UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM N-CSR
CERTIFIED SHAREHOLDER REPORT OF REGISTERED
MANAGEMENT INVESTMENT COMPANIES
Investment Company Act file number 811-1653
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IDS Life Variable Annuity Fund A (Individual and Employer)
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(Exact name of registrant as specified in charter)
50606 AXP Financial Center, Minneapolis, Minnesota 55474
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(Address of principal executive offices) (Zip code)
Mary Ellyn Minenko - 50607 AXP Financial Center, Minneapolis, MN 55474
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(Name and address of agent for service)
Registrant's telephone number, including area code: (612) 671-3678
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Date of fiscal year end: 12/31
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Date of reporting period: 12/31
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(logo)
American
Express(R)
Annuities
IDS Life Variable Annuity
Fund A
Invests in a wide range of securities with the objective of long-term capital
appreciation for contract owners.
2003 ANNUAL REPORT
(logo)
AMERICAN
EXPRESS
(R)
Table of Contents
Questions & Answers with Portfolio Management 3
The 10 Largest Holdings 6
The Fund's Long-term Performance 7
Board Members and Officers 8
Report of Independent Auditors 10
Financial Statements 11
Notes to Financial Statements 14
Investments in Securities 18
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2 IDS LIFE VARIABLE ANNUITY FUND A -- ANNUAL REPORT
Questions & Answers
WITH PORTFOLIO MANAGEMENT
Below, Portfolio Manager Doug Chase discusses the Fund's results and positioning
for fiscal year 2003.
Q: How did the Fund perform for the 12-months ended Dec. 31, 2003?
A: The IDS Life Variable Annuity Fund A advanced 27.46% (excluding sales
charges and fees), falling just slightly shy of the S&P 500 Index's strong
gain of 28.68%. The Fund capitalized on the prolonged stock market rebound
which began in mid-March and continued nearly unabated through year end
2003.
Q: What factors significantly affected the Fund's performance?
A: Most influential to the Fund's substantial gains in the year was the equity
market's robust recovery in 2003 following three years of weak results.
Fueled by an improving economy, stocks achieved and maintained considerable
upward momentum.
While the Fund provided a very attractive return for the year, it did lag
the S&P 500 Index, primarily due to the market trend favoring mid and
smaller capitalization stocks. During 2003, in general, the smaller the
market capitalization, the better the stock performed. This was true even
within the large-cap oriented S&P 500 Index and the Fund's strategy of
investing in very large stocks hindered its relative performance.
The Fund's performance benefited significantly from its sector weighting in
industrials, mainly due to its large holding in Cendant, a provider of real
estate and travel services. Cendant, which was a top five position
throughout the year, more than doubled in price. The Fund also benefited
from its exposure to the materials sector which had a meaningful
(bar chart)
PERFORMANCE COMPARISON
For the year ended Dec. 31, 2003
30% (bar 1) (bar 2)
+27.46% +28.68%
25%
20%
15%
10%
5%
0%
(bar 1) IDS Life Variable Annuity Fund A (excluding sales charge and fees)
(bar 2) S&P 500 Index (unmanaged)
Past performance is no guarantee of future results. See "The Fund's Long-term
Performance" for the description of the index.
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3 IDS LIFE VARIABLE ANNUITY FUND A -- ANNUAL REPORT
Questions & Answers
positive effect, led by its holdings in mining company Freeport McMoRan
Copper and Gold. Within consumer staples, the Fund's lower-than-index
position on average during the year benefited performance given that
sector's relative underperformance, but results from names such as Procter
& Gamble and Altria Group (formerly Philip Morris) did have a favorable
effect. The Fund also maintained a lower-than-index position within
telecommunications for most of the year, which proved beneficial. Although
it was a leader early in the rally, telecommunications ended the year among
the weaker performing index sectors.
A detractor to the Fund's performance in the year was its lower-than-index
position in technology, which was one of the market's strongest sectors in
2003. While a number of the Fund's technology holdings performed extremely
well, including Intel and Cisco, the Fund owned less of these stocks
relative to their weightings in the S&P 500 Index and this negatively
impacted relative performance. Similarly, a lower-than-index position in
the financials sector detracted from performance as that sector modestly
outperformed the index. Within financial holdings, mortgage lender Freddie
Mac was a poor performer as it suffered from disclosure of accounting
irregularities.
Q: What changes were made to the Fund over the past year?
A: The most significant change in the Fund was a reduction in our consumer
discretionary weighting. We had a lower-than-index position in this sector
at the end of the fiscal period and, within the sector, we favored media
stocks, including Disney and Viacom, over retail stocks.
Despite some short term weakness, the Fund maintained its higher-than-index
position in health care. Longer term, we believe earnings in the health
care industry will grow at a rate faster than the market overall due to
demographic factors, primarily the aging of the U.S. population. It is
important to note that the Fund's significant position within health care
is well diversified among many players and many subsectors, including
pharmaceuticals, biotechnology, hospitals, medical device firms and drug
distributors. During the fourth calendar quarter, the Fund sold its
position in pharmaceutical firm Wyeth which had appreciated significantly
and used a portion of the proceeds to purchase a broader mix of
pharmaceutical companies including Johnson & Johnson, Eli Lilly and
Novartis.
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4 IDS LIFE VARIABLE ANNUITY FUND A -- ANNUAL REPORT
Questions & Answers
While the Fund had a large position within the energy sector in the first
calendar quarter, we reduced our holdings significantly when these stocks
rallied sharply in March prior to the war in Iraq. For the remainder of the
year, energy stocks failed to demonstrate value significant enough for us
to make a meaningful move back into the sector and, in fact, we trimmed our
moderate position in energy again in December after another rally in the
group.
Q: How are you positioning the Fund for the coming months?
A: One key issue for the market in 2004 is whether large-cap stocks may regain
market leadership from small-cap stocks, and we believe several factors
support such an outcome. First, the valuation of small-caps relative to
large-caps is at a 10-year high. Such overvaluation suggests a period of
large-cap outperformance may be due. Second, the U.S. dollar has declined
significantly relative to ther major currencies, which has made U.S.
exports much more competitive. Small-cap companies generally don't have
significant sales abroad and don't benefit from export growth the way
large-cap stocks do.
Consumer staples is a sector which looks interesting to us now precisely
because it is one of the most multi-national groups in the market. Anywhere
you travel globally, you will find Coca-Cola, Procter & Gamble and Gillette
products. We believe such companies present an attractive opportunity given
the improved export environment.
Technology stocks are expensive, in our opinion, and the only way to
justify their valuations is to assume very strong economic growth for
several quarters to come. We believe that if growth is indeed that strong,
it will drive performance as well in other sectors, such as media. Given
the improving global economy, the weak dollar and large-cap relative
underperformance in 2003, we think the environment may be more favorable
for large stocks in 2004 and we consider the portfolio well positioned for
such a scenario.
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5 IDS LIFE VARIABLE ANNUITY FUND A -- ANNUAL REPORT
The 10 Largest Holdings
IDS Life Variable Annuity Fund A
Percent Value
(of net assets) (as of Dec. 31, 2003)
Pfizer 7.2% $17,703,863
Citigroup 4.3 10,605,990
Viacom Cl B 3.6 8,747,298
Microsoft 3.4 8,366,652
General Electric 3.4 8,274,758
Cendant 3.3 8,155,274
Cardinal Health 3.0 7,333,084
PepsiCo 2.9 7,090,902
Fannie Mae 2.4 5,982,282
Procter & Gamble 2.4 5,813,016
For further detail about these holdings, please refer to the section entitled
"Investments in Securities."
(pie chart)
The 10 holdings listed here make up 35.9% of net assets
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6 IDS LIFE VARIABLE ANNUITY FUND A -- ANNUAL REPORT
The Fund's Long-term Performance
On the chart below you can see how IDS Life Variable Annuity Fund A's total
return compared to the Standard & Poor's 500 Index (S&P 500 Index), an unmanaged
list of common stocks, frequently used as a general measure of market
performance. In comparing the Fund to the S&P 500 Index, you should take into
account the fact that the Fund's performance reflects an 8% total sales and
administrative charge, while no such sales charge is reflected in the
performance of the S&P 500 Index. Investment performance of the Fund, after
charges, is reflected in the unit value calculation. There are no dividend or
capital gain distributions, therefore, the assumed units purchased would remain
constant throughout the period.
(line chart)
Value of your $10,000 in IDS Life Variable Annuity Fund A
IDS Life Variable
Annuity Fund A $ 9,200 $ 8,830 $11,972 $14,648 $17,974 $21,093 $27,735 $26,254 $21,100 $16,000 $20,392
S&P 500 Index $10,000 $10,132 $13,940 $17,140 $22,858 $29,391 $35,575 $32,338 $28,499 $22,201 $28,568
'93 '94 '95 '96 '97 '98 '99 '00 '01 '02 '03
$9,200 $8,830 $11,972 $14,648 $17,974 $21,093 $27,735 $26,254 $21,100 $16,000 $20,392
Dec. 31 Unit Value 10.700 10.271 13.925 17.038 20.906 24.534 32.260 30.538 24.544 18.611 23.720
The above represents an assumed investment of $10,000 into a single payment
annuity contract on Dec. 31, 1993. Values are calculated on Dec. 31 of each
year. (No new contracts are currently being sold.)
Average Annual Total Return on Each of Three Investments
Date of investment Period investment held in years Fund A Annuity Value
Dec. 31, 1993 10 +7.39%
Dec. 31, 1998 5 -2.32%
Dec. 31, 2002 1 +17.25%
The returns reflect the deduction of a sales and administrative charge and
mortality and expense risk assurance fee.
Your investment and return values fluctuate so that your accumulation units,
when redeemed, may be worth more or less than their original cost. This was a
period of fluctuating security prices. Past performance is no guarantee of
future results.
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7 IDS LIFE VARIABLE ANNUITY FUND A -- ANNUAL REPORT
Board Members and Officers
Shareholders elect a board that oversees the Fund's operations. The board
appoints officers who are responsible for day-to-day business decisions based on
policies set by the board.
The following is a list of the Fund's board members. Each member oversees the
Fund, IDS Life Variable Annuity Fund B and the seven portfolios of IDS Life
Series Fund, Inc. Board members serve until the next regular shareholders'
meeting or until he or she reaches the mandatory retirement age established by
the board.
Independent Board Members*
Name, address, age Position held with Principal occupation Other directorships
Fund and length of during past five years
service
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Rodney P. Burwell Board member since Chairman, Xerxes TCF Financial, American
Xerxes Corporation 1999 Corporation Express Certificate
7901 Xerxes Ave. S. (fiberglass storage Company
Minneapolis, MN 55431-1253 tanks)
Born in 1939
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Jean B. Keffeler Board member since Retired business American Express
3424 Zenith Ave. S. 1999 executive Certificate Company
Minneapolis, MN 55416
Born in 1945
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Thomas R. McBurney Board member since President, McBurney The Valspar Corporation
McBurney Management Advisors 1999 Management Advisors (paints), American
4900 IDS Center, Express Certificate
80 South Eighth Street Company
Minneapolis, MN 55402
Born in 1938
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Board Members Affiliated with American Express Financial Corporation (AEFC)**
Name, address, age Position held with Principal occupation Other directorships
Fund and length of during past five years
service
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Gumer C. Alvero Board member since Director and Executive
70100 AXP Financial Center 1998, Chairman of Vice President -
Minneapolis, MN 55474 the Board since Annuities, IDS Life,
Born in 1967 2000 since 2001. Vice
President - General
Manager Annuities,
AEFC, since 1998
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Timothy V. Bechtold Board member since Director and
70100 AXP Financial Center 2001, President and President, IDS Life,
Minneapolis, MN 55474 Chief Executive since 2001. Executive
Born in 1953 Officer since 2002 Vice President -
Insurance Products,
IDS Life, from 1995 to
2001. Vice President
- Insurance Products,
AEFC, since 1995
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* Mr. Burwell, Ms. Keffeler and Mr. McBurney also serve as directors of IDS
Life Insurance Company of New York and American Centurion Life Assurance
Company which are indirectly controlled by AEFC. Mr. McBurney also serves
as a director of American Express Personal Trust Services, FSB which is
indirectly controlled by AEFC.
** Interested person by reason of being an officer, director and/or employee
of AEFC.
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8 IDS LIFE VARIABLE ANNUITY FUND A -- ANNUAL REPORT
The board has appointed officers who are responsible for day-to-day business
decisions based on policies it has established. The officers serve at the
pleasure of the board. In addition to Mr. Bechtold, who is President and Chief
Executive Officer, the Fund's other officers are:
Other Officers
Name, address, age Position held with Principal occupation Other directorships
Fund and length of during past five years
service
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C. Nikol Davies Secretary since Assistant Secretary,
70100 AXP Financial Center 2001 AEFC, since 2001.
Minneapolis, MN 55474 Paralegal at Boyle
Born in 1966 & Voss and
Administrative
Assistant for the
Department of the
U.S. Air Force prior
to 2001
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Jeffrey P. Fox Chief Financial Vice President -
70100 AXP Financial Center Officer since 2002 Investment Accounting,
Minneapolis, MN 55474 AEFC, since 2002.
Born in 1955 Vice President -
Finance, American
Express Company,
2000-2002. Vice
President - Corporate
Controller, AEFC,
1996-2000
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Lorraine R. Hart Vice President - Vice President -
70100 AXP Financial Center Investments since Investments
Minneapolis, MN 55474 1992 Administration
Born in 1951 Officer, AEFC, since
2003. Vice
President -
Insurance
Investments,
AEFC, from
1989 to 2003
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Judd K. Lohmann Treasurer since 2003 Assistant Treasurer and
70100 AXP Financial Center Director - Finance and
Minneapolis, MN 55474 Analysis, AEFC, since
Born in 1958 2000. Director of
Operations, Advisor
Business Systems, AEFC,
from 1996-2000
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The prospectus has additional information about the Fund's board members and is
available without charge, upon request by calling (800) 862-7919.
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9 IDS LIFE VARIABLE ANNUITY FUND A -- ANNUAL REPORT
Report of Independent Auditors
THE BOARD OF MANAGERS AND CONTRACT OWNERS
IDS Life Variable Annuity Fund A:
We have audited the accompanying statement of assets, liabilities and contract
owners' equity of IDS Life Variable Annuity Fund A, including the schedule of
investments in securities, as of December 31, 2003, and the related statement of
operations for the year then ended, the statements of changes in contract
owners' equity for each of the two years in the period then ended, and financial
highlights for each of the five years in the period then ended. These financial
statements and financial highlights are the responsibility of the Fund's
management. Our responsibility is to express an opinion on these financial
statements and financial highlights 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 and
financial highlights are free of material misstatement. An audit includes
examining, on a test basis, evidence supporting the amounts and disclosures in
the financial statements and financial highlights. Our procedures included
confirmation of investments owned as of December 31, 2003, by correspondence
with the custodian and brokers or by other appropriate auditing procedures where
replies from brokers were not received. 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 and financial highlights referred to
above present fairly, in all material respects, the financial position of IDS
Life Variable Annuity Fund A at December 31, 2003, and the results of its
operations for the year then ended, the changes in its contract owners' equity
for each of the two years in the period then ended, and its financial highlights
for each of the five years in the period then ended in conformity with
accounting principles generally accepted in the United States.
/s/ Ernst & Young LLP
Minneapolis, Minnesota
January 20, 2004
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10 IDS LIFE VARIABLE ANNUITY FUND A -- ANNUAL REPORT
Financial Statements
Statement of assets, liabilities and contract owners' equity
IDS Life Variable Annuity Fund A
Dec. 31, 2003
Assets
Investments in securities, at value (Note 1)
(identified cost $216,540,641) $246,175,186
Cash in bank on demand deposit 54,682
Dividends and interest receivable 336,226
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Total assets $246,566,094
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Liabilities
Payable for contract terminations $ 94,127
Payable for investment securities purchased 624,751
Mortality and expense risk assurance fee 6,742
Investment management services fee 2,698
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Total liabilities $ 728,318
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Contract owners' equity
Contracts in accumulation period -- 10,132,502 units at $23.72 per unit (Note 5) $240,340,791
Contracts in payment period 5,496,985
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Total contract owners' equity 245,837,776
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Total liabilities and contract owners' equity $246,566,094
============
See accompanying notes to financial statements.
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11 IDS LIFE VARIABLE ANNUITY FUND A -- ANNUAL REPORT
Statement of operations
IDS Life Variable Annuity Fund A
Year ended Dec. 31, 2003
Investment income (loss) -- net Income:
Dividends $ 3,172,374
Interest 153,152
Less foreign taxes withheld (5,679)
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Total income 3,319,847
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Expenses:
Mortality and expense risk assurance fee (Note 2) 2,234,446
Investment management services fee (Note 3) 893,188
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Total expenses 3,127,634
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Investment income (loss) -- net 192,213
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Realized and unrealized gain (loss) -- net
Net realized gain (loss) on investments 8,958,492
Net change in unrealized appreciation (depreciation) on investments 45,358,110
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Net gain (loss) on investments 54,316,602
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Net increase (decrease) in contract owners' equity from operations $54,508,815
===========
See accompanying notes to financial statements.
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12 IDS LIFE VARIABLE ANNUITY FUND A -- ANNUAL REPORT
Statements of changes in contract owners' equity
IDS Life Variable Annuity Fund A
Year ended Dec. 31, 2003 2002
Operations
Investment income (loss) -- net $ 192,213 $ (368,482)
Net realized gain (loss) on investments 8,958,492 (21,116,599)
Net change in unrealized appreciation (depreciation) on investments 45,358,110 (52,237,449)
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Net increase (decrease) in contract owners' equity from operations 54,508,815 (73,722,530)
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Contract transactions
Net contract purchase payments (Note 2) 956,451 1,090,246
Repayment of temporary withdrawals 173 9,135
Net transfers from (to) fixed annuities (3,006,051) (9,603,120)
Actuarial adjustment for mortality assurance on annuities in payment period (6,701) 1,018,970
Contract termination payments and temporary withdrawals (18,654,902) (22,329,946)
Annuity payments (610,686) (679,180)
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Net increase (decrease) from contract transactions (21,321,716) (30,493,895)
----------- -----------
Net increase (decrease) in contract owners' equity 33,187,099 (104,216,425)
Contract owners' equity at beginning of year 212,650,677 316,867,102
----------- -----------
Contract owners' equity at end of year $245,837,776 $212,650,677
============ ============
See accompanying notes to financial statements.
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13 IDS LIFE VARIABLE ANNUITY FUND A -- ANNUAL REPORT
Notes to Financial Statements
IDS Life Variable Annuity Fund A
1. ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
IDS Life Variable Annuity Fund A (the Fund) is organized as a segregated asset
account of IDS Life Insurance Company (IDS Life) under Minnesota law and is
registered under the Investment Company Act of 1940 as a diversified, open-end
management investment company. The Fund's assets are held for the exclusive
benefit of its variable annuity contract owners and are not chargeable with any
liabilities arising from the other business activities of IDS Life. The
significant accounting policies followed by the Fund are summarized as follows:
Use of estimates
The preparation of financial statements in conformity with accounting principles
generally accepted in the United States requires management to make estimates
and assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the financial
statements and the reported amounts of increase and decrease in net assets from
operations during the year. Actual results could differ from those estimates.
Valuation of securities
All securities are valued at the close of each business day. Securities traded
on national securities exchanges or included in national market systems are
valued at the last quoted sales price. Debt securities are generally traded in
the over-the-counter market and are valued at a price that reflects fair value
as quoted by dealers in these securities or by an independent pricing service.
American Express Financial Corporation (AEFC) may use fair value if a security's
value has been materially affected by events after the close of the primary
exchanges or markets on which the security is traded and before the NAV is
calculated. The fair value of a security may be different from the quoted or
published price. AEFC will price a security at fair value in accordance with
procedures adopted by the Fund and board if a reliable market quotation is not
readily available. Short-term securities maturing in more than 60 days from the
valuation date are valued at the market price or approximate market value based
on current interest rates; those maturing in 60 days or less are valued at
amortized cost.
Option contracts
To produce incremental earnings, protect gains and facilitate buying and selling
of securities for investments, the Fund may buy and sell put and call options
and write covered call options on portfolio securities. The risk in writing a
call option is that the Fund gives up the opportunity for profit if the market
price of the security increases. The risk in writing a put option is that the
Fund may incur a loss if the market price of the security decreases and the
option is exercised. The risk in buying an option is that the Fund pays a
premium whether or not the option is exercised. The Fund also has the additional
risk of being unable to enter into a closing transaction if a liquid secondary
market does not exist.
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14 IDS LIFE VARIABLE ANNUITY FUND A -- ANNUAL REPORT
Option contracts are valued daily at the closing prices on their primary
exchanges and unrealized appreciation or depreciation is recorded. The Fund will
realize a gain or loss when the option transaction expires or closes. When an
option is exercised, the proceeds on sales for a written call option, the
purchase cost for a written put option or the cost of a security for a purchased
put or call option is adjusted by the amount of premium received or paid.
During the year ended Dec. 31, 2003, the Fund did not buy or sell any put or
call options or write any covered call or put options. There were no option
contracts outstanding as of Dec. 31, 2003.
Futures contracts
To gain exposure to or protect itself from market changes, the Fund may buy and
sell stock index futures contracts and related options. Risks of entering into
futures contracts and related options include the possibility of an illiquid
market and that a change in the value of the contract or option may not
correlate with the changes in the value of the underlying securities.
Upon entering into a futures contract, the Fund is required to deposit either
cash or securities in an amount (initial margin) equal to a certain percentage
of the contract value. Subsequent payments (variation margin) are made or
received by the Fund each day. The variation margin payments are equal to the
daily changes in the contract value and are recorded as unrealized gains and
losses. The Fund recognizes a realized gain or loss when the contract is closed
or expires.
During the year ended Dec. 31, 2003, the Fund did not buy or sell stock index
futures contracts and related options. There were no stock index futures
contracts outstanding as of Dec. 31, 2003.
Foreign currency translations and foreign currency contracts
Securities and other assets and liabilities denominated in foreign currencies
are translated daily into U.S. dollars. Foreign currency amounts related to the
purchase or sale of securities and income and expenses are translated at the
exchange rate on the transaction date. It is not practicable to identify that
portion of realized and unrealized gain or loss arising from changes in the
exchange rates from the portion arising from changes in the market value of
investments.
The Fund may enter into forward foreign currency exchange contracts for
operational purposes and to protect against adverse exchange rate fluctuation.
The net U.S. dollar value of foreign currency underlying all contractual
commitments held by the Fund and the resulting unrealized appreciation or
depreciation are determined using foreign currency exchange rates from an
independent pricing service. The Fund is subject to the credit risk that the
other party will not complete its contract obligations.
There were no forward foreign currency exchange contracts outstanding as of Dec.
31, 2003.
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15 IDS LIFE VARIABLE ANNUITY FUND A -- ANNUAL REPORT
Variable payout
Net assets allocated to contracts in the payout period are periodically compared
to a computation which uses the Annuity 2000 Basic Mortality Table and which
assumes future mortality improvement. The assumed investment return is 5% unless
the annuitant elects otherwise, in which case the rate would be 3.5%, as
regulated by the laws of the respective states. The mortality risk is fully
borne by IDS Life and may result in additional amounts being transferred into
the variable annuity account by IDS Life to cover greater longevity of
annuitants than expected. Conversely, if amounts allocated exceed amounts
required, transfers may be made to the insurance company.
Federal income taxes
IDS Life is taxed as a life insurance company. The Fund is treated as part of
IDS Life for federal income tax purposes. Under current federal income tax law,
no taxes are payable with respect to any income of the Fund.
Other
Security transactions are accounted for on the date securities are purchased or
sold. Dividend income is recognized on the ex-dividend date and interest income,
including amortization of premium, market discount and original issue discount
using the effective interest method, is accrued daily.
2. MORTALITY AND EXPENSE RISK ASSURANCE FEE AND SALES CHARGES
IDS Life makes contractual assurances to the Fund that possible future adverse
changes in administrative expenses and mortality experience of the annuitants
and beneficiaries will not affect the Fund. The mortality and expense risk
assurance fee paid to IDS Life is computed daily and is equal on an annual basis
to 1% of the average daily net assets of the Fund.
Charges by IDS Life for its sales and administrative services applicable to the
variable annuity contracts amounted to $40,076 for the year ended Dec. 31, 2003
and $45,869 for the year ended Dec. 31, 2002. Such charges are not an expense of
the Fund. They are deducted from contract purchase payments and are not included
in the net contract purchase payments to the Fund.
3. INVESTMENT MANAGEMENT SERVICES AGREEMENT
The Fund has an agreement with AEFC to manage its portfolio. Under an Investment
Management Services Agreement, AEFC determines which securities will be
purchased, held or sold. The management fee is computed daily and is equal on an
annual basis to 0.40% of the average daily net assets of the Fund.
In addition to paying its own management fee, the Fund also pays all brokerage
clearing fees and charges in the purchase and sale of assets. Brokerage charges
are paid to AEFC for reimbursement of charges incurred in the purchase and sale
of foreign securities.
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16 IDS LIFE VARIABLE ANNUITY FUND A -- ANNUAL REPORT
4. SECURITY TRANSACTIONS
Cost of purchases and proceeds from sales of securities (other than short-term
obligations) aggregated $227,475,302 and $244,898,611, respectively, for the
year ended Dec. 31, 2003. Net realized gains and losses on investments are
determined on an identified cost basis.
Brokerage clearing fees paid to brokers affiliated with AEFC were $390 for the
year ended Dec. 31, 2003.
5. ACCUMULATION UNITS
The changes in number of outstanding units applicable to contracts in the
accumulation period were as follows:
Year ended Year ended
Dec. 31, 2003 Dec. 31, 2002
Units outstanding at beginning of year 11,166,900 12,676,242
Additions for contract purchase payments and repayments 45,163 52,664
Net transfers from (to) fixed account (167,828) (484,776)
Deductions for contract terminations and withdrawals (911,733) (1,077,230)
-------- ----------
Units outstanding at end of year 10,132,502 11,166,900
---------- ----------
6. FINANCIAL HIGHLIGHTS
The table below shows certain important financial information for evaluating the
Fund's results.
Fiscal period ended Dec. 31, 2003 2002 2001 2000 1999
Accumulation unit value at beginning of year $18.61 $24.54 $30.54 $32.26 $24.53
Income from investment operations(a):
Net investment income (loss) .02 (.03) (.10) (.20) (.20)
Net gains (losses) (both realized and unrealized) 5.09 (5.90) (5.90) (1.52) 7.93
Total from investment operations 5.11 (5.93) (6.00) (1.72) 7.73
Accumulation unit value at end of year $23.72 $18.61 $24.54 $30.54 $32.26
Total return(b) 27.46% (24.16%) (19.65%) (5.33%) 31.51%
Ratios/supplemental data
Total contract owners' equity at end of year (000 omitted) $245,838 $212,651 $316,867 $429,472 $493,966
Ratio of operating expenses to average daily net assets 1.40% 1.40% 1.40% 1.40% 1.40%
Ratio of net investment income (loss) to average daily net assets .09% (.14%) (.39%) (.59%) (.71%)
Portfolio turnover rate 108% 195% 76% 85% 5%
(a) Per accumulation unit value amounts have been calculated using the average
accumulation units values outstanding method.
(b) Total return does not reflect payment of a sales charge.
The foregoing table pertains to accumulation units only. There are two kinds of
units. As long as contract owners are paying into the Fund they are called
"accumulation" units. When contract owners begin to receive the annuity, they
change to "annuity" units.
The value of an annuity unit (assuming a 3.5% investment rate) was $6.97 as of
Dec. 31, 2003, $5.66 as of Dec. 31, 2002, $7.73 as of Dec. 31, 2001, $9.95 as of
Dec. 31, 2000 and $10.88 as of Dec. 31, 1999. The value of an annuity unit
(assuming a 5% investment rate) was $4.16 as of Dec. 31, 2003, $3.43 as of Dec.
31, 2002, $4.75 as of Dec. 31, 2001, $6.20 as of Dec. 31, 2000 and $6.88 as of
Dec. 31, 1999.
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17 IDS LIFE VARIABLE ANNUITY FUND A -- ANNUAL REPORT
Investments in Securities
IDS Life Variable Annuity Fund A
Dec. 31, 2003
(Percentages represent value of investments compared to net assets)
Common stocks (97.4%)
Issuer Shares Value(a)
Aerospace & defense (3.4%)
Boeing 27,900 $1,175,706
Empresa Brasileira de
Aeronautica ADR 33,550(c) 1,175,257
Lockheed Martin 47,100 2,420,940
Northrop Grumman 13,400 1,281,040
United Technologies 24,300 2,302,911
Total 8,355,854
Banks and savings & loans (3.6%)
Bank of America 46,700 3,756,081
U.S. Bancorp 50,000 1,489,000
Washington Mutual 21,300 854,556
Wells Fargo 45,800 2,697,162
Total 8,796,799
Beverages & tobacco (5.3%)
Altria Group 73,400 3,994,428
Anheuser-Busch 11,300 595,284
Coca-Cola 25,300 1,283,975
PepsiCo 152,100 7,090,902
Total 12,964,589
Broker dealers (1.8%)
Merrill Lynch & Co 36,400 2,134,860
Morgan Stanley 40,500 2,343,735
Total 4,478,595
Building materials & construction (0.5%)
American Standard 11,500(b) 1,158,050
Cable (1.0%)
EchoStar Communications Cl A 20,900(b) 710,600
NTL 25,273(b) 1,762,792
Total 2,473,392
Cellular telecommunications (0.5%)
Nextel Communications Cl A 47,300(b) 1,327,238
Chemicals (2.0%)
Dow Chemical 60,100 2,498,357
Lyondell Chemical 136,700 2,317,065
Total 4,815,422
Computer hardware (4.1%)
Cisco Systems 128,900(b) 3,130,981
Dell 93,700(b) 3,182,052
Hewlett-Packard 135,800 3,119,326
NVIDIA 26,200(b) 609,150
Total 10,041,509
Computer software & services (4.8%)
Affiliated Computer Services Cl A 10,000(b) 544,600
Microsoft 303,800 8,366,652
Oracle 226,700(b) 2,992,440
Total 11,903,692
Electronics (3.1%)
Analog Devices 19,800 903,870
Applied Materials 61,700(b) 1,385,165
Intel 80,800 2,601,760
Jabil Circuit 14,800(b) 418,840
KLA-Tencor 10,900(b) 639,503
Novellus Systems 10,600(b) 445,730
STMicroelectronics 43,700(c) 1,180,337
Total 7,575,205
Energy (4.8%)
ChevronTexaco 46,400 4,008,496
ConocoPhillips 43,900 2,878,523
Exxon Mobil 119,300 4,891,300
Total 11,778,319
Energy equipment & services (0.5%)
Transocean 51,400(b) 1,234,114
Finance companies (4.3%)
Citigroup 218,500 10,605,990
Financial services (4.1%)
Capital One Financial 15,200 931,608
Countrywide Financial 9,066 687,656
Fannie Mae 79,700 5,982,282
MBNA 96,300 2,393,055
Total 9,994,601
See accompanying notes to investments in securities.
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18 IDS LIFE VARIABLE ANNUITY FUND A -- ANNUAL REPORT
Common stocks (continued)
Issuer Shares Value(a)
Health care products (14.6%)
Amgen 43,700(b) $2,700,660
Baxter Intl 41,200 1,257,424
Boston Scientific 34,700(b) 1,275,572
Forest Laboratories 47,000(b) 2,904,600
Guidant 10,500 632,100
Johnson & Johnson 81,000 4,184,460
Lilly (Eli) 16,800 1,181,544
Medtronic 33,600 1,633,296
Novartis ADR 58,700(c) 2,693,743
Pfizer 501,100 17,703,863
Total 36,167,262
Health care services (7.7%)
AmerisourceBergen 95,200 5,345,480
Cardinal Health 119,900 7,333,084
HCA 30,500 1,310,280
McKesson 131,600 4,232,256
Tenet Healthcare 42,900(b) 688,545
Total 18,909,645
Household products (3.3%)
Colgate-Palmolive 33,200 1,661,660
Procter & Gamble 58,200 5,813,016
Unilever 10,100(c) 655,490
Total 8,130,166
Insurance (5.1%)
ACE 14,500(c) 600,590
Allstate 61,600 2,650,032
American Intl Group 62,400 4,135,872
Chubb 54,100 3,684,210
Hartford Financial Services Group 15,100 891,353
MBIA 9,900 586,377
Total 12,548,434
Leisure time & entertainment (4.7%)
Mattel 141,800 2,732,486
Viacom Cl B 197,100 8,747,298
Total 11,479,784
Machinery (1.3%)
Caterpillar 24,800 2,058,896
SPX 17,900(b) 1,052,699
Total 3,111,595
Media (8.0%)
Cendant 366,200(b) 8,155,274
Disney (Walt) 204,500 4,770,985
Gannett 14,800 1,319,568
InterActiveCorp 87,800(b) 2,979,054
Liberty Media Cl A 111,500(b) 1,325,735
Tribune 24,200 1,248,720
Total 19,799,336
Multi-industry (4.9%)
Accenture Cl A 26,750(b,c) 704,060
General Electric 267,100 8,274,758
Tyco Intl 117,900(c) 3,124,350
Total 12,103,168
Paper & packaging (0.6%)
Avery Dennison 25,200 1,411,704
Precious metals (0.4%)
Freeport McMoRan
Cooper & Gold Cl B 25,200 1,061,676
Retail -- general (2.5%)
Best Buy 35,500 1,854,520
Home Depot 67,700 2,402,673
Wal-Mart Stores 33,800 1,793,090
Total 6,050,283
Utilities -- electric (0.5%)
Exelon 9,100 603,876
FirstEnergy 16,800 591,360
Total 1,195,236
Total common stocks
(Cost: $209,909,104) $239,471,658
See accompanying notes to investments in securities.
- --------------------------------------------------------------------------------
19 IDS LIFE VARIABLE ANNUITY FUND A -- ANNUAL REPORT
Bond (0.1%)
Issuer Coupon Principal Value(a)
rate amount
Government obligation & agency
U.S. Treasury
05-15-16 7.25% $250,000 $311,865
Total bond
(Cost: $240,313) $311,865
Short-term securities (2.6%)
Issuer Annualized Amount Value(a)
yield on date payable at
of purchase maturity
U.S. government agency (1.7%)
Federal Natl Mtge Assn Disc Nts
01-14-04 1.07% $500,000 $499,808
02-19-04 1.07 200,000 199,723
03-24-04 1.05 3,400,000 3,392,255
Total 4,091,786
Commercial paper (0.9%)
UBS Finance (Delaware)
01-02-04 0.96 2,300,000 2,299,877
Total short-term securities
(Cost: $6,391,224) $6,391,663
Total investments in securities
(Cost: $216,540,641)(d) $246,175,186
Notes to investments in securities
(a) Securities are valued by procedures described in Note 1 to the financial
statements.
(b) Non-income producing.
(c) Foreign security values are stated in U.S. dollars. As of Dec. 31, 2003,
the value of foreign securities represented 4.1% of net assets.
(d) At Dec. 31, 2003, the cost of securities for federal income tax purposes
was $216,540,641 and the aggregate gross unrealized appreciation and
depreciation based on that cost was:
Unrealized appreciation $30,248,551
Unrealized depreciation (614,006)
--------
Net unrealized appreciation $29,634,545
-----------
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20 IDS LIFE VARIABLE ANNUITY FUND A -- ANNUAL REPORT
- --------------------------------------------------------------------------------
(logo)
AMERICAN
EXPRESS
(R)
- --------------------------------------------------------------------------------
IDS Life Insurance Company
70100 AXP Financial Center
Minneapolis, MN 55474
S-6447 V (2/04)
Item 2. (a) The Registrant has adopted a code of ethics that applies to the
Registrant's principal executive officer and principal financial
officer. A copy of the code of ethics is filed as an exhibit to this
form N-CSR.
(b) During the period covered by this report, there were not any
amendments to the provisions of the code of ethics adopted in 2(a)
above.
(c) During the period covered by this report, there were not any
implicit or explicit waivers to the provisions of the code of ethics
adopted in 2(a).
Item 3. The Board of Managers of the Registrant has determined that the
Registrant does not have an audit committee financial expert serving
on its Joint Audit Committee. No single member of the Joint Audit
Committee was identified as having all of the technical attributes
specified in Item 3 of Form N-CSR to qualify as an audit committee
financial expert, whether through the type of specialized education or
through experience. However, the Board of Managers believes that
through the collective experience of its members, the Joint Audit
Committee has sufficient expertise to perform its duties.
Item 4. Principal Accountant Fees and Services
Fund - Related Fees
(a) Audit Fees. The fee paid to E&Y LLP for professional services rendered
for the audits of the annual financial statements for the fiscal year
periods ended December 31 for Fund A was as follows:
2003 - $25,000; 2002 - $25,000
(b) Audit - Related Fees - None
(c) Tax Fees - None
(d) All Other Fees - None
(e) (1) Audit Committee Pre-Approval Policy. All services to be performed
for the registrant by E&Y LLP must be pre-approved by the audit
committee.
(e) (2) 100% of the services performed during 2003 and 2002 were
pre-approved by the committee.
(f) Not applicable.
(g) Non-Audit Fees. The fee paid by the registrant for non-audit services
to E&Y LLP were: None.
Sarbanes-Oxley pre-approval requirements were incorporated and
pre-approval is required for all services to be performed for the
Advisor or any of its affiliates. The fees for audit advice, tax advice
and procedure related advice for the fiscal year periods ended December
31 were as follows:
2003 - $3,542,000; 2002 - $7,851,000
(h) 100% of the services performed during 2003 and 2002 by E&Y LLP for the
advisor and other related entities were pre-approved by the Audit
Committee.
Item 5. Audit Committee of Listed Registrants. Not applicable.
Item 6. [Reserved]
Item 7. Disclosure of Proxy Voting Policies and Procedures for Closed-End
Management Investment Companies. Not applicable.
Item 8. Purchase of Equity Securities by Closed-End Management Investment
Company and Affiliated Purchasers. Not applicable.
Item 9. Submission of matters to a vote of security holders. Not applicable
at this time.
Item 10. Controls and Procedures.
(a) The registrant's Principal Executive Officer and Principal
Financial Officer have evaluated the registrant's disclosure
controls and procedures within 90 days of this filing and have
concluded that the registrant's disclosure controls and
procedures by the registrant in this Form N-CSR was recorded,
processed, summarized, and reported timely.
(b) At the date of filing this Form N-CSR, the registrant's
Principal Executive Officer and Principal Financial Officer are
aware of no significant changes in the registrant's internal
controls or in other factors that could significantly affect
these controls subsequent to the date of their evaluation,
including any corrective actions with regard to significant
deficiencies and material weaknesses.
Item 11. Exhibits.
(a)(1) Code of ethics as applies to the Registrant's principal
executive officer and principal financial officer, as required to be
disclosed under Item 2 of Form N-CSR, is attached as Ex. 99.CODE ETH.
(a)(2) Separate certification for the Registrant's principal
executive officer and principal financial officer, as required by
Section 302 of the Sarbanes-Oxley Act of 2002 and Rule 30a-2(a)
under the Investment Company Act of 1940, are attached as
EX.99.CERT.
(a)(3) Not applicable.
(b) A certification by the Registrant's principal executive officer
and principal financial officer, pursuant to Section 906 of the
Sarbanes-Oxley Act of 2002 and Rule 30a-2(b) under the Investment
Company Act of 1940, is attached as EX.99.906 CERT.
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934 and the
Investment Company Act of 1940, the registrant has duly caused this report to be
signed on its behalf by the undersigned, thereunto duly authorized.
(Registrant) IDS Life Variable Annuity Fund A
By /s/ Timothy V. Bechtold
-----------------------
Timothy V. Bechtold
President and Principal Executive Officer
Date March 5, 2004
Pursuant to the requirements of the Securities Exchange Act of 1934 and the
Investment Company Act of 1940, this report has been signed below by the
following persons on behalf of the registrant and in the capacities and on the
dates indicated.
By /s/ Timothy V. Bechtold
-----------------------
Timothy V. Bechtold
President and Principal Executive Officer
Date March 5, 2004
By /s/ Jeffrey P. Fox
------------------
Jeffrey P. Fox
Principal Financial Officer
Date March 5, 2004