previously discussed. Within the Consolidated Statements of Income,
approximately $623,958 of these losses are included in Net realized (losses)
gains on investments and approximately $171,269 are included in Net investment
income, with the remaining losses recorded as a cumulative effect of accounting
change.
During 2001, the Company placed a majority of its rated Collateralized Debt
Obligation (CDO) (obligations that are backed primarily by high-yield bonds)
securities and related accrued interest, (collectively referred to as
transferred assets), having an aggregate book value of $675,347, into a
securitization trust. In return, the Company received $89,535 in cash relating
to sales to unaffiliated investors and retained interests with allocated book
amounts aggregating $585,812. The book amount is determined by allocating the
previous carrying value of the transferred assets between assets sold and the
retained interests based on their relative fair values. Fair values are based on
the estimated present value of future cash flows.
There was no cash flow related to this transaction other than the receipt of the
initial $89,535. Cash flows on the assets sold to investors and retained
interests are not scheduled to begin until March 31, 2002 in accordance with
governing documents.
Included in Other investments are affordable housing investment credits, trading
securities, and real estate.
Fair values of investments 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,
estimated future cash flows and market data from independent brokers.
IDS Life Insurance Company
- --------------------------------------------------------------------------------
Mortgages loans on real estate
At December 31, 2001, approximately 15 percent of the Company's investments were
mortgage loans on real estate. Concentration of credit risk by region of the
United States and by type of real estate are as follows:
December 31, 2001 December 31, 2000
On balance Funding On balance Funding
Region sheet commitments sheet commitments
East North Central $ 670,387 $ 1,873 $ 691,694 $18,868
West North Central 549,015 -- 564,576 7,621
South Atlantic 815,837 9,490 884,723 7,667
Middle Atlantic 352,821 9,363 378,702 13,813
New England 274,486 8,700 279,147 4,604
Pacific 355,945 14,618 318,727 921
West South Central 214,000 600 173,158 28,548
East South Central 55,798 -- 49,176 2,763
Mountain 413,053 27 409,677 10,209
---------- ------- ---------- -------
3,701,342 44,671 3,749,580 95,014
Less reserves for losses 20,948 -- 11,489 --
---------- ------- ---------- -------
Total $3,680,394 $44,671 $3,738,091 $95,014
========== ======= ========== =======
December 31, 2001 December 31, 2000
On balance Funding On balance Funding
Property type sheet commitments sheet commitments
Department/retail stores $1,117,195 $13,200 $1,174,763 $11,130
Apartments 694,214 11,531 780,228 --
Office buildings 1,203,090 7,650 1,085,948 59,941
Industrial buildings 333,713 2,263 323,766 23,943
Hotels/motels 108,019 -- 100,680 --
Medical buildings 106,927 6,000 128,101 --
Nursing/retirement homes 39,590 -- 49,822 --
Mixed use 86,972 27 87,537 --
Other 11,622 4,000 18,735 --
---------- ------- ---------- -------
3,701,342 44,671 3,749,580 95,014
Less reserves for losses 20,948 -- 11,489 --
---------- ------- ---------- -------
Total $3,680,394 $44,671 $3,738,091 $95,014
========== ======= ========== =======
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 fund mortgages are made
in the ordinary course of business. The fair value of the mortgage commitments
is $nil.
At December 31, 2001, 2000 and 1999, the Company's recorded investment in
impaired loans was $39,601, $24,999 and $21,375, respectively, with reserves of
$7,225, $4,350 and $5,750, respectively. During 2001, 2000 and 1999, the average
recorded investment in impaired loans was $24,498, $27,063 and $23,815,
respectively.
The Company recognized $1,285, $1,033 and $1,190 of interest income related to
impaired loans for the years ended December 31, 2001, 2000 and 1999,
respectively.
The following table presents changes in the reserves for mortgage loan losses:
2001 2000 1999
Balance, January 1 $11,489 $ 28,283 $39,795
Provision (reduction) for mortgage loan losses 14,959 (14,894) (9,512)
Loan payoffs -- (1,200) (500)
Foreclosures and write-offs (5,500) (700) (1,500)
------ ---- ------
Balance, December 31 $20,948 $ 11,489 $28,283
======= ======== =======
IDS Life Insurance Company
- --------------------------------------------------------------------------------
Sources of investment income and realized (losses) gains on investments Net
investment income for the years ended December 31 is summarized as follows:
2001 2000 1999
Interest on fixed maturities $1,276,966 $1,473,560 $1,598,059
Interest on mortgage loans 290,608 286,611 285,921
Interest on cash equivalents 2,218 8,084 5,871
Other (44,145) 1,750 70,892
------- ----- ------
1,525,647 1,770,005 1,960,743
Less investment expenses 39,959 39,400 41,170
------ ------ ------
Total $1,485,688 $1,730,605 $1,919,573
========== ========== ==========
Net realized (losses) gains on investments for the years ended December 31 is
summarized as follows:
2001 2000 1999
Fixed maturities $(621,400) $(34,857) $ 8,802
Mortgage loans (22,443) 15,845 10,210
Other investments (5,909) 2,037 7,596
------ ----- -----
$(649,752) $(16,975) $26,608
========= ======== =======
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 (benefit) expense for the years ended December 31 consists of the
following:
2001 2000 1999
Federal income taxes
Current $ 88,121 $176,397 $178,444
Deferred (234,673) 37,704 79,796
-------- ------ ------
(146,552) 214,101 258,240
State income taxes-current 1,330 7,526 9,624
----- ----- -----
Income tax (benefit) expense before cumulative effect of accounting change (145,222) 221,627 267,864
Cumulative effect of accounting change income tax benefit (11,532) -- --
----- ----- -----
Income tax (benefit) expense $(156,754) $221,627 $267,864
========= ======== ========
Income tax (benefit) expense before the cumulative effect of accounting change,
differs from that computed by using the United States statutory rate of 35%. The
principal causes of the difference in each year are shown below:
2001 2000 1999
Provision Rate Provision Rate Provision Rate
Federal income taxes
based on the statutory rate $ (66,136) (35.0%) $282,542 35.0% $316,511 35.0%
Tax-excluded interest and dividend income (4,663) (2.5) (3,788) (0.5) (9,626) (1.1)
State taxes, net of federal benefit 865 0.4 4,892 0.6 6,256 0.7
Affordable housing credits (73,200) (38.7) (54,569) (6.8) (31,000) (3.4)
Other, net (2,088) (1.1) (7,450) (0.8) (14,277) (1.6)
------ ---- ------ ---- ------- ----
Total income taxes $(145,222) (76.9%) $221,627 27.5% $267,864 29.6%
========= ===== ======== ==== ======== ====
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, 2001, 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
- --------------------------------------------------------------------------------
Deferred income taxes reflect the net tax effects of temporary differences
between the carrying amounts of assets and liabilities for financial reporting
purposes and the amounts used for income tax purposes. Significant components of
the Company's deferred income tax assets and liabilities as of December 31 are
as follows:
2001 2000
Deferred income tax assets
Policy reserves $ 705,637 $730,239
Unrealized loss -- available-for-sale securities -- 179,702
Investments, other 330,675 34,600
Life insurance guaranty fund assessment reserve 1,330 1,365
Other 26,492 --
--------- -------
Total deferred income tax assets 1,064,134 945,906
--------- -------
Deferred income tax liabilities
Deferred policy acquisition costs 861,892 796,292
Unrealized gain -- available-for-sale securities 45,934 --
Other -- 13,026
--------- -------
Total deferred income tax liabilities 907,826 809,318
--------- -------
Net deferred income tax assets $ 156,308 $136,588
========== ========
The Company is required to establish a valuation allowance for any portion of
the deferred income tax assets that management believes will not be realized. In
the opinion of management, it is more likely than not that the Company will
realize the benefit of the deferred tax assets and, therefore, no such valuation
allowance has been established.
4. STOCKHOLDER'S EQUITY
Retained earnings available for distribution as dividends to AEFC are limited to
the Company's surplus as determined in accordance with accounting practices
prescribed by state insurance regulatory authorities. Statutory unassigned
surplus aggregated $1,262,335 as of December 31, 2001 and $1,493,292 as of
December 31, 2000 (see Note 3 with respect to the income tax effect of certain
distributions). In addition, any dividend distributions in 2002 in excess of
approximately $194,435 would require approval of the Department of Commerce of
the State of Minnesota.
Statutory net (loss) income for the years ended December 31 and capital and
surplus as of December 31 are summarized as follows:
2001 2000 1999
Statutory net (loss) income $ (317,973) $ 344,973 $ 478,173
Statutory capital and surplus 1,947,350 1,778,306 1,978,406
--------- --------- ---------
The National Association of Insurance Commissioners (NAIC) revised the
Accounting Practices and Procedures Manual in a process referred to as
Codification. The revised regulations took effect 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 resulted in changes to the
accounting practices that the Company uses to prepare its statutory-basis
financial statements. The impact of implementing these changes was an increase
of $4,660 to the Company's statutory-basis capital and surplus as of January 1,
2001.
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, 2001 and 2000. 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 2001, 2000 and 1999.
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. Company 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 $263, $250 and $223 in 2001, 2000 and 1999, 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 2001, 2000 and 1999 were $662, $1,707 and $1,906,
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 cost of these plans charged to operations in
2001, 2000 and 1999 was $1,011, $1,136 and $1,147, respectively.
IDS Life Insurance Company
- --------------------------------------------------------------------------------
Charges by AEFC for use of joint facilities, technology support, marketing
services and other services aggregated $505,526, $582,836 and $485,177 for 2001,
2000 and 1999, respectively. Certain of these costs are included in deferred
policy acquisition costs. Expenses allocated to the Company may not be
reflective of expenses that would have been incurred by the Company on a
stand-alone basis.
Included in other liabilities at December 31, 2001 and 2000 are $68,919 and
$41,059, respectively, payable to and receivable from AEFC for federal income
taxes.
6. LINES OF CREDIT
The Company has available lines of credit with AEFC 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
$nil and $50,000 uncommitted at December 31, 2001 and 2000, respectively.
7. COMMITMENTS AND CONTINGENCIES
At December 31, 2001, 2000 and 1999, traditional life and universal life-type
insurance in force aggregated $108,255,014, $98,060,472 and $89,271,957
respectively, of which $25,986,706, $17,429,851 and $8,281,576 were reinsured at
the respective year ends. The Company also reinsures a portion of the risks
assumed under long-term care policies. Under all reinsurance agreements,
premiums ceded to reinsurers amounted to $114,534, $89,506 and $76,970 and
reinsurance recovered from reinsurers amounted to $43,388, $32,500, and $27,816
for the years ended December 31, 2001, 2000 and 1999, respectively. Reinsurance
contracts do not relieve the Company from its primary obligation to
policyholders.
At December 31, 2001, the Company had no commitments to purchase investments
other than mortgage loan fundings (see Note 2).
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, both state and federal courts gave preliminary approval to the proposed
settlement and AEFC mailed notices to all of the over two million class members.
In May 2001, the courts entered orders approving the settlement. The orders
became final in August 2001 and in October 2001 the settlement was implemented.
The anticipated costs of settlement remain unchanged from prior years. The
settlement as approved provides for release by class members of all insurance
and annuity market conduct claims dating back to 1985. Some class members opted
out of the settlement and therefore did not release their claims against AEFC or
the Company. Some of these class members who opted out were represented by
counsel and presented separate claims to AEFC or the Company. Most of their
claims have been settled.
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.
8. DERIVATIVE FINANCIAL INSTRUMENTS
The Company maintains an overall risk management strategy that incorporates the
use of derivative instruments to minimize significant unplanned fluctuations in
earnings caused by interest rate and equity market volatility. The Company does
not enter into derivative instruments for speculative purposes. As prescribed
per SFAS No. 133, derivative instruments that are designated and qualify as
hedging instruments are classified as a cash flow hedge, fair value hedge, or a
hedge of a net investment in a foreign operation, based upon the exposure being
hedged.
The Company currently has economic hedges that either do not qualify or are not
designated for hedge accounting treatment under SFAS No. 133. For the year ended
December 31, 2001, the net effect on earnings of accounting for the net changes
in fair value of the following undesignated derivatives under SFAS No. 133
compared with prior rules was not significant.
The Company enters into interest rate swaps, caps and floors to manage the
Company's interest rate risk and options and futures to manage equity-based
risk. The values of derivative financial instruments are based on market values,
dealer quotes or pricing models.
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.
IDS Life Insurance Company
- --------------------------------------------------------------------------------
Interest rate caps, swaps and floors are used principally to manage the
Company's interest rate risk. These instruments are primarily used to protect
the margin between interest rates earned on investments and the interest rates
credited to related annuity contract holders. No interest rate swaps or floors
were outstanding as of December 31, 2001. The interest rate caps expire by
January 2003. The fair value of the interest rate caps is included in Other
assets. Changes in the value of the interest rate caps are included in Other
insurance and operating expenses.
A purchased (written) option conveys the right (obligation) to buy or sell an
instrument at a fixed price for a set period of time or on a specific date. The
Company writes and purchases index options to manage the risks related to
annuity products that pay interest based upon the relative change in a major
stock market index between the beginning and end of the product's term. The
Company views this strategy as a prudent management of equity market
sensitivity, such that earnings are not exposed to undue risk presented by
changes in equity market levels.
The annuity products contain embedded derivatives, essentially the equity based
return of the product, which must be separated from the host contract and
accounted for as derivative instruments per SFAS No. 133. As a result of
fluctuations in equity markets, and the corresponding changes in value of the
embedded derivatives, the amount of interest credited incurred by the Company
related to the annuity product will positively or negatively impact reported
earnings.
The purchased and written options are carried at fair value and included in
Other assets and Other liabilities, respectively. The fair value of the embedded
options are included in Future policy benefits for fixed annuities. The changes
in fair value of the options are recognized in Other insurance and operating
expenses and the embedded derivatives are recognized in Interest credited on
universal life-type insurance and investment contracts. The purchased and
written options expire on various dates from 2002 to 2008.
The Company also purchases futures to hedge its obligations under equity indexed
annuities. The futures purchased are marked-to-market daily and exchanged
traded, exposing the Company to no counterparty risk. The futures contracts
mature within four months.
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. There are no index options outstanding as of December 31, 2001
related to this strategy.
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.
2001 2000
Carrying Fair Carrying Fair
Financial Assets value value value value
Fixed maturities:
Held-to-maturity securities $ -- $ -- $ 6,463,613 $ 6,471,798
Available-for-sale securities 20,157,137 20,157,137 12,399,990 12,399,990
Common stocks 1,704 1,704 10,333 10,333
Mortgage loans on real estate 3,680,394 3,845,950 3,738,091 3,821,825
Cash and cash equivalents 1,150,251 1,150,251 316,974 316,974
Other securities 75,721 75,721 1,130 1,130
Derivative financial instruments 34,477 34,477 50,387 60,615
Separate account assets 27,333,697 27,333,697 32,349,347 32,349,347
---------- ---------- ---------- ----------
Financial Liabilities
Future policy benefits for fixed annuities $18,139,462 $17,671,777 $18,020,824 $17,479,187
Derivative financial instruments 2,506 2,506 3,098 6,069
Separate account liabilities 24,280,092 23,716,854 28,791,949 27,822,667
---------- ---------- ---------- ----------
At December 31, 2001 and 2000, the carrying amount and fair value of future
policy benefits for fixed annuities exclude life insurance-related contracts
carried at $1,368,254 and $1,300,018, respectively, and policy loans of $84,557
and $96,603, respectively. The fair value of these benefits is based on the
status of the annuities at December 31, 2001 and 2000. 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 2001 and 2000.
At December 31, 2001 and 2000, 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 $3,053,605 and
$3,557,398, respectively.
APPENDIX A
PARTIAL SURRENDER ILLUSTRATION
Involving a market value adjustment
ANNUITY ASSUMPTIONS
Single payment: $10,000
Guarantee period: 10 years
Guarantee rate (ig): 6% effective annual yield
<Table>
<Caption>
END OF CONTRACT YEAR
ACCUMULATION VALUES
CONTRACT YEAR IF NO SURRENDERS
------------- ---------------------
1 $10,600.00
2 11,236.00
3 11,910.16
4 12,624.77
5 13,382.26
6 14,185.19
7 15,036.30
8 15,938.48
9 16,894.79
10 17,908.48
</Table>
PARTIAL SURRENDER ASSUMPTIONS
On the first day of your fourth contract year you request a partial surrender
of:
Example I -- $2,000 of your accumulation value
Example II -- A $2,000 net surrender check
The accumulation value surrendered is subject to 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 SUB Mvi) = 5.75%
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 SUB Mvi)TO THE POWER OF (N + t)
$2,000 (1 + ig)TO THE POWER OF 7
= -----------------------------------
(1 + i SUB Mvi)TO THE POWER OF 7
$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.)
35
<Page>
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
---------
Net surrender amount $2,033.33
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 SUB Mvi)TO THE POWER OF (N + t)
$1,967.21 (1 + ig)TO THE POWER OF 7
= -----------------------------------
(1 + iMvi)TO THE POWER OF 7
$1,967.21 (1.06)TO THE POWER OF 7
= -----------------------------------
(1.0575)TO THE POWER OF 7
$2,000.00
= -----------------------------------
The market value adjustment = the market adjusted value surrendered less the
accumulation value surrendered
$2,000.00 - $1967.21 = $32.79
(NOTE: THIS MARKET VALUE ADJUSTMENT IS POSITIVE. IN OTHER CASES THE MARKET VALUE
ADJUSTMENT MAY BE NEGATIVE.)
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 $1,967.21
Market value adjustment 32.79
---------
Net surrender amount $2,000.00
36
<Page>
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 ten year guarantee period will
be $89,542.38.
The market value adjustment is based 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 nine years
left of your ten-year guarantee period.
Example I shows a downward market value adjustment. Example II shows an upward
market value adjustment.
MARKET ADJUSTED VALUE FORMULA
(RENEWAL VALUE)
MARKET ADJUSTED VALUE = ----------------------------------------
(1 + i SUB Mvi)TO THE POWER OF (N + t)
Renewal value = The accumulation value at the end of the current guarantee
period
i SUB Mvi = The current interest rate offered for new contract sales
and 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 one year, we are now crediting 6.5% for a new
contract with a nine-year guarantee period. If you fully surrender, the market
adjusted value would be:
RENEWAL VALUE
----------------------------------------
(1 + i SUB Mvi)TO THE POWER OF (N + t)
$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
37
<Page>
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 one year, we are now crediting 5.5%
for a new contract with a nine-year guarantee period. If you fully surrender,
the market adjusted value would be:
RENEWAL VALUE
----------------------------------------
(1 + i SUB Mvi)TO THE POWER OF (N + t)
$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
38
<Page>
[AMERICAN EXPRESS LOGO]
IDS LIFE INSURANCE COMPANY
70100 AXP FINANCIAL CENTER
MINNEAPOLIS, MN 55474
(800) 862-7919
S-6404 C (5/02)
PART II.
INFORMATION NOT REQUIRED IN PROSPECTUS
Item 14. 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 15. 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 16. 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 33111, filed
electronically as Exhibit 4.1 to Registration Statement No. 333-42793
is incorporated herein by reference.
4.2 Copy of Non-tax qualified Group Annuity Certificate, Form 33114, filed
electronically as Exhibit 4.2 to Registration Statement No. 333-42793
is incorporated herein by reference.
4.3 Copy of Tax qualified Group Annuity Contract, Form 33112, filed
electronically as Exhibit 4.3 to Registration Statement No. 333-42793
is incorporated herein by reference.
4.4 Copy of Tax qualified Group Annuity Certificate, Form 33115, filed
electronically as Exhibit 4.4 to Registration Statement No. 333-42793
is incorporated herein by reference.
4.5 Copy of Group IRA Annuity Contract, Form 33113, filed electronically
as Exhibit 4.5 to Registration Statement No. 333-42793 is incorporated
herein by reference.
4.6 Copy of Group IRA Annuity Certificate, Form 33116, filed
electronically as Exhibit 4.6 to Registration Statement No. 333-42793
is incorporated herein by reference.
4.7 Copy of Non-tax qualified Individual Annuity Contract, Form 30484,
filed electronically as Exhibit 4.7 to Post-Effective Amendment No. 1
to Registration Statement No. 333-42793 filed on or about April 30,
1999, is incorporated herein by reference.
4.8 Copy of Tax qualified Individual Annuity Contract, Form 30485, filed
electronically as Exhibit 4.8 to Post-Effective Amendment No. 1 to
Registration Statement No. 333-42793 filed on or about April 30, 1999,
is incorporated herein by reference.
4.9 Copy of Individual IRA Contract, Form 30486, filed electronically as
Exhibit 4.9 to Post-Effective Amendment No. 1 to Registration
Statement No. 333-42793 filed on or about April 30, 1999, is
incorporated herein by reference.
5. 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. 333-28976
is incorporated herein by reference.
22. Not applicable.
23. Consent of Independent Auditors is filed electronically herewith.
24. Power of Attorney, dated April 9, 2002, is filed electronically
herewith.
25. - 27. 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, and
(3) 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, the Registrant, IDS
Life Insurance Company, certifies that it has reasonable grounds to believe that
it meets all of the requirements for filing on Form S-2 and has duly caused this
Registration Statement to be signed on its behalf by the undersigned, thereunto
duly authorized in the City of Minneapolis, and State of Minnesota on the 25th
day of April, 2002.
IDS Life Insurance Company
--------------------------
(Registrant)
By /s/ Timothy V. Bechtold*
------------------------------------
Timothy V. Bechtold
President
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, 2002.
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/ Timothy S. Meehan* Secretary
- ------------------------------------
Timothy S. Meehan
/s/ Barry J. Murphy* Director
- ------------------------------------
Barry J. Murphy
/s/ Teresa J. Rasmussen* Vice President and General
- ----------------------------------- Counsel
Teresa J. Rasmussen
/s/ Stephen W. Roszell* Director
- -----------------------------------
Stephen W. Roszell
/s/ John T. Sweeney* Director and 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 9, 2002, filed electronically
herewith as Exhibit 24.
By: /s/ Mary Ellyn Minenko
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Mary Ellyn Minenko