UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
Post-Effective Amendment No. 3
to Registration Statement No. 333-114888
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 April 29, 2005.
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]
Pursuant to Rule 429 under the Securities Act of 1933, the prospectuses
contained or incorporated herein by reference also relate to and constitute a
post-effective amendment to Securities Act Registration Statement No. 33-28976.
Calculation of Registration Fee
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Title of Each Class Amount to be Proposed Maximum Proposed Maximum Amount of
of Securities to be Registered Offering Price Per Aggregate Offering Registration Fee
Registered Unit Price
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Interests in N/A
market value adjusted
annuity contracts and
accounts of American
Express Retirement
Advisor Advantage
Plus Variable Annuity,
American Express
Retirement Advisor
Select Plus Variable
Annuity, and American
Express Guaranteed Term
Annuity.
PART I.
INFORMATION REQUIRED IN PROSPECTUS
The prospectus for American Express Retirement Advisor Advantage Plus(R)
Variable Annuity/American Express Retirement Advisor Select Plus(R) Variable
Annuity is incorporated by reference from Part A of Post-Effective Amendment No.
31 to Registration Statement No. 333-79311, filed on or about April 27, 2005.
PROSPECTUS
APRIL 29, 2005
AMERICAN EXPRESS
GUARANTEED
TERM ANNUITY
IDS Life Insurance Company (IDS Life) issues this annuity and offers it in two
ways:
o A Group Market Value Annuity Contract, and
o 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.
GROUP AND INDIVIDUAL MARKET VALUE ANNUITY CONTRACTS
ISSUED BY: IDS LIFE INSURANCE COMPANY
70100 AXP Financial Center
Minneapolis, MN 55474
Telephone: (800) 862-7919
IDS LIFE ACCOUNT MGA
If you choose not to hold these securities until the end of a guarantee period,
they may be subject to a substantial surrender charge or market value
adjustment. As a result, you could get less than your purchase payment back.
Interest rates for renewal guarantee periods may be higher or lower than the
previous guaranteed interest rate. The minimum guaranteed renewal interest rate
is 3%. IDS Life guarantees this rate.
THE SECURITIES AND EXCHANGE COMMISSION (SEC) HAS NOT APPROVED OR DISAPPROVED
THESE SECURITIES OR PASSED UPON THE 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.
The contract may not be available in all jurisdictions. This prospectus
constitutes an offering or solicitation only in those jurisdictions where such
offering or solicitation may lawfully be made. State variations are covered in a
special contract form used in that state. This prospectus provides a general
description of the contract. Your actual contract and any riders or endorsements
are the controlling documents.
IDS Life has not authorized any person to give any information or to make any
representations regarding the contract other than those contained in this
prospectus. Do not rely on any such information or representations.
IDS Life and its affiliated insurance companies offer several different
annuities which your sales representative may or may not 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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1 AMERICAN EXPRESS GUARANTEED TERM ANNUITY -- PROSPECTUS
TABLE OF CONTENTS
THE GUARANTEED TERM ANNUITY IN BRIEF........................................3
KEY TERMS...................................................................4
DESCRIPTION OF CONTRACTS....................................................5
General...............................................................5
Application and Purchase Payment......................................5
Right to Cancel.......................................................5
Guarantee Periods.....................................................5
Surrenders............................................................6
Surrender Charge......................................................8
MARKET VALUE ADJUSTMENT.....................................................9
PREMIUM TAXES..............................................................11
DEATH BENEFIT PRIOR TO SETTLEMENT..........................................11
THE ANNUITY PAYMENT PERIOD.................................................12
AMENDMENT, DISTRIBUTION AND ASSIGNMENT OF CONTRACTS........................13
TAXES......................................................................14
THE COMPANY................................................................16
ADDITIONAL INFORMATION.....................................................28
INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM..............................28
IDS LIFE INSURANCE COMPANY FINANCIAL INFORMATION...........................29
APPENDIX A -- PARTIAL SURRENDER ILLUSTRATION...............................53
APPENDIX B -- MARKET VALUE ADJUSTMENT ILLUSTRATION.........................55
CORPORATE REORGANIZATION
On Feb. 1, 2005, American Express Company announced plans to pursue a spin-off
of 100% of the common stock of American Express Financial Corporation (AEFC).
AEFC is the parent company of IDS Life. IDS Life issues your contract.
The spin-off of AEFC, expected to be completed in the third quarter of 2005, is
subject to certain regulatory and other approvals, as well as final approval by
the board of directors of American Express Company.
Upon completion of the spin-off, AEFC will be a publicly traded company separate
from American Express Company. AEFC will continue to own all the outstanding
stock of IDS Life and will replace American Express Company as the ultimate
control person of IDS Life.
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2 AMERICAN EXPRESS GUARANTEED TERM ANNUITY -- PROSPECTUS
THE GUARANTEED TERM ANNUITY IN BRIEF
In this prospectus, "we," "us" and "IDS Life" refer to IDS Life Insurance
Company and "you" and "yours" refer to an owner who has been issued a contract.
This summary is incomplete. Do not rely on it as a description of your contract.
For more complete information, you must read the entire prospectus. You can find
more information about a topic in the summary by turning to the discussion
beginning at the page listed after that topic in the summary.
CONTRACTS: We are offering qualified and nonqualified group and individual
market value annuities to the general public.
It may not be advantageous for you to purchase this contract in exchange for, or
in addition to, an existing annuity or life insurance policy. Generally, you can
exchange one annuity for another in a "tax-free" exchange under Section 1035 of
the Code. You also generally can exchange a life insurance policy for an
annuity. However, before making an exchange, you should compare both contracts
carefully because the features and benefits may be different. Fees and charges
may be higher or lower on your old contract than on this contract. You may have
to pay a surrender charge when you exchange out of your old contract and a new
surrender charge period will begin when you exchange into this contract. If the
exchange does not qualify for Section 1035 treatment, you also may have to pay
federal income tax on the exchange. You should not exchange your old contract
for this contract, or buy this contract in addition to your old contract, unless
you determine it is in your best interest.
Most annuities have a tax-deferred feature. So do many retirement plans under
the Code. As a result, when you use a qualified annuity to fund a retirement
plan that is tax-deferred, your contract will not provide any necessary or
additional tax deferral for that retirement plan. A qualified annuity has
features other than tax deferral that may help you reach your retirement goals.
In addition, the Code subjects retirement plans to required withdrawals
triggered at a certain age. These mandatory withdrawals are called required
minimum distributions (RMDs). RMDs may reduce the value of certain death
benefits (see "Taxes -- Qualified Annuities -- Required minimum distributions").
You should consult your tax advisor for an explanation of the potential tax
implications to you.
These market value annuity contracts have a guaranteed interest rate that we
credit to the purchase payment when it is held to the end of the guarantee
period (the renewal date). Surrenders before the renewal date are subject to a
market value adjustment and, if it applies, a surrender charge.
GUARANTEE PERIODS: When you make a payment under an application, you select a
guarantee period from among those that we offer when we receive your application
and payment. During this guarantee period, the purchase payment earns interest
at the interest rate that we have guaranteed for your contract. We credit
interest daily. Credited interest earns interest at the applicable guaranteed
interest rate we establish. (p. 5)
RENEWAL GUARANTEE PERIODS: At the end of each guarantee period, a renewal
guarantee period of one year will begin, unless you choose a different period.
You must choose the length of a renewal guarantee period during the 30 days
before the end of the previous guarantee period. Beginning on the first day of
each renewal guarantee period, the renewal value will earn interest at the
renewal interest rate that we have guaranteed for your contract and the interest
credited will earn interest at that interest rate. (p. 6)
SURRENDERS: With some restrictions, we permit partial or total surrenders. We
may delay payment of any surrender for up to six months from the date we receive
notice of surrender or the period permitted by state law, if less. A delay of
payment will not be for more than seven days except under extraordinary
circumstances. If we choose to exercise this right, then during this delay, we
will pay annual interest of at least 3% of any amounts delayed for more than
thirty days. (p. 6)
SURRENDER CHARGE: If you surrender before the eighth contract anniversary, a
surrender charge beginning at a maximum of 8% of the market adjusted value
surrendered will be subtracted from your account. No surrender charge applies if
you surrender on the last day of a guarantee period. We will waive the surrender
charge in certain instances. A surrender charge also applies to payments under
certain annuity payment plans (see "Description of Contracts -- Surrender
Charge" p. 8 and "The Annuity Payment Period -- Annuity Payment Plans" p. 12).
MARKET VALUE ADJUSTMENT: The market value adjustment is the increase or decrease
in the value of any early surrender you make from your contract. A market value
adjustment applies when the surrender occurs before the renewal date. No market
value adjustment applies to any surrender at the end of a guarantee period. The
amount of the actual adjustment is determined by a formula that is based on the
difference between the guaranteed interest rate on your annuity and a current
interest rate determined by IDS Life. That current interest rate will be the
rate that IDS Life pays on a new Guaranteed Term Annuity that has a guaranteed
period equal to the time remaining on the term of your annuity. The formula also
includes a 0.25% charge that will reduce the value of your surrender regardless
of the current interest rate then in effect. The amount you receive on surrender
could be less than your original purchase payment if interest rates increase. If
interest rates decrease, the amount you receive on surrender may be more than
your original purchase payment and accrued interest. The market adjusted value
also affects settlements under an annuity payment plan. (p. 9)
PREMIUM TAXES: We may deduct premium taxes that may be imposed on us by state or
local governments from the accumulation value of your contract. State premium
taxes range from 0 to 3.5% of your gross purchase payments. (p. 11)
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3 AMERICAN EXPRESS GUARANTEED TERM ANNUITY -- PROSPECTUS
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. 11)
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. 12)
LIMITATIONS ON USE OF CONTRACTS: If mandated by applicable law, including but
not limited to, federal anti-money laundering laws, we may be required to reject
a purchase payment. We may also be required to block an owner's access to
contract values. We may also be required to satisfy other statutory obligations.
Under these circumstances we may refuse to implement requests for transfers,
surrenders or death benefits, until instructions are received from the
appropriate governmental authority or a court of competent jurisdiction.
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 and surrender charges.
ANNUITANT: The person on whose life monthly annuity payments depend.
ANNUITY: A contract purchased from an insurance company that offers tax-deferred
growth of the purchase payment until earnings are withdrawn.
CASH SURRENDER VALUE: The market adjusted value less any applicable surrender
charge. On the last day of a guarantee period, the cash surrender value is the
accumulation value.
CODE: The Internal Revenue Code of 1986, as amended.
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 payments 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 contract is issued.
PURCHASE PAYMENT: Payment made to IDS Life for a contract.
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:
o Individual Retirement Annuities (IRAs) under Section 408(b) of the Code
o Roth IRAs under Section 408A of the Code
o Simplified Employee Pension (SEP) plans under Section 408(k) of the Code
o Plans under Section 401(k) of the Code
o Custodial and trusteed plans under Section 401(a) of the Code
o 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.
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4 AMERICAN EXPRESS GUARANTEED TERM ANNUITY -- PROSPECTUS
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
home office.
DESCRIPTION OF CONTRACTS
GENERAL
This prospectus describes interests in qualified and nonqualified group and
individual market value annuity contracts offered by IDS Life to the general
public.
As described in this prospectus, the contracts have an interest rate guaranteed
by IDS Life that we credit to a purchase payment in the contract when the
purchase payment stays in the contract to its renewal date. We credit (compound)
interest daily to achieve a stated annual effective rate, based on a 365-day
year. We do not pay interest on leap days (Feb. 29). Surrenders prior to the
renewal date are subject to a market value adjustment, a surrender charge (if
applicable), income taxes, and a 10% IRS tax penalty if withdrawn prior to age
59 1/2.
APPLICATION AND PURCHASE PAYMENT
To apply for a contract, you must complete an application and make a minimum
purchase payment of $5,000. For individuals age 90 and younger, the maximum
purchase payment is $1,000,000 without prior approval. This limit applies in
total to all IDS Life annuities you own. If you purchase the contract to fund a
tax-deferred retirement plan, that plan's limit on contributions also will
apply. Once we apply a purchase payment to a contract, we do not permit any
additional purchase payment under the contract.
We will return an improperly completed application, along with the corresponding
purchase payment, five business days after we receive it.
A payment is credited to a contract on the date we receive a properly completed
application at our home 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 home 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. 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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5 AMERICAN EXPRESS GUARANTEED TERM ANNUITY -- PROSPECTUS
EXAMPLE OF GUARANTEED RATE OF ACCUMULATION
Beginning account value: $50,000
Guaranteed period: 10 years
Guaranteed rate: 4% annual effective rate
INTEREST CREDITED TO THE CUMULATIVE INTEREST
YEAR ACCOUNT DURING YEAR CREDITED TO THE ACCOUNT ACCUMULATION VALUE
1 $2,000.00 $ 2,000.00 $52,000.00
2 2,080.00 4,080.00 54,080.00
3 2,163.20 6,243.20 56,243.20
4 2,249.73 8,492.93 58,492.93
5 2,339.72 10,832.65 60,832.65
6 2,433.31 13,265.95 63,265.95
7 2,530.64 15,796.59 65,796.59
8 2,631.86 18,428.45 68,428.45
9 2,737.14 21,165.59 71,165.59
10 2,846.62 24,012.21 74,012.21
Guaranteed accumulation value at the end of 10 years is:
$50,000 + $24,012.21 = $74,012.21
NOTE: THIS EXAMPLE ASSUMES NO SURRENDERS OF ANY AMOUNT DURING THE ENTIRE
TEN-YEAR PERIOD. A MARKET VALUE ADJUSTMENT APPLIES AND A SURRENDER CHARGE MAY
APPLY TO ANY INTERIM SURRENDER (SEE "SURRENDERS"). THE HYPOTHETICAL INTEREST
RATES ARE ONLY ILLUSTRATIONS. THEY DO NOT PREDICT FUTURE INTEREST RATES TO BE
DECLARED UNDER THE CONTRACT. ACTUAL INTEREST RATES DECLARED FOR ANY GIVEN TIME
MAY BE MORE OR LESS THAN THOSE SHOWN.
RENEWAL GUARANTEE PERIODS: At the end of any guarantee period, a renewal
guarantee period will begin. We will notify you in writing about the renewal
guarantee periods available before the renewal date. This written notification
will not specify the interest rate for the renewal value. You may elect in
writing, during the 30-day period before the end of the guarantee period, a
renewal guarantee period of a different duration from among those we offer at
that time. If you do not make an election, we will automatically apply the
renewal value to a guarantee period of one year. In no event may renewal
guarantee periods extend beyond the settlement date then in effect for the
contract. For example, if the annuitant is age 82 at the end of a guarantee
period and the settlement date for the annuitant is age 85, a three-year
guarantee period is the maximum guarantee period that you may choose under the
contract. The renewal value will then earn interest at a guaranteed interest
rate that we have declared for this duration. We may declare new schedules of
guaranteed interest rates as often as daily.
At the beginning of any renewal guarantee period, the renewal value will be the
accumulation value at the end of the guarantee period just ending. We guarantee
the renewal value with our general assets. This amount will earn interest for
the renewal guarantee period at the then applicable guaranteed interest rate for
the period selected. This rate may be higher or lower than the previous
guaranteed interest rate.
At your written request, we will notify you of the renewal guarantee rates for
the periods then available. You also may call us to ask about renewal guarantee
rates.
ESTABLISHMENT OF GUARANTEED INTEREST RATES: We will know the guaranteed interest
rate for a chosen guarantee period at the time we receive a purchase payment or
you renew an accumulation value. We will send a confirmation that will show the
amount and the applicable guaranteed interest rate. The minimum guaranteed
interest rate for renewal values is 3% per year. The rate on renewal values will
be equal to or greater than the rate credited on new comparable purchase
payments at that time.
The interest rates that IDS Life will declare as guaranteed rates in the future
are determined by us at our discretion. We will determine the rates based on
various factors including, but not limited to, the interest rate environment,
returns earned on investments backing these annuities (see "Investments by IDS
Life"), product design, competition, and IDS Life's revenues and expenses. WE
CANNOT PREDICT NOR CAN WE GUARANTEE FUTURE GUARANTEED INTEREST RATES ABOVE THE
3% RATE.
SURRENDERS
GENERAL: Subject to certain tax law and retirement plan restrictions noted
below, you may make total and partial surrenders under a contract at any time.
For all surrenders, we will reduce the accumulation value by the amount
surrendered on the surrender date and that amount will be payable to the owner.
We will also reduce the accumulation value by any applicable surrender charge.
We will either reduce or increase the accumulation value by any market value
adjustment applicable to the surrender. IDS Life will, on request, inform you of
the amount payable in a total or partial surrender.
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6 AMERICAN EXPRESS GUARANTEED TERM ANNUITY -- PROSPECTUS
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".)
TAX-SHELTERED ANNUITIES: The contract is not intended for use in connection with
an employer sponsored 403(b) plan that is subject to the Employee Retirement
Income Security Act of 1974, as amended (ERISA). In the event that the employer
either by affirmative election or inadvertent action causes contributions under
a plan that is subject to ERISA to be made to this contract, we will not be
responsible for any obligations and requirements under ERISA and the regulations
thereunder. You should consult with your employer to determine whether your
403(b) plan is subject to ERISA.
The employer must comply with certain nondiscrimination requirements for certain
types of contributions under a TSA contract to be excluded from taxable income.
You should consult your employer to determine whether the nondiscrimination
rules apply to you.
The Code imposes certain restrictions on your right to receive early
distributions from a TSA:
o 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.
o 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.
o Even though a distribution may be permitted under the above rules, it may be
subject to IRS taxes and penalties (see "Taxes").
o 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
available through the employer.
PARTIAL SURRENDERS: Unless we agree otherwise, the minimum amount you may
surrender is $250. You cannot make a partial surrender if it would reduce the
accumulation value of your annuity to less than $2,000.
You may request the net check amount you wish to receive. We will determine how
much accumulation value needs to be surrendered to yield the net check amount
after any applicable market value adjustments and surrender charge deductions.
You may make a partial surrender request not exceeding $100,000 by telephone. We
have the authority to honor any telephone partial surrender request believed to
be authentic and will use reasonable procedures to confirm that they are. This
includes asking identifying questions and tape recording calls. As long as
reasonable procedures are followed, neither IDS Life nor its affiliates will be
liable for any loss resulting from fraudulent requests. At times when the volume
of telephone requests is unusually high, we will take special measures to ensure
that your call is answered as promptly as possible. We will not allow a
telephone surrender request within 30 days of a phoned-in address change.
TOTAL SURRENDERS: We will compute the value of your contract at the next close
of business after we receive your request for a complete surrender. We may ask
you to return the contract.
PAYMENT ON SURRENDER: We may defer payment of any partial or total surrender for
a period not exceeding 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.
Any partial surrenders you take under your contract will reduce your
accumulation value. As a result, the value of your death benefit will also be
reduced. In addition, surrenders you are required to take to satisfy RMDs under
the Code may reduce the value of your death benefit (see "Taxes - Qualified
Annuities - Required minimum distributions").
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7 AMERICAN EXPRESS GUARANTEED TERM ANNUITY -- PROSPECTUS
SURRENDER CHARGE
We may assess a surrender charge on any total or partial surrender taken prior
to the eighth contract anniversary unless the surrender occurs on the last day
of a guarantee period. We will base the amount of the surrender charge on the
length of the guarantee period. The table below shows the maximum amount of the
surrender charge.
SURRENDER CHARGE PERCENTAGE:
GUARANTEE CONTRACT YEARS AS MEASURED FROM THE BEGINNING OF A GUARANTEE PERIOD
PERIOD 1 2 3 4 5 6 7 8
1 year 1%
2 years 2 1%
3 years 3 2 1%
4 years 4 3 2 1%
5 years 5 4 3 2 1%
6 years 6 5 4 3 2 1%
7 years 7 6 5 4 3 2 1%
8 years 8 7 6 5 4 3 2 1%
9 years 8 7 6 5 4 3 2 1
10 years 8 7 6 5 4 3 2 1
To determine the surrender charge on the initial guarantee period, in the
"Guarantee period" column find the number of years for the guarantee period you
have chosen. The row that period is in reflects the schedule of surrender
charges during that period. For example, a 5-year guarantee period has a 5%
surrender charge in the first contract year, a 4% charge in the second, a 3%
charge in the third, a 2% charge in the fourth, and a 1% charge in the fifth.
For renewal guarantee periods, we will base the surrender charge on the lesser
of:
o the length of the new guarantee period, or
o the number of years remaining until the eighth contract anniversary.
In our example, if a contract owner chose an initial guarantee period of five
years and later a renewal guarantee period of four years, the surrender charge
schedule for that renewal guarantee period would be three years long. That is
because there are only three years remaining until the eighth contract
anniversary (8 - 5 = 3), and three years is less than the four-year length of
the new guarantee period. The surrender charge percentages would be:
CONTRACT YEAR SURRENDER CHARGE
1 5%
2 4
3 3
4 2
5 1*
6 3
7 2
8 1
9+ 0
* 0% on last day of fifth contract year.
There will never be any surrender charges after the eighth contract anniversary.
Also, after the first contract anniversary, surrender charges will not apply to
surrenders of amounts totalling up to 10% of the accumulation value as of the
last contract anniversary.
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8 AMERICAN EXPRESS GUARANTEED TERM ANNUITY -- PROSPECTUS
SURRENDER CHARGE CALCULATION: If there is a surrender charge, we calculate it
as:
(A - B) X P
where: A = market adjusted value surrendered
B = the lesser of A or 10% of accumulation value on last contract
anniversary not already taken as a partial surrender this
contract year. (Before the first contract anniversary, B does not
apply.)
P = applicable surrender charge percentage
For an illustration of a partial surrender and applicable surrender charges, see
Appendix A.
SURRENDER CHARGE UNDER ANNUITY PAYMENT PLAN E: Under this payment plan, you can
choose to take a full surrender at any time after one year of payments. The
amount you can surrender is the present value of any remaining payments. The
discount rate we use in calculating the present value is based on the annual
effective interest rate for then-current payment amounts for immediate annuities
with the same purchase amount and remaining term length plus 1.5%. The surrender
charge equals the net present value of the remaining payments (determined after
we apply the discount rate) multiplied by a surrender charge percentage. This
percentage is 5% in payment year two decreasing by 1% per year until it is 0% in
payment year seven and thereafter. This feature is not available in all states.
Please contact your sales representative for availability.
WAIVER OF SURRENDER CHARGE: We will assess no surrender charge:
o on the last day of a guarantee period;
o after the eighth contract anniversary;
o after the first contract anniversary for surrenders of amounts totalling up
to 10% of the contract accumulation value as of the last contract
anniversary;
o upon the death of the annuitant or owner; or
o upon the application of the market adjusted value to provide annuity payments
under an annuity payment plan, unless an Annuity Payment Plan E is later
surrendered. (If the application occurs on a renewal date, there will be no
surrender charge or market value adjustment, and the full accumulation value
will be applied under an annuity payment plan.)
In some cases, such as when an employer makes this annuity available to
employees, we may expect to incur lower sales and administrative expenses or
perform fewer services due to the size of the group, the average contribution
and the use of group enrollment procedures. Then we may be able to reduce or
eliminate surrender charges. However, we expect this to occur infrequently.
MARKET VALUE ADJUSTMENT
We guarantee the accumulation value, including the interest credited, if the
contract is held until the end of the guarantee period. However, we will apply a
market value adjustment if a surrender occurs prior to the end of the guarantee
period. The market adjusted value also affects settlements under an annuity
payment plan occurring at any time other than the last day of a guarantee
period.
The market adjusted value is your accumulation value (purchase payment plus
interest credited minus surrenders and surrender charges) adjusted by a formula.
The market adjusted value reflects the relationship between the guaranteed
interest rate on your contract and the interest rate we are crediting on new or
renewal Guaranteed Term Annuity contracts with guarantee periods that are the
same as the time remaining in your guarantee period.
The market adjusted value is sensitive to changes in current interest rates. The
difference between your accumulation value and market adjusted value on any day
will depend on our current schedule of guaranteed interest rates on that day,
the time remaining in your guarantee period and your guaranteed interest rate.
Upon surrender your market adjusted value may be greater than your contract's
accumulation value, equal to it or less than it depending on how the guaranteed
interest rate on your contract compares to the interest rate of a new Guaranteed
Term Annuity for the same number of years as the guarantee period remaining on
your contract.
Before we look at the market adjusted value formula, it may help to look in a
general way at how comparing your contract's guaranteed rate and the rate for a
new contract affects your market adjusted value.
RELATIONSHIP BETWEEN YOUR CONTRACT'S GUARANTEED RATE AND NEW CONTRACT FOR THE
SAME NUMBER OF YEARS AS THE GUARANTEED PERIOD REMAINING ON YOUR CONTRACT:
IF YOUR ANNUITY RATE IS: YOUR MARKET ADJUSTED VALUE WILL BE:
less than the new annuity rate +.25% less than your accumulation value
equal to the new annuity rate +.25% equal to your accumulation value
greater than the new annuity rate +.25% greater than your accumulation value
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9 AMERICAN EXPRESS GUARANTEED TERM ANNUITY -- PROSPECTUS
GENERAL EXAMPLES
ASSUME:
o You purchase a contract and choose a guarantee period of 10 years.
o We guarantee an interest rate of 4.5% annually for your 10-year guarantee
period.
o 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 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.
As shown in the table headed "Surrender charge percentage," when your guarantee
period is 10 years and you have begun your fourth contract year from the
beginning of the guarantee period, your surrender charge percentage is 5%. In
either of our two examples, a 5% surrender charge would be deducted from the
market adjusted value.
The precise market adjusted value formula is as follows:
MARKET ADJUSTED VALUE = (RENEWAL 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 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.
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10 AMERICAN EXPRESS GUARANTEED TERM ANNUITY -- PROSPECTUS
PREMIUM TAXES
Certain state and local governments impose premium taxes on us (up to 3.5%).
These taxes depend upon the state of residence or the state in which the
contract was sold. Currently, we deduct any applicable premium taxes when
annuity payments begin, but we reserve the right to deduct this tax at other
times such as when you make purchase payments or when you surrender your
contract.
DEATH BENEFIT PRIOR TO SETTLEMENT
If you or the annuitant die before the settlement date, the death benefit
payable to the beneficiary will equal the accumulation value. We will determine
the accumulation value as of the date our death claim requirements are
fulfilled. We pay interest, if any, at a rate no less than required by law. If
requested, we will mail payment to the named beneficiary within seven days after
our death claim requirements are fulfilled. If there is no named beneficiary,
then the default provisions of your contract will apply.
NONQUALIFIED ANNUITIES
If your spouse is sole beneficiary 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 lump
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:
o the beneficiary asks us in writing within 60 days after we receive proof of
death; and
o payments begin no later than one year after your death, or other date
permitted by the Code; and
o the payment period does not extend beyond the beneficiary's life or life
expectancy.
QUALIFIED ANNUITIES
o SPOUSE BENEFICIARY: If you have not elected an annuity payment plan, and if
your spouse is the sole beneficiary, your spouse may either elect to treat
the contract as his or her own or elect an annuity payment plan or another
plan agreed to by us. If your spouse elects a payment plan, the payments must
begin no later than the year in which you would have reached age 70 1/2. If
you attained age 70 1/2 at the time of death, payments must begin no later
than Dec. 31 of the year following the year of your death.
o NON-SPOUSE BENEFICIARY: If you have not elected an annuity payment plan, and
if death occurs prior to the year you would have attained age 70 1/2, the
beneficiary may elect to receive payments from the contract over a five year
period. If your beneficiary does not elect a five year payment period, or if
your death occurs after attaining age 70 1/2, we will pay the beneficiary in
a lump sum unless the beneficiary elects to receive payments under any
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 following the year of your death;
and
-- the payment period does not extend beyond the beneficiary's life or life
expectancy.
o ANNUITY PAYMENT PLAN: If you elect an annuity payment plan, the payments to
your beneficiary will continue pursuant to the annuity payment plan you
elect.
DEATH BENEFIT PAYMENT IN A LUMP SUM: We may pay all or part of the death benefit
to your beneficiary in a lump sum under either a nonqualified or qualified
annuity. With certain exceptions, we may deposit this lump sum death benefit
payment into a Membership Banking Interest-Checking account on your
beneficiary's behalf, unless your beneficiary elects otherwise. This checking
account is issued by our affiliate, American Express Bank, FSB and is FDIC
insured up to $100,000. Your beneficiary will receive a checkbook to provide
access to the death benefit payment.
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11 AMERICAN EXPRESS GUARANTEED TERM ANNUITY -- PROSPECTUS
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. Your selected date can align with your actual retirement from a
job, or it can be a different 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 payments begin.
FOR NONQUALIFIED ANNUITIES AND ROTH IRAS, the settlement date cannot be later
than the latest of:
o the contract anniversary nearest the annuitant's 85th birthday; or
o the tenth contract anniversary.
FOR QUALIFIED ANNUITIES EXCEPT ROTH IRAS, to comply with IRS regulations, the
settlement date generally must be:
o for IRAs, by April 1 of the year following the calendar year when the
annuitant reaches age 70 1/2; or
o 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 satisfy your RMDs in the form of partial surrenders from this contract,
annuity payments can start as late as the contract anniversary nearest the
annuitant's 85th birthday or the tenth contract anniversary, if later.
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
except under Annuity Payment Plan E.
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.
o PLAN A: This provides monthly annuity payments for the lifetime of the
annuitant. We will not make payments after the annuitant dies.
o 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.
o 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.
o 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.
o PLAN E: This provides monthly fixed dollar annuity payments for a period of
years that you elect. The period of years may be no less than 10 nor more
than 30. At any time after one year of payments, you can elect to have us
determine the present value of any remaining payments and pay it to you in a
lump sum. The discount rate we use in the calculation is based on the annual
effective interest rate for then-current payment amounts for immediate
annuities with the same purchase amount and remaining term length plus 1.5%
(see "Description of Contracts -- Surrender Charge -- Surrender charge under
Annuity Payment Plan E"). A 10% IRS penalty tax could apply if you make a
surrender (see "Taxes"). This feature is not available in all states. Please
contact your sales representative for availability.
Other income plan options may be available.
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12 AMERICAN EXPRESS GUARANTEED TERM ANNUITY -- PROSPECTUS
The contract provides for annuity payment plans on a fixed basis only. The
amount of the annuity payment will depend on:
o the market adjusted value (less any applicable premium tax not previously
deducted) on the settlement date;
o the annuity table we are then using for annuity settlements (never less than
the table guaranteed in the contract);
o the annuitant's age; and
o 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 elect an
annuity payment plan from your qualified annuity, it must comply with certain
IRS regulations governing RMDs. In general, your annuity payment plan will meet
these regulations if it meets the incidental distribution benefit requirements,
if any, and the payments are made:
o 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
o 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
o over a period certain not longer than the life expectancy of the annuitant or
over the life expectancy of the annuitant and designated beneficiary.
AMENDMENT, DISTRIBUTION AND ASSIGNMENT OF CONTRACTS
AMENDMENT OF CONTRACTS
We reserve the right to amend the contracts to meet the requirements of
applicable federal or state laws or regulations. We will notify you in writing
of any such amendments.
DISTRIBUTION OF CONTRACTS
IDS Life is the principal underwriter for the contracts. IDS Life is registered
as a broker-dealer with the SEC under the Securities Exchange Act of 1934 (the
1934 Act) and is a member of the National Association of Securities Dealers,
Inc. (NASD). IDS Life's sales representatives are licensed insurance and annuity
agents and are registered with the NASD as our representatives. IDS Life may
enter into selling agent agreements with certain broker-dealers registered under
the 1934 Act.
We are the sole distributor of the contract. We pay time-of-sale commissions of
up to 8% of purchase payments on the contract as well as service/trail
commissions of up to .50% based on annual total accumulation value for as long
as the contract remains in effect. These commissions and service fees compensate
our sales representative for selling and servicing the contract. In the future,
we may pay commissions on the election of a subsequent guarantee period by an
owner. We also may pay additional commissions to help compensate field
leadership and to pay for other distribution expenses and benefits. Our sales
representatives may be required to return sales commissions under certain
circumstances including, but not limited to, if a contract owner returns the
contract under the right to cancel.
We may pay our sales representatives a temporary additional sales commission of
up to 1% of purchase payments for a period of time we select. For example, we
may offer to pay a temporary additional sales commission to encourage sales
representatives to market a new or enhanced contract or to increase sales during
the period.
From time to time and in accordance with applicable laws and regulations, sales
representatives and field leaders are eligible for various benefits. These
include cash benefits, such as bonuses and sales incentives, and non-cash
benefits, such as conferences, seminars and trips (including travel, lodging and
meals), entertainment, merchandise and other similar items. Sales of contracts
may help sales representatives and/or their field leaders qualify for such
benefits.
We pay the commissions and other compensation described above from our assets.
You do not directly pay the commissions and other compensation described above
as the result of a specific charge or deduction under the contract. However, you
may pay part or all of the commissions and other compensation described above
indirectly through fees and expenses we collect from you, including surrender
charges.
POTENTIAL CONFLICT OF INTEREST
Our compensation arrangements with sales representatives can potentially give
sales representatives a heightened financial incentive to sell you the contract
offered in this prospectus over other alternative investments which may pay the
sales representatives lower compensation. Ask your sales representative for
further information about what he or she may receive in connection with your
purchase of the contract.
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13 AMERICAN EXPRESS GUARANTEED TERM ANNUITY -- PROSPECTUS
ASSIGNMENT OF CONTRACTS
You may change ownership of your annuity at any time by completing a change of
ownership form we approve and sending it to our home office. No change of
ownership will be binding on us until we receive and record it. If you have a
qualified annuity, 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 except as required or
permitted by the Code; 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.
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. Roth IRAs may grow and be distributed tax free if
you meet certain distribution requirements. We will send you a tax information
reporting form for any year in which we made a taxable distribution according to
our records.
NONQUALIFIED ANNUITIES
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.
ANNUITY PAYMENTS: 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. Under Annuity Payment Plan A: where the
annuitant dies before your investment in the contract is fully recovered, the
remaining portion of the unrecovered investment may be available as a federal
income tax deduction to the owner for the last taxable year of the annuitant.
Under all other annuity payment plans, where the annuity payments end before
your investment in the contract is fully recovered, the remaining portion of the
unrecovered investment may be available as a federal income tax deduction to the
taxpayer for the tax year in which the payments end. (See "Annuity Payment
Plans.") All amounts you receive after your investment in the contract is fully
recovered will be subject to tax.
SURRENDERS: If you surrender part of your nonqualified annuity 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. If you surrender all of your nonqualified annuity before your
annuity payments begin, your surrender payment will be taxed to the extent that
the cash surrender value 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.
WITHHOLDING: If you receive taxable income as a result of an annuity payment or
a surrender, 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 income 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.
The withholding requirements differ if we deliver the payment outside the United
States and/or you are a non-resident alien.
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 the payment.
DEATH BENEFITS TO BENEFICIARIES: The death benefit under a contract is not
exempt from estate or income taxes. Any amount your beneficiary receives that
represents deferred earnings within the contract is taxable as ordinary income
to the beneficiary in the year he or she receives the payments.
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. However,
if the trust was set up for the benefit of a natural person only, the income
will remain tax deferred.
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14 AMERICAN EXPRESS GUARANTEED TERM ANNUITY -- PROSPECTUS
PENALTIES: In general, 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:
o because of your death or, in the event of non-natural ownership, the death of
the annuitant;
o because you become disabled (as defined in the Code);
o 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);
o if it is allocable to an investment before Aug. 14, 1982; or
o if annuity payments begin before the first contract anniversary.
TRANSFER OF OWNERSHIP: If you transfer a nonqualified annuity without receiving
adequate consideration, the transfer is a gift and also may be treated as a
surrender 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 10%
IRS penalty discussed earlier. In this case, the new owner's investment in the
contract will be the accumulation value of the contract at the time of the
transfer. In general, this rule does not apply to transfers between spouses or
former spouses. Please consult your tax advisor for further details.
COLLATERAL ASSIGNMENT: 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 and you may have to pay a 10% IRS penalty.
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 an employer sponsored 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 a qualified annuity, except a Roth IRA, the entire
payment generally is includable as ordinary income and is subject to tax unless:
(1) the contract is an IRA to which you made non-deductible contributions; or
(2) you rolled after-tax dollars from a retirement plan into your IRA, or (3)
the contract is used to fund a retirement plan and you or your employer have
contributed after-tax dollars.
ANNUITY PAYMENTS FROM ROTH IRAS: In general, the entire payment from a Roth IRA
can be free from income and penalty taxes if you have attained age 59 1/2 and
met the five year holding period.
SURRENDERS: Under a qualified annuity, except a Roth IRA, the entire surrender
will generally be includable as ordinary income and is subject to tax unless:
(1) the contract is an IRA to which you made non-deductible contributions; or
(2) you rolled after-tax dollars from a retirement plan into your IRA, or (3)
the contract is used to fund a retirement plan and you or your employer have
contributed after-tax dollars.
SURRENDERS FROM ROTH IRAS: In general, the entire payment from a Roth IRA can be
free from income and penalty taxes if you have attained age 59 1/2 and met the
five year holding period.
REQUIRED MINIMUM DISTRIBUTIONS: Retirement plans are subject to required
withdrawals called required minimum distributions (RMDs) generally beginning at
age 70 1/2. In addition, a new tax regulation, effective for RMDs calculated in
2006 and after, may cause the RMDs for some contracts with certain death
benefits to increase. RMDs may reduce the value of certain death benefits. You
should consult your tax advisor for an explanation of the potential tax
implications to you.
WITHHOLDING: 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. Any withholding
represents a prepayment of your tax due for the year. You take credit for these
amounts on your annual income tax return. This mandatory withholding will not be
imposed if:
o instead of receiving the distribution check, you elect to have the
distribution rolled over directly to an IRA or another eligible plan;
o the payment is one in a series of substantially equal periodic payouts, 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;
o the payment is a minimum distribution required under the Code;
o the payment is made on account of an eligible hardship; or
o the payment is a corrective distribution.
Payments made 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.
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15 AMERICAN EXPRESS GUARANTEED TERM ANNUITY -- PROSPECTUS
DEATH BENEFITS TO BENEFICIARIES: The entire death benefit generally is taxable
as ordinary income to the beneficiary in the year he or she receives the
payments from the qualified annuity. If, under your 401(k) plan the purchase
payment was made by you or on your behalf with after-tax contributions to your
contract or if you made non-deductible contributions to a traditional IRA, the
portion of any distribution from the contract 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.
PENALTIES: In general, 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:
o because of your death;
o because you become disabled (as defined in the Code);
o 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);
o if the distribution is made following severance from employment after you
attain age 55 (TSAs and contracts funding 401(a) and 401(k) plans only); or
o to pay certain medical or education expenses.
COLLATERAL ASSIGNMENT: You may not collaterally assign or pledge a qualified
annuity.
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, a financial services company headquartered in New York City.
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 and disability income 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.
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16 AMERICAN EXPRESS GUARANTEED TERM ANNUITY -- PROSPECTUS
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:
o 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;
o 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;
o Debt instruments that are unrated, but which are deemed by IDS Life to have
an investment quality within the four highest grades;
o Other debt instruments, which are rated below investment grade, limited to
15% of assets at the time of purchase; and
o 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.
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 our
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
The SEC, the NASD and several state attorneys general have brought proceedings
challenging several mutual fund and variable account financial practices,
including suitability generally, late trading, market timing, disclosure of
revenue sharing arrangements and inappropriate sales. IDS Life and its
subsidiaries have received requests for information and have been contacted by
regulatory authorities concerning its practices and is cooperating fully with
these inquiries.
In November 2002, IDS Life Insurance Company was named in a purported class
action entitled JOHN HARITOS, ET AL. V. AMERICAN EXPRESS FINANCIAL ADVISORS INC.
ET AL., NO. 02 2255, United States District Court, District of Arizona. The
complaint originally named IDS Life Insurance Company as a defendant, but IDS
Life Insurance Company was dismissed when plaintiffs chose to file an Amended
Complaint not naming IDS Life Insurance Company. This action alleges that
defendants violated the Investment Advisors Act (IAA) of 1940, 15 U.S.C., in the
sale of financial plans and various products including those of IDS Life
Insurance Company. The complaint seeks certification of a nationwide class,
restitution, injunctive relief, and punitive damages. In June 2004, the Court
denied American Express Financial Advisors Inc.'s (AEFAI) motion to dismiss the
action as a matter of law. The Court did indicate, however, that the plaintiffs
may not have a compelling case under the IAA. Notwithstanding the Court's denial
of AEFAI's motion to dismiss, AEFAI believes that the plaintiffs' case suffers
from various factual and legal weaknesses and it intends to continue to defend
the case vigorously. AEFAI has filed a motion to dismiss the plaintiffs' Second
Amended Complaint.
IDS Life and its subsidiaries are involved in a number of other legal and
arbitration proceedings concerning matters arising in connection with the
conduct of their respective business activities. IDS Life believes it has
meritorious defenses to each of these actions and intends to defend them
vigorously. IDS Life believes that it is not a party to, nor are any of its
properties the subject of, any pending legal or arbitration proceedings that
would have a material adverse effect on IDS Life's consolidated financial
condition, results of operations or liquidity. However, it is possible that the
outcome of any such proceedings could have a material impact on results of
operations in any particular reporting period as the proceedings are resolved.
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17 AMERICAN EXPRESS GUARANTEED TERM ANNUITY -- PROSPECTUS
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.
YEARS ENDED DEC. 31, (THOUSANDS) 2004 2003(1) 2002(1) 2001(1) 2000(1)
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Premiums $ 351,943 $ 349,001 $ 334,477 $ 314,843 $ 287,498
Net investment income 1,777,446 1,705,185 1,562,592 1,485,688 1,730,605
Net realized gain (loss) on investments 27,292 4,445 (5,243) (649,752) (16,975)
Other 984,664 920,706 930,284 964,536 1,037,206
TOTAL REVENUES $ 3,141,345 $ 2,979,337 $ 2,822,110 $ 2,115,315 $ 3,038,334
INCOME (LOSS) BEFORE INCOME TAXES
AND CUMULATIVE EFFECT OF ACCOUNTING CHANGE $ 792,382 $ 574,539 $ 470,007 $ (188,957) $ 807,264
Income (loss) before cumulative effect of accounting change $ 566,205 $ 507,594 $ 382,181 $ (43,735) $ 585,637
Cumulative effect of accounting change (net of income taxes) (70,568) 44,463 -- (21,416) --
NET INCOME (LOSS) $ 495,637 $ 552,057 $ 382,181 $ (65,151) $ 585,637
TOTAL ASSETS $71,086,062 $65,942,702 $59,638,635 $57,895,900 $60,450,203
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(1) Certain prior year amounts have been reclassified to conform to the current
year's presentation.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS
IDS Life follows United States generally accepted accounting principles (GAAP),
and the following discussion is presented on a consolidated basis consistent
with GAAP.
Certain of the statements below are forward-looking statements within the
meaning of the Private Securities Litigation Reform Act of 1995. See the
Forward-Looking Statements section below.
Management's narrative analysis of the results of operations is presented in
lieu of management's discussion and analysis of financial condition and results
of operations, pursuant to General Instructions I(2) (a) of Form 10-K.
RESULTS OF OPERATIONS FOR THE YEARS ENDED DECEMBER 31, 2004 AND 2003
Pretax income rose 38 percent to $792.4 million for the year ended December 31,
2004. The increase primarily reflects increased net investment income, mortality
and expense risk and other fees, net realized gain on investments, lower
interest credited on investment contracts and universal life-type insurance
costs and lower amortization of deferred policy acquisition costs (DAC),
partially offset by higher other insurance and operating costs. See the DAC
section below for further discussion of DAC and related third quarter 2004 and
2003 adjustments.
IDS Life's effective tax rate rose to 29 percent in 2004 from 12 percent in 2003
primarily due to the impact of lower levels of tax-advantaged items in pretax
income during 2004, reduced low income housing credits as a result of the
December 2003 distribution of substantially all of IDS Life's interests in low
income housing investments to AEFC and the one-time effect of favorable
technical guidance related to the taxation of dividend income recognized in
2003. For 2003 and prior years, IDS Life's federal income taxes were reduced by
credits arising from low income housing investments.
Net income for the year ended December 31, 2004 reflects the $70.6 million
($108.6 million pretax) impact of IDS Life's January 1, 2004 adoption of the
American Institute of Certified Public Accountants Statement of Position 03-1,
"Accounting and Reporting by Insurance Enterprises for Certain Nontraditional
Long-Duration contracts and for Separate Accounts" (SOP 03-1). SOP 03-1 requires
insurance enterprises to establish liabilities for benefits that may become
payable under variable annuity death benefit guarantees or other insurance or
annuity contract provisions. See "Application of Recent Accounting Standards"
section in Note 1 to the Consolidated Financial Statements regarding the impact
of adoption of SOP 03-1.
REVENUES
Total revenues increased $162 million or 5 percent primarily due to higher net
investment income, mortality and expense risk and other fees and net realized
gain on investments compared to 2003.
Net investment income increased $72.3 million or 4 percent. Net investment
income for the year ended December 31, 2003 includes $77.3 million of
amortization expense of certain low income housing investments. See effective
tax rate discussion above.
Contractholder and policyholder charges increased $24.2 million or 5 percent
reflecting increased cost of insurance charges on variable universal life
products as well as an increase in the amount of surrender charges on variable
annuity products.
Mortality and expense risk and other fees increased $39.8 million or 10 percent
reflecting higher average market values of separate account assets, and the
impact of the change from IDS Life to AEFC as investment manager of the
internally managed proprietary funds during the fourth quarter of 2003.
Concurrent with the investment manager change, IDS Life entered into an
agreement with AEFC to receive fees for the services, other than investment
management, that IDS Life continues to provide the underlying proprietary mutual
funds. IDS Life's administrative service fees will vary with the market values
of these proprietary mutual funds. Previous to this change, IDS Life received
management fees directly from the proprietary funds and was party to an
agreement with AEFC to compensate AEFC for the investment sub-advisory services
AEFC provided these proprietary funds. In addition to
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18 AMERICAN EXPRESS GUARANTEED TERM ANNUITY -- PROSPECTUS
IDS Life's administrative service fees, IDS Life receives mortality and expense
risk fees from the separate accounts based on the level of assets.
Net realized gain on investments was $27.3 million in 2004 compared to $4.4
million in 2003. For the year ended December 31, 2004, $49.5 million of total
investment gains were partially offset by $22.2 million of impairments and
losses. Included in these total net investment gains and losses are $48.4
million of gross realized gains and $17.5 million of gross realized losses from
sales of securities, as well as $0.1 million of other-than-temporary impairment
losses on investments, classified as Available-for-Sale.
For the year ended December 31, 2003, $257 million of total investment gains
were partially offset by $252.6 million of impairments and losses. Included in
these total net investment gains and losses are $255.3 million of gross realized
gains and $135.5 million of gross realized losses from sales of securities, as
well as $102.6 million of other-than-temporary impairment losses on investments,
classified as Available-for-Sale.
BENEFITS AND EXPENSES
Total benefits and expenses decreased $55.8 million or 2 percent, reflecting
lower interest crediting rates and the effect on equity indexed annuities of
lower appreciation in the S&P 500 during 2004 versus 2003, a reduction in DAC
amortization in conjunction with the adoption of SOP 03-1 and third quarter DAC
adjustments, partially offset by higher other insurance and operating expenses.
Interest credited on investment contracts and universal life-type insurance
decreased $114.1 million or 9 percent, primarily due to lower interest crediting
rates and the effect on equity indexed annuities of lower appreciation in the
S&P 500 during 2004 versus 2003, partially offset by higher average accumulation
values of annuities and inforce levels of life insurance products.
DAC amortization expense decreased to $260.8 million in 2004 from $264.3 million
in 2003. The decrease reflects the first quarter 2004 $65.7 million pretax DAC
valuation benefit reflecting an adjustment associated with the lengthening of
amortization periods for certain insurance and annuity products in conjunction
with the adoption of SOP 03-1, partially offset by an estimated increase in DAC
amortization of $9.6 million, as a result of IDS Life's completed valuation
system conversion for its long-term care (LTC) insurance business during the
first quarter of 2004. In addition, DAC amortization expense was impacted by a
net $22 million DAC valuation benefit from the third quarter review of DAC as
compared to prior year.
Other insurance and operating expenses increased $50.8 million or 11 percent
reflecting increases in distribution costs and non-deferrable expenses related
to product management and business reinvestment initiatives. These increases
were partially offset by a reduction related to the change in investment manager
of the proprietary mutual funds from IDS Life to AEFC. Effective with this
change, the previously existing arrangement under which IDS Life compensated
AEFC for investment sub-advisory services were terminated.
RESULTS OF OPERATIONS FOR THE YEARS ENDED DECEMBER 31, 2003 AND 2002
Income before accounting change rose 33 percent to $507.6 million for year ended
December 31, 2003. Net income rose 44 percent to $552.1 million in 2003, up from
$382.2 million in 2002. Among other things described below, IDS Life's 2003
results reflect a $41.3 million reduction in tax expense due to adjustments
related to the finalization of the 2002 tax return filed during the third
quarter of 2003 and the publication of favorable technical guidance related to
the taxation of dividend income.
Net Income for 2003 also reflects the impact of IDS Life's adoption of Financial
Accounting Standard Board (FASB) Interpretation No. 46, "Consolidation of
Variable Interest Entities," revised December 2003 (FIN 46), which addresses the
consolidation of variable interest entities (VIEs). The impact of the FIN 46
adoption is discussed in more detail below.
REVENUES
Total revenues increased $157.2 or 6 percent primarily due to higher net
investment income and disability income premium revenues, together with net
realized gains on investments versus net realized losses in 2002, partially
offset by lower mortality and expense risk and other fees revenues.
Total premium revenue increased $14.5 million or 4 percent reflecting a higher
number of disability income and traditional life insurance policies.
Net investment income increased $142.6 million or 9 percent in 2003 reflecting
higher levels of invested assets and the effect of appreciation in the S&P 500
on the value of options hedging equity indexed annuities this year versus
depreciation last year, which was offset in interest credited expenses. The
positive effects of the foregoing were partially offset by a lower average yield
on invested assets.
Net realized gain (loss) on investments was $4.4 million in 2003 compared to
($5.2 million) in 2002. For the year ended December 31, 2003, $257 million of
total investment gains were partially offset by $252.6 million of impairments
and losses. Included in these total net investment gains and losses were $255.3
million of gross realized gains and $135.5 million of gross realized losses from
sales of securities, as well as $102.6 million of other-than-temporary
investment impairment losses, classified as Available-for-Sale.
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19 AMERICAN EXPRESS GUARANTEED TERM ANNUITY -- PROSPECTUS
For the year ended December 31, 2002, $299.6 million of total investment gains
were more than offset by $304.8 million of impairments and losses. Included in
these total net investment gains and losses were $297.6 million of gross
realized gains and $137.4 million of gross realized losses from the sales of
securities, as well as $144.1 million of other-than-temporary investment
impairment losses (including $45 million related to directly-held WorldCom debt
holdings), classified as Available-for-Sale.
Mortality and expense risk and other fees decreased $14.3 million or 4 percent
reflecting lower average market values of separate account assets throughout
2003 compared to 2002. While equity markets increased in the second half of
2003, average market values of separate account assets for the full year of 2003
remained below 2002 levels. For 2003 and 2002, IDS Life provided mutual fund
management services for many of the mutual funds available as investment options
within IDS Life's variable annuity and variable life insurance products. IDS
Life also receives mortality and expense risk fees from the separate accounts
based on asset levels.
BENEFITS AND EXPENSES
Total benefits and expenses increased $52.7 million or 2 percent, reflecting
higher average accumulation value of annuities and inforce levels and the effect
on equity indexed annuities of appreciation in the S&P 500 during 2003 versus
depreciation in 2002 and higher insurance and other operating expense. The 2003
increase also reflects the 2002 benefit of $7 million ($4 million after-tax),
which resulted from a reversal of a portion of the 2001 September 11th related
reserves as a result of lower than previously anticipated insured loss claims.
Disability and long-term care insurance liability for future policy benefit
expenses increased $7.9 million, or 6 percent, reflecting increases in
underlying policies in force.
Interest credited on investment contracts and universal life-type insurance
increased $78.7 million or 7 percent due to higher average accumulation value of
annuities and inforce levels and the effect on equity indexed annuities of
appreciation in the S&P 500 during 2003 versus depreciation in 2002, partially
offset by lower interest crediting rates.
DAC amortization expense decreased to $264.3 million for the year ended December
31, 2003 from $320.6 million for the year ended December 31, 2002. The decrease
reflects a net $18.0 million increase in DAC amortization expense in the third
quarter of 2002, compared to a net $1.8 million DAC amortization expense
reduction in the third quarter of 2003, both as a result of IDS Life's annual
third quarter review of various DAC assumptions and practices. DAC amortization
expense in 2003 was favorably impacted by recently improved equity market
performance during 2003 as compared to 2002. Additionally, faster-than-assumed
growth in customer asset values associated with IDS Life's variable annuity and
insurance products resulted in a reduction in DAC amortization expense during
2003, whereas declines in variable annuity and insurance customer asset values
resulted in an increase in DAC amortization expense during 2002. See the DAC
section below for further discussion of DAC and related third quarter 2003
adjustments.
Other insurance and operating expenses increased $26.4 million or 6 percent
reflecting the unfavorable impact of fewer capitalized costs due to the ongoing
impact of the third quarter 2002 comprehensive review of DAC-related practices.
These increases were partially offset by a reduction related to the change in
the previously existing arrangement between IDS Life and AEFC as noted above.
IDS Life's effective tax rate decreased to 12 percent in 2003 from 19 percent in
2002 reflecting a $41.3 million reduction in tax expense in 2003 related to the
finalization of the 2002 tax return filed during the third quarter of 2003 and
publication of favorable technical guidance related to the taxation of dividend
income. Partially offsetting this reduction in tax expense was the after-tax
impact of realized losses from sales of mortgage-backed securities as a result
of IDS Life's decision to make an adjustment to the level of such investments
during the third quarter of 2003, such that mortgage-backed securities were 32
percent of IDS Life's overall investment portfolio at December 31, 2003 compared
to 43 percent at December 31, 2002.
As described more fully in the "Liquidity and Capital Resources" section below,
the consolidation of FIN 46-related entities resulted in a cumulative effect of
accounting change that increased net income through a non-cash gain of $44.5
million ($68.4 million pretax) related to the consolidation of three secured
loan trusts (SLTs).
DEFERRED POLICY ACQUISITION COSTS
Deferred policy acquisition costs (DAC) represent the costs of acquiring new
business, principally direct sales commissions and other distribution and
underwriting costs that have been deferred on the sale of annuity, life and
health insurance products. These costs are deferred to the extent they are
recoverable from future profits. For annuity and insurance products, DAC are
amortized over periods approximating the lives of the business, generally as a
percentage of premiums or estimated gross profits or as a portion of product
interest margins depending on the product's characteristics.
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20 AMERICAN EXPRESS GUARANTEED TERM ANNUITY -- PROSPECTUS
For IDS Life's annuity and insurance products, the projections underlying the
amortization of DAC require the use of certain assumptions, including interest
margins, mortality rates, persistency rates, maintenance expense levels and
customer asset value growth rates for variable products. Management routinely
monitors a wide variety of trends in the business, including comparisons of
actual and assumed experience. The customer asset value growth rate is the rate
at which contract values are assumed to appreciate in the future. The rate is
net of asset fees and anticipates a blend of equity and fixed income
investments. Management reviews and, where appropriate, adjusts its assumptions
with respect to customer asset value growth rates on a quarterly basis.
Management monitors other principal DAC assumptions, such as persistency,
mortality rates, interest margin and maintenance expense level assumptions, each
quarter. Unless management identifies a material deviation over the course of
the quarterly monitoring, management reviews and updates these DAC assumptions
annually in the third quarter of each year. When assumptions are changed, the
percentage of estimated gross profits or portion of interest margins used to
amortize DAC might also change. A change in the required amortization percentage
is applied retrospectively; an increase in amortization percentage will result
in an increase in DAC amortization expense while a decrease in amortization
percentage will result in a decrease in DAC amortization expense. The impact on
results of operations of changing assumptions with respect to the amortization
of DAC can be either positive or negative in any particular period and is
reflected in the period in which such changes are made. As a result of these
reviews, IDS Life took actions in both 2004 and 2003 that impacted DAC balance
and expenses.
In the third quarter 2004, these actions resulted in a net $24 million DAC
amortization expense reduction reflecting:
o A $27 million DAC amortization reduction reflecting lower than previously
assumed surrender and mortality rates on variable annuity products, higher
surrender charges collected on universal and variable universal life products
and higher than previously assumed interest rate spreads on annuity and
universal life products. Variable annuity surrender rates were reduced
between 0 and 20%, depending on product and duration. Additionally, there was
an increase in surrender charge revenue ranging from 60% to 80% for universal
life products and 10% to 50% for certain variable annuity products. The
mortality assumption was changed from duration to an attained age basis.
Interest rate spreads were higher by approximately 40 basis points relative
to previously assumed spreads in 2003.
o A $3 million DAC amortization reduction reflecting a change to the mid-term
assumed growth rate on variable annuity and variable universal life products.
o A $6 million DAC amortization increase primarily reflecting a reduction in
estimated future premiums on variable annuity products.
In the third quarter 2003, these actions resulted in a net $2 million DAC
amortization expense reduction reflecting:
o A $106 million DAC amortization reduction resulting from extending 10 - 15
year amortization periods for certain Flex Annuity contracts to 20 years
based on current measurements of meaningful life in which exchanges of Flex
Annuity contracts for other IDS Life variable annuity contracts are treated
as continuations rather than terminations. The Flex Annuity is an
advisor-distributed variable annuity product sold from 1986 - 1996. In
reviewing the persistency of this business in recent years, IDS Life had
observed significant volumes persisting beyond the end of the 10- and 15-year
amortization periods. IDS Life had maintained these amortization periods,
however, due to uncertainty over the impact of a program launched in April
2002 under which eligible Flex Annuity contracts can be exchanged for new
variable annuity contracts offered by IDS Life. Exchange rates to date under
this program were less than those expected, and IDS Life concluded in the
third quarter of 2003 it would be appropriate to measure the meaningful life
of this business without anticipating future exchanges. This is consistent
with the measurement made for other IDS Life products, and the resulting
20-year period is the same as that used for other advisor-distributed
variable annuity products.
o A $92 million DAC amortization increase resulting from the recognition of a
premium deficiency on IDS Life's Long-Term Care (LTC) business. IDS Life has
monitored this business closely in 2003 as claim and persistency experience
developed adversely. IDS Life discontinued sales of its proprietary LTC
product in the first quarter of 2003, and outsourced claims administration on
the existing book in the second quarter of 2003. On the basis of updated
analysis completed in the third quarter of 2003, IDS Life concluded that the
associated DAC was not fully recoverable at current premium levels. The
associated DAC remaining after this $92 million reduction was $162 million.
o A $12 million net DAC amortization increase across IDS Life's Universal Life,
Variable Universal Life and annuity products. IDS Life updated a number of
DAC assumptions resulting in increases in amortization totaling $26 million
and decreases in amortization totaling $14 million. The largest single item
was a $16 million increase in amortization from reflecting lower than
previously assumed spreads on fixed contract values.
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21 AMERICAN EXPRESS GUARANTEED TERM ANNUITY -- PROSPECTUS
During the first quarter of 2004 and in conjunction with the adoption of SOP
03-1, IDS Life (1) established additional liabilities for insurance benefits
that may become payable under variable annuity death benefit guarantees or on
single pay universal life contracts, which prior to January 1, 2004, were
expensed when payable; and (2) extended the time periods over which DAC
associated with certain insurance and annuity products are amortized to coincide
with the liability funding periods in order to establish the proper
relationships between these liabilities and DAC associated with the same
contracts. As a result, IDS Life recognized a $108.6 million pretax charge due
to accounting change on establishing the future liability under death benefit
guarantees and recognized a $65.7 million pretax reduction in DAC amortization
expense to reflect the lengthening of the amortization periods for certain
products impacted by SOP 03-1. Additionally, IDS Life completed a valuation
system conversion for its LTC insurance business during the first quarter of
2004 which resulted in a $6.5 million pretax reduction of estimated LTC
liabilities for future policy benefits and an offsetting estimated $9.6 million
pretax increase in DAC amortization expense. This valuation adjustment was an
increase to the $92 million estimated premium deficiency IDS Life recognized in
the third quarter of 2003.
DAC balances for various insurance and annuity products sold by IDS Life are set
forth below:
DECEMBER 31, (MILLIONS) 2004 2003
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Life and health insurance $1,766 $1,602
Annuities 1,872 1,734
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Total $3,638 $3,336
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In addition to the DAC balances shown above and in conjunction with IDS Life's
adoption of SOP 03-1, sales inducement costs previously included in DAC were
reclassified from DAC and presented as a separate line item in the Consolidated
Balance Sheets. Deferred sales inducement costs were $303 million and $279
million at December 31, 2004 and 2003, respectively. Sales inducement costs
consist of bonus interest credits and deposit credits added to certain annuity
contract values. These benefits are capitalized to the extent they are
incremental to amounts that would be credited on similar contracts without the
applicable feature. The amounts capitalized are amortized using the same
methodology and assumptions used to amortize DAC.
CERTAIN CRITICAL ACCOUNTING POLICIES
IDS Life's significant accounting policies are described in Note 1 to the
Consolidated Financial Statements. The following provides information about
certain critical accounting policies that are important to the Consolidated
Financial Statements and that involve estimates requiring significant management
assumptions and judgments about the effect of matters that are uncertain. These
policies relate to investment securities valuation, deferred policy acquisition
costs and liabilities for future policy benefits.
INVESTMENT SECURITIES VALUATION
Generally, investment securities are carried at fair value on the balance sheet
with unrealized gains (losses) recorded in other accumulated comprehensive
income (loss) within equity, net of income tax provisions (benefits) and net of
adjustments in assets and liability balances, such as deferred policy
acquisition costs (DAC), to reflect the expected impact on their carrying values
had the unrealized gains (losses) been realized immediately. At December 31,
2004, IDS Life had net unrealized pretax gains on Available-for-Sale securities
of $731.8 million. Gains and losses are recognized in results of operations upon
disposition of the securities. Losses are also recognized when management
determines that a decline in value is other-than-temporary, which requires
judgment regarding the amount and timing of recovery. Indicators of
other-than-temporary impairment for debt securities include issuer downgrade,
default or bankruptcy. IDS Life also considers the extent to which cost exceeds
fair value, the duration and size of that gap, and management's judgment about
the issuer's current and prospective financial condition. Approximately 90% of
the investment portfolio classified as Available-for-Sale is determined by
quoted market prices. As of December 31, 2004, there were $118.5 million in
gross unrealized losses that related to $7.9 billion of securities, of which
$2.2 billion has been in a continuous unrealized loss position for 12 months or
more. As part of IDS Life's ongoing monitoring process, management has
determined that substantially all of the gross unrealized losses on these
securities are attributable to changes in interest rates. Additionally, IDS Life
has the ability and intent to hold these securities for a time sufficient to
recover its amortized cost and has, therefore, concluded that none of these
securities are other-than-temporarily impaired at December 31, 2004.
Included in IDS Life's investment portfolio discussed above are structured
investments of various asset quality, including collateralized debt obligations
(CDOs) (backed by high-yield bonds and bank loans), which are not readily
marketable. The carrying values of these structured investments are based on
future cash flow projections that require management's judgment as to the amount
and timing of cash payments, defaults and recovery rates of the underlying
investments and, as such, are subject to change. The carrying value will vary if
the actual cash flows differ from projected due to actual defaults or changes in
estimated default or recovery rates. As an example, an increase in the near-term
default rate by 100 basis points, in and of itself, would reduce the cash flow
projections by approximately $10 million based on underlying investments as of
December 31, 2004. The level of change in near-term default rates would have to
be significantly higher than 100 basis points to cause a change in carrying
value of IDS Life's structured investments due to previously recognized
impairment losses coupled with subsequent improvement in actual default rates.
See "Application of Recent Accounting Standards" in Note 1 to the Consolidated
Financial Statements for a discussion of Emerging Issues Task Force (EITF) Issue
03-1, "The Meaning of Other-Than-Temporary Impairment and Its Application to
Certain Investments" which when finalized by the FASB, may affect IDS Life's
investment securities valuation policy.
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22 AMERICAN EXPRESS GUARANTEED TERM ANNUITY -- PROSPECTUS
DEFERRED POLICY ACQUISITION COSTS
Deferred policy acquisition costs (DAC) represent the costs of acquiring new
insurance and annuity business, principally direct sales commissions and other
distribution and underwriting costs that have been deferred on the sale of
annuity, life and health insurance products. These costs are deferred to the
extent they are recoverable from future profits. For annuity and insurance
products, DAC are amortized over periods approximating the lives of the
business, principally as a percentage of premiums or estimated gross profits or
as a portion of product interest margins depending on the product's
characteristics.
For IDS Life's annuity and life and health insurance products, the DAC balances
at any reporting date are supported by projections that show management expects
there to be adequate premiums, estimated gross profits or interest margins after
that date to amortize the remaining DAC balances. These projections are
inherently uncertain because they require management to make assumptions about
financial markets, anticipated mortality and morbidity levels, and policyholder
behavior over periods extending well into the future. Projection periods used
for IDS Life's annuity business are typically 10 to 25 years, while projection
periods for IDS Life's life and health insurance products are often 50 years or
longer. Management regularly monitors financial market conditions and actual
policyholder behavior experience and compares them to its assumptions. For
annuity and universal life insurance products, the assumptions made in
projecting future results and calculating the DAC balance and DAC amortization
expense are management's best estimates. Management is required to update these
assumptions whenever it appears that, based on actual experience or other
evidence, earlier estimates should be revised. When assumptions are changed, the
percentage of estimated gross profits or portion of interest margins used to
amortize DAC might also change. A change in the required amortization percentage
is applied retrospectively; an increase in amortization percentage will result
in a decrease in DAC balance and an increase in DAC amortization expense while a
decrease in amortization percentage will result in an increase in DAC balance
and a decrease in DAC amortization expense. The impact on results of operations
of changing assumptions can be either positive or negative in any particular
period and is reflected in the period in which such changes are made.
For other life and health insurance products, the assumptions made in
calculating the DAC balance and DAC amortization expense are intended to provide
for adverse deviations in experience and are revised only if management
concludes experience will be so adverse that DAC is not recoverable. If
management concludes that DAC is not recoverable, DAC is reduced to the amount
that is recoverable based on best estimate assumptions.
For annuity and life and health insurance products, key assumptions underlying
these long-term projections include interest rates (both earning rates on
invested assets and rates credited to policyholder accounts), equity market
performance, mortality and morbidity rates and the rates at which policyholders
are expected to surrender their contracts, make withdrawals from their contracts
and make additional deposits to their contracts. Assumptions about interest
rates drive projected interest margins, while assumptions about rates credited
to policyholder accounts and equity market performance drive projected customer
asset value growth rates and assumptions about surrenders, withdrawals and
deposits comprise projected persistency rates. Management must also make
assumptions to project maintenance expenses associated with servicing its
annuity and insurance business during the DAC amortization period.
The customer asset value growth rate is the rate at which contract values are
assumed to appreciate in the future. The rate is net of asset fees and
anticipates a blend of equity and fixed income investments. Management reviews
and, where appropriate, adjusts its assumptions with respect to customer asset
value growth rates on a quarterly basis. IDS Life uses a mean reversion method
as a monthly guideline in setting near-term customer asset value growth rates
based on a long-term view of financial market performance as well as actual
historical performance. In periods when market performance results in actual
contract value growth at a rate that is different than that assumed, IDS Life
will reassess the near-term rate in order to continue to project its best
estimate of long-term growth. The near-term growth rate is reviewed to ensure
consistency with management's assessment of anticipated equity market
performance. Management is currently assuming a 7 percent long-term customer
asset value growth rate. If IDS Life increased or decreased its assumption
related to this growth rate by 100 basis points, the impact on the DAC
amortization expense would be a decrease or increase of approximately $50
million pretax.
Management monitors other principal DAC assumptions, such as persistency,
mortality, morbidity, interest margin and maintenance expense levels each
quarter and, when assessed independently, could impact IDS Life's DAC balances.
For example, if IDS Life increased or decreased its interest margin on its
universal life and on the fixed portion of its variable universal life insurance
products by 10 basis points, the impact on the DAC amortization expense would be
a decrease or increase of approximately $5 million pretax. Additionally, if IDS
Life extended or reduced the amortization periods one year for variable
annuities to reflect changes in premium paying persistency and/or surrender
assumptions, the impact on DAC amortization expense would be a decrease or
increase of approximately $20 million. The amortization impact of extending or
reducing the amortization period any additional years is not linear.
The analysis of DAC balances and the corresponding amortization is a dynamic
process that considers all relevant factors and assumptions discussed above.
Unless management identifies a material deviation over the course of the
quarterly monitoring, management reviews and updates these DAC assumptions
annually in the third quarter of each year. An assessment of sensitivity
associated with changes in any single assumption would not necessarily be an
indicator of future results.
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23 AMERICAN EXPRESS GUARANTEED TERM ANNUITY -- PROSPECTUS
LIABILITIES FOR FUTURE POLICY BENEFITS
FIXED ANNUITIES AND VARIABLE ANNUITY GUARANTEES
Liabilities for fixed and variable deferred annuities are equal to accumulation
values which are the cumulative gross deposits, credited interest and fund
performance less withdrawals and mortality and expense risk charges.
The majority of the variable annuity contracts offered by IDS Life contain
guaranteed minimum death benefit (GMDB) provisions. When market values of the
customer's accounts decline, the death benefit payable on a contract with a GMDB
may exceed the contract accumulation value. IDS Life also offers variable
annuities with death benefit provisions that gross up the amount payable by a
certain percentage of contract earnings; these are referred to as gain gross-up
(GGU) benefits. In addition, IDS Life offers contracts containing guaranteed
minimum income benefit (GMIB) and guaranteed minimum withdrawal benefit (GMWB)
provisions.
Effective January 1, 2004, liabilities for variable annuity death and GMIB
benefits have been established under SOP 03-1. Actuarial models to simulate
various equity market scenarios are used to project these benefits and contract
assessments and include making significant assumptions related to customer asset
value growth rates, mortality, persistency and investment margins. These
assumptions, as well as their periodic review by management, are consistent with
those used for DAC purposes. Prior to the adoption of SOP 03-1, amounts paid in
excess of contract value were expensed. See "Application of Recent Accounting
Standards" section in Note 1 of the Consolidated Financial Statements regarding
the impact of the adoption of SOP 03-1.
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 equity indexed
deferred annuities issued before 1999 are equal to the present value of
guaranteed benefits and the intrinsic value of index-based benefits.
Liabilities for fixed annuities in a benefit or payout status are based on
future estimated payments using established industry mortality tables and
interest rates, ranging from 4.6% to 9.5% at December 31, 2004, depending on
year of issue, with an average rate of approximately 6.1% at December 31, 2004.
LIFE AND DISABILITY POLICIES
Liabilities for life insurance claims that have been reported but have not yet
been paid (unpaid claim liabilities) are equal to the death benefits payable
under the policies. For disability income and long-term care claims, unpaid
claim liabilities are equal to benefit amounts due and accrued including the
expense of reviewing claims and making benefit payment determinations.
Liabilities for claims that have occurred but have not been reported are
estimated based on periodic analysis of the actual lag between when a claim
occurs and when it is reported. Where applicable, amounts recoverable from other
insurers who share in the risk of the products offered (reinsurers) are
separately recorded as receivables.
Liabilities for fixed and variable universal life insurance are equal to
accumulation values which are the cumulative gross premiums, credited interest,
and fund performance less withdrawals and mortality and expense risk charges.
Liabilities for future benefits on term and whole life insurance are based on
the net level premium method, using anticipated premium payments, mortality
rates, policy persistency and interest rates earned on the assets supporting the
liability. Anticipated mortality rates are based on established industry
mortality tables, with modifications based on Company experience. Anticipated
policy premium payments and persistency rates vary by policy form, issue age and
policy duration. Anticipated interest rates range from 4% to 10% at December 31,
2004, 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 the amounts
needed to meet obligations for future claims and are based on the net level
premium method, using anticipated premium payments and morbidity, mortality,
policy persistency and discount 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 discount rates for
disability income policy reserves at December 31, 2004 are 7.5% at policy issue
and grade to 5% over 5 years. Anticipated discount rates for long-term care
policy reserves at December 31, 2004 were 5.9% grading up to 8.9% over 30 years.
Claim reserves are the amounts needed to meet obligations for continuing claim
payments on already incurred claims. Claim reserves are calculated based on
claim continuance tables which estimate the likelihood that an individual will
continue to be eligible for benefits and anticipated interest rates earned on
assets supporting the reserves. Anticipated claim continuance rates are based on
established industry tables. Anticipated discount rates for claim reserves for
both disability income and long-term care range from 3% to 8% at December 31,
2004, with an average rate of approximately 5.2% at December 31, 2004. IDS Life
issues only non-participating life insurance policies, which do not pay
dividends to policyholders from the insurers' earnings.
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24 AMERICAN EXPRESS GUARANTEED TERM ANNUITY -- PROSPECTUS
LIQUIDITY AND CAPITAL RESOURCES
CAPITAL STRATEGY
The liquidity requirements of IDS Life are generally met by funds provided by
deposits, premiums, investment income, proceeds from sales of investments as
well as maturities and periodic repayments of investments and capital
contributions from AEFC. The primary uses of funds are policy benefits,
commissions, other product-related acquisition and sales inducement costs,
operating expenses, policy loans, dividends to AEFC and investment purchases.
IDS Life routinely reviews its sources and uses of funds in order to meet its
ongoing obligations. During the second and fourth quarter of 2004, IDS Life
approved and paid dividends to AEFC of $430 million and $500 million,
respectively. IDS Life expects to continue to maintain adequate capital to meet
internal and external Risk-Based Capital requirements.
FUNDING STRATEGY
IDS Life, on a consolidated basis, has available lines of credit with AEFC
aggregating $295 million ($195 million committed and $100 million uncommitted).
There were no line of credit borrowings outstanding with AEFC at December 31,
2004 and 2003. At December 31, 2004 and 2003, IDS Life had outstanding reverse
repurchase agreements totaling $47 million and $67.5 million, respectively. Both
the line of credit and the reverse repurchase agreements are used strictly as
short-term sources of funds.
IDS Life's total assets and liabilities increased in 2004 primarily due to
higher investments, client contract reserves and separate account assets and
liabilities, which increased as a result of new client inflows and market
appreciation. Investments primarily include corporate debt and mortgage and
other asset-backed securities. IDS Life's corporate debt securities comprise a
diverse portfolio with the largest concentrations, accounting for approximately
66 percent of the portfolio, in the following industries: banking and finance,
utilities, and communications and media. Investments also include $4.3 billion
and $4.6 billion of mortgage loans on real estate, policy loans and other
investments at December 31, 2004 and 2003, respectively. Investments are
principally funded by sales of insurance and annuities and by reinvested income.
Maturities of these investment securities are largely matched with the expected
future payments of insurance and annuity obligations.
Investments include $2.2 billion and $2.4 billion of below investment grade
securities (excluding net unrealized appreciation and depreciation) at December
31, 2004 and 2003, respectively. These investments represent 8 percent and 9
percent of IDS Life's investment portfolio at December 31, 2004 and 2003,
respectively.
Separate account assets represent funds held for the exclusive benefit of
variable annuity contractholders and variable life insurance policyholders.
These assets are generally carried at market value, and separate account
liabilities are equal to separate account assets. IDS Life earns fees from the
related accounts.
OFF-BALANCE SHEET ARRANGEMENTS AND CONTRACTUAL OBLIGATIONS
IDS Life has identified arrangements, obligations and other relationships that
may have a material current or future effect on its financial condition, changes
in financial condition, results of operations or liquidity and capital
resources.
CONTRACTUAL OBLIGATIONS
The contractual obligations identified in the table below include on-balance
sheet transactions that represent material expected or contractually committed
future obligations of IDS Life.
PAYMENTS DUE BY YEAR
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2010 AND
(MILLIONS) TOTAL 2005 2006-2007 2008-2009 THEREAFTER
- -----------------------------------------------------------------------------------------------------------------------------
Insurance and annuities (1) $54,755 $3,366 $7,036 $6,937 $37,416
- -----------------------------------------------------------------------------------------------------------------------------
Total $54,755 $3,366 $7,036 $6,937 $37,416
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(1) These scheduled payments are represented by reserves of $32.9 billion at
December 31, 2004 and are based on interest credited, mortality,
morbidity, lapse, surrender and premium payment assumptions. Actual
payment obligations may differ if experience varies from these
assumptions. Separate account liabilities have been excluded as
associated contractual obligations would be met by separate account
assets.
IDS Life has off-balance sheet arrangements that include retained interests in
assets transferred to unconsolidated entities as more fully described below.
CONSOLIDATED VARIABLE INTEREST ENTITIES
Assets consolidated as a result of the December 31, 2003 adoption of FIN 46 were
$907 million. The newly consolidated assets consisted of $834 million of cash
and $73 million of derivatives, essentially all of which are restricted. The
effect of consolidating these assets on IDS Life's balance sheet was offset by
IDS Life's previously recorded carrying values of its investment in such
structures, which totaled $673 million, and $166 million of newly consolidated
liabilities.
The consolidation of FIN 46-related entities resulted in a cumulative effect of
accounting change that increased 2003 net income through a non-cash gain of
$44.5 million ($68.4 million pretax) related to the consolidation of the three
SLTs. One of the three SLTs originally consolidated was liquidated in 2004 and
the other two are in the process of being liquidated as of December 31, 2004.
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25 AMERICAN EXPRESS GUARANTEED TERM ANNUITY -- PROSPECTUS
The initial gain related to the application of FIN 46 for the SLTs had no cash
flow effect on IDS Life. The expected impact related to the liquidation of the
two remaining SLTs is a $4 million non-cash charge and has been included in the
2004 results of operations. However, further adjustments to that amount could
occur based on market movements and execution of the liquidation process. To the
extent further adjustments are incurred in the liquidation of the remaining SLT
portfolios, IDS Life's maximum cumulative exposure to pretax loss is represented
by the pretax net assets, which is $462 million at December 31, 2004.
RETAINED INTEREST IN ASSETS TRANSFERRED TO UNCONSOLIDATED ENTITIES
As of December 31, 2004, IDS Life continued to hold investments in CDOs, some of
which are also managed by an affiliate, and were not consolidated pursuant to
the adoption of FIN 46 as IDS Life was not considered the primary beneficiary.
IDS Life invested in CDOs as part of its investment strategy in order to offer a
competitive rate to contractholders' accounts. IDS Life's exposure as an
investor is limited solely to its aggregate investment in the CDOs, and it has
no obligations or commitments, contingent or otherwise, that could require any
further funding of such investments. As of December 31, 2004, the carrying
values of the CDO residual tranches, managed by an affiliate, were $4.5 million.
IDS Life also has an interest in a CDO securitization with a carrying value of
$526.2 million of which $389.9 million is considered investment grade. CDOs are
illiquid investments. As an investor in the residual tranche of CDOs, IDS Life's
return correlates to the performance of portfolios of high-yield bonds and/or
bank loans comprising the CDOs.
The carrying value of the CDOs, as well as derivatives recorded on the balance
sheet as a result of consolidating the two SLTs, which are in the process of
being liquidated, and IDS Life's projected return are based on discounted cash
flow projections that require a significant degree of management judgment as to
assumptions primarily related to default and recovery rates of the high-yield
bonds and/or bank loans either held directly by the CDOs or in the reference
portfolio of the SLTs and, as such, are subject to change. Although the exposure
associated with IDS Life's investment in CDOs is limited to the carrying value
of such investments, the CDOs have significant volatility associated with them
because the amount of the initial value of the loans and/or other debt
obligations in the related portfolios is significantly greater than IDS Life's
exposure. In the event of significant deterioration of a portfolio, the relevant
CDO may be subject to early liquidation, which could result in further
deterioration of the investment return or, in severe cases, loss of the CDO
carrying amount. The derivatives recorded as a result of consolidating and now
liquidating certain SLTs under FIN 46 are primarily valued based on the expected
gains and losses from liquidating a reference portfolio of high-yield loans. As
previously mentioned, the exposure to loss related to these derivatives is
represented by the pretax net assets of the SLTs, which is $462 million at
December 31, 2004. Deterioration in the value of the reference portfolio would
likely result in deterioration of the consolidated derivative value. See Note 3
to the Consolidated Financial Statements for further discussion regarding the
consolidated SLTs.
CONTINGENT LIQUIDITY PLANNING
AEFC has developed a contingent funding plan that enables IDS Life to meet daily
customer obligations during periods in which its customers elect to withdraw
funds from their annuity and insurance contracts. This plan is designed to
ensure that IDS Life could meet these customer withdrawals by selling or
obtaining financing, through reverse repurchase agreements, of portions of its
investment securities portfolio.
RISK MANAGEMENT
IDS Life and its subsidiaries through their respective Board of Directors'
investment committees or staff functions, review models projecting different
interest rate scenarios, risk/return measures, and their effect on
profitability. They also review the distribution of assets in the portfolio by
type and credit risk sector. The objective is to structure the investment
security portfolios based upon the type and behavior of the liabilities
underlying the products, portfolios to achieve targeted levels of profitability
within defined risk parameters and to meet contractual obligations.
IDS Life has developed an asset/liability management approach with separate
investment objectives to support specific product liabilities, such as insurance
and annuity. As part of this approach, IDS Life develops specific investment
guidelines outlining the minimum required investment return and liquidity
requirements to support future benefit payments under its insurance and annuity
obligations. These same objectives must be consistent with management's overall
investment objectives for the general account investment portfolio.
IDS Life's owned investment securities are primarily invested in long-term and
intermediate-term fixed maturity securities to provide clients with a
competitive rate of return on their investments while controlling risk.
Investment in fixed maturity securities is designed to provide IDS Life with a
targeted margin between the yield earned on investments and the interest rate
credited to clients' accounts. IDS Life does not trade in securities to generate
short-term profits for its own account.
As part of IDS Life's investment process, management, with the assistance of its
investment advisors, conducts a quarterly review of investment performance. The
review process conducted by IDS Life's Investment Committee involves the review
of certain invested assets which the committee evaluates to determine whether or
not any investments are other than temporarily impaired and/or which specific
interest earning investments should be put on an interest non-accrual basis.
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26 AMERICAN EXPRESS GUARANTEED TERM ANNUITY -- PROSPECTUS
INTEREST RATE RISK
At IDS Life, interest rate exposures arise primarily within the fixed account
portion of its annuity and insurance products. Rates credited to customers'
accounts generally reset at shorter intervals than the yield on underlying
investments. Therefore, IDS Life's interest spread margins are affected by
changes in the general level of interest rates. The extent to which the level of
interest rates affects spread margins is managed primarily by a combination of
modifying the maturity structure of the investment portfolio and entering into
interest rate swaptions or other derivative instruments that effectively
lengthen the rate reset interval on customer liabilities. IDS Life has entered
into interest rate swaptions with notional amounts totaling $1.2 billion to
hedge the impact of increasing interest rates on forecasted fixed annuity sales.
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 December 31, 2004
and December 31, 2003 would be approximately $15.4 million and $19.6 million,
respectively.
EQUITY MARKET RISK
IDS Life has two primary exposures to the general level of equity markets. One
exposure is that IDS Life earns fees from variable annuity and variable life
insurance products. The amount of such fees is generally based on the value of
the portfolios, and thus is subject to fluctuation with the general level of
equity market values. To reduce the sensitivity of IDS Life's fee revenues to
the general performance of equity markets, IDS Life has from time to time
entered into various combinations of financial instruments that mitigate the
negative effect on fees that would result from a decline in the equity markets.
The second exposure is that IDS Life writes and purchases index options to
manage the margin related to certain annuity products that pay interest based
upon the relative change in a major stock market index between the beginning and
end of the annuity product's term. At December 31, 2004, equity-based
derivatives with a net notional amount of $260.8 million were outstanding to
hedge the margin related to certain annuity products that pay interest based
upon the relative change in a major stock market index.
The negative effect on IDS Life's pretax earnings of a 10 percent decline in
equity markets would be approximately $36.3 million and $39.3 million based on
annuity and insurance business inforce and equity index options as of December
31, 2004 and 2003, respectively.
IMPACT OF MARKET-VOLATILITY ON RESULTS OF OPERATIONS
As discussed above, various aspects of IDS Life's business are impacted by
equity market levels and other market-based events. Several areas in particular
involve DAC and deferred sales inducements, recognition of guaranteed minimum
death benefits (GMDB) and certain other variable annuity benefits, asset
management fees and structured investments. The direction and magnitude of the
changes in equity markets can increase or decrease amortization of DAC and
deferred sales inducement benefits, incurred amounts under GMDB and other
variable annuity benefit provisions and asset management fees and
correspondingly affect results of operations in any particular period.
Similarly, the value of IDS Life's structured investment portfolios are impacted
by various market factors. Persistency of, or increases in, bond and loan
default rates, among other factors, could result in negative adjustments to the
market values of these investments in the future, which would adversely impact
results of operations.
FORWARD-LOOKING STATEMENTS
This report includes forward-looking statements, which are subject to risks and
uncertainties. The words "believe," "expect," "anticipate," "optimistic,"
"intend," "plan," "aim," "will," "may," "should," "could," "would," "likely,"
and similar expressions are intended to identify forward-looking statements.
Readers are cautioned not to place undue reliance on these forward-looking
statements, which speak only as of the date on which they are made. IDS Life
undertakes no obligation to update or revise any forward-looking statements.
Factors that could cause actual results to differ materially from these
forward-looking statements include, but are not limited to: fluctuation in the
equity and fixed income markets, which can affect the amount and types of
investment products sold by IDS Life, and other fees received based on the value
of those assets; IDS Life's ability to recover Deferred Policy Acquisition Costs
(DAC), as well as the timing of such DAC amortization, in connection with the
sale of annuity and insurance products; changes in assumptions relating to DAC,
which could impact the amount of DAC amortization; the ability to improve
investment performance in IDS Life's businesses, including attracting and
retaining high-quality personnel; the success, timeliness and financial impact,
including costs, cost savings and other benefits including increased revenues,
of reengineering initiatives being implemented or considered by IDS Life,
including cost management, structural and strategic measures such as vendor,
process, facilities and operations consolidation, outsourcing (including, among
others, technologies operations), relocating certain functions to lower-cost
overseas locations, moving internal and external functions to the Internet to
save costs, and planned staff reductions relating to certain of such
reengineering actions; the ability to control and manage operating,
infrastructure, advertising and promotion and other expenses as business expands
or changes, including balancing the need for longer-term investment spending;
the potential negative effect on IDS Life's businesses and infrastructure,
including information technology, of terrorist attacks, disasters or other
catastrophic events in the future; IDS Life's ability to develop and roll out
new and attractive products to clients in a timely manner; successfully
cross-selling insurance and annuity products and services to AEFC's customer
base; fluctuations in interest rates, which impacts IDS Life's spreads in the
insurance and
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27 AMERICAN EXPRESS GUARANTEED TERM ANNUITY -- PROSPECTUS
annuity businesses; credit trends and the rate of bankruptcies which can affect
returns on IDS Life's investment portfolios; lower than anticipated spreads in
the insurance and annuity business; the types and the value of certain death
benefit features on variable annuity contracts; the affect of assessments and
other surcharges for guaranty funds; the response of reinsurance companies under
reinsurance contracts; the impact of reinsurance rates and the availability and
adequacy of reinsurance to protect IDS Life against losses; negative changes in
IDS Life Insurance Company's and its four life insurance company subsidiaries'
credit ratings; increasing competition in all of IDS Life's insurance and
annuity business; the adoption of recently issued rules related to the
consolidation of variable interest entities, including those involving SLTs that
IDS Life invests in which could affect both IDS Life's financial condition and
results of operations; changes in laws or government regulations; outcomes
associated with litigation and compliance and regulatory matters.
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 Dec. 31, 2004 previously filed by
IDS Life (including its subsidiaries) with the SEC under the 1934 Act 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 IDS Life pursuant to the foregoing provisions, we have 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.
INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
Ernst & Young LLP, independent registered public accounting firm, have audited
the consolidated financial statements of IDS Life Insurance Company at Dec. 31,
2004 and 2003, and for each of the three years in the period ended Dec. 31,
2004, as set forth in their report. We've included our 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.
- --------------------------------------------------------------------------------
28 AMERICAN EXPRESS GUARANTEED TERM ANNUITY -- PROSPECTUS
IDS Life Insurance Company
- --------------------------------------------------------------------------------
Report of Independent Registered Public Accounting Firm
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, 2004 and 2003, 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, 2004. These financial statements are the
responsibility of IDS Life Insurance 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 the standards of the Public Company
Accounting Oversight Board (United States). Those standards require that we plan
and perform the audits to obtain reasonable assurance about whether the
financial statements are free of material misstatement. We were not engaged to
perform an audit of IDS Life Insurance Company's internal control over financial
reporting. Our audits included consideration of internal control over financial
reporting as a basis for designing audit procedures that are appropriate in the
circumstances, but not for the purpose of expressing an opinion on the
effectiveness of IDS Life Insurance Company's internal control over financial
reporting. Accordingly, we express no such opinion. An audit also includes
examining, on a test basis, evidence supporting the amounts and disclosures in
the financial statements, assessing the accounting principles used and
significant estimates made by management and 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 financial position of IDS Life Insurance Company as
of December 31, 2004 and 2003, and the results of its operations and its cash
flows for each of the years in the period ended December 31, 2004, in conformity
with U.S. generally accepted accounting principles.
As discussed in Note 1 to the consolidated financial statements, in 2004 IDS
Life Insurance Company adopted the provision of the American Institute of
Certified Public Accountants Statement of Position 03-1, "Accounting and
Reporting by Insurance Enterprises for Certain Nontraditional Long-Duration
Contracts and for Separate Accounts" and in 2003 adopted the provisions of
Financial Accounting Standards Board Interpretation No. 46 (revised December
2003), "Consolidation of Variable Interest Entities."
/s/ Ernst & Young LLP
Minneapolis, Minnesota
February 18, 2005
- --------------------------------------------------------------------------------
1
IDS Life Insurance Company
- --------------------------------------------------------------------------------
CONSOLIDATED BALANCE SHEETS
December 31, (Thousands, except share data) 2004 2003
ASSETS
Investments: (Note 2)
Available-for-Sale:
Fixed maturities, at fair value (amortized cost: 2004, $27,400,640; 2003, $26,596,709) $28,131,195 $27,293,565
Preferred and common stocks, at fair value (cost: 2004, $30,019; 2003, $30,019) 31,256 31,046
Mortgage loans on real estate, at cost (less reserves: 2004, $45,347; 2003, $47,197) 2,923,542 3,180,020
Policy loans 588,574 578,000
Trading securities and other investments 753,298 801,871
- ----------------------------------------------------------------------------------------------------------------------------
Total investments 32,427,865 31,884,502
Cash and cash equivalents 131,427 400,294
Restricted cash 535,821 834,448
Amounts recoverable from reinsurers 876,408 754,514
Amounts due from brokers 7,109 1,792
Other accounts receivable 52,527 68,422
Accrued investment income 351,522 355,374
Deferred policy acquisition costs (Note 4) 3,637,956 3,336,208
Deferred sales inducement costs (Note 5) 302,997 278,971
Other assets 308,398 253,858
Separate account assets 32,454,032 27,774,319
- ----------------------------------------------------------------------------------------------------------------------------
Total assets $71,086,062 $65,942,702
============================================================================================================================
LIABILITIES AND STOCKHOLDER'S EQUITY
Liabilities:
Future policy benefits:
Fixed annuities $26,978,596 $26,376,944
Variable annuity guarantees (Note 5) 32,955 --
Universal life-type insurance 3,689,639 3,569,882
Traditional life insurance 271,516 254,641
Disability income and long-term care insurance 1,942,656 1,724,204
Policy claims and other policyholders' funds 69,884 67,911
Amounts due to brokers 162,609 228,707
Deferred income taxes, net 141,202 139,814
Other liabilities 437,418 408,444
Separate account liabilities 32,454,032 27,774,319
- ----------------------------------------------------------------------------------------------------------------------------
Total liabilities 66,180,507 60,544,866
- ----------------------------------------------------------------------------------------------------------------------------
Commitments and contingencies
Stockholder's equity:
Capital stock, $30 par value; 100,000 shares authorized, issued and outstanding 3,000 3,000
Additional paid-in capital 1,370,388 1,370,388
Retained earnings 3,190,474 3,624,837
Accumulated other comprehensive income (loss), net of tax:
Net unrealized securities gains 370,615 405,456
Net unrealized derivative losses (28,922) (5,845)
- ----------------------------------------------------------------------------------------------------------------------------
Total accumulated other comprehensive income 341,693 399,611
- ----------------------------------------------------------------------------------------------------------------------------
Total stockholder's equity 4,905,555 5,397,836
Total liabilities and stockholder's equity $71,086,062 $65,942,702
============================================================================================================================
See Notes to Consolidated Financial Statements.
- --------------------------------------------------------------------------------
2
IDS Life Insurance Company
- --------------------------------------------------------------------------------
CONSOLIDATED STATEMENTS OF INCOME
Years ended December 31,
(Thousands)
2004 2003 2002
REVENUES
Premiums:
Traditional life insurance $ 68,335 $ 64,890 $ 60,740
Disability income and long-term care insurance 283,608 284,111 273,737
- ----------------------------------------------------------------------------------------------------------------------------
Total premiums 351,943 349,001 334,477
Net investment income 1,777,446 1,705,185 1,562,592
Contractholder and policyholder charges 554,344 530,190 525,497
Mortality and expense risk and other fees 430,320 390,516 404,787
Net realized gain (loss) on investments 27,292 4,445 (5,243)
- ----------------------------------------------------------------------------------------------------------------------------
Total 3,141,345 2,979,337 2,822,110
BENEFITS AND EXPENSES
Death and other benefits:
Traditional life insurance 36,843 38,870 36,850
Investment contracts and universal life-type insurance 227,664 209,065 214,222
Disability income and long-term care insurance 67,261 57,339 52,972
Increase (decrease) in liabilities for future policy benefits:
Traditional life insurance 1,381 (2,401) 2,841
Disability income and long-term care insurance 123,289 142,532 134,605
Interest credited on investment contracts and universal life-type insurance 1,127,875 1,242,020 1,163,351
Amortization of deferred policy acquisition costs 260,778 264,308 320,629
Other insurance and operating expenses 503,872 453,065 426,633
- ----------------------------------------------------------------------------------------------------------------------------
Total 2,348,963 2,404,798 2,352,103
- ----------------------------------------------------------------------------------------------------------------------------
Income before income tax provision and accounting change 792,382 574,539 470,007
Income tax provision 226,177 66,945 87,826
- ----------------------------------------------------------------------------------------------------------------------------
Income before accounting change 566,205 507,594 382,181
Cumulative effect of accounting change, net of tax benefit (Note 1) (70,568) 44,463 --
- ----------------------------------------------------------------------------------------------------------------------------
Net income $ 495,637 $ 552,057 $ 382,181
============================================================================================================================
See Notes to Consolidated Financial Statements.
- --------------------------------------------------------------------------------
3
IDS Life Insurance Company
- --------------------------------------------------------------------------------
CONSOLIDATED STATEMENTS OF CASH FLOWS
Years ended December 31,
(Thousands)
2004 2003 2002
CASH FLOWS FROM OPERATING ACTIVITIES
Net income $ 495,637 $ 552,057 $ 382,181
Adjustments to reconcile net income to net cash provided by (used in)
operating activities:
Policy loans, excluding universal life-type insurance:
Repayment 37,592 43,596 49,256
Issuance (39,230) (34,490) (35,345)
Change in amounts recoverable from reinsurers (121,894) (121,004) (104,344)
Change in other accounts receivable 15,895 (12,177) (9,896)
Change in accrued investment income 3,852 (64,359) (5,139)
Change in deferred policy acquisition costs, net (273,291) (252,620) (229,158)
Change in liabilities for future policy benefits for traditional life,
disability income and long-term care insurance 235,327 265,233 245,275
Change in policy claims and other policyholder's funds 1,973 (17,489) 13,521
Deferred income tax provision (benefit) 70,574 (30,714) 116,995
Change in other assets and liabilities, net 249,054 (177,937) (18,568)
Amortization of premium, net 92,617 160,862 65,869
Net realized (gain) loss on investments (27,292) (4,445) 5,243
Trading securities, net 6,788 (358,200) (126,094)
Net realized (gain) loss on trading securities (37,460) (30,400) 2,480
Policyholder and contractholder charges, non-cash (231,611) (234,098) (232,725)
Cumulative effect of accounting change, net of tax benefit (Note 1) 70,568 (44,463) --
- ----------------------------------------------------------------------------------------------------------------------------
Net cash provided by (used in) operating activities 549,099 (360,648) 119,551
- ----------------------------------------------------------------------------------------------------------------------------
CASH FLOWS FROM INVESTING ACTIVITIES
Available-for-Sale securities:
Sales 1,603,285 12,232,235 10,093,228
Maturities, sinking fund payments and calls 1,931,070 4,152,088 3,078,509
Purchases (4,392,522) (20,527,995) (16,287,891)
Other investments, excluding policy loans:
Sales, maturities, sinking fund payments and calls 690,333 621,163 482,908
Purchases (402,235) (438,336) (390,092)
Change in amounts due to and from brokers, net (71,415) (3,261,601) 1,693,251
- ----------------------------------------------------------------------------------------------------------------------------
Net cash used in investing activities (641,484) (7,222,446) (1,330,087)
- ----------------------------------------------------------------------------------------------------------------------------
CASH FLOWS FROM FINANCING ACTIVITIES
Activities related to investment contracts and universal life-type insurance:
Considerations received 2,350,426 4,267,115 4,638,111
Interest credited to account values 1,127,875 1,242,020 1,163,351
Surrenders and other benefits (2,715,847) (2,235,889) (1,655,631)
Universal life-type insurance policy loans:
Repayment 84,281 85,760 89,346
Issuance (93,217) (81,740) (80,831)
Capital contribution -- 282,061 400,000
Cash dividend to American Express Financial Corporation (930,000) -- (70,000)
- ----------------------------------------------------------------------------------------------------------------------------
Net cash (used in) provided by financing activities (176,482) 3,559,327 4,484,346
- ----------------------------------------------------------------------------------------------------------------------------
Net (decrease) increase in cash and cash equivalents (268,867) (4,023,767) 3,273,810
Cash and cash equivalents at beginning of year 400,294 4,424,061 1,150,251
- ----------------------------------------------------------------------------------------------------------------------------
Cash and cash equivalents at end of year $ 131,427 $ 400,294 $ 4,424,061
============================================================================================================================
Supplemental disclosures:
Income taxes paid $ 196,397 $ 103,034 $ --
Interest on borrowings $ 411 $ 2,926 $ 7,623
Non-cash ownership transfer of net assets of AEC to AEFC in 2003 (Note 8) $ -- $ 282,061 $ --
See Notes to Consolidated Financial Statements.
- --------------------------------------------------------------------------------
4
IDS Life Insurance Company
- --------------------------------------------------------------------------------
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, 2004 (Thousands) Stock Capital Net of Tax Earnings Equity
- ----------------------------------------------------------------------------------------------------------------------------
Balance, December 31, 2001 $3,000 $ 688,327 $ 84,775 $3,042,660 $3,818,762
Comprehensive income:
Net income -- -- -- 382,181 382,181
Net unrealized holding gains on Available-for-Sale
securities arising during the year, net of
deferred policy acquisition costs of ($75,351)
and income tax provision of ($228,502) -- -- 424,360 -- 424,360
Reclassification adjustment for gains on
Available-for-Sale securities included in net
income, net of income tax provision of ($5,645) -- -- (10,484) -- (10,484)
Reclassification adjustment for gains on derivatives
included in net income, net of income tax
provision of ($305) -- -- (568) -- (568)
- ----------------------------------------------------------------------------------------------------------------------------
Total comprehensive income -- -- -- -- 795,489
Capital contribution -- 400,000 -- -- 400,000
Cash dividend to American Express Financial Corporation
(Note 8) -- -- -- (70,000) (70,000)
- ----------------------------------------------------------------------------------------------------------------------------
Balance, December 31, 2002 3,000 1,088,327 498,083 3,354,841 4,944,251
Comprehensive income:
Net income -- -- -- 552,057 552,057
Net unrealized holding losses on Available-for-Sale
securities arising during the year, net of deferred
policy acquisition costs of ($5,594) and income tax
benefit of $46,545 -- -- (79,470) -- (79,470)
Reclassification adjustment for gains on
Available-for-Sale securities included in net
income, net of income tax provision of ($6,044) -- -- (11,225) -- (11,225)
Net unrealized holding losses on derivatives arising
during the year, net of income tax benefit of $3,663 -- -- (6,802) -- (6,802)
Reclassification adjustment for gains on derivatives
included in net income, net of income tax
provision of ($525) -- -- (975) -- (975)
- ----------------------------------------------------------------------------------------------------------------------------
Total comprehensive income -- -- -- -- 453,585
Capital contribution -- 282,061 -- -- 282,061
Non-cash dividend of American Express Corporation
to American Express Financial Corporation (Note 8) -- -- -- (282,061) (282,061)
- ----------------------------------------------------------------------------------------------------------------------------
Balance, December 31, 2003 3,000 1,370,388 399,611 3,624,837 5,397,836
Comprehensive income:
Net income -- -- -- 495,637 495,637
Net unrealized holding losses on Available-for-Sale
securities arising during the year, net of income
tax benefit of $8,222 and net of adjustments to
deferred policy acquisition costs of $8,857,
deferred sales inducement costs of ($10,109),
and fixed annuity liabilities of ($86,485). -- -- (14,848) -- (14,848)
Reclassification adjustment for gains on
Available-for-Sale securities included in net
income, net of income tax provision of ($10,765) -- -- (19,993) -- (19,993)
Net unrealized holding losses on derivatives
arising during the year, net of income tax
benefit of $11,901 -- -- (22,102) -- (22,102)
Reclassification adjustment for gains on derivatives
included in net income, net of income
tax provision of ($525) -- -- (975) -- (975)
- ----------------------------------------------------------------------------------------------------------------------------
Total comprehensive income -- -- -- -- 437,719
Cash dividends to American Express Financial Corporation
(Note 8) -- -- -- (930,000) (930,000)
- ----------------------------------------------------------------------------------------------------------------------------
Balance, December 31, 2004 $3,000 $1,370,388 $341,693 $3,190,474 $4,905,555
============================================================================================================================
See Notes to Consolidated Financial Statements.
- --------------------------------------------------------------------------------
5
IDS Life Insurance Company
- --------------------------------------------------------------------------------
IDS LIFE INSURANCE COMPANY
Notes To Consolidated Financial Statements
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Nature of business
IDS Life Insurance Company is a stock life insurance company organized under the
laws of the State of Minnesota. IDS Life Insurance Company is a wholly owned
subsidiary of American Express Financial Corporation (AEFC), which is a wholly
owned subsidiary of American Express Company. IDS Life Insurance Company serves
residents of the District of Columbia and all states except New York. IDS Life
Insurance Company distributes its fixed and variable insurance and annuity
products almost exclusively through the American Express Financial Advisors Inc.
(AEFAI) retail sales force. IDS Life Insurance Company has four wholly owned
life insurance company subsidiaries: IDS Life Insurance Company of New York, a
New York stock life insurance company (IDS Life of New York); American Partners
Life Insurance Company, an Arizona stock life insurance company (American
Partners Life); American Enterprise Life Insurance Company, an Indiana stock
life insurance company (American Enterprise Life); and American Centurion Life
Assurance Company, a New York stock life insurance company (American Centurion
Life), that distribute their products through various distribution channels. IDS
Life of New York serves New York State residents and distributes its fixed and
variable insurance and annuity products exclusively through AEFAI's retail sales
force. American Enterprise Life provides clients of financial institutions and
regional and/or independent broker-dealers with American Express branded
financial products and wholesaling services to support its retail insurance and
annuity operations. American Enterprise Life underwrites fixed and variable
annuity contracts primarily through regional and national financial institutions
and regional and/or independent broker-dealers, in all states except New York
and New Hampshire. Effective in December 2004, American Enterprise Life received
a Certificate of Authority to transact business in the State of New Hampshire.
American Centurion Life offers fixed and variable annuity contracts directly to
American Express(R) Cardmembers and others in New York, as well as fixed and
variable annuity contracts for sale through non-affiliated representatives and
agents of third party distributors, in New York. American Partners Life offers
fixed and variable annuity contracts directly to American Express(R) Cardmembers
and others who reside in states other than New York. IDS Life Insurance Company
also owns IDS REO 1, LLC and IDS REO 2, LLC which hold real estate investments.
IDS Life Insurance Company and its six subsidiaries are referred to collectively
as "IDS Life" in these Consolidated Financial Statements and notes thereto.
IDS Life'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. IDS Life's fixed deferred
annuities guarantee a relatively low annual interest rate during the
accumulation period (the time before annuity payments begin). However, IDS Life
has the option of paying a higher rate set at its discretion. In addition,
persons owning one type of annuity may have their interest calculated based on
any increase in a broad-based stock market index. IDS Life also offers variable
annuities, including the American Express Retirement Advisor Advantage, Variable
Annuity and the American Express Retirement Advisor Select(R) Variable Annuity.
Life insurance products currently offered by IDS Life include universal life
(fixed and variable, single life and joint life), single premium life and term
products. Waiver of premium and accidental death benefit riders are generally
available with these life insurance products. IDS Life also markets disability
income insurance. Although IDS Life discontinued issuance of long-term care
insurance at the end of 2002, IDS Life retains risk on a large block of existing
contracts, 50% of which are reinsured. In May 2003, IDS Life began outsourcing
claims administration as well.
Under IDS Life's variable life insurance and variable annuity products described
above, the purchaser may choose among investment options that include IDS Life's
"general account" as well as from a variety of portfolios including common
stocks, bonds, managed assets and/or short-term securities.
Basis of presentation
The accompanying Consolidated Financial Statements include the accounts of IDS
Life, its wholly owned subsidiaries and certain variable interest entities. All
significant intercompany accounts and transactions have been eliminated in
consolidation.
The accompanying Consolidated Financial Statements have been prepared in
conformity with U. S. generally accepted accounting principles (GAAP) which vary
in certain respects from reporting practices prescribed or permitted by state
insurance regulatory authorities as included in Note 7. Certain prior year
amounts have been reclassified to conform to the current year's presentation.
The preparation of financial statements in conformity with GAAP 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.
- --------------------------------------------------------------------------------
6
IDS Life Insurance Company
- --------------------------------------------------------------------------------
Principles of Consolidation
IDS Life consolidates all non-variable interest entities, as defined below, in
which it holds a greater than 50 percent voting interest, except for immaterial
seed money investments in mutual and hedge funds, which are accounted for as
trading securities. Entities in which IDS Life holds a greater than 20 percent
but less than 50 percent voting interest are accounted for under the equity
method. All other investments in subsidiaries are accounted for under the cost
method unless IDS Life determines that it exercises significant influence over
the entity by means other than voting rights, in which case, these entities are
either accounted for under the equity method or are consolidated, as
appropriate.
IDS Life also consolidates all Variable Interest Entities (VIEs) for which it is
considered to be the primary beneficiary pursuant to Financial Accounting
Standards Board (FASB) Interpretation No. 46, "Consolidation of Variable
Interest Entities," as revised (FIN 46). The determination as to whether an
entity is a VIE is based on the amount and characteristics of the entity's
equity. In general, FIN 46 requires a VIE to be consolidated when an enterprise
has a variable interest for which it will absorb a majority of the VIE's
expected losses or receive a majority of the VIE's expected residual return.
Qualifying Special Purpose Entities (QSPEs) under Statement of Financial
Accounting Standards (SFAS) No. 140, "Accounting for Transfers and Servicing of
Financial Assets and Extinguishments of Liabilities," are not consolidated. Such
QSPEs include a securitization trust containing a majority of the IDS Life's
rated collateralized debt obligations (CDOs) described in Note 2.
Revenues
Premium revenues
Premium revenues include premiums on traditional life, disability income and
long-term care products. Such premiums are recognized as revenue when due.
Net investment income
Net investment income predominantly consists of interest income earned on fixed
maturity securities classified as Available-for-Sale, structured securities,
mortgage loans on real estate, policy loans and trading securities and other
investments. Interest income is accrued as earned using the effective interest
method, which makes an adjustment of the yield for security premiums and
discounts on all performing fixed maturity securities classified as
Available-for-Sale, excluding structured securities, and mortgage loans on real
estate so that the related security or loan recognizes a constant rate of return
on the outstanding balance throughout its term. Interest income on structured
securities is recognized according to Emerging Issues Task Force (EITF) Issue
No. 99-20, "Recognition of Interest Income and Impairment on Purchased and
Retained Beneficial Interests in Securitized Financial Assets."
Contractholder and policyholder charges
Contractholder and policyholder charges include certain charges assessed on
annuities and universal and variable universal life insurance. Contractholder
and policyholder charges include cost of insurance, administrative and surrender
charges on annuities and universal and variable universal life insurance. Cost
of insurance charges on universal and variable universal life insurance are
recognized as revenue when earned, whereas contract charges and surrender
charges on annuities and universal and variable universal life insurance are
recognized as revenue when collected.
Mortality and expense risk and other fees
Mortality and expense risk and other fees include risk fees, management and
administration fees, which are generated directly and indirectly from IDS Life's
separate account assets. IDS Life's management and other fees are generally
computed as a contractual rate based on the underlying asset values and are
generally received monthly.
Net realized gain (loss) on investments
Realized gains and losses are recognized using specific identification, on a
trade date basis, and charges are recorded when securities are determined to be
other-than-temporarily impaired.
- --------------------------------------------------------------------------------
7
IDS Life Insurance Company
- --------------------------------------------------------------------------------
Balance Sheet
Investments
Available for sale fixed maturity and equity securities
Available-for-Sale investment securities are carried at fair value on the
balance sheet with unrealized gains (losses) recorded in other accumulated
comprehensive income (loss) within equity, net of income tax provisions
(benefits) and net of adjustments in assets and liability balances, such as
deferred policy acquisition costs (DAC), to reflect the expected impact on their
carrying values had the unrealized gains (losses) been realized immediately.
Gains and losses are recognized in results of operations upon disposition of the
securities. In addition, losses are also recognized when management determines
that a decline in value is other-than-temporary, which requires judgment
regarding the amount and timing of recovery. Indicators of other-than-temporary
impairment for debt securities include issuer downgrade, default or bankruptcy.
IDS Life also considers the extent to which cost exceeds fair value, the
duration and size of that gap, and management's judgment about the issuer's
current and prospective financial condition. Other-than-temporary impairment
charges are recorded in net realized gains (losses) on investments within the
Consolidated Statements of Income. 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) (backed by high-yield bonds and bank loans), which are not readily
marketable. As a result, the carrying values of these structured investments are
based on future cash flow projections that require a significant degree of
management judgment as to the amount and timing of cash payments, defaults and
recovery rates of the underlying investments and, as such, are subject to
change.
Mortgage loans on real estate
Mortgage loans on real estate reflect principal amounts outstanding 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.
The reserve for losses 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. Additionally, the level of the reserve for losses considers other
factors, including historical experience and current economic and political
conditions. Management regularly evaluates the adequacy of the reserve for
mortgage loan losses and believes it is adequate to absorb estimated losses in
the portfolio.
IDS Life generally stops accruing interest on mortgage loans for which interest
payments are delinquent more than three months. Based on management's judgment
as to the ultimate collectibility of principal, interest payments received are
either recognized as income or applied to the recorded investment in the loan.
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.
Trading securities and other investments
Included in trading securities and other investments are trading securities,
syndicated loans and real estate. Trading securities primarily include hedge
funds and mutual fund seed money investments. Trading securities are held at
fair market value with changes in value recognized in the Consolidated
Statements of Income within net investment income. Syndicated loans reflect
amortized cost less reserves for losses and real estate is carried at its
estimated fair value.
Cash and cash equivalents
IDS Life has defined cash equivalents to include other highly liquid investments
with original maturities of 90 days or less.
Restricted cash
As a result of the adoption of FIN 46 in 2003, IDS Life consolidated restricted
cash held by secured loan trusts (SLTs) where such cash cannot be utilized for
operations. See "Application of Recent Accounting Standards" below for a
description of FIN 46.
Reinsurance
IDS Life reinsures a portion of the insurance risks associated with its life and
long-term care (LTC) insurance products through reinsurance agreements with
unaffiliated insurance companies. Reinsurance is used in order to limit losses,
minimize exposure to large risks, provide additional capacity for future growth
and to effect business-sharing arrangements. IDS Life evaluates the financial
condition of reinsurers to minimize exposure to significant losses from
reinsurer insolvencies. IDS Life remains primarily liable as the direct insurer
on all risks reinsured.
- --------------------------------------------------------------------------------
8
IDS Life Insurance Company
- --------------------------------------------------------------------------------
Generally, IDS Life reinsures 90% of the death benefit liability related to
variable, universal and term life insurance product. IDS Life retains, and is at
risk for only, 10% of each policy's death benefit from the first dollar of
coverage. IDS Life began reinsuring risks at this level beginning in 2001 for
term life insurance and 2002 for variable and universal life insurance. Policies
issued prior to these dates are not subject to these same reinsurance levels.
The maximum amount of life insurance risk retained by IDS Life is $750,000 on
any policy insuring a single life and $1.5 million on any flexible premium
survivorship variable life policy. For existing LTC policies, IDS Life retained
50% of the risk and the remaining 50% of the risk was ceded to General Electric
Capital Assurance Company. Risk on variable life and universal life policies is
reinsured on a yearly renewable term basis. Risk on term life and LTC policies
is reinsured on a coinsurance basis.
IDS Life retains all risk for new claims on disability income contracts. Risk is
currently managed by limiting the amount of disability insurance written on any
one individual. IDS Life also retains all accidental death benefit and waiver of
premium risk.
Deferred policy acquisition costs
Deferred policy acquisition costs (DAC) represent the costs of acquiring new
business, principally direct sales commissions and other distribution and
underwriting costs that have been deferred on the sale of annuity and life and
health insurance products. These costs are deferred to the extent they are
recoverable from future profits. For annuity and insurance products, DAC are
amortized over periods approximating the lives of the business, generally as a
percentage of premiums or estimated gross profits or as a portion of product
interest margins depending on the product's characteristics.
For IDS Life's annuity and insurance products, the projections underlying the
amortization of DAC require the use of certain assumptions, including interest
margins, mortality and morbidity rates, persistency rates, maintenance expense
levels and customer asset value growth rates for variable products. Management
routinely monitors a wide variety of trends in the business, including
comparisons of actual and assumed experience. The customer asset value growth
rate is the rate at which contract values are assumed to appreciate in the
future. The rate is net of asset fees and anticipates a blend of equity and
fixed income investments. Management reviews and, where appropriate, adjusts its
assumptions with respect to customer asset value growth rates on a quarterly
basis. Management monitors other principal DAC assumptions, such as persistency,
mortality and morbidity rates, interest margin and maintenance expense level
assumptions, each quarter. Unless management identifies a material deviation
over the course of the quarterly monitoring, management reviews and updates
these DAC assumptions annually in the third quarter of each year. When
assumptions are changed, the percentage of estimated gross profits or portion of
interest margins used to amortize DAC might also change. A change in the
required amortization percentage is applied retrospectively; an increase in
amortization percentage will result in an increase of DAC amortization while a
decrease in amortization percentage will result in a decrease in DAC
amortization. The impact on results of operations of changing assumptions with
respect to the amortization of DAC can be either positive or negative in any
particular period and is reflected in the period in which such changes are made.
Deferred sales inducement costs
Sales inducement costs consist of bonus interest credits and deposit credits
added to certain annuity contract values. These benefits are capitalized to the
extent they are incremental to amounts that would be credited on similar
contracts without the applicable feature. These costs were previously included
in DAC and were reclassified as part of the adoption of the American Institute
of Certified Public Accountants Statement of Position 03-1, "Accounting and
Reporting by Insurance Enterprises for Certain Nontraditional Long-Duration
Contracts and for Separate Accounts" (SOP 03-1). The amounts capitalized are
amortized using the same methodology and assumptions used to amortize DAC.
Separate account assets and liabilities
Separate account assets and liabilities are funds held for exclusive benefit of
variable annuity contractholders and variable life insurance policyholders. IDS
Life receives fund administrative fees, mortality and expense risk fees, minimum
death benefit guarantee fees and cost of insurance charges from the related
accounts. Before the fourth quarter of 2003, these fees included investment
advisory fees for internally managed mutual funds. In the fourth quarter of
2003, AEFC replaced IDS Life as the investment manager and assumed these duties
for the mutual funds and retained IDS Life and its non-New York subsidiaries to
provide underlying administrative services. Previous to this change, IDS Life
received management fees directly from the proprietary funds and was party to an
agreement with AEFC to compensate AEFC for the investment sub-advisory services
AEFC provided these proprietary funds. IDS Life's administrative service fees
will vary with the market values of these proprietary mutual funds. In addition
to IDS Life's administrative service fees, IDS Life receives mortality and
expense risk fees from the separate accounts based on the level of assets. In
March 2004, a similar structure for the New York subsidiaries was approved by
the New York Insurance Department effective as of February 1, 2004. Fees payable
from AEFC to IDS Life include administrative service fees.
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9
IDS Life Insurance Company
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IDS Life provides contractual mortality assurances to variable annuity
contractholders that the net assets of 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.
IDS Life 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. IDS Life also guarantees that the rates at which
administrative charges are deducted from contract funds will not exceed
contractual maximums.
For variable life insurance, IDS Life guarantees that the rates at which
administrative charges are deducted from contract funds will not exceed
contractual maximums. IDS Life also guarantees that the death benefit will
continue to be payable at the initial level regardless of investment performance
so long as the minimum premium payments are made.
Derivative financial instruments and hedging activities
SFAS No. 133, "Accounting for Derivative Instruments and Hedging Activities," as
amended, (SFAS 133) establishes accounting and reporting requirements for
derivative financial instruments, including hedging activities. SFAS 133
requires that all derivatives are recognized on the balance sheet at fair value
as either assets or liabilities in IDS Life's Consolidated Balance Sheets. The
fair value of IDS Life's derivative financial instruments are determined using
either market quotes or valuation models that are based upon the net present
value of estimated future cash flows and incorporate current market data inputs.
IDS Life reports its derivative assets and liabilities in other assets and other
liabilities, respectively. The accounting for the change in the fair value of a
derivative instrument depends on its intended use and the resulting hedge
designation, if any.
Derivative financial instrument agreements introduce the possibility of
counterparty credit risk. Counterparty credit risk is the risk that the
counterparty will not fulfill the terms of the agreement. IDS Life attempts to
minimize counterparty credit risk related to derivative financial instruments
through established approval procedures, including setting concentration limits
by counterparty, monitoring credit ratings, and requiring collateral, where
appropriate. A majority of IDS Life's counterparties are rated A or better by
Moody's and Standard & Poor's.
Cash flow hedges
For derivative financial instruments that qualify as cash flow hedges, the
effective portions of the gain or loss on the derivatives are recorded in
accumulated other comprehensive income (loss) and reclassified into earnings
when the hedged item or transactions impact earnings. The amount that is
reclassified into earnings is presented in the income statement with the hedged
instrument or transaction impact, generally, in net investment income. Any
ineffective portion of the gain or loss is reported as a component of net
investment income. If a hedge is de-designated or terminated prior to maturity,
the amount previously recorded in accumulated other comprehensive income (loss)
is recognized into earnings over the period that the hedged item impacts
earnings. For any hedge relationships that are discontinued because the
forecasted transaction is not expected to occur according to the original
strategy, any related amounts previously recorded in accumulated other
comprehensive income (loss) are recognized into earnings immediately.
Derivative financial instruments that are entered into for hedging purposes are
designated as such at the time that IDS Life enters into the contract. As
required by SFAS 133, for all derivative financial instruments that are
designated for hedging activities, IDS Life formally documents all of the
hedging relationships between the hedge instruments and the hedged items at the
inception of the relationships. Management also formally documents its risk
management objectives and strategies for entering into the hedge transactions.
IDS Life formally assesses, at inception and on a quarterly basis, whether
derivatives designated as hedges are highly effective in offsetting the cash
flows of hedged items. If it is determined that a derivative is not highly
effective as a hedge, IDS Life will discontinue the application of hedge
accounting. See Note 11 Derivative financial instruments and hedging activities,
which describes the types of cash flow hedges used by IDS Life.
Non-designated derivatives
IDS Life currently has economic hedges that either do not qualify or are not
designated for hedge accounting treatment under SFAS 133. For derivative
financial instruments that do not qualify for hedge accounting, or are not
designated under SFAS 133 as hedges, changes in fair value are reported in
current period earnings generally as a component of net investment income. See
Note 11 Derivative financial instruments and hedging activities, which describes
the types of economic hedges used by IDS Life.
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10
IDS Life Insurance Company
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Liabilities for future policy benefits
Fixed annuities and variable annuity guarantees
Liabilities for fixed and variable deferred annuities are equal to accumulation
values which are the cumulative gross deposits, credited interest and fund
performance less withdrawals and mortality and expense risk charges.
The majority of the variable annuity contracts offered by IDS Life contain
guaranteed minimum death benefit (GMDB) provisions. When market values of the
customer's accounts decline, the death benefit payable on a contract with a GMDB
may exceed the contract accumulation value. IDS Life also offers variable
annuities with death benefit provisions that gross up the amount payable by a
certain percentage of contract earnings; these are referred to as gain gross-up
(GGU) benefits. In addition, IDS Life offers contracts containing guaranteed
minimum income benefit (GMIB) and guaranteed minimum withdrawal benefits (GMWB)
provisions.
Effective January 1, 2004, liabilities for these variable annuity death and
income benefits have been established under SOP 03-1. Actuarial models to
simulate various equity market scenarios are used to project these benefits and
contract assessments and include making significant assumptions related to
customer asset value growth rates, mortality, persistency and investment
margins. These assumptions, as well as their periodic review by management, are
consistent with those used for DAC purposes. Prior to the adoption of SOP 03-1,
amounts paid in excess of contract value were expensed. See Application of
Recent Accounting Standards section below for further discussion on SOP 03-1.
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 equity indexed
deferred annuities issued before 1999 are equal to the present value of
guaranteed benefits and the intrinsic value of index-based benefits.
Liabilities for fixed annuities in a benefit or payout status are based on
future estimated payments using established industry mortality tables and
interest rates, ranging from 4.6% to 9.5% at December 31, 2004, depending on
year of issue, with an average rate of approximately 6.1% at December 31, 2004.
Life and health policies
Liabilities for life insurance claims that have been reported but have not yet
been paid (unpaid claim liabilities) are equal to the death benefits payable
under the policies. For disability income and long-term care claims, unpaid
claim liabilities are equal to benefit amounts due and accrued including the
expense of reviewing claims and making benefit payment determinations.
Liabilities for claims that have occurred but have not been reported are
estimated based on periodic analysis of the actual lag between when a claim
occurs and when it is reported. Where applicable, amounts recoverable from other
insurers who share in the risk of the products offered (reinsurers) are
separately recorded as receivables.
Liabilities for fixed and variable universal life insurance are equal to
accumulation values which are the cumulative gross premiums, credited interest,
and fund performance less withdrawals and mortality and expense risk charges.
Liabilities for future benefits on term and whole life insurance are based on
the net level premium method, using anticipated premium payments, mortality
rates, policy persistency and interest rates earned on the assets supporting the
liability. Anticipated mortality rates are based on established industry
mortality tables, with modifications based on Company experience. Anticipated
policy premium payments and persistency rates vary by policy form, issue age and
policy duration. Anticipated interest rates range from 4% to 10% at December 31,
2004, 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 the amounts
needed to meet obligations for future claims and are based on the net level
premium method, using anticipated premium payments and morbidity, mortality,
policy persistency and discount 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 discount rates for
disability income policy reserves at December 31, 2004 are 7.5% at policy issue
and grade to 5% over 5 years. Anticipated discount rates for long-term care
policy reserves at December 31, 2004 are currently 5.9% grading up to 8.9% over
30 years.
Claim reserves are the amounts needed to meet obligations for continuing claim
payments on already incurred claims. Claim reserves are calculated based on
claim continuance tables which estimate the likelihood that an individual will
continue to be eligible for benefits and anticipated interest rates earned on
assets supporting the reserves. 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 3% to 8% at December 31,
2004, with an average rate of approximately 5.2% at December 31, 2004. IDS Life
issues only non-participating life insurance policies, which do not pay
dividends to policyholders from the insurers' earnings.
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11
IDS Life Insurance Company
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Income Taxes
IDS Life's taxable income is included in the consolidated federal income tax
return of American Express Company. IDS Life 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.
Application of recent accounting standards
In June 2004, the Financial Accounting Standards Board (FASB) issued FASB Staff
Position (FSP) FAS No. 97-1, "Situations in Which Paragraphs 17(b) and 20 of
FASB Statement No. 97, Accounting and Reporting by Insurance Enterprises for
Certain Long-Duration Contracts and for Realized Gains and Losses from the Sale
of Investments (SFAS No. 97), Permit or Require Accrual of an Unearned Revenue
Liability" (FSP 97-1). The implementation of Statement of Position 03-1,
"Accounting and Reporting by Insurance Enterprises for Certain Nontraditional
Long-Duration Contracts and for Separate Accounts" (SOP 03-1), raised a question
regarding the interpretation of the requirements of SFAS No. 97 concerning when
it is appropriate to record an unearned revenue liability. FSP 97-1 clarifies
that SFAS No. 97 is clear in its intent and language, and requires the
recognition of an unearned revenue liability for amounts that have been assessed
to compensate insurers for services to be performed over future periods. SOP
03-1 describes one situation, when assessments result in profits followed by
losses, where an unearned revenue liability is required. SOP 03-1 does not amend
SFAS No. 97 or limit the recognition of an unearned revenue liability to the
situation described in SOP 03-1. The guidance in FSP 97-1 is effective for
financial statements for fiscal periods beginning after June 18, 2004. The
adoption of FSP 97-1 did not have a material impact on IDS Life's consolidated
financial condition or results of operations. See Note 5 and below for further
discussion of SOP 03-1.
In July 2003, the American Institute of Certified Public Accountants issued SOP
03-1 effective for fiscal years beginning after December 15, 2003. SOP 03-1
provides guidance on separate account presentation and accounting for interests
in separate accounts. Additionally, SOP 03-1 provides clarifying guidance as to
the recognition of bonus interest and other sales inducement benefits and the
presentation of any deferred amounts in the financial statements. Lastly, SOP
03-1 requires insurance enterprises to establish additional liabilities for
benefits that may become payable under variable annuity death benefit guarantees
or other insurance or annuity contract provisions. Where an additional liability
is established, the recognition of this liability will then be considered in
amortizing deferred policy acquisition costs (DAC) and any deferred sales
inducement costs associated with those insurance or annuity contracts.
The adoption of SOP 03-1 as of January 1, 2004, resulted in a cumulative effect
of accounting change that reduced the first quarter 2004 results by $70.6
million ($108.6 million pretax). The cumulative effect of accounting change
consisted of: (i) $42.9 million pretax from establishing additional liabilities
for certain variable annuity guaranteed benefits ($32.8 million) and from
considering these liabilities in valuing DAC and deferred sales inducement costs
associated with those contracts ($10.1 million) and (ii) $65.7 million pretax
from establishing additional liabilities for certain variable universal life and
single pay universal life insurance contracts under which contractual cost of
insurance charges are expected to be less than future death benefits ($92
million) and from considering these liabilities in valuing DAC associated with
those contracts ($26.3 million offset). Prior to the adoption of SOP 03-1,
amounts paid in excess of contract value were expensed when payable. Amounts
expensed in 2004 to establish and maintain additional liabilities for certain
variable annuity guaranteed benefits amounted to $52.5 million (of which $32.8
million was part of the adoption charge discussed earlier) as compared to
amounts expensed in 2003 and 2002 of $31.5 million and $37.4 million,
respectively. IDS Life's accounting for separate accounts was already consistent
with the provisions of SOP 03-1 and, therefore, there was no impact related to
this requirement. See Note 5 for a further discussion regarding SOP 03-1.
The AICPA released a series of technical practice aids (TPAs) in September 2004
which provide additional guidance related to, among other things, the definition
of an insurance benefit feature and the definition of policy assessments in
determining benefit liabilities, as described within SOP 03-1. The TPAs did not
have a material effect on IDS Life's calculation of liabilities that were
recorded in the first quarter of 2004 upon adoption of SOP 03-1.
In April 2003, the FASB issued SFAS No. 149, "Amendment of Statement 133 on
Derivative Instruments and Hedging Activities." The Statement amends and
clarifies accounting for derivative instruments embedded in other contracts and
for hedging activities under SFAS No. 133. The adoption of this Statement did
not have a material impact on the IDS Life's financial statements.
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12
IDS Life Insurance Company
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In January 2003, the FASB issued FIN 46 as revised, which addresses
consolidation by business enterprises of variable interest entities (VIEs) and
was subsequently revised in December 2003. The variable interest entities
primarily impacted by FIN 46, which IDS Life consolidated as of December 31,
2003, relate to three securitized loan trusts (SLTs), which are managed by an
affiliate and partially owned by IDS Life. The consolidation of the three SLTs
partially owned by IDS Life and managed by an affiliate, resulted in a
cumulative effect of accounting change that increased 2003 net income through a
non-cash gain of $44.5 million ($68.4 million pretax). See Note 3 for further
discussion of consolidated variable interest entities.
In November 2003, the FASB ratified a consensus on the disclosure provisions of
Emerging Issues Task Force Issue 03-1, "The Meaning of Other-Than-Temporary
Impairment and Its Application to Certain Investments" (EITF 03-1). IDS Life
complied with the disclosure provisions of this rule in Note 2 to the
Consolidated Financial Statements included in its Annual Report on Form 10-K for
the year ended December 31, 2003. In March 2004, the FASB reached a consensus
regarding the application of a three-step impairment model to determine whether
investments accounted for in accordance with SFAS No. 115, "Accounting for
Certain Investments in Debt and Equity Securities," and other cost method
investments are other-than-temporarily impaired. However, with the issuance of
FSP EITF 03-1-1, "Effective Date of Paragraphs 10-20 of EITF 03-1," on September
30, 2004, the provisions of the consensus relating to the measurement and
recognition of other-than-temporary impairments will be deferred pending further
clarification from the FASB. The remaining provisions of this rule, which
primarily relate to disclosure requirements, are required to be applied
prospectively to all current and future investments accounted for in accordance
with SFAS No. 115 and other cost method investments. IDS Life will evaluate the
potential impact of EITF 03-1 after the FASB completes its reassessment.
2. INVESTMENTS
Available for sale investments
Investments classified as Available-for-Sale at December 31, 2004 are
distributed by type as presented below:
December 31, 2004
- ----------------------------------------------------------------------------------------------------------------------------
Gross Gross
Unrealized Unrealized Fair
(Thousands) Cost Gains Losses Value
- ----------------------------------------------------------------------------------------------------------------------------
Fixed maturities:
Corporate debt securities $13,718,138 $531,970 $ (36,990) $14,213,118
Mortgage and other asset-backed securities 9,383,868 143,102 (30,487) 9,496,483
Foreign corporate bonds and obligations 3,185,592 139,821 (14,178) 3,311,235
Structured investments(a) 563,899 -- (33,230) 530,669
U.S. Government and agencies obligations 330,540 15,181 (513) 345,208
State and municipal obligations 114,161 3,493 (2,569) 115,085
Foreign government bonds and obligations 104,442 15,507 (552) 119,397
- ----------------------------------------------------------------------------------------------------------------------------
Total fixed maturities 27,400,640 849,074 (118,519) 28,131,195
Preferred and common stocks 30,019 1,237 -- 31,256
- ----------------------------------------------------------------------------------------------------------------------------
Total $27,430,659 $850,311 $(118,519) $28,162,451
- ----------------------------------------------------------------------------------------------------------------------------
(a) Includes unconsolidated CDOs.
Investments classified as Available-for-Sale at December 31, 2003 are
distributed by type as presented below:
December 31, 2003
- ----------------------------------------------------------------------------------------------------------------------------
Gross Gross
Unrealized Unrealized Fair
(Thousands) Cost Gains Losses Value
- ----------------------------------------------------------------------------------------------------------------------------
Fixed maturities:
Corporate debt securities $12,716,966 $567,940 $ (63,059) $13,221,847
Mortgage and other asset-backed securities 10,187,423 166,679 (54,535) 10,299,567
Foreign corporate bonds and obligations 2,666,626 126,187 (24,923) 2,767,890
Structured investments(a) 593,094 1,784 (47,767) 547,111
U.S. Government and agencies obligations 235,994 13,848 (20) 249,822
State and municipal obligations 114,158 3,711 (3,100) 114,769
Foreign government bonds and obligations 82,448 10,728 (617) 92,559
- ----------------------------------------------------------------------------------------------------------------------------
Total fixed maturities 26,596,709 890,877 (194,021) 27,293,565
Preferred and common stocks 30,019 1,027 -- 31,046
- ----------------------------------------------------------------------------------------------------------------------------
Total $26,626,728 $891,904 $(194,021) $27,324,611
- ----------------------------------------------------------------------------------------------------------------------------
(a) Includes unconsolidated CDOs.
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IDS Life Insurance Company
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The following table provides information about Available-for-Sale investments
with gross unrealized losses and the length of time that individual securities
have been in a continuous unrealized loss position as of December 31, 2004:
(Thousands) Less than 12 months 12 months or more Total
- ----------------------------------------------------------------------------------------------------------------------------
Fair Unrealized Fair Unrealized Fair Unrealized
Description of securities: Value Losses Value Losses Value Losses
- ----------------------------------------------------------------------------------------------------------------------------
Corporate debt securities $2,410,156 $(20,461) $ 645,898 $(16,529) $3,056,054 $ (36,990)
Mortgage and other asset-backed securities 2,560,175 (17,686) 550,728 (12,801) 3,110,903 (30,487)
Foreign corporate bonds 641,928 (6,571) 373,312 (7,607) 1,015,240 (14,178)
Structured investments -- -- 526,190 (33,230) 526,190 (33,230)
U.S. Government and agencies obligations 159,904 (498) 533 (15) 160,437 (513)
State and municipal obligations -- -- 62,454 (2,569) 62,454 (2,569)
Foreign government bonds and obligations 1,002 (33) 9,008 (519) 10,010 (552)
- ----------------------------------------------------------------------------------------------------------------------------
Total $5,773,165 $(45,249) $2,168,123 $(73,270) $7,941,288 $(118,519)
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In evaluating potential other-than-temporary impairments, IDS Life considers the
extent to which amortized costs exceeds fair value and the duration and size of
that difference. A key metric in performing this evaluation is the ratio of fair
value to amortized cost. The following table summarizes the unrealized losses by
ratio of fair value to cost as of December 31, 2004:
(Millions, except
number of securities) Less than 12 months 12 months or more Total
- ------------------------------------------------------------------------------------------------------------------------------
Gross Gross Gross
Ratio of Fair Value Number of Unrealized Number of Unrealized Number of Unrealized
to Amortized Cost Securities Fair Value Losses Securities Fair Value Losses Securities Fair Value Losses
- ------------------------------------------------------------------------------------------------------------------------------
95% - 100% 319 $5,773 $(45) 87 $1,619 $(38) 406 $7,392 $ (83)
90% - 95% -- -- -- 6 545 (34) 6 545 (34)
80% - 90% -- -- -- 1 4 (1) 1 4 (1)
Less than 80% 1 -- -- 1 -- -- 2 -- --
- ------------------------------------------------------------------------------------------------------------------------------
Total 320 $5,773 $(45) 95 $2,168 $(73) 415 $7,941 $(118)
- ------------------------------------------------------------------------------------------------------------------------------
Substantially all of the gross unrealized losses on the securities are
attributable to changes in interest rates. Credit spreads and specific credit
events associated with individual issuers can also cause unrealized losses
although these impacts are not significant as of December 31, 2004. As noted in
the table above, a significant portion of the unrealized loss relates to
securities that have a fair value to cost ratio of 95% or above resulting in an
overall 99% ratio of fair value to cost for all securities with an unrealized
loss. The holding with the largest unrealized loss relates to the retained
interest in a CDO securitization trust which has $33.2 million of the $34.3
million in unrealized losses for securities with an unrealized loss for twelve
months or more and a fair value to cost ratio in the 90-95% category. With
regard to this security, IDS Life estimates future cash flows through maturity
(2014) on a quarterly basis using judgment as to the amount and timing of cash
payments and defaults and recovery rates of the underlying investments. These
cash flows support full recovery of IDS Life's carrying value related to the
retained interest in the CDO securitization trust as of December 31, 2004. All
of the unrealized losses for securities with an unrealized loss for twelve
months or more and a fair value to cost ratio in the 80-90% category primarily
relates to a foreign government bond obligation for which IDS Life expects that
all contractual principal and interest will be received. The unrealized losses
in the other categories are not concentrated in any individual industries or
with any individual securities.
IDS Life monitors the investments and metrics discussed above on a quarterly
basis to identify and evaluate investments that have indications of possible
other-than-temporary impairment. See the Investments section of Note 1 for
information regarding IDS Life's policy for determining when an investment's
decline in value is other-than-temporary. Additionally, IDS Life has the ability
and intent to hold these securities for a time sufficient to recover its
amortized cost and has, therefore, concluded that none are
other-than-temporarily impaired at December 31, 2004.
The change in net unrealized securities gains (losses) recognized in accumulated
other comprehensive income includes three components: (i) unrealized gains
(losses) that arose from changes in market value of securities that were held
during the period (holding gains (losses)), (ii) gains (losses) that were
previously unrealized, but have been recognized in current period net income due
to sales and other-than-temporary impairments of Available-for-Sale securities
(reclassification for realized (gains) losses) and (iii) other items primarily
consisting of adjustments in assets and liability balances, such as deferred
policy acquisition costs (DAC), to reflect the expected impact on their carrying
values had the unrealized gains (losses) been realized immediately.
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14
IDS Life Insurance Company
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The following is a distribution of investments classified as Available-for-Sale
by maturity as of December 31, 2004:
Amortized Fair
(Thousands) Cost Value
- ----------------------------------------------------------------------------------------------------------------------------
Due within 1 year $ 569,953 $ 582,432
Due after 1 through 5 years 3,786,395 3,930,575
Due after 5 through 10 years 11,597,234 11,997,347
Due after 10 years 1,499,291 1,593,689
- ----------------------------------------------------------------------------------------------------------------------------
17,452,873 18,104,043
Mortgage and other asset-backed securities 9,383,868 9,496,483
Structured investments 563,899 530,669
Preferred and common stocks 30,019 31,256
- ----------------------------------------------------------------------------------------------------------------------------
Total $27,430,659 $28,162,451
- ----------------------------------------------------------------------------------------------------------------------------
The expected payments on mortgage and other asset-backed securities and
structured investments may not coincide with their contractual maturities. As
such, these securities, as well as preferred and common stocks, were not
included in the maturities distribution.
At December 31, 2004 and 2003, fixed maturity securities comprised approximately
87 and 86 percent of IDS Life's total investments. These securities are rated by
Moody's and Standard & Poor's (S&P), except for approximately $1.0 billion and
$1.6 billion of securities at December 31, 2004 and 2003, which are rated by IDS
Life's internal analysts using criteria similar to Moody's and S&P. Ratings on
investment grade securities (excluding net unrealized appreciation and
depreciation) are presented using S&P's convention and, if the two agencies'
ratings differ, the lower rating is used. A summary by rating on December 31, is
as follows:
Rating 2004 2003
- ----------------------------------------------------------------------------------------------------------------------------
AAA 37% 41%
AA 3 2
A 22 21
BBB 30 27
Below investment grade 8 9
- ----------------------------------------------------------------------------------------------------------------------------
Total 100% 100%
- ----------------------------------------------------------------------------------------------------------------------------
At December 31, 2004 and 2003, approximately 61 and 91 percent of the securities
rated AAA are GNMA, FNMA and FHLMC mortgage-backed securities. No holdings of
any other issuer were greater than ten percent of stockholder's equity.
The table below includes sales, maturities, and purchases of investments
classified as Available-for-Sale for the years ended December 31:
(Thousands) 2004 2003 2002
- ----------------------------------------------------------------------------------------------------------------------------
Sales $1,603,285 $12,232,235 $10,093,228
Maturities, sinking fund payments and calls $1,931,070 $ 4,152,088 $ 3,078,509
Purchases $4,392,522 $20,527,995 $16,287,891
- ----------------------------------------------------------------------------------------------------------------------------
Included in net realized gains and losses are gross realized gains and losses on
sales of securities, as well as other-than-temporary losses on investments,
classified as Available-for-Sale as noted in the following table for the years
ended December 31:
(Thousands) 2004 2003 2002
- ----------------------------------------------------------------------------------------------------------------------------
Gross realized gains from sales $ 48,412 $ 255,348 $ 297,576
Gross realized losses from sales $(17,524) $(135,465) $(137,384)
Other-than-temporary impairments $ (131) $(102,614) $(144,064)
- ----------------------------------------------------------------------------------------------------------------------------
As of December 31, 2004, IDS Life's structured investments, which are classified
as Available-for-Sale, include interests in CDOs. CDOs are investments backed by
high-yield bonds or loans and are not readily marketable. IDS Life invested in
CDOs as part of its overall investment strategy in order to offer competitive
rates to insurance and annuity contractholders.
During 2001 IDS Life placed a majority of its rated CDO securities and related
accrued interest, as well as a relatively minor amount of other liquid
securities (collectively referred to as transferred assets), having an aggregate
book value of $675.3 million, into a securitization trust. In return, IDS Life
received $89.5 million in cash (excluding transaction expenses) relating to
sales to unaffiliated investors and retained interests with allocated book
amounts aggregating $585.8 million. As of December 31, 2004, the retained
interests had a carrying value of $526.2 million, of which $389.9 million is
considered investment grade, and are accounted for in accordance with EITF Issue
99-20, "Recognition of Interest Income and Impairment on Purchased and Retained
Beneficial Interests in Securitized Financial Assets." One of the results of
this transaction is that increases and decreases in future cash flows of the
individual CDOs are combined into one overall cash flow for purposes of
determining the carrying value of the retained interests and related impact on
results of operations.
At December 31, 2004 and 2003, bonds carried at $16.9 million and $16.3 million,
respectively, were on deposit with various states as required by law.
- --------------------------------------------------------------------------------
15
IDS Life Insurance Company
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Mortgage loans on real estate and syndicated loans
Mortgage loans are first mortgages on real estate. IDS Life 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 agreements. 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. Commitments to fund mortgages are made in the ordinary
course of business. The estimated fair value of the mortgage commitments as of
December 31, 2004 and 2003 was not material.
Syndicated loans, which are included as a component of other investments,
represent loans in which a group of lenders provide funds to borrowers. There is
usually one originating lender which retains a small percentage and syndicates
the remainder.
The following is a summary of mortgage loans on real estate and syndicated loans
at December 31:
(Thousands) 2004 2003
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Mortgage loans on real estate $2,968,889 $3,227,217
Mortgage loans on real estate reserves (45,347) (47,197)
- ----------------------------------------------------------------------------------------------------------------------------
Net mortgage loans $2,923,542 $3,180,020
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Syndicated loans $ 139,295 $ 140,792
Syndicated loans reserves (3,500) (3,000)
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Net syndicated loans $ 135,795 $ 137,792
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At December 31, 2004 and 2003, IDS Life's recorded investment in impaired
mortgage loans on real estate was $11.3 million and $11.1 million, with a
reserve of $4.0 million and $2.9 million, respectively. During 2004 and 2003,
the average recorded investment in impaired mortgage loans on real estate was
$8.3 million and $26.0 million, respectively. IDS Life recognized $0.6 million,
$0.8 million and $1.1 million of interest income related to impaired mortgage
loans on real estate for the years ended December 31, 2004, 2003 and 2002,
respectively.
The balances of and changes in the total reserve for mortgage loan losses as of
and for the years ended December 31, are as follows:
(Thousands) 2004 2003 2002
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Balance, January 1 $ 47,197 $44,312 $28,173
Provision for mortgage loan losses 9,500 11,687 23,514
Foreclosures, write-offs and other (11,350) (8,802) (7,375)
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Balance, December 31 $ 45,347 $47,197 $44,312
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Concentration of credit risk of mortgage loans on real estate by region at
December 31 were:
December 31, 2004 December 31, 2003
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(Thousands) On Balance Funding On Balance Funding
Region Sheet Commitments Sheet Commitments
- -----------------------------------------------------------------------------------------------------------------------------
East North Central $ 509,752 $ 1,400 $ 578,855 $ 6,575
West North Central 433,298 14,550 490,119 8,115
South Atlantic 588,764 24,115 662,121 1,350
Middle Atlantic 270,509 2,600 294,333 4,800
New England 198,297 6,515 197,338 11,474
Pacific 332,764 13,700 342,214 13,900
West South Central 191,410 -- 191,886 8,800
East South Central 72,294 9,625 71,566 800
Mountain 371,801 20,025 398,785 2,700
- -----------------------------------------------------------------------------------------------------------------------------
2,968,889 92,530 3,227,217 58,514
Less reserves for losses (45,347) -- (47,197) --
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Total $2,923,542 $92,530 $3,180,020 $58,514
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16
IDS Life Insurance Company
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Concentration of credit risk of mortgage loans on real estate by property type
at December 31 were:
December 31, 2004 December 31, 2003
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(Thousands) On Balance Funding On Balance Funding
Property type Sheet Commitments Sheet Commitments
- -----------------------------------------------------------------------------------------------------------------------------
Department/retail stores $ 734,590 $40,075 $ 868,079 $18,444
Apartments 505,632 24,875 560,753 21,600
Office buildings 1,087,700 5,840 1,136,034 10,805
Industrial buildings 373,767 15,615 355,497 4,265
Hotels/motels 109,408 -- 111,230 1,000
Medical buildings 46,960 -- 70,934 --
Nursing/retirement homes 9,875 -- 27,253 --
Mixed use 62,424 4,200 60,124 --
Other 38,533 1,925 37,313 2,400
- -----------------------------------------------------------------------------------------------------------------------------
2,968,889 92,530 3,227,217 58,514
Less reserves for losses (45,347) -- (47,197) --
- -----------------------------------------------------------------------------------------------------------------------------
Total $2,923,542 $92,530 $3,180,020 $58,514
- -----------------------------------------------------------------------------------------------------------------------------
Sources of investment income and realized gains (losses) on investments
Net investment income for the years ended December 31 is summarized as follows:
(Thousands) 2004 2003 2002
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Income on fixed maturities $ 1,450,919 $1,423,560 $1,331,547
Income on mortgage loans on real estate 221,022 247,001 274,524
Trading securities and other investments 138,468 63,983 (14,906)
- ----------------------------------------------------------------------------------------------------------------------------
1,810,409 1,734,544 1,591,165
Less investment expenses 32,963 29,359 28,573
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Total $1,777,446 $1,705,185 $1,562,592
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Net realized gains (losses) on investments for the years ended December 31 is
summarized as follows:
(Thousands) 2004 2003 2002
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Fixed maturities $30,757 $ 17,269 $ 16,128
Mortgage loans on real estate (3,048) (10,865) (20,552)
Other investments (417) (1,959) (819)
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Total $27,292 $ 4,445 $ (5,243)
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3.VARIABLE INTEREST ENTITIES
The variable interest entities for which IDS Life is considered the primary
beneficiary and which were consolidated beginning December 31, 2003, relate to
SLTs which are partially owned by IDS Life and managed by an affiliate. The SLTs
consolidated as a result of FIN 46 provide returns to investors primarily based
on the performance of an underlying portfolio of high-yield loans which are
managed by an affiliate. One of the SLTs originally consolidated was liquidated
in 2004 and the remaining two SLTs are in the process of being liquidated as of
December 31, 2004. The 2004 results of operations (reported in net investment
income) include a $24 million pretax, non-cash charge related to the complete
liquidation of one SLT, and a $4 million pretax, non-cash charge related to the
expected impact of liquidating the two remaining SLTs. However, further
adjustments to that amount could occur based on market movements and execution
of the liquidation process. To the extent further adjustments are included in
the liquidation of the SLT portfolios, the Company's maximum cumulative exposure
to losses was $462 million at December 31, 2004. The following table presents
the consolidated assets, essentially all of which are restricted, and other
balances related to these entities at December 31:
(Millions) 2004 2003
- ----------------------------------------------------------------------------------------------------------------------------
Restricted cash $536 $834
Derivative financial instruments (a) 43 73
- ----------------------------------------------------------------------------------------------------------------------------
Total assets $579 $907
Total liabilities 117 166
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Net assets $462 $741
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(a) Represents the estimated fair market value of the total return swap
derivatives related to the consolidated SLTs which have a notional amount of
$1.8 billion and $3.2 billion as of December 31, 2004 and 2003,
respectively.
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17
IDS Life Insurance Company
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IDS Life has other significant variable interests for which it is not considered
the primary beneficiary and, therefore, does not consolidate. These interests
are represented by a carrying value of $4.5 million of CDO residual tranches
managed by an affiliate where the Company is not the primary beneficiary. IDS
Life's maximum exposure to loss as a result of its investment in CDO residual
tranches is represented by the carrying values. FIN 46 does not impact the
accounting for QSPEs as defined by SFAS No. 140, such as the CDO-related
securitization trust established in 2001.
4. DEFERRED POLICY ACQUISITION COSTS
The balances of and changes in deferred policy acquisition costs as of and for
the years ended December 31, were:
(Thousands) 2004 2003 2002
- ----------------------------------------------------------------------------------------------------------------------------
Balance, January 1, $3,336,208 $3,077,994 $2,924,187
SOP 03-1 adoption impact 19,600 -- --
Capitalization of expenses 534,069 516,928 549,787
Amortization (260,778) (264,308) (320,629)
Change in unrealized investment gains and losses 8,857 5,594 (75,351)
- ----------------------------------------------------------------------------------------------------------------------------
Balance, December 31, $3,637,956 $3,336,208 $3,077,994
- ----------------------------------------------------------------------------------------------------------------------------
5. VARIABLE ANNUITY GUARANTEES AND SALES INDUCEMENT COSTS
The majority of the variable annuity contracts offered by IDS Life contain
guaranteed minimum death benefit (GMDB) provisions. When market values of the
customer's accounts decline, the death benefit payable on a contract with a GMDB
may exceed the contract accumulation value. IDS Life also offers variable
annuities with death benefit provisions that gross up the amount payable by a
certain percentage of contract earnings; these are referred to as gain gross-up
(GGU) benefits. In addition, IDS Life offers contracts containing guaranteed
minimum income benefit (GMIB) provisions. If elected by the contract owner and
after a stipulated waiting period from contract issuance, a GMIB guarantees a
minimum lifetime annuity based on a specified rate of contract accumulation
value growth and predetermined annuity purchase rates. IDS Life has established
additional liabilities for these variable annuity death and GMIB benefits under
SOP 03-1. IDS Life has not established additional liabilities for other
insurance or annuitization guarantees for which the risk is currently
immaterial.
The variable annuity death benefit liability is determined each period by
estimating the expected value of death benefits in excess of the projected
contract accumulation value and recognizing the excess over the estimated
meaningful life based on expected assessments (e.g., mortality and expense fees,
contractual administrative charges and similar fees). Similarly, the GMIB
liability is determined each period by estimating the expected value of
annuitization benefits in excess of the projected contract accumulation value at
the date of annuitization and recognizing the excess over the estimated
meaningful life based on expected assessments.
The majority of the GMDB contracts provide for six year reset contract values.
In determining the additional liabilities for variable annuity death benefits
and GMIB, IDS Life projects these benefits and contract assessments using
actuarial models to simulate various equity market scenarios. Significant
assumptions made in projecting future benefits and assessments relate to
customer asset value growth rates, mortality, persistency and investment margins
and are consistent with those used for DAC asset valuation for the same
contracts. As with DAC, management will review, and where appropriate, adjust
its assumptions each quarter. Unless management identifies a material deviation
over the course of quarterly monitoring, management will review and update these
assumptions annually in the third quarter of each year.
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18
IDS Life Insurance Company
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The following provides summary information related to variable annuity contracts
for which IDS Life has established additional liabilities for death benefits and
guaranteed minimum income benefits as of December 31:
Variable Annuity GMDB and GMIB by Benefit Type
(Dollar amounts in millions) 2004 2003
- ----------------------------------------------------------------------------------------------------------------------------
Contracts with GMDB Providing for Return of Premium Total Contract Value $ 3,241.6 $ 3,162.4
Contract Value in Separate Accounts $ 1,727.4 $ 1,600.7
Net Amount at Risk* $ 110.9 $ 28.0
Weighted Average Attained Age 62 62
- ----------------------------------------------------------------------------------------------------------------------------
Contracts with GMDB Providing for Six Year Reset Total Contract Value $27,453.2 $24,570.6
Contract Value in Separate Accounts $22,787.1 $20,316.1
Net Amount at Risk* $ 1,267.2 $ 2,077.5
Weighted Average Attained Age 60 60
- ----------------------------------------------------------------------------------------------------------------------------
Contracts with GMDB Providing for One Year Ratchet Total Contract Value $ 4,039.4 $ 2,827.5
Contract Value in Separate Accounts $ 3,078.5 $ 1,886.3
Net Amount at Risk* $ 55.6 $ 84.7
Weighted Average Attained Age 61 60
- ----------------------------------------------------------------------------------------------------------------------------
Contracts with Other GMDB Total Contract Value $ 494.7 $ 251.8
Contract Value in Separate Accounts $ 397.7 $ 174.8
Net Amount at Risk* $ 11.7 $ 20.8
Weighted Average Attained Age 66 63
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Contracts with GGU Death Benefit Total Contract Value $ 450.1 $ 276.4
Contract Value in Separate Accounts $ 363.8 $ 193.1
Net Amount at Risk* $ 18.2 $ 5.8
Weighted Average Attained Age 64 61
- ----------------------------------------------------------------------------------------------------------------------------
Contracts with GMIB Total Contract Value $ 603.3 $ 357.8
Contract Value in Separate Accounts $ 517.6 $ 268.3
Net Amount at Risk* $ 11.9 $ 23.0
Weighted Average Attained Age 59 59
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* Represents current death benefit less total contract value for GMDB, amount
of gross up for GGU and accumulated guaranteed minimum benefit base less
total contract value for GMIB and assumes the actuarially remote scenario
that all claims become payable on the same day.
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Additional Liabilities and Incurred Benefits GMDB & GGU GMIB
- ----------------------------------------------------------------------------------------------------------------------------
For the year ended December 31, 2004 Liability balance at January 1 $30.6 $2.2
Reported claims $19.6 $ --
Liability balance at December 31 $29.9 $3.0
Incurred claims (reported + change in liability) $18.9 $0.8
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The additional liabilities for guaranteed benefits established under SOP 03-1
are supported by general account assets. Changes in these liabilities are
included in death and other benefits in the Consolidated Statements of Income.
Contract values in separate accounts were invested in various equity, bond and
other funds as directed by the contractholder. No gains or losses were
recognized on assets transferred to separate accounts for the periods presented.
Sales inducement costs consist of bonus interest credits and deposit credits
added to certain annuity contract values. These benefits are capitalized to the
extent they are incremental to amounts that would be credited on similar
contracts without the applicable feature. These costs were previously included
in DAC and were reclassified as part of the adoption of SOP 03-1. The amounts
capitalized are amortized using the same methodology and assumptions used to
amortize DAC. IDS Life capitalized $70.9 million and $71.8 million for the years
ended December 31, 2004 and 2003, respectively. IDS Life amortized $33.8 million
and $23.9 million for the years ended December 31, 2004 and 2003, respectively.
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19
IDS Life Insurance Company
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6. INCOME TAXES
IDS Life qualifies as a life insurance company for federal income tax purposes.
As such, IDS Life is subject to the Internal Revenue Code provisions applicable
to life insurance companies.
The components of income tax provision included in the Consolidated Statements
of Income for the years ended December 31 were as follows:
(Thousands) 2004 2003 2002
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Federal income taxes
Current $159,783 $ 91,862 $(30,647)
Deferred 70,574 (30,714) 116,995
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230,357 61,148 86,348
State income taxes-current (4,180) 5,797 1,478
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Income tax provision before accounting change $226,177 $ 66,945 $ 87,826
============================================================================================================================
A reconciliation of the expected federal income tax provision using the U.S.
federal statutory rate of 35% to IDS Life's actual income tax provision for the
years ended December 31 were as follows:
(Thousands) 2004 2003 2002
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Combined tax at U.S. statutory rate $277,334 35.0% $201,089 35.0% $164,502 35.0%
Changes in taxes resulting from:
Tax-exempt interest and dividend income (45,199) (5.7) (61,070) (10.6) (5,260) (1.1)
State income taxes, net of federal benefit (2,717) (0.4) 3,768 0.7 961 0.2
Affordable housing credits -- -- (73,500) (12.8) (70,000) (14.9)
All other (3,241) (0.4) (3,342) (0.6) (2,377) (0.5)
- ----------------------------------------------------------------------------------------------------------------------------
Income tax provision before accounting change $226,177 28.5% $ 66,945 11.7% $ 87,826 18.7%
============================================================================================================================
A portion of IDS Life's 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, 2004, IDS Life had a policyholders' surplus account
balance of $20.1 million. The American Jobs Creation Act of 2004 which was
enacted on October 22, 2004 provided a two-year suspension of the tax on
policyholders' surplus account distributions. IDS Life is evaluating making
distributions which will not be subject to tax under the two-year suspension.
Previously the policyholders' surplus account was only taxable if dividends to
shareholders exceed the shareholders' surplus account and/or IDS Life is
liquidated. Deferred taxes of $7 million had not been established because no
distributions of such amounts were contemplated.
Deferred income tax provision (benefit) results from differences between assets
and liabilities measured for financial reporting and for income tax return
purposes. The significant components of IDS Life's deferred tax assets and
liabilities as of December 31, 2004 and 2003 are reflected in the following
table:
(Thousands) 2004 2003
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Deferred tax assets:
Policy reserves $1,035,300 $ 798,508
Other investments 139,066 300,888
Other 55,556 30,376
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Total 1,229,922 1,129,772
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Deferred tax liabilities:
Deferred policy acquisition costs 1,116,235 1,004,942
Deferred taxes related to net unrealized securities gains 183,988 218,322
Other 70,901 46,322
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Total 1,371,124 1,269,586
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Net deferred tax liability $ 141,202 $ 139,814
- ----------------------------------------------------------------------------------------------------------------------------
IDS Life 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 IDS Life will realize the
benefit of the deferred income tax assets and, therefore, no such valuation
allowance has been established.
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20
IDS Life Insurance Company
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7. STATUTORY CAPITAL AND SURPLUS
Statutory capital and surplus available for distribution or dividends to AEFC
are limited to IDS Life Insurance Company's surplus as determined in accordance
with accounting practices prescribed by state insurance regulatory authorities.
IDS Life Insurance Company's statutory unassigned surplus aggregated $909.7
million and $1.4 billion as of December 31, 2004 and 2003, respectively. In
addition, any dividend or distribution paid prior to December 20, 2005 (one year
after IDS Life Insurance Company's most recent dividend payment) would require
pre-notification to the Commissioner of Commerce of the State of Minnesota, who
has the authority to disapprove and prevent payment thereof. From December 20,
2005 to December 31, 2005, dividends or distributions in excess of $358.6
million would be subject to this same pre-notification and potential
disapproval.
Statutory net income for the years ended December 31 and capital and surplus as
of December 31 are summarized as follows:
(Thousands) 2004 2003 2002
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Statutory net income $ 379,950 $ 432,063 $ 159,794
Statutory capital and surplus 2,276,724 2,804,593 2,408,379
8. RELATED PARTY TRANSACTIONS
IDS Life loans funds to AEFC under a collateral loan agreement. There was no
balance on the loan at December 31, 2004 and 2003. This loan can be increased to
a maximum of $75 million and pays interest at a rate equal to the preceding
month's effective new money rate for IDS Life's permanent investments.
In connection with AEFC being named the investment manager for the proprietary
mutual funds used as investment options by IDS Life's variable annuity and
variable life insurance contract owners in the fourth quarter of 2003, AEFC
receives management fees from these funds. IDS Life continues to provide all
fund management services, other than investment management, and has entered into
an administrative services agreement with AEFC to be compensated for the
services IDS Life provides. For the years ended December 31, 2004 and 2003 IDS
Life received under this arrangement, $81.5 million and $14.1 million,
respectively.
IDS Life 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. IDS Life's share of the total net periodic pension cost was
$0.5 million in 2004, and $0.3 million in 2003 and 2002.
IDS Life 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 2004, 2003 and 2002 were $2.4 million, $2.2 million,
and $1.4 million, respectively.
IDS Life 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
2004, 2003 and 2002 was $0.5 million, $2.1 million, and $1.8 million,
respectively.
Charges by AEFC for use of joint facilities, technology support, marketing
services and other services aggregated $600.6 million, $549.2 million, and
$526.1 million for 2004, 2003 and 2002, respectively. Certain of these costs are
included in DAC. Expenses allocated to IDS Life may not be reflective of
expenses that would have been incurred by IDS Life on a stand-alone basis.
On December 29, 2003, IDS Life contributed substantially all of its interests in
low income housing investments, net of related payables and deferred tax assets,
to its wholly owned subsidiary, American Express Corporation (AEC). These
investments had a carrying value of $308.6 million and $381.5 million at
December 29, 2003 and December 31, 2002, respectively. The amount of the
contribution to AEC was $272 million. AEC had a carrying value of approximately
$10 million prior to receiving this contribution.
On December 30, 2003, IDS Life distributed via dividend all of its interest in
AEC to AEFC. This distribution was considered extraordinary, as defined in
Minnesota holding company statutes. On December 30, 2003, IDS Life received a
contribution of cash of approximately $282 million, equal to the amount of the
distribution of AEC.
During the second and fourth quarter of 2004, IDS Life approved and paid
dividends to AEFC of $430 million and $500 million, respectively. IDS Life
expects to continue to maintain adequate capital to meet internal and external
Risk-Based Capital requirements.
Included in other liabilities at December 31, 2004 and 2003 are $30.1 million
and $64.4 million, respectively, payable to AEFC for federal income taxes.
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21
IDS Life Insurance Company
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9. LINES OF CREDIT
IDS Life has available lines of credit with AEFC aggregating $295 million ($195
million committed and $100 million uncommitted). The interest rate for any
borrowings is established by reference to various indices plus 20 to 45 basis
points, depending on the term. There were no borrowings outstanding under these
line of credit arrangements at December 31, 2004 and 2003.
10. REINSURANCE
At December 31, 2004, 2003 and 2002, traditional life and universal life
insurance in force aggregated $147.5 billion, $131.1 billion and $119.2 billion,
respectively, of which $70.9 billion, $53.8 billion, and $38.0 billion, was
reinsured at the respective year ends. IDS Life also reinsures a portion of the
risks assumed under long-term care policies. Under all reinsurance agreements,
premiums ceded to reinsurers amounted to $159.6 million, $144.7 million and
$129.3 million and reinsurance recovered from reinsurers amounted to $73.3
million, $60.3 million and $60.6 million, for the years ended December 31, 2004,
2003 and 2002, respectively. Reinsurance contracts do not relieve IDS Life from
its primary obligation to policyholders. Life insurance inforce was reported on
a statutory basis.
11. DERIVATIVE FINANCIAL INSTRUMENTS AND HEDGING ACTIVITIES
Derivative financial instruments enable the end users to manage exposure to
various credit or market risks. The value of such instruments is derived from an
underlying variable or multiple variables, including equity, and interest rate
indices or prices. IDS Life enters into various derivative financial instruments
as part of its ongoing risk management activities. The following summarizes IDS
Life's use of derivative financial instruments.
Cash flow hedges
IDS Life uses interest rate products, primarily interest rate swaptions to hedge
the risk of increasing interest rates on forecasted fixed annuity sales. During
2004, 2003 and 2002, no amounts were reclassified into earnings from accumulated
other comprehensive income. Additionally, IDS Life does not expect to reclassify
any material amounts from accumulated other comprehensive income to earnings
during the next twelve months. Currently, the longest period of time over which
the Company is hedging exposure to the variability in future cash flows is 14
years and relates to forecasted fixed annuity sales. For the years ended
December 31, 2004, 2003 and 2002, there were no gains or losses on derivative
transactions or portions thereof that were ineffective as hedges or excluded
from the assessment of hedge effectiveness.
Non-designated derivatives
IDS Life has economic hedges that either do not qualify or are not designated
for hedge accounting treatment under SFAS 133. Certain of IDS Life's annuity
products have returns tied to the performance of equity markets. These elements
are considered derivatives under SFAS 133. IDS Life manages this equity market
risk by entering into options and futures with offsetting characteristics.
Derivative financial instruments used to economically hedge IDS Life's exposure
to annuity products include the use of purchased and written index options, as
well as futures contracts. 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. IDS Life 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 (equity-indexed annuities). IDS Life 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
purchased and written options are carried at fair value on the balance sheet and
included in other assets and other liabilities, respectively. The purchased and
written options expire on various dates through 2009. IDS Life purchases futures
to hedge its obligations under equity indexed annuities. The futures purchased
are marked-to-market daily and exchange traded, exposing IDS Life to no
counterparty risk.
Embedded Derivatives
IDS Life's equity indexed annuities 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 133. IDS Life
managed this equity market risk by entering into options and futures with
offsetting characteristics. 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 IDS Life related to the annuity product positively
or negatively impact reported earnings. The changes in fair value of the options
are recognized in net investment income and the embedded derivatives are
recognized in interest credited on universal life-type insurance and investment
contracts. The fair value of the embedded options are recognized on the balance
sheet in future policy benefits for fixed annuities. The total fair value of
these instruments were $341.2 million and $304.2 million at December 31, 2004
and 2003, respectively.
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22
IDS Life Insurance Company
- --------------------------------------------------------------------------------
12. FAIR VALUES OF FINANCIAL INSTRUMENTS
The following table discloses fair value information for financial instruments.
Certain items, such as life insurance obligations, employee benefit obligations,
investments accounted for under the equity method, deferred policy acquisition
costs and deferred sales inducement costs are specifically excluded by SFAS No.
107, "Disclosure about Fair Value of Financial Instruments." The fair values of
financial instruments are estimates based upon market conditions and perceived
risks at December 31, 2004 and 2003 and require management judgment. These
figures may not be indicative of their future fair values. Additionally,
management believes the value of excluded assets and liabilities is significant.
The fair value of IDS Life, therefore, cannot be estimated by aggregating the
amounts presented. The following table discloses fair value information for
financial instruments as of December 31:
2004 2003
- ----------------------------------------------------------------------------------------------------------------------------
Carrying Fair Carrying Fair
(Thousands) Value Value Value Value
- ----------------------------------------------------------------------------------------------------------------------------
Financial Assets
Available-for-Sale, policy loans, trading securities and
other investments $29,553,121 $29,553,121 $28,711,183 $28,711,183
Mortgage loans on real estate, net $ 2,923,542 $ 3,149,986 $ 3,180,020 $ 3,477,868
Separate account assets $32,454,032 $32,454,032 $27,774,319 $27,774,319
Other financial assets $ 1,338,006 $ 1,342,639 $ 1,907,487 $ 1,910,874
Financial Liabilities
Fixed annuities $25,469,069 $24,759,962 $24,873,303 $24,113,440
Separate account liabilities $28,284,118 $27,164,063 $24,281,415 $23,320,423
Other financial liabilities $ 600,027 $ 600,027 $ 637,151 $ 637,151
- ----------------------------------------------------------------------------------------------------------------------------
The following methods were used to estimate the fair values of financial assets
and financial liabilities.
Financial assets
Generally, investments are carried at fair value on the Consolidated Balance
Sheets. Gains and losses are recognized in the results of operations upon
disposition of the securities. In addition, losses are recognized when
management determines that a decline in value is other-than-temporary. See Note
2 for carrying value and fair value information regarding investments.
For variable rate loans that reprice within a year where there has been no
significant change in counterparties' creditworthiness, fair values approximate
carrying value.
The fair values of all other loans (including mortgage loans on real estate and
leveraged investment loans), except those with significant credit deterioration,
are estimated using discounted cash flow analysis, based on current interest
rates for loans with similar terms to borrowers of similar credit quality. For
loans with significant credit deterioration, fair values are based on estimates
of future cash flows discounted at rates commensurate with the risk inherent in
the revised cash flow projections, or for collateral dependent loans on
collateral values.
Separate account assets are carried at fair value on the Consolidated Balance
Sheets.
Other financial assets for which carrying values approximate fair values,
include cash and cash equivalents, other accounts receivable and accrued
interest, derivative financial instruments and certain other assets. The
carrying values approximate fair value due to the short term nature of these
investments.
Financial liabilities
The fair values of fixed annuities in deferral status are estimated as the
accumulated value less applicable surrender charges and loans. For annuities in
payout status, fair value is estimated using discounted cash flows, based on
current interest rates. The fair value of these reserves excludes life insurance
related elements of $1.5 billion and $1.4 billion at December 31, 2004 and 2003,
respectively.
The fair values of separate account liabilities, after excluding life
insurance-related elements of $4.2 billion and $3.5 billion at December 31, 2004
and 2003, respectively, are estimated as the accumulated value less applicable
surrender charges.
Other financial liabilities for which carrying values approximate fair values
include derivative financial instruments and certain other liabilities. The
carrying value approximates fair value due to the short-term nature of these
instruments.
- --------------------------------------------------------------------------------
23
IDS Life Insurance Company
- --------------------------------------------------------------------------------
13. COMMITMENTS AND CONTINGENCIES
At December 31, 2004 and 2003, IDS Life had no commitments to purchase
investments other than mortgage loan fundings (see Note 2).
The Securities and Exchange Commission (SEC), the National Association of
Securities Dealers (NASD) and several state attorneys general have brought
proceedings challenging several mutual fund and variable account financial
practices, including suitability generally, late trading, market timing,
disclosure of revenue sharing arrangements and inappropriate sales of B shares.
IDS Life Insurance Company has received requests for information and has been
contacted by regulatory authorities concerning its practices and is cooperating
fully with these inquiries.
IDS Life and its subsidiaries are involved in a number of other legal and
arbitration proceedings concerning matters arising in connection with the
conduct of their respective business activities. IDS Life believes it has
meritorious defenses to each of these actions and intends to defend them
vigorously. IDS Life believes that it is not a party to, nor are any of its
properties the subject of, any pending legal or arbitration proceedings that
would have a material adverse effect on IDS Life's consolidated financial
condition, results of operations or liquidity. However, it is possible that the
outcome of any such proceedings could have a material impact on results of
operations in any particular reporting period as the proceedings are resolved.
The IRS routinely examines IDS Life's federal income tax returns and is
currently conducting an audit for the 1993 through 1996 tax years and in
February of 2005 began the examination of the 1997 through 2002 tax years.
Management does not believe there will be a material adverse effect on IDS
Life's consolidated financial position as a result of these audits.
14. SUBSEQUENT EVENTS
On February 1, 2005, the American Express Company announced plans to pursue a
tax-free spin-off of the common stock of American Express Company's AEFC unit
through a special dividend to American Express common shareholders. The final
transaction, which is subject to certain conditions including receipt of a
favorable tax ruling and approval by American Express Company's Board of
Directors, is expected to close in the third quarter of 2005.
Also, on February 1, 2005, A.M. Best placed IDS Life's financial strength rating
of "A+" under review with negative implications, Moody's affirmed IDS Life's
financial strength rating at "Aa3" and Fitch lowered IDS Life's financial
strength rating to "AA-" and placed them on "Rating Watch Negative" following
American Express Company's announcement that it intends to spin-off its full
ownership of AEFC. In connection with the spin-off, American Express Company
intends to provide additional capital to IDS Life to confirm its current
financial strength ratings.
- --------------------------------------------------------------------------------
24
APPENDIX A
PARTIAL SURRENDER ILLUSTRATION
Involving a surrender charge and a market value adjustment
ANNUITY ASSUMPTIONS
Single payment $10,000
Guarantee period 10 years
Guarantee rate (ig) 4% effective annual yield
END OF CONTRACT YEAR
ACCUMULATION VALUES
CONTRACT YEAR SURRENDER CHARGE % IF NO SURRENDERS
1 8% $10,400.00
2 7 10,816.00
3 6 11,248.64
4 5 11,698.59
5 4 12,166.53
6 3 12,653.19
7 2 13,159.32
8 1 13,685.69
9 0 14,233.12
10 0 14,802.44
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
You may surrender 10% of $11,248.64 (end of third contract year accumulation
value) without surrender charge but subject to a market value adjustment -- this
is $1,124.86
The excess market adjusted value surrendered is subject to both a 5% (fourth
contract year) surrender charge and a market value adjustment.
The current rate applicable for new sales and renewals = 3%
The current rate applicable for new sales and renewals +.0025(iMvi) = 3.25%
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 (1.04) (TO THE POWER OF 7)
-----------------------------------
(1.0325)(TO THE POWER OF 7)
= $2,103.94
The market value adjustment = the market adjusted value surrendered less the
accumulation value surrendered
$2,103.94 - $2,000 = $103.94
(NOTE: THIS MARKET VALUE ADJUSTMENT IS POSITIVE. IN OTHER CASES THE MARKET VALUE
ADJUSTMENT MAY BE NEGATIVE.)
- --------------------------------------------------------------------------------
53 AMERICAN EXPRESS GUARANTEED TERM ANNUITY -- PROSPECTUS
WHAT WILL BE YOUR SURRENDER CHARGE AMOUNT?
The surrender charge will be 5% multiplied by the excess of the market adjusted
value over the accumulation value that may be surrendered without surrender
charge:
($2,103.94 - $1,124.86) x .05 = $48.95
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 103.94
Less surrender charge (48.95)
---------
Net surrender amount $2,054.99
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 $1,944.98 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))
= $1,944.98 (1 + i(SUB g)(TO THE POWER OF 7)
------------------------------------------
(1 + i(SUB MVI))(TO THE POWER OF 7)
= $1,944.98 (1.04)(TO THE POWER OF 7)
-----------------------------------
(1.0325)(TO THE POWER OF 7)
= $2,046.06
The market value adjustment = the market adjusted value surrendered less the
accumulation value surrendered
$2,046.06 - $1,944.98 = $101.08
(NOTE: THIS MARKET VALUE ADJUSTMENT IS POSITIVE. IN OTHER CASES THE MARKET VALUE
ADJUSTMENT MAY BE NEGATIVE.)
WHAT WILL BE YOUR SURRENDER CHARGE AMOUNT?
The surrender charge will be 5% multiplied by the excess of the market adjusted
value over the accumulation value that may be surrendered without surrender
charge:
($2,046.06 - $1,124.86) x .05 = $46.06
WHAT NET AMOUNT WILL YOU RECEIVE?
Your contract's accumulation value will decrease by $1,944.98 and we will send
you a check for:
Accumulation value surrendered $1,944.98
Market value adjustment 101.08
Less surrender charge (46.06)
---------
Net surrender amount $2,000.00
- --------------------------------------------------------------------------------
53 AMERICAN EXPRESS GUARANTEED TERM ANNUITY -- PROSPECTUS
APPENDIX B
MARKET VALUE ADJUSTMENT ILLUSTRATION
ANNUITY ASSUMPTIONS
Single payment $50,000
Guarantee period 10 years
Guarantee rate 4% 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 $52,000. If there aren't any
surrenders, the renewal value at the end of the 10-year guarantee period will be
$74,012.21.
We base the market value adjustment on the rate we are crediting (at the time of
your surrender) on new contracts with the same length guarantee period as the
time remaining in your guarantee period. After one year, you have nine years
left of your 10-year guarantee period.
Example I shows a downward market value adjustment. Example II shows an upward
market value adjustment. These examples do not show the surrender charge (if
any) that would be calculated separately after the market value adjustment.
Surrender charge calculations are shown in Appendix A.
MARKET ADJUSTED VALUE FORMULA:
MARKET ADJUSTED VALUE = (RENEWAL 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 4.5% 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))
= $74,012.21
------------------------------
(1 + .0475)(TO THE POWER OF 9)
= $48,743.54
The market value adjustment is a $3,256.46 reduction of the accumulation value:
($3,256.46) = $48,743.54 - $52,000
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:
$24,371.77 = $37,006.11
------------------------------
(1 + .0475)(TO THE POWER OF 9)
- --------------------------------------------------------------------------------
54 AMERICAN EXPRESS GUARANTEED TERM ANNUITY -- PROSPECTUS
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 3.5%
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))
= $74,012.21
------------------------------
(1 + .0375)(TO THE POWER OF 9)
= $53,138.64
The market value adjustment is a $1,138.64 increase of the accumulation value:
$1,138.64 = $53,138.64 - $52,000
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:
$26,569.32 = $37,006.11
-------------------------------
(1 + .0375)(TO THE POWER OF 9)
- --------------------------------------------------------------------------------
55 AMERICAN EXPRESS GUARANTEED TERM ANNUITY -- PROSPECTUS
(logo)
AMERICAN
EXPRESS
(R)
IDS LIFE INSURANCE COMPANY
70100 AXP FINANCIAL CENTER
MINNEAPOLIS, MN 55474
(800) 862-7919
S-6401 U (4/05)
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
The amended and restated By-Laws of the depositor provide that the depositor
will indemnify, to the fullest extent now or hereafter provided for or permitted
by law, each person involved in, or made or threatened to be made a party to,
any action, suit, claim or proceeding, whether civil or criminal, including any
investigative, administrative, legislative, or other proceeding, and including
any action by or in the right of the depositor or any other corporation, or any
partnership, joint venture, trust, employee benefit plan, or other enterprise
(any such entity, other than the depositor, being hereinafter referred to as an
"Enterprise"), and including appeals therein (any such action or process being
hereinafter referred to as a "Proceeding"), by reason of the fact that such
person, such person's testator or intestate (i) is or was a director or officer
of the depositor, or (ii) is or was serving, at the request of the depositor, as
a director, officer, or in any other capacity, or any other Enterprise, against
any and all judgments, amounts paid in settlement, and expenses, including
attorney's fees, actually and reasonably incurred as a result of or in
connection with any Proceeding, except as provided below.
No indemnification will be made to or on behalf of any such person if a judgment
or other final adjudication adverse to such person establishes that such
person's acts were committed in bad faith or were the result of active and
deliberate dishonesty and were material to the cause of action so adjudicated,
or that such person personally gained in fact a financial profit or other
advantage to which such person was not legally entitled. In addition, no
indemnification will be made with respect to any Proceeding initiated by any
such person against the depositor, or a director or officer of the depositor,
other than to enforce the terms of this indemnification provision, unless such
Proceeding was authorized by the Board of Directors of the depositor. Further,
no indemnification will be made with respect to any settlement or compromise of
any Proceeding unless and until the depositor has consented to such settlement
or compromise.
The depositor may, from time to time, with the approval of the Board of
Directors, and to the extent authorized, grant rights to indemnification, and to
the advancement of expenses, to any employee or agent of the depositor or to any
person serving at the request of the depositor as a director or officer, or in
any other capacity, of any other Enterprise, to the fullest extent of the
provisions with respect to the indemnification and advancement of expenses of
directors and officers of the depositor.
Insofar as indemnification for liability arising under the Securities Act of
1933 (the "Act") may be permitted to directors, officers and controlling persons
of the depositor or 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 and Restated By-laws of IDS Life Insurance
Company filed electronically as Exhibit 3.2 to Post-Effective
Amendment No. 17 to Registration Statement No. 33-28976 is
incorporated herein by reference.
3.3 Copy of Resolution of the Board of Directors of IDS Life
Insurance Company, dated May 5, 1989, establishing IDS Life
Account MGA filed electronically as Exhibit 3.3 to
Post-Effective Amendment No. 5 to Registration Statement No.
33-28976 is incorporated herein by reference.
4.1 Copy of Non-tax qualified Group Annuity Contract, Form 30363C,
filed electronically as Exhibit 4.1 to Post-Effective
Amendment No. 5 to Registration Statement No. 33-28976 is
incorporated herein by reference.
4.2 Copy of Non-tax qualified Group Annuity Certificate, Form
30360C, filed electronically as Exhibit 4.2 to Post-Effective
Amendment No. 5 to Registration Statement No. 33-28976 is
incorporated herein by reference.
4.3 Copy of Endorsement No. 30340C-GP to the Group Annuity
Contract filed electronically as Exhibit 4.3 to Post-Effective
Amendment No. 5 to Registration Statement No. 33-28976 is
incorporated herein by reference.
4.4 Copy of Endorsement No. 30340C to the Group Annuity
Certificate filed electronically as Exhibit 4.4 to
Post-Effective Amendment No. 5 to Registration Statement No.
33-28976 is incorporated herein by reference.
4.5 Copy of Tax qualified Group Annuity Contract, Form 30369C,
filed electronically as Exhibit 4.5 to Post-Effective
Amendment No. 10 to Registration Statement No. 33-28976 is
incorporated herein by reference.
4.6 Copy of Tax qualified Group Annuity Certificate, Form 30368C,
filed electronically as Exhibit 4.6 to Post-Effective
Amendment No. 10 to Registration Statement No. 33-28976 is
incorporated herein by reference.
4.7 Copy of Group IRA Annuity Contract, Form 30372C, filed
electronically as Exhibit 4.7 to Post-Effective Amendment No.
10 to Registration Statement No. 33-28976 is incorporated
herein by reference.
4.8 Copy of Group IRA Annuity Certificate, Form 30371C, filed
electronically as Exhibit 4.8 to Post-Effective Amendment No.
10 to Registration Statement No. 33-28976 is incorporated
herein by reference.
4.9 Copy of Non-tax qualified Individual Annuity Contract, Form
30365D, filed electronically as Exhibit 4.9 to Post-Effective
Amendment No. 10 to Registration Statement No. 33-28976 is
incorporated herein by reference.
4.10 Copy of Endorsement No. 30379 to the Individual Annuity
Contract, filed electronically as Exhibit 4.10 to
Post-Effective Amendment No. 10 to Registration Statement No.
33-28976 is incorporated herein by reference.
4.11 Copy of Tax qualified Individual Annuity Contract, Form
30370C, filed electronically as Exhibit 4.11 to Post-Effective
Amendment No. 10 to Registration Statement No. 33-28976 is
incorporated herein by reference.
4.12 Copy of Individual IRA Annuity Contract, Form 30373C, filed
electronically as Exhibit 4.12 to Post-Effective Amendment No.
10 to Registration Statement No. 33-28976 is incorporated
herein by reference.
4.13 Copy of Endorsement No. 33007 filed electronically as Exhibit
4.13 to Post-Effective Amendment No. 12 to Registration
Statement No. 33-28976 is incorporated herein by reference.
4.14 Form of Traditional IRA or SEP-IRA Annuity Endorsement
(form 131061) filed electronically as Exhibit 4.14 to
Post-Effective Amendment No. 17 to Registration Statement
No. 33-28976 is incorporated herein by reference.
4.15 Form of Roth IRA Annuity Endorsement (form 131062) filed
electronically as Exhibit 4.15 to Post-Effective Amendment
No. 17 to Registration Statement No. 33-28976 is incorporated
herein by reference.
4.16 Form of Deferred Annuity Contract for Retirement Advisor
Advantage Plus (form 1043A) filed electronically as Exhibit
4.15 to IDS Life Variable Account 10 Post-Effective
Amendment No. 21 to Registration Statement No. 333-79311,
filed on or about Jan. 23, 2004, is incorporated by
reference.
4.17 Form of Deferred Annuity Contract for Retirement Advisor
Select Plus (form 131041A) filed electronically as Exhibit
4.16 to IDS Life Variable Account 10 Post-Effective
Amendment No. 21 to Registration Statement No. 333-79311,
filed on or about Jan. 23, 2004, is incorporated by
reference.
4.18 Form of Guarantee Period Accounts Rider filed electronically
as Exhibit 4.24 to IDS Life Variable Account 10
Post-Effective Amendment No. 25 to Registration Statement
No. 333-79311, filed on or about June 2, 2004, is
incorporated 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. 33-28976 is incorporated herein by reference.
22. Not Applicable.
23. Consent of Independent Registered Public Accounting Firm is
filed electronically herewith.
24.1 Power of Attorney to sign Amendments to this Registration
Statement, dated April 13, 2005, is filed electronically
herewith.
24.2 Power of Attorney to sign Amendments to this Registration
Statement, dated July 7, 2004, filed electronically as Exhibit
24.2 to Post-Effective Amendment No. 1 to Registration
Statement No. 333-114888 is incorporated herein by reference.
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,
(3) that all post-effective amendments will comply with the
applicable forms, rules and regulations of the Commission in
effect at the time such post-effective amendments are filed,
and
(4) to remove from registration by means of a post-effective
amendment any of the securities being registered which remain
unsold at the termination of the offering.
B. The Registrant represents that it is relying upon the no-action
assurance given to the American Council of Life Insurance (pub. avail.
Nov. 28, 1988). Further, the Registrant represents that it has complied
with the provisions of paragraphs (1) - (4) of the no-action letter.
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, 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 27th
day of April, 2005.
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 by the following persons in the capacities
indicated on the 27th day of April, 2005.
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/ Arthur H. Berman* Director and Executive Vice
- ------------------------------------ President - Finance
Arthur H. Berman (Principal Financial Officer)
/s/ B. Roger Natarajan* Director
- ------------------------------------
B. Roger Natarajan
/s/ Mark E. Schwarzmann* Chairman of the Board and
- ------------------------------------ Chief Executive Officer
Mark E. Schwarzmann (Chief Executive Officer)
/s/ Bridget M. Sperl* Executive Vice President -
- ------------------------------------ Client Services
Bridget M. Sperl
/s/ David K. Stewart** Vice President and Controller
- ------------------------------------ (Principal Accounting Officer)
David K. Stewart
* Signed pursuant to Power of Attorney dated April 13, 2005 filed
electronically herewith as Exhibit 24.1 to Registrant's Post-Effective
Amendment No. 3, by:
** Signed pursuant to Power of Attorney dated July 7, 2004 filed
electronically as Exhibit 24.2 to Registrant's Post-Effective
Amendment No. 1, by:
/s/ Mary Ellyn Minenko
- ----------------------
Mary Ellyn Minenko
Counsel